Benjie Oliveros | The Real Score on the Economy

By BENJIE OLIVEROS
Analysis
Bulatlat

MANILA — The Arroyo government can no longer hide the truth: the crisis-ridden economy is on a downward spin. President Gloria Macapagal-Arroyo and her economic managers have been boasting that their economic policies have shielded the country from the effects of the global economic crisis. Even as the administration projected a lowering of the growth rate to between 0.8 to 1.8 percent, it still wanted to make the people believe that the Philippines would escape a recession. It has been consistently contradicting the projections and analysis of its erstwhile gods — the International Monetary Fund, the World Bank, and the Asian Development Bank.

The World Bank recently came out with its projection that the Philippine economy would contract by 2.9 percent this year. It went on to say that there was nothing extraordinary in the Philippines that would enable it to escape the crisis gripping the world economy. The World Bank based its analysis on a projected fall in the inflow of foreign capital to underdeveloped countries such as the Philippines. Foreign investments to these countries, which fell to $707 billion last year from $1.2 trillion in 2007, would be further slashed, according to World Bank estimates, to $363 billion this year. Anemic investments, it said, would drag down overall economic growth.

If the World Bank based its analysis on the basis of a projected fall in foreign investments, things could even be far worse. Already, all economic indicators are falling.

During the first quarter of 2009 almost all sectors of the economy contracted: agriculture by one percent, industry sank by 6.6 percent — the lowest in 20 years — and the services sector posted no growth. Fixed capital formation dived to negative 5.7 percent; investments in durable equipment fell to negative 17.9 percent, the highest decline registered since the fourth quarter of 1998. That was the time when the country was reeling from the effects of the 1997 financial crisis that hit Southeast Asia. The fall in these two categories indicates that a further decline in production can be expected.

Total exports contracted further to negative 18.2 percent and imports to negative 19.2 percent. The seeming good thing about the current trade balance is that the trade deficit went down to P2.3 billion during the first quarter of 2009 compared to P28.3 billion during the same period last year. However, the country is in a chronic trade deficit anyway because it exports low-value added semi-manufactures, semi-processed raw materials and minerals while it imports capital equipment, intermediate goods, and finished products. To produce for export, the country has to import. Thus, the lowering of the trade deficit only means a slackening in production for export.

Consumer spending is at 0.8 percent, very low compared to the 5.1 percent last year. With the worsening of the unemployment situation due to the slackening in production, this would fall further.

Growths in the Gross Domestic Product (GDP) and Gross National Product (GNP) never translated into an improvement in the unemployment and poverty situation. GDP growth in 2007 at 7.1 percent is supposedly the highest in 30 years. And yet it did not make a dent on the unemployment and poverty situation. The unemployment rate in 2007 was 10.8 percent — using the unadjusted definition that did not remove 1.4 million in the labor force who were supposedly not looking for work in the short term — affecting 4.1 million jobless Filipinos. In 2007, a mere 863,000 jobs were created, of which 142,00 was domestic household help, 116,000 in transport, storage and communications, 111,000 jobs in wholesale and retail trade, 104,000 in real estate, renting, and business activities, and 103,000 in construction.

If a growth rate of 7.1 percent hardly had an effect on the people’s lives, a contraction in the economy would certainly make life more difficult. In truth, the economy has been in crisis all along and the current contraction would only make matters worse for the people. According to Ibon Foundation, if the economy does not pick up in the next three quarters of the year, the country will be facing its worst decline since the 1984-85 period, when the people’s hardships pushed them to intensify the moves to bring down the Marcos dictatorship.

The fact that the world economic and financial crisis did not cause a sudden, dramatic plunge in the Philippine economy does not mean that the country is immune to the crisis. It only means that the country did not grow as much as the others when the world economy was supposedly on the rise. The fact that the exposure of the country to toxic assets was minimal is not due to the prudent practices of local banks and businesses. It is just that there is no surplus capital circulating in the economy that could have been used to purchase financial assets when its prices were skyrocketing. The Philippines is so dependent on foreign capital and investments because the domestic economy is not able to generate enough capital.