Analysis
Growth Amid Fiscal Crisis

Can there be growth during a fiscal crisis? The answer is yes, based on the third-quarter 2004 data on the gross national product and gross domestic product of the Philippines. Not surprisingly, the government is euphoric over this development despite increases in the prices of essential goods and services like oil, water and power. But what is the implication of the much-ballyhooed economic growth?

By DANILO ARAÑA ARAO
Bulatlat

Last August 23, President Gloria Macapagal-Arroyo admitted that the Philippines was in a fiscal crisis, as economists warned of an Argentinian-type debt default within the next two or three years. More than two months later, Macapagal-Arroyo said that the country has already weathered it and that things are looking good for the economy.

If the 2004 third quarter figures on the country’s gross national product (GNP) and gross domestic product (GDP) were any indication, the President’s pronouncement is not only true: There was even growth during the time of fiscal crisis!

Based on data from the National Statistical Coordination Board (NSCB), the GNP and GDP grew by 6.1 percent and 6.3 percent, respectively. (See Table) The fiscal crisis – acknowledged by the President herself in August – fell within the third quarter of this year.

During the same period in 2003, GNP and GDP posted growth rates of 6.5 percent and 4.8 percent, respectively.

On the surface, these data show that growth has remarkably increased in the local output (GDP). Does this mean that economic sectors have become more vibrant? Which sectors, if at all, contributed to economic growth?

Given that statistics can be used to either reflect or hide social reality, there is a need to look at the truth behind the figures to know how these relate to the plight of the people, particularly those who are marginalized.

Agriculture, fishery and forestry

Agriculture, fishery and forestry accounted for 18 percent of the total GDP as it posted a growth rate of 7.9 percent. Corn and palay posted the highest growth rates of 34.3 percent and 17.9 percent, respectively. Sugarcane and livestock, however, had negative growth rates of 3.4 percent and 2.5 percent, respectively.

According to the NSCB, “the continued expansion in harvest area supported by increased productivity (of palay was) brought about by the extensive use of hybrid and certified seeds.”

In the past, the International Rice Research Institute (IRRI) stressed, “The cost of hybrid seed, being 10 to 15 times higher than that of ordinary seeds of rice, discourages poor farmers from taking advantage of the hybrid technology.”

In a 2001 paper titled “Hybrid Rice in Asia: An Unfolding Threat,” various peasant organizations and academicians in Asia rejected the “stubborn equation of linking hybrid rice with progress.” It was even stressed that hybrid rice requires the use of expensive chemical fertilizers and pesticides and that such seeds cannot be reused. This means that farmers should constantly go to the companies selling hybrid rice every planting season.

In other words, those who benefited from the growth in palay – an important agricultural product given that rice is the country’s staple food – are only the rich farmers and landlords and the patent holders of hybrid rice.

Industry

Industry, on the other hand, comprised 34.7 percent of the total GDP, with an overall growth rate of 4.5 percent. Construction had the biggest growth rate of 8.6 percent, followed by manufacturing at 4.7 percent.

For growth to be meaningful to poor people, it is necessary for manufacturing to have a sustained double-digit growth rate. As it is, manufacturing only had a moderate improvement from its 4.1 percent growth in the third quarter in 2003.

Analyzing the performance of the Industry sector through the years, one notices the unpredictable nature of subsectors like mining and quarrying which had a negative growth rate of 4.8 percent in the third quarter of 2004 but actually posted a remarkable growth rate of 21.0 percent during the first quarter of this year.

Indeed, the growth in industry remains speculative. It is also short-term given the nature of construction where projects are generally seasonal. Just like mining and quarrying, one notices remarkable increases or decreases in its growth rate every quarter.

Services

For a country that is supposed to be industrial, it is ironic that services accounted for 47.3 percent of total GDP. Overall, it posted a growth rate of 7.1 percent.

Communications still led this industry’s growth at 16.4 percent, a substantial improvement from 11.6 percent during the third quarter of 2003. The NSCB admitted that this was mainly due to the profits generated by business related to cellular phones. “Mobile telephone service providers continued to post expansions and provide attractive and affordable innovations to the mass market.”

As a result of the administration’s austerity measures, government services posted the least growth at 2.4 percent from 4.8 percent during the same period last year. According to the NSCB, “growth during the period was attributed to the hiring of additional policemen and teachers.”

Net Factor Income from Abroad

The NSCB said that the Net Factor Income from Abroad (NFIA) which includes remittances of overseas Filipino workers (OFWs) grew by 3.3 percent. This was described as a “modest increase” which affected the slight decrease in the GNP growth rate.

It may be recalled that from January to December 2003, OFW remittances amounted to $7.6 billion. For the first seven months of 2004, this already reached $4.75 billion. Even the Bangko Sentral ng Pilipinas acknowledged that the increase in remittances through the years “reflected in part the increase in the number of Filipinos leaving to work abroad.” There are now around eight million Filipinos working abroad.

The bottomline

It would do well to analyze the figures behind the growth rates of the GNP and GDP to know that the current economic growth is speculative and short-term. One may even say that it is “cellphone-driven” based on services sector data.

The recurring budget deficit still remains a problem. During the first nine months of 2004, the deficit has reached P141.9 billion as expenses were pegged at P658.3 billion and revenues only amounted to P516.4 billion. For the first half of the year, the country’s domestic and foreign debt amounted to P3.5 trillion.

Indeed, the economic woes are still there and the GNP and GDP figures only blur these realities.

Is there growth during a fiscal crisis? The data show that there is. However, as in the past, this does not reflect the actual state of the Philippine economy. Bulatlat  

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