‘Free hand given by Duterte to govt economists seen boosting growth’

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In Photo: Philippine President Rodrigo Duterte shows a medal during his speech to troops during the 81st anniversary of the Armed Forces of the Philippines at Camp Aguinaldo military headquarters in Quezon City on December 21. While Mr. Duterte uses an iron hand in his war on drugs, the President’s nature to give his people a “free hand” in economic and financial affairs has allowed policymakers enough leeway to craft a high economic growth path for the Philippines.

THE iron hand of the President can be seen in his war on drugs. Blood stains on the streets, left as remnants of this war, are among the biggest changes that have come to neighborhoods and city centers. 

But on the economic front, the President’s nature to give his people a “free hand” in economic and financial affairs has allowed policy-makers enough leeway to craft a high economic growth path for the Philippines.

While the current administration cannot take all the credit for the economy’s high growth, the continued optimism on the Philippine economy is something this administration could claim.

Economic prospects

After growing 7.1 percent in the third quarter, multilateral agencies, such as the Asian Development Bank (ADB) and the World Bank, have raised their growth prospects for the country. 

The ADB upgraded the country’s full-year GDP forecast to 6.8 percent, from the estimate of 6.4 percent in September, and raised its 2017 outlook to 6.4 percent, from 6.2 percent.

The World Bank projected the Philippine economy to grow at 6.8 percent in 2016, compared with the 6.4-percent forecast released in October. It also revised upward  its growth projection for the Philippine economy in 2017 to 6.9 percent, compared with its October forecast of 6.2 percent. In 2018 the economy is expected to expand at 7 percent.

Economists believe, however, that the eco-nomic success of the country under the Duterte administration comes from the fact that seven out of the zero to 10-point agenda of the government came from the previous administrations. 

Ateneo School of Government Dean Ronald U. Mendoza told the BusinessMirror that the continuation of economic policies, such as maintaining macroeconomic stability, boosting infrastructure spending, reinvigorating the agricultural sector and strengthening the country’s social protection system, particularly the Conditional Cash-Transfer Program, is a good sign. 

Mendoza said this is unique to the current administration since the tendency of new administrations is to abandon all economic policies espoused by the previous administration to make its mark.

“That seven of the 10 economic policy priorities will seek to build stronger results from the previous six years is a good sign, since the evidence suggests that policy design is often not the problem in the Philippines—it’s policy execution and implementation all the way to the local government level that’s necessary,” Mendoza said. 

The optimistic projections of multilateral development banks and many local economists rest mainly on the recent economic policies set by the Duterte administration, particularly on infrastructure spending. 

University of Asia and the Pacific School of Economics Dean Cid Terosa said the Duterte administration’s plan to push greater infras-tructure spending and tax reform are key factors in raising and sustaining economic growth. 

Terosa said the goal of the current ad-ministration to increase infrastructure spending to 5 percent of GDP is unprecedented in the Philippines. 

Data from the Neda showed that the country’s infrastructure spending to GDP ratio has steadily increased to 5.1 percent in 2016, from 1.8 percent in 2011. Prior to 2016, the country’s highest spending for infrastructure projects reached only 4 percent of GDP. 

This, despite the setting a target to raise infrastructure spending to GDP to 5 percent under the Arroyo and Aquino administrations. The goals were set based on the recommendation of local economists and multilateral development banks who said the Philippines was already lagging behind its Asean neighbors in terms of infrastructure spending. “I believe these policies should continue because they are unprecedented. The country has never spent at least 5 percent of GDP on infrastructure and has not comprehensively planned tax reforms that include lowering personal- and corporate-income taxes,” Terosa said.

‘No micromanager’

The free hand given by the President has also affected the way agencies are being run. Socioeconomic Planning Secretary and National Economic and Development Authority (Neda) Secretary Ernesto M. Pernia is thankful that the President is not a micromanager. Pernia said micromanaging the economy sustaining over 100 million Filipinos would result in slow progress in the medium term. 

Pernia said the changes in the Neda, an oversight agency that is tasked to evaluate various public projects, as well as advice the President on economic policy and planning, is a testament to the “positive impact” of the President on the economy. 

“I think things are moving faster in the Neda and it’s because the President is not a micromanager,” Pernia said. “I think there’s been a quantum change in getting projects to the Neda Board.”

Pernia said the first Neda Board meeting lasted only 15 minutes, while the second meeting was only an hour and 50 minutes long. The first Neda Board meeting was chaired by Pernia because the President was in a meeting, while the second meeting was attended by Duterte. The Neda secretary said once the presentations were made, Duterte only asked questions pertaining to economic rates of return for certain projects that were being discussed. 

Pernia said once these questions were answered to the President’s satisfaction, the projects were already approved by the Neda Board. In sum, the Neda Board approved a total of P392.93 billion worth of new projects. 

This estimate does not include Operation and Maintenance (O&M) contracts for five public-private partnership (PPP) projects, which amount to P108.18 billion. These five PPP airport O&Ms are for the Iloilo, Bacolod, Laguindingan, Davao and New
Bohol (Panglao) Airports.

Neda Undersecretary Rolando G. Tungpalan told the BusinessMirror that faster project approval and implementation is a change that is needed particularly in project approvals. Tungpalan said under the Aquino administration, only around 30 percent of the projects that were evaluated and approved were implemented and completed. 

This trend was also seen in the number of PPP projects that were completed. Of the 12 projects that were awarded, only three were completed—Daang Hari-Slex Link Road (Muntinlupa-Cavite Expressway) Project; PPP for School Infrastructure Project (PSIP) Phase I; and the Automatic Fare Collection System (AFCS).
The Naia Expressway (Phase II) Project was completed under the current administration.

“During the previous administration, we had a lot of projects approved but it never got off the ground. [I estimate] only 30 percent of projects were implemented,” Tungpalan said. “[In terms of its effect on underspending], 2014 was the most alarming. Maybe it was a confluence of events. No. 1, the number of approved projects [went] beyond the capacity
of agencies to take on, and then second, agencies did not implement projects.”

The Aquino administration, through the Neda Board, approved a total of 115 projects worth P1.64 trillion in six years. Based on Neda data obtained by the BusinessMirror, the Aquino administration’s project approvals were P3 billion more than those made in the last six years of the Arroyo administration. 

The largest project approved by the Neda Board was the P170.7-billion-worth North-South Railway Project (NSRP)-South Line, while the smallest was the P231.21-million Local Government Units Investment Program Supplement 3 project. 

Work plan for 2017

While the current administration currently enjoys the approval of economists in terms of economic policies, there is much work to be done. 

Mendoza said some of the “key reform battles in 2017” for the Duterte administration include overhauling the tax system, including corporate- and income-tax reforms, as well as restoring the “progressivity and fairness” of the tax system, particularly for the middle class. 

One of the key reform issues in tax progressivity and fairness is the removal of “bracket creep” in the personal-income tax (PIT) system. Since the PIT has not been updated since 199, this resulted in what is called “bracket creep”, where low-income taxpayers “hurt more” than their high-income counterparts.

Bracket creep, Philippine Institute for Development Studies (PIDS) Senior Research Fellow Rosario G. Manasan earlier explained, has occurred because of the “nonindexation”
to inflation of PIT brackets. This means that the coverage of each tax bracket does not take into consideration the current value of the peso.

Mendoza also said that, apart from tax reform, the Duterte administration will be faced with the expiration of the quantitative restriction (QR) on rice in the middle of 2017. With majority of the economic managers keen on the nonextension of the QR, Mendoza said this should prompt for a better food-security strategy since this could be the “most important poverty-reducing policy of the Duterte administration.”

Terosa added that, given the importance accorded by the government for socioeconomic policies, particularly those that aim to boost rural, agricultural and industrial productivity, these must be implemented aggressively. He also said there is a need to improve transparency, accountability and control of corruption.  “A direct and incisive war on poverty, income inequality and unemployment has to outshine the war on drugs in the near future,” Terosa said. 

Pernia earlier said the significant increase in food prices, particularly rice, pushed the poverty line up by almost 30 percent over the last six years. The rapid pace of population growth, with additional 10 million Filipinos in just six years, has also made poverty reduction a steep challenge.

Apart from these, Pernia said the Neda is keen on continuing the change it has introduced, particularly the Three-Year Rolling Infrastructure Program (TRIP); Public Investment Program Online System (Pipol); AidData Project; and streamline Investment Coordination Committee (ICC) review procedures.

Pernia said the TRIP is a consolidated list of all infrastructure programs of the government, identifying immediate priorities to be undertaken in three-year periods. A joint project with the Department of Budget and Management, it will also assure that once an infrastructure program has been planned and rolled out, it will continue to receive funding from the government.

Pipol, meanwhile, is an online database for government projects. Included in this database are comprehensive details of government projects, plus their status updates. Pernia said that in September, United States Agency for International Development  officially turned over to the Neda the AidData Project, a Web-based mapping tool that monitors the distribution and impact of donor assistance to government programs and projects in the Philippines.

With regard to efforts to streamline ICC review procedures, minor changes in scope, design, cost and extension of implementation or grant validity of projects will now be delegated to the level of the ICC, the Department of Finance and the Neda Secretariat, as applicable, based on existing laws, rules and regulations.

“I don’t think we can move faster than [this], otherwise, we’re going to suffer health-wise. We [now] have a long laundry list of projects to present to [funders like] China,” Pernia said.

In terms of projects and project approvals, the Neda intends to play a more proactive role next year and in the coming years. Tungpalan said some of the major changes that they will institute is for Neda to do milestone monitoring of projects. 

Tungpalan said previously, projects are monitored on a period basis. But this usually results in unforeseen delays and problems that cost the Filipino taxpayer. 

He said under milestone monitoring, projects will be monitored according to the targets and accomplishment dates they have set. This will help fast-track projects and help prevent future delays and problems. 

Tungpalan said the goal of the Neda now is to have a special focus on results and mutual accountability. He said there is a need to break away from a compartmentalized approach to project planning, evaluation and monitoring. 

Another key reform that the Neda will undertake starting next year is to also monitor the cost overruns incurred by PPP projects. Under the current set up, Neda only monitors big-ticket projects funded by official development assistance.

Tungpalan said with the availability of new technology, such as drones and satellite maps, the government can better monitor projects. 

“Our mind-set is to hit the ground running, do things 24/7 [and] have the sense of urgency [since we lost] so many years, six years,” Tungpalan said.

A little over five months is not enough time to say that an administration has done well or not, especially if the President’s campaign promise of bringing change will be the barometer. But what is certain is that, as the year draws to a close, the Duterte adminis-
tration is facing major headwinds. 

Efforts to reform the system, bring life back to sectors long neglected, such as agriculture, and order in infrastructure will be among the most challenging but need to urgently addressed. After all, livelihoods and lives are on the line.  Lifting millions of Filipinos from poverty remains to be the main goal. The only question now is how to move forward.

Image Credits: AP

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A professional journalist for over a decade, Cai U. Ordinario currently writes macroeconomic and urban development stories for BusinessMirror. She has received awards for excellence in reporting on the macroeconomy and statistics. She was also cited for her contribution to statics reporting by the National Statistical Coordination Board (now the Philippine Statistics Authority). She is a recipient of journalism fellowships including the Jefferson Fellowship from the Honolulu-based East West Center. She is currently completing her Masters degree in Communication at the University of the Philippines. She graduated with a degree of Bachelor of Arts Major in Journalism from the University of Santo Tomas.