What the Duterte gov't can pursue (without killing anyone)

Jose M. Galang

Posted at Jun 06 2016 11:43 PM | Updated as of Jun 06 2016 11:48 PM

One task that the incoming Duterte administration can focus on and score early results without having to kill anyone — a slogan that has become fashionable for the chief executive-in-waiting and his lieutenants — is preserving the current economic growth and propelling it forward.

Indicators show that the economic growth of the past few years now translates into improved living standards for an increasing number of Filipinos in certain regions of the archipelago. There is also now a growing proportion of the populace that looks forward to better times on account of strong economic fundamentals that the outgoing Aquino government will leave behind.

The recent economic expansion also has led to more new jobs, although still not enough to accommodate the country’s teeming jobseekers. A large number of Filipinos work abroad, sending home part of their earnings. These remittances contribute in large part to the nation’s improved economic performance.

There is no guarantee, of course, that this growth pattern will be permanent (there is a certain degree of certainty about business cycles after all). For instance, without appropriate and prompt measures to offset the debilitating impact of the recent El Niño dry weather, the struggling agriculture sector could be a major drag on overall economic growth.

The agriculture sector, which continues to account for the biggest number of workers in the country, may also be facing severe rains that a La Niña episode is expected to dump on farms late this year.

How will people react if these extreme weather aberrations lead to a rice supply shortage? Some analysts are in fact quietly harboring fears that currently low buffer stocks and a tight world market—most rice-producing nations are also affected by the recent El Niño—could lead to a mad scramble for the staple commodity.

TREMORS ABROAD

The incoming government should also keep an eye on economic developments in other countries, particularly those which the Philippines conducts the bulk of its trade with and sources investments. There are tremors in those economies that could also hurt certain activities here.

Given that the recent buoyancy in the Philippine economy was driven to a large extent by consumption—people spent huge sums on goods and services—there is need to fortify that growth with investments in local industries, preferably long-term investments that will make the overall economic expansion more durable.

It’s easy to be misled by the parade of prospective investors during the early months of the new administration. We’ve all seen that pattern before: most of these prospective investors will mainly be looking. They will talk to local business groups and then go back home—and wait. There will be a myriad of signals and concrete actions that they will watch for before they make a move to come in with their money. Investors are easily discouraged by excessive violence, including extrajudicial killings.

Still, the incoming Duterte administration’s chosen economic managers have thus far made a few clear signs of what they intend to give priority to and what measures they might implement to achieve certain goals. The clearest of such goals are embodied in the Eight-Point Economic Agenda unveiled just days after the May 9 elections. 

READ: Duterte economic agenda shuns socialism
 

Since then, Finance Secretary-designate Carlos Dominguez has added a few more details on his menu of programs and initiatives aimed at augmenting workers’ earnings through tweaks in the tax rates, as well as raising state revenues that will support infrastructure spending equivalent to a minimum of 5 percent of national economic output (as measured by the GDP).

READ: Dominguez: Growth target too high, needs to be more realistic
 

Benjamin Diokno, who will be returning to the Department of Budget, has also revealed a few tax strategies that are intended to yield more efficient collections. For instance, both Dominguez and Diokno seem to be in agreement on a return to ad valorem taxes on fuel products based on the goods’ selling prices, a shift from the current method of computing taxes based on volume sold.

It remains to be seen whether a switch to ad valorem taxation would have any impact of actual consumption practices of motorists and transport firms. If the tax based on selling prices succeeds in distorting fuel purchases, such an outcome might also impact on productivity performance among workers and industries.

Industries that will shoulder an ad valorem tax are also expected to argue for its computation based on a fair market value for the commodity, which could be more cumbersome compared to the relative simplicity of computing a tax based on the volume transacted.

The incoming administration also inherits a budget program that provides sufficient fiscal space to ramp up spending and even incur a higher rate of deficit relative to GDP. This strategy should enable the next government to spend more on infrastructure projects that could lead to livelier economic activities in beneficiary localities.

Dispersing economic activity to more areas outside Metro Manila is one of the oft-repeated goals of the incoming government. We have seen this happening in some provinces where the quality of governance exercised by the local officials has succeeded in attracting investors. If corruption can be contained in more provinces and regions, this nascent movement of investment to the countryside could be spurred.

Emmanuel Piñol, the incoming head at the Department of Agriculture, has been reported as saying that one of his main objectives will be to promote the production of a crop that will be most suitable for a given locality. Perhaps the incoming agriculture chief should review the experience of provinces that previously placed their bets on a single-crop economy.

The key challenge for the regions is that they continue to be stymied by poor net terms of trade with the rest of the archipelago, particularly with the urban centers where the manufacturing industries are located. Economists have long proposed the dispersal of production facilities in the countryside which can process locally grown crops or natural resources and market finished goods that could fetch higher prices.

It could be tempting for the incoming administration and its economic managers to aim for more tantalizing macroeconomic performance results. We hope that they will not lose sight of the reasons that swept them to power—the millions of Filipinos longing for jobs and a fairer share of the national wealth.

The new officials must clearly communicate to the people how these aspirations can be met by the grand plans and programs that will be announced in the coming weeks.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.