The Infrastructure Illusion 1

The Infrastructure Illusion

Dean Dela Paz

Posted at Aug 18 2021 02:10 AM

Last week, with the release of the second quarter (Q2) gross domestic product (GDP) growth of 11.8%, Rodrigo Duterte’s officials thought it an opportune time to cite accomplishments in infrastructure. Their narrative likewise cited the results of surveys perhaps as proof of its positive impact on communities. 

However, reality says otherwise. For one, there is the pandemic and the dire albeit unequivocal prognosis by global rating agencies who downgraded their outlook from stable to negative. There are also scientists who see us as the laggard among recovering economies. Finally there is the data. Undeniable indices reveal hunger, unemployment, poverty, and inequality at levels inconsistent with an 11.8% growth statistic.

Simply touting 11.8% is suspect. It represents the change in the second quarter where the previous quarter exhibited a contraction of 3.9%. Both officials and media who swallowed the message hook, line and sinker and then brag about it do not understand their economics. Or they are being characteristically disingenuous. 

The whole picture reveals the opposite. On a seasonally-adjusted quarter-on-quarter basis GDP had actually contracted. From a scant 0.7% growth in the first quarter, it shrank 1.3%.

They have conveniently disregarded the contraction of 9.5% on a year-to-date basis. The illusion of 11.8% growth shows the base effect phenomenon or "the tendency of a small absolute change from a low initial amount to be translated into a significant percentage change.’’ 

The attempt to establish a legacy from which the electorate is prodded to continue beyond 2022 relied on three messages couched within the illusory 11.8%.

One was that infrastructure serves as monuments to Duterte’s legacy as an industrious and prolific leader. The second was to reaffirm the electorate’s choice as president through surveys. The third, also indicated by a survey, was that the electorate desires Duterte’s continuity beyond 2022. 

The survey last July 2021 showed a 58% approval rating while 55% claimed they trust Duterte. For those who trust surveys, last October Duterte’s approval rating under a different pollster was 91%. Relating those to 2022, and effectively quarterbacking a notion where Duterte can legally run as vice president, a third pollster claims Duterte topped the list of vice presidential bets.

Because the processes and the calculus behind surveys protect from scrutiny and question, Palace officials pointed to what they believe are tangible accomplishments. Quoting them verbatim on the infrastructure initiative, they said, "We can always verify these. We can visit those piers, airports, and road projects that are now completed. They (detractors) can also check those 15,000 classroom(s) built through DepEd and DPWH. How is that a lie? 

They may also verify with DBM and NEDA our country’s infrastructure spending. From an average of 2% from previous administrations, now we have almost 5% of the GDP".

An economics sophomore would quickly realize an increase to 5% from 2% of GDP is illusory given GDP from previous administrations was much higher than under Duterte. More, when officials falsely equate Duterte’s infrastructure spending to GDP growth. GDP is denominated in pesos. Its contraction under Duterte was unprecedented. A larger percentage of an incredibly smaller pie does not mean more spending.

To establish infrastructure accomplishments against GDP in time for 2022 is illusional. Note the actual data. 

2021 is Duterte’s last full year in office. Given that in the last five years only 34% of the flagship infrastructure projects were implemented with 56% to be completed by 2022 means 22% would have to be completed in nine months. Unfortunately, his average completion rate during four non-Covid afflicted years was only 12%. Do the math. Twenty-two percent is an incredible leap of 83.33%. Add the fact that of the 34%, five were carried over from the Aquino administration.

Casting out illusions, Duterte’s infrastructure was 29% funded by the private sector, while 22% by the national budget. Thus as much as 49% are dependent on foreign debt. Given serial contractions that reduced our capacity to service debts plus negative credit ratings, foreign funding would be both increasingly difficult and expensive.

The illusion of the 11.8% statistic reflects Duterte’s legacy as an Ozymandian mirage – a "colossal wreck, boundless and bare.’’

(Dean de la Paz is a former investment banker and a managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance and Mathematics professor.) 

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