Economic growth not creating jobs, excluding the poor

Aquino is the worst performing President in terms of job creation. Adult unemployment under him, using SWS surveys, is averaging 26.8% compared to Arroyo’s 19.6%; Estrada’s 9.2%; and Ramos’s 10.3% (Photo from BusinessWorld/AFP)

First published by The Philippine Online Chronicles

For the Aquino administration, the past week has been all good news. First, the impeachment it initiated against Renato Corona ended in its favor, with the Senate convicting 20-3 the former Chief Justice. Second, first quarter data showed that the economy grew by 6.4%, which officials said is the second highest in Asia behind China.

As expected, Malacañang was quick to squeeze brownie points from the two developments. In a speech, President Benigno Aquino III hailed the conviction as proof that change can be achieved under his administration. The economic growth, meanwhile, was pledged to be more “inclusive” and will benefit everyone.

Exaggerated gains

In both cases, however, it appears that Aquino is exaggerating the gains for the people. The ouster of Corona, while widely seen as positive for anti-corruption efforts, is also tainted by the political and economic agenda of the Aquino administration. Valid concerns on the Supreme Court (SC) undermining its earlier decision on Hacienda Luisita, for instance, are being raised. A subservient Judiciary has also put the ruling Liberal Party (LP) in a better position to consolidate and perpetuate its reign.

The same overstatement of gains for common folks is true with regards to the reported expansion in the economy. Trends on joblessness, poverty and hunger don’t support government’s claim of robust and inclusive growth.

Above expectations

The National Statistical Coordination Board (NSCB) called the 6.4% growth of the gross domestic product (GDP) in the first quarter of the year “above expectations”. It was higher than the 5-6% full-year target of the National Economic and Development Authority (Neda) and the 4.8% forecast of most analysts. Even more remarkable was that the growth was attained amid a deteriorating global economy. And as mentioned, it’s number two in the region after China.

This, said the NSCB, put the economy to a “rousing start” after a lackluster performance in 2011 when GDP grew by 4.9 percent. Main growth drivers during the quarter were the services sector (8.5%) and industry (4.9%) while agriculture posted anemic growth (1%). On the expenditure side, growth was pushed by the 24% increase in government spending.

What jobs?

Economic growth is often dismissed as meaningless due to lack of tangible gains for the people, especially the poor. Not this latest growth, if we were to believe government claims. New Neda head Arsenio Balisacan said that the quarterly growth produced some 1.1 million jobs, which bodes well for the Aquino administration’s efforts to cut poverty.

It was not clear where Balisacan got his 1.1 million jobs created by the 6.3% GDP growth. The latest jobs data from the National Statistics Office (NSO) refer to the January 2012 survey, which showed 37.39 million employed workers. That’s 1.1 million higher than the January 2011 survey of 36.29 million workers.

Misleading the public

If the Neda chief was referring to these NSO data, then he is misleading the public. A comparison of the January surveys does not capture the number of jobs created in the first quarter. Comparing the number of workers between January and April this year (the next survey round) would have been more appropriate.

Further, the number of jobs actually fell by 1.16 million between the January and October 2011 surveys of the NSO. This means that the first quarter growth should have produced at least 2 million additional jobs for Balisacan’s claim of 1 million jobs created to be true.

Worst performing President

Truth is, like in the past, the economic expansion during the quarter failed to generate jobs. In fact, the period even saw the number of jobless balloon by more than 4 million, based on surveys done by the Social Weather Stations (SWS). In its March 2012 survey, the SWS reported that a record high 34.4% were jobless, equivalent to about 13.8 million workers. In its December 2011 survey, unemployment was pegged at 24% or about 9.7 million workers.

Aquino is the worst performing President in terms of job creation. Adult unemployment under him, using SWS surveys, is averaging 26.8% compared to Arroyo’s 19.6%; Estrada’s 9.2%; and Ramos’s 10.3 percent.

Miserable living

Because growth is not creating long-term and sustainable livelihood opportunities, living conditions have continued to deteriorate. Again using SWS surveys, poverty worsened to 55% in March from 45% in December. That translates to around 2 million families (from 9.1 million to 11.1 million) added to the number of poor during the quarter when the economy was supposedly growing by 6.4 percent.

Poverty in the country has been chronic and even the drastically expanded conditional cash transfer (CCT) program under Aquino is not mitigating it. On the contrary, poverty has been alarmingly on an uptrend in recent SWS surveys. Before Aquino took over, poverty was pegged at 43% and has since steadily climbed. It breached the 50% mark in four of the last eight quarters and is now at its highest since September 2008.

Hunger also rose to an all-time high 23.8% of families in the first quarter of the year. The number of families that experienced involuntary hunger reached 4.8 million in March from December’s 4.5 million (22.5%). The average incidence of hunger under Aquino (20.9%) is more than double that of the level under Estrada (10%) and significantly higher than Arroyo (14.1%).

Excluding the poor

Inclusive growth is the favorite mantra of Aquino when talking about his plans for the economy, such as in his speech during the Asian Development Bank (ADB) meeting in Manila last month. It is the central theme of his Philippine Development Plan (PDP) 2011-2016. But the policies he promotes in the PDP, under the tutelage of foreign creditors like the ADB, are the same policies that have long been excluding the poor.

His centerpiece program, the public-private partnership (PPP), for instance, is harming the poor twice. First, physically through brutal demolition to accommodate PPP projects. Second, economically through prohibitive rates in toll, power, fares, water, hospital fees, tuition and others.

Also, because the path is towards privatization, Aquino is spending less on social services and more on debt servicing so government can borrow more to fund its PPP initiatives. Credit rating agencies like Aquino more than Arroyo not because of his supposed anti-corruption reforms but because he is a better payor. Since taking over, Aquino has been paying creditors P60.37 billion a month compared to Arroyo’s P48.18 billion.

Growth for the elite

While excluding the poor, Aquino’s programs greatly benefit the rich including his relatives and cronies such as Danding Cojuangco, Manny Pangilinan, the Lopezes, Ayalas, Aboitizes and others who are expanding their business interests by bagging large PPP contracts. These elite families and their foreign partners also rake profits from the economy under Aquino’s policies of low wages, contractualization, liberalization and deregulation.

Last year, these billionaires saw their wealth expand tremendously even when the economy slowed down. The 40 richest Filipinos posted a collective $34 billion in net worth in 2011, more than $11 billion bigger than 2010’s $22.8 billion.

The economy did grow by 6.4% but not for everyone. #

PH economy in 2011 (Part 2): The elusive “inclusive growth”

Activists mark today's (Jan. 6) Three Kings feast by reminding the Aquino administration to address the pressing economic issues facing the people and not only squeeze political brownie points from the Corona impeachment trial

First published by The Philippine Online Chronicles

(Read part 1 here)

Government’s so-called “inclusive growth” outlined in the Philippine Development Plan (PDP) 2011-2016 rests on a target of 7 to 8% annual expansion in the gross domestic product (GDP). But due to various factors, GDP growth for 2011 – the first full year of the Aquino administration – is hoped to grow, at best, by 5.5%. This is the official forecast of the interagency Development Budget Coordination Committee (DBCC), an optimism that is not shared by most analysts and institutions. Both the International Monetary Fund (IMF) and the World Bank, for instance, project a moderate growth of just 3.7% in 2011. (Read here and here.)

Indeed, the promised inclusive growth of President Benigno S. Aquino III remains elusive as ever. Unlike the common criticism, however, the poor GDP showing in 2011 is not simply the result of government underspending. Rather, the slowdown actually highlights the structural defects of the economy that has since time immemorial depended too much on the volatile world economy. Further, beyond the quantitative failure to meet the target for inclusive growth are the far more important qualitative issues hampering long-term development and poverty alleviation in the country.

Slow GDP growth

The National Statistical Coordination Board (NSCB) reported in November that the GDP for the third quarter of 2011 grew by just 3.2 percent. While slightly higher than the recorded 3.1% in the previous quarter, the latest data continued the downward trend in the country’s economic performance. Since peaking at 8.9% in the second quarter of 2010, GDP growth has progressively decelerated. Also, the average GDP growth through the three quarters of 2011 is pegged at 3.6%, way below the 8.2% it posted during the same period in 2010. (See Chart)

2010, of course, was an election year. As such, it artificially boosted consumption and production due to election-related spending (including the cost of greasing the contending politicians’ fraud machineries). There was also the base effect of the low growth in 2009 due to the global recession. However, the huge drop of 4.6 percentage points in GDP growth last year was equally compounded by the continuing and worsening crisis facing the world economy.

Export-oriented domestic production is thus vulnerable. Philippine exports from January to October 2011 declined by 4.3% compared to the same period in 2010, according to the National Statistics Office (NSO). Electronic products, which comprised more than 50% of the total value of exports, fell by 21.9 percent. Almost 74.5% of electronic exports were semiconductors, which contracted by 24.9 percent.

Falling demand in the country’s major foreign markets explain the decline. Some 45.3% of Philippine exports in 2011 went to Japan, the US and Europe, which all confronted a substantial slowdown in their economy this year. The country’s total exports to the European Union (EU) – currently dealing with a grave sovereign debt crisis – fell by 19.5% while exports to the US fell by 6.9 percent. These significant declines offset the 15.5% increase in exports to Japan. Meanwhile, exports to its Southeast Asian neighbors, which accounted for 18.4% of total exports, declined by a huge 23.3% this year. Many of these exports actually end up in Japan, the US and Europe, accounting for the big drop.

Unemployment

But despite the slowdown, government claims that economic growth is becoming more inclusive as unemployment supposedly eased last year. The October 2011 round of the Labor Force Survey (LFS) of the NSO reported that the jobless rate declined to 6.4% from 7.1% in the same period last year. For the whole year, official unemployment rate averaged 7%, which was lower than 2010’s 7.4 percent.

Official employment data, like the poverty data, are unfortunately not a reliable yardstick to measure the extent of joblessness. The NSO, for instance, does not count as unemployed those who are seeking work but for one reason or another (e.g. school or family obligations, illness, etc.) will be unavailable for work despite an opportunity within two weeks after the survey.

Despite this defect in determining the volume of jobless, trends in the quality of employment in official statistics still could not conceal a deteriorating jobs situation. Underemployment worsened to 19.3% last year, according to NSO data, from 2010’s 18.8% or an increase of 525,000 workers. Underemployed refers to all employed persons who want to have additional hours of work in their present job or an extra job, or to have a new job with longer working hours.

Still using the NSO data, between 2010 and 2011, the share of productive sectors to total employment declined. Industrial jobs fell from 15% to 14.8%, with manufacturing falling from 8.4% to 8.3 percent. Similarly, the share of agricultural jobs declined from 33.2% to 33 percent. In contrast, the share of services to total employment increased from 51.8% in 2010 to 52.2% this year. While these annual changes may seem small, they continue the long-term trend of declining employment in the productive sectors.

Also, the services sector accounted for the largest number of workers permanently displaced and firms resorting to permanent closure/retrenchment due to economic reasons last year. January to June 2011 data from the Bureau of Labor and Employment Statistics (BLES) show that out of 14,598 workers displaced due to economic reasons, 8,697 (59.6%) were service workers. In addition, out of the 968 firms that closed shop or retrenched workers, an overwhelming 729 establishments (75.3%) were from the service sector. In 2010, services accounted for 67.9% of workers displaced and 76.5% of firms resorting to permanent closure/retrenchment due to economic reasons. These numbers highlight the unsustainability of job creation that has been increasingly relying on the less productive service sector.

Meanwhile, a more realistic count of unemployed is provided by the Social Weather Stations (SWS). Unemployment rate this decade, based on compiled SWS survey results, has averaged by almost 20% a year from just 10% in the 1990s. In its last survey on adult unemployment in March 2011, the SWS reported that 27.2% or around 11.3 million workers are jobless.

Labor export

As always, labor export has filled in a portion of the gap in domestic jobs available and labor supply due to lack of a long-term and effective government program. Deployment of overseas Filipino workers (OFWs) from January to October 2011 increased to 1.35 million from 1.28 million during the same period in 2010. Furthermore, OFW remittances have also become a significant contributor to domestic consumption, propping up an otherwise cash-strapped consumer market. From January to October last year, OFW remittances reached $16.53 billion, which was 6.9% higher than 2010’s similar period.

But again, because of the deteriorating crisis and worsening overall global economic condition, labor export is becoming less and less reliable as a source of remittances and even jobs. Compiled data from the from the Philippine Overseas Employment Administration (POEA) show that from an annual deployment growth of 6.9% in the 1990s, the figures have slowed down to 5.6% in the 2000s, and to about 4.3% in the past two years. OFW remittances are slowing down even more sharply, based on data from the Bangko Sentral ng Pilipinas (BSP). From a robust 23.2% annual growth in the 1990s, it has declined to 10.3% in the 2000s, and to just about 7.6% in the last two years.

The still increasing, albeit slower, deployment of OFWs amid the declining economic opportunities abroad means even more intense exploitation and oppression for desperate migrant workers in the form of depressed wages, harsher working conditions and other forms of abuse. According to Migrante International, more than 120 OFWs are in death row while some 7,000 are in jail in various countries worldwide. Every day, as high as 10 migrant workers are being sent back home dead due to various causes. Crisis and poverty are forcing more and more migrant workers to illegal activities including drug trafficking that led to the execution of four Filipinos in China last year alone. The sorry plight of migrant workers is aggravated by government neglect like budget cuts and missing funds for OFW welfare. #

To be concluded (read here)

A scintillating 7.9 percent GDP growth?

Election-related spending acted as some sort of “stimulus” to an otherwise anemic economic growth in the first half of the year (Photo from 2010presidentiables.wordpress.com)

Maybe the government thought that after the terribly mishandled Quirino Grandstand hostage crisis, Filipinos could certainly make use of some good news. Thus, the National Statistical Coordination Board’s (NSCB) declaration today (Aug 26) of a scintillating gross domestic product (GDP) growth of 7.9 percent. The country just posted back-to-back quarterly growth of more than 7 percent, the NSCB said, after the GDP expanded by 7.3 percent in the first quarter.

But the truth is nothing in the supposedly scintillating growth is scintillating. Note, for instance, that the year-on-year GDP, which at constant 1985 prices is valued at P383.91 billion, is being compared to a very low base that barely grew from its previous level, and thus will naturally result in a high growth rate. In second quarter 2009, GDP was valued at P355.69 billion which only grew by 1.2 percent compared to 2008 (P351.57 billion) as the economy started to feel the impact of the global crisis. So if you remove this “base effect” and compare the 2010 second quarter GDP to the same period in 2008, and similarly compare 2008 to 2006 GDP figures (P313.11 billion), economic growth has in fact decelerated by more than three percentage points.

Source: National Statistical Coordination Board

Even so, it is still a “major, major” recovery from the previous year’s slowdown, the NSCB may argue. But what are the circumstances behind the supposedly scintillating recovery? Was the spurt caused by sustainable and long-term growth drivers and by a fundamental shift in macroeconomic direction? Were the gaping holes of economic vulnerabilities that expose the Philippines to the harsh impact of the still raging global crunch finally plugged by correct policies?

Election-related spending

The second quarter result is actually less anticipated than how the GDP will fare starting in the third quarter which covers the start of the new government. For one, the relatively high economic growth under the old Arroyo administration has long been exposed as hollow and meaningless in terms of addressing poverty and job scarcity. Aquino’s economic managers described the economic growth of the previous years as “poverty-inducing, narrow-based, and jobless growth” and the latest GDP figures are no exception.

Growth in the last nine years stood on shaky ground as macroeconomic policies did not address structural issues long beleaguering the economy. The GDP has instead relied on unsustainable growth drivers such as remittances from overseas Filipino workers (OFWs) for domestic consumption and export markets and foreign capital for production.

Apart from these unsustainable factors, the backward economy also got momentary spurts from four national elections held since 2001. This year’s second quarter GDP, for instance, has been inflated by election-related spending similar to the 7.3 percent growth it had in the first quarter. All in all, according to Arroyo’s NEDA, poll spending could contribute 0.34 percentage points to real GDP growth this year. NEDA, of course, wanted to downplay the actual impact of the elections on the economy in order to highlight government policies in relation to high GDP performance.

The NSCB itself noted that the last time the country posted similar successive quarterly growths of more than 7 percent was in the first two quarters of 2004, which like the first two quarters of 2010, covered a period expensive presidential elections.

In truth, the economic impact of the last elections, considered as the costliest yet in Philippine history, was without doubt higher than the NEDA estimate. For one, the agency wrongly assumed a total election spending of just P15 billion that already cover the combined spending of the Commission on Elections (COMELEC) and all the candidates. But the COMELEC alone already had a budget of P11.3 billion, of which P7.3 billion went to the lease of the controversial precinct count optical scan (PCOS) machines.

Computing the maximum spending allowed under Republic Act (RA) 7166 or the Synchronized Election Law of 1991 of the 18 presidential and vice presidential bets and 64 senatoriables that participated in the last elections would already yield around P10.34 billion. Note that there were 50,247 candidates (from presidential to municipal council bets) that participated in the May polls and many of them certainly spent way above the limits imposed by law.

For example, the Philippine Center for Investigative Journalism (PCIJ) estimated that national bets and party-list groups spent P4.31 billion on TV, radio, and print advertisements alone during the official 90-day campaign period. Candidates with larger war chests spent an additional P1.1 billion for “pre-campaign” political advertisements.

Out of the P4.31 billion in ad spending, presidential bets spent P1.11 billion, the PCIJ study said. However, based on their submitted campaign expenditure reports to the COMELEC, the presidentiables claimed to have spent a TOTAL of only P1.19 billion. The COMELEC explains that the cap on election spending is outdated which forces candidates to mis-declare their actual expenses.

Add to these enormous amounts the even larger cost of greasing the fraud machinery and maintaining political patronage that characterize elite-dominated and undemocratic Philippine elections. During the May polls, various incidents of vote-buying indicate that the buying rate per ballot now ranges from P150 to as high as P1,400.

Aside from spending their own money, candidates also got financial boost from big landlords and businesses to pay for both the legitimate and illegitimate expenses of waging an electoral campaign. Thus, the actual cost of “election-related spending” is much higher and how it distorts domestic economic growth is much deeper than what the NEDA estimate indicates.

Global crunch

Besides the one-time boost from election spending, the export-oriented, foreign investment-led economy has gained as well from the slight improvement in the global economy. But despite such improvement, vital indicators show that the global economy effectively remains in a state of depression and belie claims that the latest flare-up in the boom-and-bust crisis of monopoly capitalism is over. Even some mainstream economists point out that the global economy confronts a very real threat of double-dip recession.

North America, Europe, and Japan – major centers of monopoly capitalism – all face a raging public debt crisis and continuing destruction of jobs even as their production and consumption are again slowing down. Thus, external trade, foreign investment, and OFW remittances, most of which come from these major centers, could not sustain their “growth-inducing” impact on the GDP.

Philippine neocolonial trade, for example, has remained concentrated with the US and Japan, which took in almost one-third of the country’s total exports from January to June this year, based on data from the National Statistics Office (NSO). While shipments to China, Singapore, Hong Kong, South Korea, Thailand, and Taiwan are also significant (together they accounted for 39.7 percent of total exports in the first half of the year), a portion of these exports were re-exported to the US, Japan, and Europe.

Exports, which soared by 27.4 percent in the second quarter – the highest since third quarter 1986, the NSCB noted, but in reality simply recovered from an equally huge 18 percent contraction in 2009  – face a major slowdown or even contraction in the coming months. Latest data show that imports are substantially slowing down as the year progresses, which signals lower job orders from the US and other major export markets of the Philippines since our main exports are dependent on imported inputs.

Furthermore, as the richest capitalist countries grapple with rising debts and decelerating monopoly profits, foreign direct investment (FDI) that actually flowed into the Philippines has immensely declined. Bangko Sentral ng Pilipinas (BSP) data show that year-on-year FDI from January to May 2010 fell by 68 percent. Meanwhile, OFW remittances, based on BSP data, have also substantially slowed down to a year-on-year growth of 6.9 percent from January to June 2010. Prior to the global crisis, OFW remittances have been posting double-digit expansion every year.  

In a way, election-related spending acted as some sort of “stimulus” to an otherwise anemic economic growth in the first half of the year. But obviously it can no longer be relied upon – at least until the 2013 midterm polls – to moderate the impact of the still unfolding and protracted global financial and economic crisis.  

Real reforms in economic policies and priorities are urgently needed to lessen our vulnerabilities to the global crunch and create sustainable growth that produces jobs and boosts income. Unfortunately, based on the medium-term development blueprint that the economic managers of the Aquino administration have presented in broad strokes during their first economic briefing last August 18, no meaningful reorientation of the domestic economy is forthcoming. On the contrary, the Aquino administration is turning out to be an even fiercer advocate of flawed and long discredited neoliberal policies of privatization, liberalization, and deregulation.

Notes on the first quarter GDP growth: Spinning a good news from bad economic data

GMA with her economic managers (Photo from Reuters)

GMA with her economic managers (Photo from Reuters)

Last Thursday (May 28), the National Statistical Coordination Board (NSCB) released the first quarter 2009 National Accounts. The report said that the gross domestic product (GDP) grew by 0.4%, a significant deceleration from its 3.9% growth during the same period last year.

To be fair, NSCB Secretary General Romulo Virola gave a more or less accurate description of the domestic economy. An NSCB press release attributed to him stated that the economy was “weighed down by the impact of the US financial meltdown and the global crisis, and historic declines in manufacturing and trade”.

The same statement also said that the economy is “teetering into recession” as seasonally adjusted GDP sank by 2.3% and the gross national product (GNP), by 1.2 percent. Such contractions mark the first time since 2001 when both GDP and GNP declined quarter on quarter. The contraction in seasonally adjusted GDP is also the first in two decades.

Spin doctors

But the spin doctors in Malacañang would quickly twist the hard data presented by the NSCB. Deputy presidential spokesperson Anthony Golez said a day later that contrary to the statistical body’s assessment, the economy is not on the verge of a recession. Golez projected that the GDP would not contract in the second quarter, arguing that the Economic Resiliency Plan (ERP) will prevent the decline.

Besides, a growth is still a growth no matter how small, argued Golez. National Economic and Development Authority (NEDA) undersecretary Rolando Tungpalan belabored this point further. He noted that the minimal growth the Philippines had was still better compared to its Asian neighbors. Singapore and Taiwan posted double-digit contractions while Malaysia, Taiwan and Hong Kong declined by 6-8 percent.

And finally, another deputy presidential spokesperson – on economic affairs – Gary Olivar reminded everyone that the annual GDP growth under his boss is still higher than those of Marcos, Aquino, Ramos and Estrada.

That these presidential spokespersons have to extract the way they did the “good news” from the unmistakably weak GDP figures illustrates how defensive Malacañang is in terms of the country’s economic performance.

Recession in the Philippines

The most common indicator used to ascertain a recession is two consecutive quarters of contraction in the GDP. By this definition, the Philippines would be in a state of recession if seasonally adjusted GDP would again shrink in the second quarter.

Unfortunately for the spin doctors in Malacañang, macroeconomic indicators strongly point to this possibility. Less highlighted by economic managers is the status of the country’s composite leading economic indicator (LEI). Also monitored by the NSCB, the LEI breached negative territory in the second quarter, which implies the general direction that the economy tracked during the period. For the past four quarters now, the LEI index has been on a steadily deteriorating downward course.

The LEI system was developed by the NSCB and NEDA to serve as basis for short-term forecasting of macroeconomic activity in the country. Its index is computed using the performance of 11 leading indicators, namely consumer price index, electric energy consumption, exchange rate, hotel occupancy rate, money supply, number of new business incorporations, stock price index, terms of trade index, total merchandise imports, tourist arrivals and wholesale price index.

Immaterial

But whether the country will technically enter into recession is immaterial as far as ordinary people are concerned. For them, economic crisis is no longer a threat but a daily reality that they have been facing for as far as they can remember. In times when the Philippines was posting relatively vibrant GDP growth rates, a great majority of Filipinos faced ever-worsening job scarcity and poverty.

To illustrate, while the annual GDP growth rate under the Arroyo administration, despite the anemic first quarter figures, remains higher than Marcos’s, et al, job scarcity is also at its worst. Unemployment rate has remained at double-digit (more than 11%) every year since 2001 with the average number of jobless workers at almost 4 million annually.

Furthermore, the number of poor Filipinos jumped by 3.8 million between 2003 and 2006. These were the years leading to the three-decade high of more than 7% growth in the GDP in 2007, which clearly shows how detached GDP growth rates are from the reality on the ground.

Economic destruction

In terms of the macroeconomy, GDP contractions in the Philippines are not comparable with contractions in industrialized economies like that of the US. Unlike in industrial countries where the GDP accurately depicts the state of domestic production, the GDP of a pre-industrial and backward Philippines shows the extent of how it is being affected by developments in the global economy.

The domestic economy has been tied to the production of raw materials and low-value added semi-manufactures for exports, mainly to the US. At the same time, the country has also become a dumping ground for imported commodities and foreign capital. Filipino production for Filipino consumption has never materialized as local productive sectors are destroyed.

The magnitude of such destruction could be seen from the state of our productive sectors, which has worsened through the decades. Manufacturing has stagnated, not moving in terms of its share to the GDP since the 1970s. Agriculture, on the other hand, has been practically obliterated, with its contribution to the domestic economy steadily declining in the last four decades.

What the GDP shows

Thus, what the GDP shows is the state of an economy deeply tied to the global economy, especially that of the US. Industrial production sank by almost 7%, its lowest in 20 years. Manufacturing, which comprised 68% of industrial production declined by more than 7 percent. Agricultural production further deteriorated, contracting by 1% in the first quarter.

With steeply falling demand in recession-hit markets like the US, exports fell dramatically. Total exports fell by more than 18% while principal merchandise exports, which include electronics, declined by almost 31 percent. Exports, which are mostly assembled from imported components, are expected to further contract in the coming months as imports in the first quarter fell by more than 19 percent. Imports on consignment basis fell by a huge 36%, reflecting drastically reduced demand from abroad.

Investments have also substantially decreased as foreign investors become more risk averse amid global economic uncertainties. Investments in fixed capital formation plunged by almost 6% while investments in durable equipment fell by almost 18 percent. Such huge declines in investments in fixed capital formation and durable equipment mean less economic activity in the coming months.

The GDP growth rates in the first quarter are way below from even the low-end of government’s revised projection of 1.8 to 2.8% expansion in the first quarter. This confirms that the impact of the global financial and economic crunch on the Philippines is much deeper than what government expected or recognized. It also exposed the hollow optimism that Malacañang officials have been peddling in the past couple of weeks.

Political costs

For the Arroyo administration, the political costs of  a string of negative GDP growths would be huge. Remember that Arroyo and her allies have aggressively hyped the country’s supposed economic growth to help dampen persistent calls to oust her unpopular government.

Amid the global recession and massive displacements, Malacañang has painted an image of a presidency on top of the economic crisis. It has repeatedly hyped the economy’s supposed resiliency due to sound government policies amid the global crunch.

All these hard sell about a strong economy under the Arroyo administration would be further exposed and discredited as the global crunch and country’s own perennial crisis deteriorate. With its reputation irreparably damaged by the 2004 electoral fraud, a long list of corruption scandals, and an atrocious human rights record, what else can the Arroyo administration use to sell itself to the people and claim legitimacy?

It appears that this regime is running out of materials to spin.

Worsening permanent crisis amid the global crunch

In her New Year message, Mrs. Gloria Macapagal-Arroyo described 2008 as “tumultuous” due to the global recession. But fortunately, according to her, this “has not become a crisis in the Philippines”. In several occasions, Mrs. Arroyo had credited her “tough, unpopular” decisions for supposedly cushioning the impact of the world economic crisis on the country.

poverty1Malacañang assures Filipinos that the economy will not be in recession (i.e., two consecutive quarters of fall in the gross domestic product or GDP) this year. We are repeatedly told that the economy and the people are resilient. With supposedly correct policies and sound fundamentals, the country could weather the storm rocking the world’s largest industrial economies. However, the definite effects of the recession in the US and other major capitalist economies on the Philippines could not be denied. The National Economic and Development Authority (NEDA) already said that the GDP growth in 2009 will further slow down to 3.6%. The GDP has started to decelerate last year posting a third quarter growth of 4.6% from 2007’s 7.1%.

The structural defects of the domestic economy – fashioned and strengthened through centuries of colonialism and decades of neocolonialism – have tied a great majority of the Filipino people to perpetual and worsening poverty, have denied local productive forces of any real shot at genuine industrialization, and have condemned the economy to a permanent state of crisis. In the face of what some analysts describe as its worst crisis ever, US imperialism, which is primarily responsible for the country’s own permanent crisis, shall become more vicious in its exploitation, plunder, and aggression. This in turn will translate into more bankruptcies, joblessness, and poverty in the Philippines, feeding ever worsening social discontent and unrest, especially under the hugely unpopular Arroyo administration.

Emerging economic trends

1. Falling exports

The US remains the single largest market for commodities produced and shipped from the Philippines, directly absorbing 16.28% of the country’s total exports from January to September 2008. In addition, it is estimated that as much as 70% of the country’s exports are dependent on the US (and EU) market through networks of subcontractors, joint ventures, and affiliates established by its transnational corporations (TNCs) operating in China, the NIES and ASEAN countries, which directly consume a huge portion of Philippine exports of intermediate goods.

This early, the impact of a contracting export market is already being felt by the country. In October 2008, exports fell 14.9%, the worst in seven years. The drop was attributed to falling US demand for electronic products, which comprised 59% of the country’s total export receipts. Electronic exports slumped by 18.9%, as big US-based electronics retailers start to close shop due waning consumer spending.

Because the country’s supposed export-winners are import-dependent, falling imports of materials and components for their manufacture indicate the depth of the impact of the global crisis on Philippine exports in the coming months. The January to September 2008 imports of electronic products declined by 26% as electronic firms cut production due to the global economic crisis, and this will impact on electronic exports in the months ahead. While falling imports ideally could mean increasing local content of exports and thus a positive development, such contraction, in the context of the Philippines, is described by mainstream economists as a “sign of a weakening economy” and a “worrisome situation”.

2. Worsening destruction of domestic jobs and livelihood

As domestic production is in the main dictated by the whims of foreign capital and markets, primarily of the US and other centers of monopoly capitalism, the economy continues to fail to generate enough jobs and livelihood for the people. The huge army of unemployed Filipinos in fact continues to grow as imperialist globalization has further destroyed the domestic productive sectors that could provide local employment. With the worsening of the cyclic crisis of the US economy and global monopoly capitalism in general, domestic production will be further undermined and consequently, millions more of Filipinos will be added to the number of jobless.

Job scarcity is at its worst under the Arroyo administration. From 2001 to 2007, the official annual unemployment rate has consistently remained double-digits, with the yearly jobless rate pegged at almost 11.3% and almost 4 million workers unemployed every year. Due to the global crisis, the overall domestic unemployment situation is turning from bad to really, really worse. The Bureau of Labor and Employment Statistics (BLES) noted the three-year downtrend in what it calls “job opening rate”, a measure of the tightness of the labor market and an indicator of the economy’s ability to create new jobs. From 2005 to 2007, the job opening rate has been progressively declining and was pegged at 1.21%, with agriculture and manufacturing posting the lowest rates.

With the global economic crisis seen to deteriorate in the coming months, Filipino workers should indeed brace themselves for even more severe job insecurity and even more dwindling local employment opportunities. Around 1/3 of manufacturing employment can be found in the EPZs and thus will be directly hit hard by the falling US and global demand. The impact could be greater considering that EPZ locators have also built their own local subcontracting networks to further cut labor costs.

The much-hyped employment driver aggressively promoted by the US-GMA regime, the BPO service subsector, could be hit in the immediate term by slowing demand and possibly investment from the US, the country’s number one BPO client and investor. One BPO firm, Advanced Contact Solutions (ACS), has reportedly downscaled its workforce by about 900 call center agents in November due to declining business volumes from the US. But over the long-term, the BPO sector may continue to thrive precisely because of the never-ending efforts of TNCs in the imperialist countries to cut production cost and increase profits. However, this also means intensified exploitation of the country’s cheap labor as call center agents face even more depressed wages and exploitative and oppressive working conditions. Employment in the BPO firms will thus continue to grow until the next episode of the periodic crisis of the US and other monopoly capitalist countries.

3. Increasing exploitation Filipino migrant workers

The domestic job crisis is mitigated only through labor export, which under the Arroyo administration has been officially proclaimed as government policy for job creation. As of December 2007, there are 8.73 million overseas Filipinos at any given time, of which more than 2.8 million are based in the US (of which, in turn, 2.5 million are immigrants or permanent residents), according to official records.

Like the case of BPO, OFW deployment could be undermined in the immediate term by the raging global economic crisis. Domestic helpers who accounted for the largest portion of newly-hired OFWs last year at 15.6% of the total, for instance, could be immediately vulnerable as households in recession-hit countries like Hong Kong, Singapore, and Taiwan cut costs to cope with the crisis. In the US’s agriculture and service industries, more than 50,000 OFWs were already “possibly” displaced, according to a government report. Readying itself for the possible influx of jobless OFWs, the government has devised a contingency plan to redirect them to other potential foreign labor markets or to encourage those with savings to start a small business.

This betrays the lack of any comprehensive and long-term government plan to invigorate domestic sources of growth that could sustain local job creation.

But then again, since OFWs are a reliable provider of cheap labor power, American and other foreign businesses will continue to hire them, although expectedly at even more exploitative terms. The crisis in fact creates more conditions including the feared increase in number of undocumented OFWs as displaced migrant workers refuse to return home since no jobs await them, that make OFWs even more vulnerable to various forms of abuse and exploitation.

4. Intensifying economic liberalization

To address its economic crisis caused by overproduction, the US and other rich countries are also expected to become more aggressive in pushing for more trade and investment liberalization. Recent pronouncements by the imperialist powers, such as in the APEC and G20 meetings last year, indicate a renewed drive to further pry open the markets of neocolonies to accommodate their surplus commodities and create new openings for their capital to operate and squeeze more profits from the cheap labor and cheap raw materials of the Third World.

The imperialist powers find a ready and reliable ally in the Arroyo administration in its efforts to push for increased free trade. The regime has been aggressively pursuing new bilateral and regional FTAs in a misguided endeavor to increase access to export markets and invite more foreign investments for job generation. Last October, the Senate, under tremendous pressure from Malacañang and the Japanese government and businesses, railroaded the ratification of the Japan-Philippines Economic Partnership Agreement (JPEPA). Also in the pipeline is a Partnership Cooperation Agreement (PCA) with the EU as part of the process to establish an EU-ASEAN FTA. The RP-EU PCA formal negotiations will this year. And finally, the stalled negotiations for an RP-US FTA are expected to be revived soon as the US intensifies efforts to surmount its recession.

In terms of national policies, the US-GMA regime has recognized that trade and investment liberalization may have already reached its limits and thus the only way that the domestic economy can achieve more liberalization is through Charter change (Cha-cha). GMA said so herself in a roundtable with the business sector last October that the “next liberalization has to be through the Constitution… to liberalize economic provisions… mostly the 60-40 restriction (on foreign equity)”.

5. Increasing desperation for foreign capital

While tighter access to credit, aid, and investments may be felt in the immediate term, the export of capital from the monopoly capitalist economies to the neocolonies will continue and intensify. The export of capital remains one of the imperialist means to extract profits from the neocolonies and to accelerate the rate of profits. Usurious debt payments from the neocolonies, for instance, have remained a steady source of financial profits for the banks and financial institutions controlled by monopoly capitalists in the US, Europe, and Japan. From 2001 to June 2008, the cumulative debt service burden (interest and principal) already reached $56.66 billion – more than enough to wipe out the current external debt of $54.81 billion.

However, the bigger danger for the Philippines in the long run is not so much that it will have less access to foreign loans but that commercial creditors and the bilateral and multilateral banks will impose even more usurious terms and impose even more painful restructuring as conditionalities in their desperate attempts to get out of the crisis and increase profit rates.

With more foreign exchange actually being squeezed from the country through foreign direct and portfolio investments, ODA and foreign debt, and through colonial trade as mentioned earlier, it is OF remittances that really save the day for the country in terms of foreign exchange earnings and in keeping the dollar-dependent national economy afloat. Most of the OF remittances come from the US, which accounted for 55.2% of the accumulated remittances from 2000 to September 2008 of around $82.13 billion. OF remittances is the single largest factor that sustains the Balance of Payments (BOP) position, which measures the foreign exchange transactions between the domestic economy and the rest of the world. However, the BOP surplus may not last for long as the global economic crunch intensifies and investors particularly from industrialized countries resort to “risk aversion” as an immediate reaction to protect their wealth. While most OFWs may be able to keep their jobs or are able to find other jobs illegally as discussed earlier and deployment continues, migrant workers face the reality of even cheaper wages or lower incomes. Combine this with even higher taxes and higher consumer prices and cost of living like what is happening in the US, the migrants’ remittance flows will certainly be not as brisk as before which will affect not only the BOP’s current account but household spending and domestic production as well.

6. Aggravating poverty and inequities

The years leading to the three-decade high GDP growth of more than 7% in 2007 ironically have been characterized by a dramatic increase in the official poverty figures. Between 2003 and 2006, the number of poor Filipinos grew by 3.8 million, according to the government. It was also in 2007 that the most number of Filipinos have perceived themselves as hungry, based on the regular hunger survey of the Social Weather Stations (SWS). This phenomenon highlights structural flaws in the country’s economic system which could not only produce enough wealth for its own industrialization but also whatever little wealth it creates is monopolized by TNCs and other foreign corporations and share what is left to their local agents composed of compradors and landlords.

In the face of even more dwindling wealth available in the domestic economy as the imperialist crisis worsens, local compradors and landlords will be even more aggressive to consolidate and expand their control of whatever wealth is left in the domestic economy. As such, bureaucrat capitalism in the form of cronyism has become more pronounced under the US-GMA regime. These cronies, such as Mike Defensor and Enrique Razon, have partnered with big foreign businesses to corner government contracts, investment deals, and privatization projects.

Immediate relief and long-term reforms

The immediate challenge today is to assert for urgent economic relief and policy reforms that will at the minimum address the further deterioration of the state of the domestic economy and the people. With increased uncertainties in the global economy, the key is to promote internal drivers of growth, increase domestic consumption, and in the process invigorate domestic production. This can be achieved through substantial reduction in and effective control of the prices of basic goods and services that the people consume. The 12% VAT and other onerous taxes must be scrapped and proposals for additional burdensome taxes must be vehemently opposed. Neoliberal policies that have allowed global and local cartels to abuse the people with exorbitant prices must be opposed such as the ODL, EPIRA, and ongoing, gradual privatization of the NFA and implement state regulation and increased intervention.

Complementing these efforts to bring down prices and keep them in check is the implementation of a substantial wage hike that will allow millions of poor families to at least lessen the disparity between the cost of living and their daily incomes. Filipino small and medium enterprises (SMEs) must be supported and protected by the government not only to allow them to substantially increase their workers’ wages but also to help them cope with the raging global and local crises.

Domestic resources must be freed up and public investment in social and economic services urgently needed by the marginalized sectors must be significantly increased. This entails the repeal of automatic debt servicing, the cancellation of odious debt, and a big cutback in military spending so that enough resources will be immediately made available for social services such as education, health, and housing. More taxes must be collected from big business, especially the TNCs operating in the country and reverse the trend of declining tariffs on international trade.

The domestic economy and local industries must be protected. The implementation of the JPEPA should be stopped and all means must be exhausted to abolish the treaty. Ongoing FTA negotiations must be opposed, including the concession of additional liberalization commitments in the WTO especially on agriculture and non-agricultural market access. New efforts aimed at more trade and investment liberalization such as through Cha-cha must be decisively derailed.

Finally, the latest flare-up in the periodic crisis of monopoly capitalism and its consequent impact on the weak and pre-industrial domestic economy have made it more imperative to create the material conditions that will allow the economy to break free from its permanent crisis of backwardness and poverty. This necessitates the implementation of a genuine agrarian reform program to encourage the productivity of Filipino farmers and farm workers, who comprise a great majority of the direct producers of wealth in the economy. This will allow agriculture to create the needed economic surplus for industrial development and widen industrial production as it boosts domestic consumption in the countryside where an overwhelming majority of poor and exploited Filipinos live. (END)