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Duterte’s midterm: change for the worse

(IBON 2019 Midyear Birdtalk Briefing Paper economic situation highlights)

The country’s slowing economy, and worsening jobs crisis and poverty disputes the Duterte administration’s hype of economic gains. IBON said that this is bound to worsen if the Duterte administration continues unopposed on its current neoliberal trajectory wherein the interests of big foreign and local business prevail to the detriment of millions of Filipinos, especially the poor.

Economic growth slowing since the start of the administration.Philippine Statistics Authority (PSA) data show that gross domestic product (GDP) growth has been slowing in the 11 quarters since the start of the Duterte administration from 7.1% in the third quarter of 2016 to 5.6% in the first quarter of 2019. There was a momentary increase to 7.2% in the third quarter of 2017 but growth fell rapidly after this. Notably, growth was slowing even before the budget impasse and election ban on infrastructure spending.

High real unemployment. Computing according to the original definition of unemployment for comparability would show that the real unemployment rate in 2018 is 10.1% and the real number of unemployed is 4.6 million. These are much worse than the already high 9.0% unemployment rate and 4 million unemployed in 2016, again computed according to the original definition. In contrast, officially released figures for 2018 were a grossly underreported 5.3% and 2.3 million, respectively.

The record real unemployment last year is a direct result of how only an annual average of 81,000 new jobs have been created since the start of the Duterte administration, from 41.0 million employed in 2016 increasing by 162,000 to 41.2 million in 2018. To put this into context and even granting that the administration is just at its midpoint, this is so far the worst employment generation post-Marcos.

Lowest and least frequent wage hikes under Duterte. The Duterte administration is so far making the worst record on wage hikes of all post-Marcos administrations. In the NCR, for instance, it has only given an average of one wage hike every 18 months. The frequency of wage hikes previously ranged from one every 16 months under Arroyo to one every 10 months under Ramos. Over the two wage hikes under Duterte, the nominal value of the wage increased by only 9.4% – compared to a range of 11.5% by Benigno Aquino III to 45.9% by Corazon Aquino over their respective first two wage hikes.

Poverty underreported. IBON estimates on Family Income and Expenditure Survey (FIES) data in 2015 found that the poorest 50% or 11.4 million families had monthly incomes of just Php15,000 or less, and the poorest 60% or 13.6 million families just some Php18,000 or less.

Inequality worsening. The net worth of the country’s richest Filipinos and profits of the largest corporations continue to grow, in some cases even outpacing economic growth. The net worth of the 10 richest Filipinos grew from Php2.5 billion in 2016 to Php2.7 billion in 2018. The net worth of the 40 richest Filipinos grew from Php3.7 billion to Php3.8 billion in the same period. The net worth of the 40 richest as percentage of GDP was 21.9% in 2018.

Agriculture in crisis, manufacturing stalling. Agriculture has been left to perform chronically poorly. The sector grew by just 0.8% last year and in the first quarter of 2019. This is just around half the growth pace of 1.5% in the 2010s and not even a third of the 2.9% clip in the 2000s. Employment in agriculture has fallen by 1.1 million between 2016 and 2018, with an initial further 376,000 losses reported in April 2019 from the same period last year.

Manufacturing already appears to be stalling with growth of just 4.9% in 2018 – the slowest since 2012 – and slowing further to 4.6% in the first quarter of 2019. The share of manufacturing in total employment of just 8.8% in 2018 is actually even much lower than its 10.1% share in 1990 and 11% in 1990. These are despite the sector growing by 22.1% between 2016 and 2018, according to national accounts data.

Poorest land distribution. Lands covered by the Comprehensive Agrarian Reform Program (CARP) should have been distributed by 1998. This deadline was reset twice, yet until now 100% distribution has not been met. To add to this injustice, distribution is slow and is even going at a slower pace than before under the Duterte administration. Department of Agrarian Reform (DAR) land distribution accomplishment in the period 2016-June 2019 is just at an average of 2,920 hectares monthly. This is much less than under Benigno Aquino III (8,254 hectares, July 2010-2015), Arroyo (9,047 hectares, January 2001-June 2010), Estrada (11,113 hectares, July 1998-2000), Ramos (26,389 hectares, July 1992-June 1998), and Corazon Aquino (14,142 hectares, July 1987-June 1992).

Build Build Build, for whom?Over the 2016-2017 period, the biggest concentration of gross value in public construction was in Pres. Duterte’s home region of Davao (Region XI) accounting for 14.1% of the total. The increase in Davao is notable in almost doubling from 7.9% over the period 2010-2015 to 14.1% in 2016-2017. Close Duterte allies have reportedly been among the beneficiaries of the surge in Davao construction projects.

Mounting debt. The government is already borrowing heavily. Total outstanding debt of the national government stood at Php7.9 trillion as of May 2019 implying a total increase of Php2 trillion since the start of the Duterte administration. In nominal terms, this is equivalent to an average monthly increase in debt of Php56.2 billion, which is over two-and-a-half times that of the Arroyo administration (Php21.2 billion) and nearly three times that of the previous Aquino administration (Php19 billion).

Truth about TRAIN. The Duterte administration has tried to divert from the regressive nature of its tax reforms by repeatedly claiming that it benefits “99% of taxpayers” and giving the impression that 99% of Filipinos gain from TRAIN Package One. The reality however is that only 5.5 million personal income taxpayers coming largely from the highest income groups will gain from TRAIN’s personal income tax cuts. An additional two million taxpayers are minimum wage earners and so previously already exempt. On the other hand, the poorest 17.2 million or eight out of 10 (76%) Filipino families will pay TRAIN’s higher taxes on consumption goods including petroleum products and sugar-sweetened beverages. #

President’s SONA in denial of slowing growth and fundamental economic crisis

by IBON Media

In his fourth State of the Nation Address (SONA), President Duterte did not admit that the economy is on a slowdown and that the country’s production sectors are deteriorating. Instead, the President harped on deceptive, business-biased policy proposals that at the very least do not address the basic problems of the economy, and at worse, may aggravate economic woes. Government should build policies upon an honest recognition of the country’s real situation.

Slackening economy ignored

Nowhere in the President’s SONA was it mentioned that the country’s economy has been slowing from 7.1% growth of gross domestic product (GDP) in the third quarter of 2016 to 5.6% in the first quarter of 2019. Growth fell rapidly even after a momentary increase to 7.2% in the third quarter of 2017. This slowdown was happening long before the 2019 national budget impasse and the election ban on infrastructure spending and despite record levels of foreign investment reaching US$9.8 billion in 2018.

It would have been important for the President to note this and admit that the slowdown is due to reliance on unsustainable, external sources of growth: Slowing overseas remittances (average growth rate fell from 15.5% annually in 2002-2008 to 3.7% in 2017-2018) and a slowing business process outsourcing (BPO) sector (average growth rate fell from 43% annually in 2005-2009 to only 2.7% in 2017-2018) that impacted on real estate, renting, and business activities. Household spending, export of services (including BPOs), capital formation (including construction), and government spending also slackened.

This points to the urgency of developing sustainable long-term drivers of growth pertaining to more vibrant agriculture, dynamic Filipino industry, and equitable distribution of economic gains. In his SONA, however, the President, though acknowledging the need to boost agriculture and jobs, stuck to the same type of market-oriented measures that perpetrate underdevelopment and backwardness.

Hampering agriculture

Pres. Duterte vowed to continue investing in agriculture programs to increase the income and productivity of small farmers and fisherfolk. In particular, he said that government will ensure the full implementation of the Rice Tariffication Law’s Rice Competitiveness Enhancement Fund (RCEF) to safeguard the livelihood of small farmers.

But the RCEF amount of Php10 billion annually for six years, which government claims will fund farm inputs and operations, is dismally low compared to Vietnam and Thailand agriculture subsidies. Hugely the funds will be used to purchase commercial equipment, seeds, and services for distribution to local government units and certified farmers organizations. RCEF is prone to patronage politics and might marginalize rather than benefit farmers. Peasant groups also fear that the removal of restrictions on rice importation will displace over 2 million rice farmers and imperil the local rice industry with the influx of imported rice.

By sourcing the Philippine staple from a volatile world market and allowing unlimited albeit tariffied rice importation, rice tariffication threatens farmers’ livelihoods and the country’s food security. It does not address the current state of shrinking agriculture. The sector lost over a million jobs from 2016-2018, and barely grew at 0.8% in 2018 and in the first quarter of 2019. Its 8.2% share of GDP in the first quarter of 2019 is its smallest ever share of the economy, yet 2019 budget allocation to agriculture was reduced by Php3.4 billion from an already low Php50.7 billion in 2018 to just Php47.3 billion in 2019.

Instead of pushing rice liberalization, which will benefit rice importers and private traders more than local rice farmers and rice-eating Filipinos, the government should preserve its mandate to procure a minimum of 25% of local produce to sell at a reasonable price that will influence market rice prices to be affordable. There should also be a genuinely distributive and free land reform program to liberate farmers from having to amortize awarded land, and substantial agriculture support and subsidies from domestic industries that will truly aid in raising productivity and incomes instead of burdening the sector with conditional support and mounting debts.

Stifling Filipino industries

The President also did not address a manufacturing sector that appears to be stalling. Manufacturing growth was just 4.9% in 2018 – the slowest since 2012 – and slowed further to 4.6% in the first quarter of 2019. The sector remains shallow and mostly disconnected from the local economy due to being foreign-dominated and capital-intensive in export enclaves. As a result, employment generation has been relatively weak. Manufacturing employment increased by just 221,000 or 6.5% between 2016 and 2018, with even a contraction of 101,000 reported in April 2019, according to official labor force data.

Instead, he praised the Tax Reform for Acceleration and Inclusion (TRAIN) for helping fund government programs, and pressed for the enactment of the Tax Reform for Attracting Higher and Better Opportunities (TRABAHO) to energize micro, small and medium enterprises (MSME’s) and generate more than a million jobs.

But TRABAHO is a misnomer because its focus is not on creating the stable jobs that Filipinos need, but on lowering corporate taxes and rationalizing incentives. It in fact adds to the regressiveness of TRAIN, which relieves the rich of personal, estate and donor taxes, by increasing corporate profits and the wealth, income, and property of the rich. On the other hand, government will make up for the resulting losses in tax revenues through indirect levies which tax consumption – including by mostly low-wage workers and low-income Filipino families – regardless of their lack of wealth, income and property.

The President’s recommending TRABAHO for MSMEs in his speech diverts from MSMEs’ being mostly in the service sector wherein jobs are usually temporary and low-paying: the top five MSME industries are wholesale and retail trade, repair of motor vehicles and motorcycles, accommodation and food service activities, manufacturing, service activities, and financial and insurance activities. The manufacturing sector would potentially be a generator of stable jobs, however contractualization is rampant. The transnational corporations-dominated sector has even seen Filipino workers suffer poor working conditions and stifled labor rights.

Not only do Filipinos need more jobs, the people need quality jobs. But behind the hype of improved employment are signs of a persistent jobs crisis that no corporate-biased policy intends to cure: over 11 million of the combined unemployed and underemployed, and almost 28 million of the employed being in informal, non-regular, or agency-hired work.

(Malacañang photo)

Reorient the economy

Filipino firms must instead be built, sourcing materials from a robust agriculture, and building across consumer, light to heavy industries that will supply the people’s and the nation’s needs. This removes the need to rely on – or be limited to – commercial sources. This will also certainly improve production, stimulate job generation, increase working Filipinos’ incomes, and enliven economic activity both in the rural and urban areas.

All these mean that the government should thwart its business bias so that the country’s economic direction can be refocused to truly prioritize the people’s well-being and national development. This has not been the course of the Duterte administration as evidenced by the neoliberal policies highlighted in his SONA such as rice tariffication and TRABAHO. #

‘Paano na ang mga magsasaka?’

President Rodrigo Duterte has recently approved the Rice Tarrication Law, allowing massive rice importation into the country.

Cartoon by Mark Suva/Kodao

Second year of slowing growth a wake-up call – IBON

Research group IBON said that the second year of slowing growth under the Duterte administration should be enough to jolt it out of its complacency and denial. The downturn in the last two years and the poor prospects in the year to come should be a wake-up call to start to undertake the difficult but necessary reforms for genuinely inclusive growth and national development.

The Philippine Statistics Authority (PSA) reported a 6.2 percent annual growth in the country’s gross domestic product (GDP) for 2018, lower than government’s revised growth target of 6.5-6.9 percent for the year.

Government cited slowing agriculture and high inflation as among the main factors pulling back growth, while the main drivers were growth in construction, and trade and repair of motor vehicles, motorcycles, personal and household goods.

“Growth is slowing most of all because of the economy’s unsound fundamentals in backward agriculture and shallow industry,” said Sonny Africa, IBON executive director.

The agriculture sector registered just 0.8 percent growth in 2018 from 4 percent in 2017.

This is the sector’s worst performance since its contraction in 2016.

Yet, Africa said, the administration seems to have little interest in reversing this trend.

For example, the Php49.3 billion agriculture department budget for 2019 proposed by Congress is Php1.4 billion less than the Php50.7 billion in 2018 (in equivalent cash-based terms).

Africa also noted that manufacturing growth slowed to 4.9 percent in 2018 from 8.4 percent the year before, which is the slowest since the 4.7 percent growth in 2011.

He said that this is due to weaker demand in domestic consumption and weaker exports amid the global economic slowdown. Manufacturing also remains shallow in being low value-added, foreign-dominated, and dependent on foreign capital and technology.

Africa pointed out that recent rapid growth has instead relied on external short-term factors that are fading. Yet remittances are slowing, exports are falling, and interest rates are rising. The real estate and consumer spending booms are also petering out.

Growth in overseas remittances slowed from 5.0 percent in 2016 to 4.3 percent in 2017 to just 3.1 percent in the first 10 months of 2018, said Africa.

Exports growth increased from 11.6 percent in 2016 to 19.5 percent in 2017, but then fell to 11.5 percent in 2018.

Meanwhile, the benchmark overnight reverse repurchase (RRP) rate rose steeply from 3.0 percent in 2017 to 4.8 percent by end-2018, reversing the decade-long general decline in interest rates.

Africa also said that household consumption spending markedly slowed from 7.1 percent growth in 2016 and 5.9 percent in 2017 to just 5.6 percent in 2018.

The real estate boom is also tapering with 2016 growth of 8.9 percent in real estate, renting and business activities declining to 7.4 perent in 2017 and falling further to just 4.8 percent in 2018.

“Rising government spending and its infrastructure offensive haven’t been enough to offset the reliance on waning external factors,” said Africa. “The administration’s efforts to stimulate growth to its 7-8 percent target with even more spending, are not going to be enough amid high disguised unemployment, low incomes, and the global slowdown this year.”

Global GDP growth is estimated to slow from 3.1 percent in 2018 to 3.0 percent this year.

“The Duterte administration needs to stop downplaying slowing growth and hyping that this as still among the fastest in the region and the world because the growth is becoming more jobless than ever,” Africa said.”

The number of employed only increased by 162,000 from 41 million in 2016 to 41.2 million in 2018, according to data from the Philippine Statistics Authority (PSA).

Average annual job creation was then only 81,000 in the period 2017-2018, which is the lowest level of job creation among post-Marcos administrations.

Africa said that government continues to ignore telltale signs of an economic downturn and deceive Filipinos with its rosy picture of the economy.

He said that the sooner the administration admits the failure of its neoliberal policies, the sooner measures that will spur domestic industries and benefit the Filipino people can be implemented. #

Rice tariffication will displace rice farmers, worsen food insecurity–IBON

Rice tariffication and uncontrolled rice imports will displace rice farmers and worsen food insecurity without solving the problem of expensive rice, research group IBON said.

The government is using high inflation to justify rice sector liberalization according to long-standing demands of the World Trade Organization (WTO) and big foreign agricultural exporters.

Domestic agriculture should be strengthened with ample government support instead of being prematurely opened up to cheap foreign government-subsidized imports from abroad, said IBON.

Senate Bill 1998 or the Rice Tariffication Bill, which was approved by the Philippine Senate on third and final reading recently, is currently undergoing bicameral deliberation.

Government said that this will protect the rice industry from volatile prices, and consumers from rising inflation.

The measure is also supposed to earn Php10 billion annually which will be used to fund development of the local rice industry.

IBON however stressed that uncontrolled rice imports will drive rice farmers into worse poverty.

If the Philippines imports two million metric tons of palay, for instance, some 500,000 of around 2.4 million rice farmers will be adversely affected.

Even the government’s own Philippine Institute for Development Studies (PIDS) projects a 29 percent decline in rice farmers’ incomes from a Php4-decrease in palay farm gate prices when rice tariffication is implemented.

As it is, farmers’ average monthly income of Php6,000 at the Php21 farmgate price is already far short even of the government’s understated Php9,064 average poverty threshold for a family of five.

It is also not even one-fourth (23 percent) of IBON’s estimated monthly family living wage (FLW) of Php26,026 for a family of five as of October 2018.

Filipino rice farmers are unproductive and domestically-produced rice is unnecessarily expensive because of long-standing government neglect of the agriculture sector.

No more than five percent of the national budget has been given to agriculture over the last two decades.

The Duterte administration does not correct this and, for instance, the Php49.8 billion 2019 Department of Agriculture (DA) budget it submitted to Congress in July is just 1.3 percent of the national budget and even Php862 million less that its cash-based equivalent of Php50.7 billion this year.

The hyped Php10 billion (US$190 million at current exchange rates) rice development fund of the Rice Tariffication Bill is too little and too late, said IBON.

This compares unfavorably to rice industry support given by other rice producers including some countries the Philippines imports rice from — Vietnam (US$400 million), United States (US$619 million annually), Thailand (US$2.2-4.4 billion), India (US$12 billion), Japan (US$16 billion), and China (US$12-37 billion).

IBON also pointed out that there is no guarantee that retail rice prices will be lower in the long run with unhampered importation.

Relying on rice imports makes the country vulnerable to higher world market prices as well as to rice production and export decisions of other countries.

In 2008, for instance, IBON recalled bow Vietnam, India and Pakistan restricted their rice exports amid rising global rice prices.

Thailand also raised the idea of creating a global rice cartel similar to that for oil exporting countries.

Government’s neoliberal prioritization of food imports and production of crops for export should be reversed, IBON said.

The Philippine government should instead strengthen the local rice industry. This begins with free land distribution to all willing tillers, followed by giving substantial support for rice producers, and taking control of the market to ensure reasonable prices for rice and other agricultural produce. #

 

‘Sobra ang dagok’

“Dati, itong pechay-baguio, ang kuha namin ay nasa P90 lang. Ngayon, nasa P150 na. ‘Yung repolyo, dati P80. Ngayon, P180 na. Sobrang laki ang itinaas, kaya sobra rin ang nararamdaman namin na dagok.”–Mang Ricky, tindero ng gulay, Sitio San Roque, Quezon City