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2018 Yearender: Are You High? The Economy Isn’t

by Sonny Africa

Executive Director, IBON Foundation

The Duterte administration’s economic managers made some odd statements as the year wound up. Economic planning secretary Ernesto Pernia said “the Philippine economy became stronger and even more resilient than ever”. Finance secretary Carlos Dominguez III insisted on “the soundness of the Duterte administration’s economic development strategy”. Bangko Sentral ng Pilipinas (BSP) governor Nestor Espenilla meanwhile said that they “expect growth to remain solid in the years ahead”.

These are odd because the economy clearly showed signs of increasing stress in 2018. If anything, the year just passed confirmed the end of the long period of relatively rapid growth for the Philippines.

In denial

Growth has been slowing since the start of the Duterte administration. It is already its slowest in three years. Inflation reached a nine year-high and was even worse for the poorest Filipinos. The current account deficit is at its worst in 18 years. The peso is at its weakest in 13 years. International reserves are in their lowest in 10 years. The jobs crisis is disguised but really at a historic high. Overseas remittances are also slowing — this further dampens household consumption and welfare.

The government seems to think that it can just spend its way out of this. It holds its ‘Build Build Build’ infrastructure offensive as some kind of magic bullet. This will be difficult with the end of the decade of low global and local interest rates and rising borrowing costs. Accelerating government debt will also only become more unmanageable as growth continues to slow. As it is, the budget deficit is already at its worst in seven years.

All these the government’s chief economic propagandists will euphemistically call ‘headwinds’ or ‘challenges’. Yet barring a real change of economic course, there is little reason to expect that the economy will get better anytime soon. Elite business profits will likely continue to grow, but it may just be a matter of time before even these suffer.

As if being near the top of a sinking ship is a good thing, the administration will keep on claiming that the Philippines is among the fastest growing economies in the region and in the world that is caught in a protracted crisis, Still, the 6.3% growth in the first three quarters of 2018 is markedly slower than the 6.7% growth on 2017 and 6.9% in 2016.

Deteriorating

Agriculture is doing particularly badly: its 0.4% growth in the first three quarters of 2018 is approaching its worst performance since 2016. But even the hyped manufacturing resurgence is hitting a wall – the 5.7% growth in the first three quarters is much slower its 8.4% clip in 2017, and the full year results may be the slowest since 2015.

Filipino industry and domestic agriculture would have been solid foundations of domestic demand and production, if only these had really been developed these past years. This is impossible though under the government’s obsolete globalization and free trade mantra. Agriculture is still left to the vagaries of the weather and small peasant labor. Manufacturing remains shallow and foreign-dominated.

The services sector never should have been the driver of economic growth. But even this is failing. The real estate boom appears to be ending with 5.9% growth of finance and real estate in the first three quarters of 2018 continuing the trend of slowing growth from 7.5% in 2017 and 8.5% in 2016. Reflecting weakening household consumption, even trade is down – at just 6.0% in the first three quarters compared to 7.3% in 2017 and 7.6% in 2018.

The main drivers of growth in 2018 have been the intrinsically short-term boost from government spending – this increased to 13.1% growth in the first three quarters from just 7.0% in 2017. , Construction also increased to 13.3% growth in the first three quarters from just 5.3% in 2017.

Real score on jobs twisted

The worst effect of a backward economy is not creating enough decent work for the growing population.

The economic managers hailed 825,000 new jobs created in 2018 and unemployment falling by 140,000 bringing the unemployment rate down to 5.3 percent. Unfortunately, these do not tell the whole story.

The Duterte administration has actually created just an average of 81,000 jobs annually with 43.5 million jobs in 2018 compared to 43.4 million in 2016. This is because the economy lost a huge 663,000 jobs in 2017, which was the biggest contraction in employment in 20 years or since 1997.

So the largest part of the supposed job creation, or some four out of five ‘new’ jobs, was really just restoring jobs lost in 2017.

But how to explain the falling unemployment? This is a statistical quirk. According to the official methodology, jobless Filipinos have to be counted as in the labor force to be counted as unemployed.

It seems that huge numbers of Filipinos are no longer seeking work and dropping out of the labor force. This is reflected in how the labor force participation rate dropped to 60.9% in 2018 which is the lowest in 38 years or since 1980.

While employment grew by just 162,000 between 2016 and 2018, the number of workers not in the labor force grew by a huge 2.9 million over that same period. It is likely that the reported 62,000 fall in the number of unemployed between 2016 and 2018 reflects workers dropping out of the labor force because of tight labor markets rather than their finding new work (because of weak job creation).

This scenario is supported by IBON’s estimates of the real state of unemployment in the country. The government started underestimating unemployment in 2005 when it adopted a stricter definition that made subsequent estimates incomparable with previous figures.

Reverting to the previous definition to give a better idea if the employment situation really is improving or not, IBON estimates that the real unemployment rate in the decade 2008-2017 is some 10.2 percent. This maintains high unemployment in the economy since the onset of globalization policies in the 1980s. IBON does not yet have estimates for 2018, but the real number of unemployed in 2017 was 4.6 million or almost double the officially underreported estimate of just 2.4 million.

Job generation trends in 2018 are in any case worrisome as it is. The quarterly labor force survey showed drastically worsening job generation since the start of the year. Measured year-on-year, some 2.4 million jobs were reported created in January 2018 but this fell to 625,000 in April then 488,000 in July and then 218,000 jobs actually lost, rather than created, in October.

Economy needing rehab

Perhaps high on their own propaganda, the country’s neoliberal economic managers continue to confuse abstract growth figures, business profits and foreign investment with development and the conditions of the people. The reality however is of chronically backward Filipino industry and agriculture and an economy that went sideways in 2018. The real challenge is to discard failed neoliberalism and to replace this with an economics truly serving the people.#

Anti-tyranny group assesses Duterte’s laws and bills

Days before President Rodrigo Duterte’s third State of the Nation Address on July 23, the Movement Against Tyranny gathered in Quezon City to assess the government economic policies and Congressional bills.

Economic experts, legislators and legal luminaries presented before the forum their assessment of Duterte’s tax reform law as well as efforts to amend both the Human Security Law and the Constitution.

TRAIN-driven rising cost of living makes wage hike urgent

Research group IBON said that tax-driven inflation is making the meager wages of poor Filipinos fall even further behind the rising cost of living.

The group said this makes it even more urgent for the government to immediately raise wages even as it revisits the Tax Reform for Acceleration and Inclusion (TRAIN) law behind the increase in consumption taxes.

The Duterte administration would be insensitive if it continues to resist the clamor for a decent national minimum wage, the group added.

IBON said that accelerating inflation has increased the family living wage (FLW) in the National Capital Region (NCR) and elsewhere.

IBON computations show that as of June 2018, a family of six needs Php1,175 to meet their basic needs, while a family of five needs Php979.

The FLW has increased by Php65 for a family of six and by Php54 for a family of five in June 2018 from the same period last year.

As it is, said the group, the NCR nominal minimum wage of Php512 is falling even further behind the rising cost of living.

The NCR nominal wage is only 44 percent of the FLW for a family of six, and 52% of the FLW for a family of five with a wage gap of Php663 (56 percent) and Php467 (48 percent), respectively.

The wage gap will continue to widen as inflation erodes the minimum wage.

Reacting to economic planning secretary Ernesto Pernia who said that a wage hike is not necessary, the group said that an immediate wage hike will help poor Filipinos cope with price spikes.

The Duterte administration can respond to the demand of labor groups for a Php750 national minimum wage.

IBON stressed that there are enough profits in the economy and among corporations to support the substantial increase in the minimum wage needed by workers and their families.

IBON also belied claims by the country’s economic managers in their joint statement on the June 2018 inflation that TRAIN’s reduction of personal income taxes, cash transfers, and allocation for free social and economic services “should help in coping with the rising prices of goods.”

The group said that their assertion that TRAIN “increased the take-home pay of 99 percent of income tax payers” is grossly deceitful because they know that only around 7.5 million or one-third (33 percent) of Filipino families are income tax payers.

Of these, some two million were already exempt from paying income tax even before TRAIN because they were only minimum wage earners.

This means that 17.2 million or over three-fourths (76 percent) of Filipino families suffer inflation but without any increased take-home pay.

IBON also said that the government should stop hyping TRAIN’s cash transfers because when they are ended by 2020 the higher prices of goods and services due to TRAIN will remain.

The group said that the Duterte administration’s unrepentant defense of TRAIN is daily affirmation of its callousness to the plight of tens of millions of poor Filipinos and its refusal to replace TRAIN with a more genuinely progressive tax package that is unafraid to tax the rich. #

 

Citizens speak against TRAIN law

Ordinary citizens speak on the Rodrigo Duterte’s Tax Reform for Acceleration and Inclusion Law, explaining the poor are affected the most by the inflation caused by the measure.

TRAIN was among the issues condemned by activists as they commemorated Philippine Independence Day with a protest action last June 12.

Slow TRAIN cash transfers highlight govt’s insensitivity–IBON

“The poor will get relief about three months into suffering TRAIN-induced price increases with millions of others only getting it much later.”

 Research group IBON said that the slow implementation of the Duterte administration’s social mitigation measures including its cash subsidies highlights how these are just an afterthought to cover up how the Tax Reform for Acceleration and Inclusion’s (TRAIN) program is anti-poor and pro-rich. TRAIN was railroaded last year to already be able to raise revenues starting January 2018 even if the supposed mitigation measures were not yet clear.

This is in reaction to the Department of Finance (DOF) announcement about the looming implementation of the government’s unconditional cash transfer (UCT) to supposedly help the 10 million poorest Filipino families cope with the impact of TRAIN. The DOF said that the 4.4 million existing Pantawid Pamilyang Pilipino Program (4Ps) beneficiaries and three (3) million indigent senior citizens will start receiving the Php200 per month cash subsidy in March. The balance of 2.6 million households are supposed to start receiving theirs in August.

IBON executive director Sonny Africa noted that the DOF was last year quick to undertake the staff work for raising taxes on the poor and giving income tax relief to the rich. Yet, in contrast, it was grossly unprepared to implement any of the supposed social mitigation measures even nearly two months into the law’s effectivity. As it is, the poor will get relief about three months into suffering TRAIN-induced price increases with millions of others only getting it much later in August or after eight months.

Africa also said that the DOF was merely scrambling to report 10 million helped “no matter how sloppy the figures.” “The numbers don’t even add up,” he said, “because many of the 3.3 million poor elderly will likely already be among the 4.4 million CCT beneficiary households so double-counting is already happening, more so two or more elderly are in these poor households.”

Meanwhile, TRAIN’s promised fuel subsidies for public utility vehicles (PUVs), fare discounts for the poor and other social mitigation measures still remain unrealized, said Africa.

Lastly, Africa said, it is worth repeating that the cash subsidies are temporary and only from 2018 to 2020. “These are also the three years when oil taxes keep rising and prices keep getting pushed up higher and higher,” Africa noted. “The real TRAIN shock happens in 2021 when the UCT gimmick is gone but the prices that the poor pay for their basic goods and services will be immensely higher,” he said. (IBON News / February 27, 2018)