In this interview with The Worldfolio, Mr. Ernesto M. Pernia (PhD), Secretary of Socioeconomic Planning at the Philippines’ National Economic and Development Authority, speaks about efforts to bring about development and better social inclusion and the ‘0-10 point’ socioeconomic agenda.
On May 9th of 2016, president Rodrigo Duterte was elected with more than 39% of the vote giving him a 15-point victory over the second best performing candidate. While many western media were caught offside by the landslide victory, the people of the Philippines truly believe in the message of social inclusiveness, economic decentralization and social order; as shown by his 91% approval rating shortly after the election. What is your take on the election results and what are the main drivers behind it?
The outcome of the election was highly unexpected for many people. The voters had underestimated the main supporters of the current President. Many thought the supporters would comprise mainly of the poorest 40% of the population. It was in fact a cross section that included supporters from the middle class, upper middle class, and the privileged segment of the population – all in varying degrees.
The result could also be attributed to Duterte’s ability to connect with the masses during his campaign. His messages resonated well among the middle income, lower-middle income, and lower income classes. Although his style of speaking is unconventional, it apparently was able to strike a nice chord with the bigger masses of the population.
At the start of the campaign period, Duterte did not garner much in the opinion polls and ratings. He may not have been well-known across the country except in his home region, but he was able to excite a large group of people with his vision and plans.
While positive macroeconomic indicators such as GDP growth are nothing new in the Philippines, the government has put in place a 0-10 point socioeconomic agenda to make sure that these indicators trickle down to the real economy. How important is social inclusion and economic decentralization for the Philippines?
One of the major issues that Duterte highlighted in his campaign was social inclusion. This appealed to a great mass of people who felt that they have been excluded from development.
The previous administration has done well in improving economic growth at the macro level – resulting in low interest rates, very moderate and stable inflation, ample fiscal space, and also recent cutting down of the debt to GDP ratio. As these well-improved macroeconomic indicators persist until today, the current economy continues to benefit in terms of macroeconomic growth.
However, much has to be done to address the long-standing problem of inequality and poverty, which is greatly felt by a large population that belong to far-flung regions. Those who are fortunate enough to feel the effects of development are the people from Metro Manila and the regions surrounding Metro Manila which contribute about 2/3 of the total GDP. The other 14 regions share just 1/3 of the total GDP and feel excluded being out of the boundaries of development. These people and others from all over the country saw in Duterte a greater possibility for the kind of change they were yearning for, and this eventually led to his victory in the elections.
What role can we expect the private sector to play in this process?
Efforts in bringing about development and better social inclusion have been led by the government through the provision of both hard and soft infrastructures. Hard infrastructure includes projects such as transportation (e.g. construction of roads), while soft infrastructure covers quality education and healthcare services that should be made widely available to the population. Upon achieving those, major changes in the degree of poverty and inequality will be felt in a short span of time. When there is better physical infrastructure and human capital in the regions, the private sector will be more encouraged and incentivized to invest in those regions and, therefore, create more job opportunities. That would be their contribution to the development of the country.
The government has set its objectives to play a more crucial role within the region. The Philippine economy was a top performer in South-east Asia in 2016 with a YOY growth of 6.9%, up from the 6.1% posted in 2015. For 2017, the Philippines is expected to grow up to 7.5% on the back of strong domestic demand and an expansionary budget with special emphasis on infrastructure and human development. Domestic demand has been credited as one of the main drivers of growth, what role has it played in protecting the Philippines from external shocks in the current global conditions?
The most practical defence against the negative impacts of the global economy would be to stimulate internal demand, private consumption, and investment spending. That would be made possible with the use of the government budget and the variety of funding sources available to the country now.
Because of the President’s positive relations with China, we now have a buffer against Trumpism. Trump’s economic policies are quite uncertain that we cannot foresee how things will pan out in the long run. That is the kind of uncertainty besetting not just the Philippines but also the global economy.
Infrastructure is a big item on the 2017 budget representing 5.3% of GDP and the government plans to invest up to 7.4% of GDP by 2022, what impact do you expect as a result of this infrastructure golden age policy in real terms?
There was large underspending during the previous administration. Since the government could not decide quickly on projects to approve, project execution was inevitably delayed.
Most of the infrastructure projects today should be concentrated in the far-flung regions so as to provide public services and create jobs for people in those areas. Holding just as much importance would be investment in social infrastructure such as in the areas of education and healthcare.
On the other hand, investments and spending in infrastructure in Metro Manila and the surrounding regions should focus on eliminating traffic crisis and reducing congestion.
And what is the role of the hybrid PPPs?
Funding from China or Japan is considered an ODA, but it can also be blended with the PPP approach or with the government funding from the General Appropriations Act. Given the many combinations and permutations as far as funding is concerned, our funding from China can be co-financed with the ADB or the World Bank. It is truly beneficial for us to have a variety of funding sources that we can choose from. Among the competing ones is Japan who used to be soft and reserved in terms of approaching us. Now, they are more active as a result of China becoming more aggressive.
The Philippines is currently refocusing its efforts towards deeper regional integration, this shift in policy has already resulted in ODA commitments worth over USD 19 billion from China and Japan alone, the highest amount in the first 6 month of any presidency. FDI in 2016 also recorded an impressive 22% growth from 2015, the largest source was Japan which is also the second biggest trading partner of the Philippines. What impact do you expect to see from a deeper regional integration? How would you define the current investment climate of the Philippines for the Japanese private sector under the JPEPA?
It seems that the current investment climate is going to be better given the greater interest shown by China, Japan and other countries. The Japanese private sector usually takes action and follows through since they seem to work in tandem with the government.
What would you highlight as the main opportunities for companies such as Mitsubishi Financial group or Murata which have accompanied Prime Minister Shinzo Abe’s sentiment towards the Philippines?
In October of last year, we had an economic forum in Japan wherein we also met with several Japanese businessmen. They have been made aware of the many opportunities here in the Philippines, with communications technology being one of them. After presenting the opportunities to them, it seemed they will be offering their help in many development projects soon.
The main improvements to be expected include ease of doing business, ease of entry of investments, and minimization of corruption in the country.
First, the proposals regarding the ease of doing business will be welcome, since red tape would be cut drastically and processing will be accomplished much faster.
Also, there is the promise of the President to present a clean government to the people. Although some corruption can still persist, it is expected to be minimized which would, in turn, hopefully, instil more confidence among investors.
What positive impact do you expect for the Filipino people as a result of greater partnership/synergies between the private sector of both countries?
Investments always bring about jobs, and naturally the increase in jobs has the capability of improving people’s income. There will be a bigger impact if the investments have a strong technical component to be adopted. An investment is not only valued for its financial aspect, but also for its potential technological capacities and benefits.
How will the three pillars of the PDP 2017-2022, aiming to realize AmBisyon Natin 2040, contribute to social inclusion, the growth of the middle class, the establishment of a knowledge-based economy, and eventually sustainable economic growth?
The three pillars have already been approved for official adoption just recently. The first pillar is solidarity or the strengthening of social fabric. In Tagalog, the word is malasakit. This refers to what binds the country together. With a strongly bonded society, a more cooperative spirit will be established among the people. There will also be a boost in trust among one another, between the citizens and the government, and between businesses. For example, there would be no need to present so many ID cards to prove your identity or authority if trust within the society is strong. This would allow for transactions to be facilitated and concluded quickly. Malasakit also implies compassion towards your fellow neighbours and compassion between different social classes.
The second pillar is pagbabago, which refers to the inequality-reducing transformation of society and the government. This is significant to our country wherein the reduction of inequality should result poverty reduction. This paves the way for a more inclusive growth.
Lastly, there is patuloy na pag-unlad. This involves enhancing or strengthening the growth potential of the economy, not just for the short and medium term, but also for achieving a long-term vision.
How far along are you and what still needs some work or more focus?
The AmBisyon Natin 2040 and the PDP have both been well received during consultations. These consultations cater to a broad range of groups that include the business sector, different civil society groups, non-government organizations, as well as stakeholders in the regions. This is not just an output of NEDA, but also of the people that have been consulted. This is something we worked on along with the different departments of the government.
The PDP, on the other hand, takes off from the 0-10 point socioeconomic agenda, and it is anchored on the Ambisyon Natin 2040, which emphasizes the collective long-term vision and aspirations of the Filipinos for themselves and the country in 2040. The PDP 2017-2022 will be the foundation for the three subsequent development plans that will lead to the realization of Ambisyon Natin 2040.
Aside from the three pillars of the PDP, there are two specific strategies that will support inequality reduction and increase in growth potential. First is enabling the macroeconomic environment, which involves maintaining a sound fiscal and monetary policy, low interest rates, low debt to GDP ratio, and low budget deficit. Second is levelling the playing field by institutionalizing a mechanism for implementing the National Competition Policy.
In addition to these are bedrock strategies that will support all three pillars of the PDP, such as accelerating strategic infrastructure development and ensuring security, public order and safety, among others. It may be noted that part of the 0 in the 0-10 point socioeconomic agenda are ensuring internal and external security as foundations for sustainable development. This is the peace and order that the President has been trying to pursue and achieve for the country.