MANILA, Philippines — Public attention has focused, in recent days, on the battle for the helm of high-profile agencies such as the Department of the Interior and Local Government (DILG). In contrast, the maneuvering for the leading positions in the prime economic agencies of government such as the Department of Finance, Department of Trade and Industry, and the National Economic Development Authority (NEDA) has largely unfolded under the radar. Yet economic policy is the arena where the incoming administration is likely to be made or broken.
Lessons from the past
If there is any lesson that the incoming president can learn from his mother’s reign, it is this: that sound economic policies are essential to building a stable and strong democracy. The country will forever be indebted to Cory Aquino for her leading role in reestablishing democracy. Unfortunately, that legacy was tarnished by an economic performance that was dismal, one that brought the country to the doldrums, where it is still marooned.
The key feature of the economics of the first Aquino government was the repayment of the foreign debt incurred by the Marcos regime on the terms demanded by the creditors, the so-called “good debtor policy.” Indeed, repayment of the debt became the national economic priority, one that was institutionalized in the Automatic Appropriations Act which mandated that debt servicing must have the first cut in the annual government budget.
The consequences were drastic: interest payments as a percentage of total government expenditures went from 7 per cent in 1980 to 28 per cent in 1994. Capital expenditures, already low, plunged from 26 to 16 per cent. Since government is the biggest investor in the country, the radical stripping away of capital expenditures represented by these figures goes a long way toward explaining the stagnant 1.0 per cent average annual GDP growth rate in the 1980’s and the 2.3 per cent rate in the first half of the 1990’s.
With some 22 per cent of the government’s budget for 2010 earmarked for debt service, the new president will be burdened with the consequences of a policy that was laid down by his mother’s administration.
Why appointees matter
Some say it is not fair to blame Cory. This claim has merit. While Cory must ultimately take the hit under the principle of command responsibility, the bulk of the blame must be pinned on her managers and advisers who, unlike her, were professional economists and technocrats. These economic cadres not only submitted the country to the demands of the International Monetary Fund and large US banks like Citibank, but they laid the groundwork for the process of deregulation, tariff liberalization, and privatization that reached its apogee during the presidency of Fidel Ramos and was consolidated under the presidencies of Joseph Estrada and Gloria Macapagal-Arroyo.
Key policy makers like then Secretary of Finance Jesus Estanislao and economic advisers like Bernardo Villegas set the stage for globalization, or the accelerated integration of the Philippine economy into the global economy, via radical trade and capital liberalization. And, under the first Aquino administration and its successors, one must not forget, as former University of the Philippines President Francisco Nemenzo reminded us recently in a radio interview, the “negative role played by people from the UP School of Economics.”
Two decades later, these policies have created the train wreck that is the Philippine economy. Imports have devastated practically all sectors of Philippine industry, with textile and garment firms, for instance, shrinking in number from 200 in 1970 to less than 10 by the end of the 20th century. From a net agricultural exporting country, the Philippines has, since the mid-1990’s, been transformed and consolidated as a net food-importer. Financial liberalization dragged the Philippines into the abyss during the Asian financial crisis of 1997 and 1998, and the dangers of a globalized economy have become very real in the last two years as the deep recession that hit the country’s main export markets has pulled us down as well.
There are now more poor people in the Philippines than at any other time in its history, and this is not because of an act of God but because of misguided economic policies. Can we really afford to have more of the same in the next six years?
The economic managers we need
Given the decisive role of technocrats, it is important not to fill key economic agencies with people associated with the failed policies and policy approaches of the last two decades. It is tempting to recruit old familiar faces, but it is precisely the old and familiar that one must turn one’s back on if the country is to snap out of its economic slumber.
For the Department of Finance, the urgent need is for someone who will no longer serve as the bearer of the IMF’s message to raise the value added tax or the subservient tool of the bankers that have inflicted financial mayhem on the world. For the Department of Trade and Industry, we must have a figure who will courageously stare down the neoliberal establishment and steer the Philippines away from free trade to fair trade, to managing trade for development purposes. For NEDA, which is a planning agency, one must have, at a minimum, someone who believes in planning, in the role of the state in positively shaping and disciplining markets. Certainly, one must seriously question the credentials of one who believes that in times of economic crisis, such as the one we are currently undergoing, “beyond some moderate transition assistance (mainly to ease the movement of resources to other sectors), the government should stand aside and let the market take its course.”
The incoming president will undoubtedly take very seriously his mandate to eliminate corruption. Let us hope that he will also take the lead in breaking with old, failed policies and appoint people who can help bring about the country’s long awaited economic resurrection.