The politics of managing the economy

Don't anyone ever call George W. Bush stupid. Well… not after he did the obvious and fired two of his Cabinet members who had something to do with the economy. It is not important that they did nothing much to damage the economy. They didn't do enough to create a perception that the economy is on the mend. Worse, they did nothing to protect W from being blamed for the state of the economy.

Firing the Treasury Secretary and the chief White House Economic Adviser is probably not going to do much by way of turning the economy around. But it at least releases the pressure on the Bush administration to do something, anything… It at least acknowledges that the economy sucks and better managers may be able to turn it around. In fact, Wall Street managed a recovery on the day the sackings were announced.

Back home, Ate Glo missed a golden opportunity to do a Bush a few weeks before Bush did. Some of her economic managers did offer to resign but Ate Glo very quickly stopped them from doing that. She is under the impression that the country's creditors will lose even more confidence in the country if the former investment bankers in her Cabinet are fired. That is not necessarily so.

Reading the editorial of the Far Eastern Economic Review in its latest issue gives the impression that like Bush, Ate Glo might have won some brownie points if she acted more decisively. "Policy vacuum in the Philippines," the headline of the FEER editorial declares, "roils the economy." It went on to cast some well chosen words of contempt on our political leadership that is prone to blame the weather for the country's economic problems.

If the weather is to blame for our woes, FEER editors suggest that the weather should be credited "for lavishing good fortune at other times." The FEER editorial continues: "What we are getting at here is that Philippine policymakers aren't sufficiently responsible for the country's economic well being. They do, however, bear some blame for its mismanagement."

The economy is slipping, FEER asserts, "because Manila doesn't do enough." The magazine editors point to the yawning budget deficit as a case in point. "No other data better shows the government's ineptitude than the budget deficit…" Manila flops big time, FEER says, because the point isn't even about balancing the budget but only deciding how much to overspend.

Because of its ever increasing debt servicing needs, FEER worries that we can't afford to build the infrastructure businesses need in order to invest in the Philippines, spur growth and contribute to tax revenues. While it is obvious that something ought to be done, FEER frets that "judging from the noise from Manila, nothing serious is being discussed."

That, precisely, is Ate Glo's shortcoming. Firing her economic managers may not help the economy improve dramatically. But taking some lessons from Mr. Bush, it would at least tell the people that she is acknowledging some failure and is now shifting gears to help us get on with our lives. Ate Glo's economic dream team has simply stalled. Maybe they are still dreaming. Maybe we need a team with people whose feet are on the ground.

Ate Glo must attend to the urgent business of managing the economy if she wants the politics of 2004 to tilt in her favor. She is allowing the politics of 2004 as interpreted by advisers with ulterior motives to inhibit her from introducing initiatives and making decisions that will help the economy. Ate Glo must quickly learn the lesson learned by George W's father too late to win re-election: after all is said and done, it is the economy, stupid!

Ivy Leaguers

I got this e-mail from one of our readers, Arturo Reyes. Here is that e-mail.

I’m a Filipino student at one of the "Ivies". I agree with most of what you’ve said in your article. Let me relate to you one of my experiences:

A few months ago, Secretary Camacho gave a talk at the Columbia School of International and Public Affairs. I was disappointed by the way the discussion was flowing because he was talking more about general government policy (aka., peace and order, business climate, etc.) rather than the nitty gritty state of our finances which was within his jurisdiction as Secretary of Finance.

To make things more productive, during the Q&A session, I asked a very specific question which was well within his scope. What is the government doing to make CEOs personally liable for the quality of earnings that their companies report, in light of the fact that we’ve had some serious earnings quality cases such as Piltel’s hidden debt, Ramcar, Orient Bank, and more?

The Secretary could not give a clear answer to my question. All he said was: 1. The BW case was filed in court but it has not been settled. – No answer on what the government is going to do about it. 2. That the SEC has launched initiatives such as requiring CEOs to attend seminars. This is outrageous.

While the US government has put Enron, WorldCom, and Tyco executives under criminal investigation, all we could do is make CEOs attend seminars? While Arthur Andersen disintegrated and its name forever dishonored, SGV, the firm that certified the fraudulent reports of some of the Filipino companies continues to operate without being scrutinized for any liability.

I say this because it all boils down to what you said in your article: that there is no activity going on in our economy. During the career search process, I got to speak with some fund managers. I asked them why foreign funds shy away from Philippine equities. Part of it was concerns about peace and order. But the bulk of it was due to the integrity of our equity market.

Equity analysts will hesitate to recommend significant investment in Philippine companies after carefully analyzing their financial statements. And even if these statements were in order, the risks were great because the government would not make people criminally accountable for their misrepresentation, if at all. This is not to say that all Filipino companies are guilty. But investors have to be assured that there are measures that would make misrepresentation very unattractive.

What’s the solution? The government will have to investigate and prosecute offenders. This will not lead to a quick solution of the problem, but there really is no other way. Investors will simply decide to move their funds somewhere else where there is less risk.

I mentioned at the top of my e-mail that I agree with most of what you said. I don’t agree with all. What we have here, is a simple case of valuation, due diligence, and earnings quality analysis. Yes, these are taught in the "Ivies" and you don’t necessarily need street smarts. Our finance and economic managers know this. But using them in real life is a completely different thing. You will need more than just an "Ivies" degree. You need fortitude and courage.

Politicians

Dr. Ernie E. researched this take on politicians.

What this country needs are more unemployed politicians. – Edward Langley

(Boo Chanco's e-mail address is [email protected] )