It’s still economics

It’s probably safe to say that 99 percent of our government officials, other than those in the economic agencies, do not understand economics. Nor do they really care to understand how economics work. And that includes the President. Not surprised he didn’t say much about economics during his SONA.

At least the President has a good economic team and he has delegated the handling of all economic matters to them. To the credit of the team led by Finance Secretary Sonny Dominguez, they have done as well as they could during the last three years.

Of course, they could have done better if they had better political support from the President. Fighting for the tax reform packages became almost the sole responsibility of Sec. Sonny. Only one package was passed, and very quickly blamed for a rise in inflation that was actually caused by high food prices, a failure of the agriculture department.

Now, the rapid decline in the farmgate price of palay (unhusked rice) is being blamed on the Rice Tariffication Law sponsored by the economic team. Up until the President expressed support for it during his SONA, Sec. Sonny had been alone in defending the law from demands that it be repealed.

True, farmers are reeling from the drop of farmgate palay prices. That’s expected as the market anticipates the importation of Thai and Vietnamese rice. But that’s why taxes imposed on imported rice were designed to support rice farmers.

The support to rice farmers through technical assistance, better seeds and modernization of farming methods should be rolled out as fast as the rice imports come in. NFA should buy more vigorously from our farmers at a price above what traders are offering.

If the agriculture department is doing what its mandate under the law calls for, our rice farmers should be more than able to weather the storm. Obviously, the bureaucracy of the badly performing agriculture department is sleeping on the job.

The agriculture secretary is effectively a lame duck since the President has already announced he will be given a new assignment. The President should appoint a new secretary quickly to get much needed help to the farmers.

And speaking of agriculture, it has underperformed to the point of stagnation over the last few years, notably the last three years. Its shortcomings have caused high food prices for consumers that resulted in organized labor agitating for higher wages, which employers say reduce our competitiveness.

It starts with food, it is clear. And we need an agriculture secretary who understands his mission and is technically capable for the big challenge of climate change on our agricultural sector.

Economists have pointed out the need for government to troubleshoot as quickly as possible disturbing economic trends. These include the continuing deceleration of economic growth, loss of jobs and inflation.

In a forum at the University of the Philippines, economist Emmanuel de Dios remarked that “As you can see, in terms of the growth rate, there has been a deceleration since the beginning of the Duterte administration. GDP grew at 6.8 percent in 2016, 6.7 percent in 2017 and 6.2 percent in 2018.

“And that, 2019, Quarter 1... there was a big surprise because, for the first time, it was below six percent.” GDP’s growth rate of 5.6 percent in Q1 was the weakest quarterly pace since the first quarter of 2015.

While the Duterte administration congratulated itself for rapid economic expansion and the “lowest unemployment in 40 years”, De Dios warned of a rapid decline in competitiveness in the economy.

“(I)t’s not just a Duterte problem. It has been going on for some time that the economy has become less and less competitive, and less and less export-oriented. We are supposed to be (undergoing a) manufacturing renaissance. But it’s actually stagnated. Industry’s share in the GDP, likewise, only increased minimally from 34.01 percent to 34.84 percent last year.”

Our export sector, basically labor value added in the assembly of semiconductors, has seriously declined as a consequence of the trade war. We are part of the supply chain that extends to China.

Indeed, we need to do what we should to boost our exports, industrial and agricultural, because export earnings sustain economic growth. This we can see in the experiences of our neighbors, Thailand, Vietnam, Malaysia and Indonesia.

We need to catch up with Vietnam in attracting foreign investments. Liberalizing equity ownership rules had long been talked about, but nothing ever happens. Updating the Public Service Act was stranded in the last Congress, thanks to Sen. Ralph Recto.

We cannot forever say we are least affected by worldwide economic disruptions in trade because our economy is domestic consumption driven. That is not sustainable long term.

OFW remittances that provide the foreign exchange that powers our domestic consumer driven economy are no longer growing double digits as in the past. Growth has slowed down, probably plateaued.

BPOs are still doing fine. But they are facing cost challenges, basically significant rental increases driven by POGO operators. Artificial intelligence is in the near horizon and will soon cause many BPOs to shed employees in favor of intelligent computers.

There is really so much to fix in our economic system and Sec. Sonny has rightfully chosen to start by reforming our system of taxation and investment incentives. There will be some pain as we institute reforms. But we need to move.

Thus, Congress must now act quickly on the second tax reform package dubbed TRABAHO bill. It primarily cuts corporate taxes and rationalize fiscal incentives. Investors can live one way or the other, but the uncertainty must end. It is time to act.

Unfortunately, it seems the politicians, like the Speaker, are prioritizing charter change for federalism. It will be contentious and will distract us from attending to measures needed to assure our economic take-off. It is still about the economy.

Same old story? Hopefully not.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco