Local hopes and global risks

In national development as in personal life, hopes and expectations at the start of a new year are also fraught with risks.

Expectations 2024. Local plans and expectations for 2024 are, as always, hopeful. These plans come from the official plans stated in the development plan, tempered by assessments of officials and the economic performance of the past year.

Though the growth last year is not yet fully known, the indicators from the first three quarters have been relatively good, with economic growth rate slightly below six percent.

This year, expectations of a better economic performance are high. This is buttressed by continued positive assessments of multilateral institutions and by private credit risk institutions that continue to give the country an investment grade rating.

The policy reform setting is bolder. Even as the country is improving its inflows of foreign direct investments as a result of reforms inherited from the previous administration and from its own, the government now is preparing to tackle directly the amendment of the restrictive economic provisions in the constitution.

This is the most significant policy agenda initiative this year. The pro-active element in this move to amend the economic provisions is the House of Representatives. The recent statement of Speaker Martin Romualdez to push for the amendment of the restricted economic provisions to foreign investments is the opening salvo.

Quick passage is enhanced if President Marcos takes it up as a priority reform issue. That is essential to an active participation of the Senate in the process. The modus operandi for quick passage is the major issue.

The subject of poor performance in foreign investments being hindered by these provisions has been an established fact for many decades. It has been over-debated and needs closure by political will through constitutional amendment.

Further cause for improved economic performance is economic reorganization of the planning bodies, with the appointment of a special assistant on investment and economic affairs (SAPIEA). This was undertaken to help speed up implementation of investment and economic projects. (See Crossroads, Dec. 20, 2023).

The hopes and expectations for 2024 are, therefore, high. Not only is the performance for the year expected to be repeated if not expected to the higher.

It promises to be a year in which bigger economic policy reforms are likely to take place, led by an effort to remove the major bottlenecks that have limited performance in terms of bringing in more foreign direct investments.

Global risks. There are many risks and constraints that determine the actual outcomes of all plans and expectations. Local risks are those that emanate from domestic factors, such as the failure to follow up plans or those due to changes in local economic conditions. Uncertainties due to acts of nature which could be devastating (destructive typhoons, floods, or earthquakes), but they could also be enhancing (such as good weather).

Global risks are due to events and conditions that are external in nature. They happen outside the control of domestic planners and officials.

This year is a banner year for big global risks.

Four major areas of global concern this year will affect us in many ways: (1) Regional wars and geopolitical conflicts (2) The outcome of the coming US presidential election (3) China economic downturn and, (4) Taiwan and China.

Regional wars. Two major wars are taking place. How, when, and who wins are important even for countries like the Philippines. One effect of Russia’s war in Ukraine was its impact on world food and energy prices.

Those effects stoked our inflationary experience in 2023 and may still influence this year’s experience. The outcome of the Ukraine war will surely shake up the geopolitical balance in Europe, to say the least.

The Israel-Hamas war that began in October last year is not ending any time soon. It is threatening to widen across other countries in the Middle East. Surely, that development can affect trade in goods, especially further adding costs of food and energy prices.

In our region, there is the major maritime tension in the South China Sea. China’s territorial claims has been backed up by a military buildup and an effort to enforce a naval ring around those claims.

Such pressure has already increased the pressure on us to strengthen our alliance with the United States and has raised our budgetary allocation for national security and defense.

2024 US presidential election. The whole world is watching the drama of the US presidential election. It is possible that former president Donald Trump would not be on the ballot, as he faces many legal battles that can derail his candidacy. But if he is elected president, many assumptions about global political and economic directions will be re-examined.

China’s economic slowdown. China’s economy has been on an economic slowdown for some time. This slowdown is a reduction in growth, not a contraction.

For decades, China’s growth rate was spectacular, hovering between eight to 10 percent per year. More recently, this growth has been in the order of four percent per year. China cannot be the global and regional economic driver of growth that it used to be.

Philippine efforts to attract FDIs relocating from China has not succeeded as well as other Asian neighbors. This can improve if the constitutional amendments become successful.

For Philippine calculus, China will continue as a major trading partner of the country. Our membership in RCEP – the wide trading arrangement led by China – will become a key test for improving competitiveness in trade.

Taiwan’s China problem. The threat of invasion from China (which considers Taiwan a province) is a real one. What holds China back is the US support of Taiwan’s resolve to resist and to remain independent.

The tension over Taiwan this year will intensify even as the Taiwanese people make their own choice of their own political path.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/