The opposition has been on a propaganda binge last year since Ferdinand Marcos Jr. formally declared he was running for the Presidency. There has been much debate about the economy during martial law and post-martial law. There is a raging debate about which was the better time for Filipinos. There is a lot of factors which get lost in the wash because of their respective biases. It is time to put it in its proper perspective moving forward.
In a recent interview, Calixto Chikiamco, the Chair of the Foundation for Economic Freedom said that the time has come for a historical review of our political and economic structures in order to adapt to the present environment. The Philippines continues to lag behind its more progressive ASEAN neighbors and the rest of its peers in the region despite the natural advantages it enjoys over the field.
This is primarily due to the succession of inward looking and protectionist Constitutions which have been adopted since the American colonial period, beginning with the 1935 Constitution and followed by the 1973 and 1987 Constitutions. We have not followed the tradtional path of developing agriculture-based industries prior to moving up to high-level manufacturing which is focused on exports. This is why food security and food inflation continues to be a perennial problem, made worse by a rapid increase in population. In 1986, the population was only 56M. Today we are on track to hit 110M by 2030 or earlier.
The pandemic has put a huge dent on government borrowing, doubling the debt-to-GDP ratio as a result. It currently stands at 63.5% of GDP, which is borderline between the danger zone and the what could be considered as desirable which was roughly 35% of GDP before the pandemic. To this end, outgoing Finance Secretary Carlos Dominguez has prepared a fiscal consolidation plan for the consideration of the incoming Marcos administration, as part of the turnover process.
These include the following as per the data provided by the DOF:
Package 1
Package 2 and 3
Revenue Impact Assessment
As can be gleaned from the above, the DOF is targeting specific sectors in order to prevent the imposition of new consumption taxes which has a direct effect on the population, with the exception of the reduction of the personal income tax rate for the period 2023 – 2025 as provided for under TRAIN.
The rest of the measures are rationalization, reimposition or new taxes on pioneer industries, particularly digital platforms and expanded sin tax coverage of new sin products. Note that the above will only cover the debt service of Covid loans amounting to P254B per annum.
In summary, Dominguez is urging the incoming Marcos administration to abide by the above measures and not resort to new borrowings or cutting spending, in order to raise the revenues needed to repay the pandemic loans and keep the budget deficit in check.
The other option is an increase in foreign direct investments by way of the amendements to the Public Service Act and the Retail Trade Liberalization Law. This would hit two birds with one stone, addressing the issues of increasing government revenue and cutting down unemployment. It remains to be seen what the investor sentiment is given the transition from the Duterte to the Marcos administration. There is a level of anxiety over who will be appointed to the economic cluster of the Cabinet; Finance, Trade and Industry and NEDA.
As per Bilyonaryo, BSP chief Benjamin Diokno has agreed to his appointment as the Secretary of Finance as his term ends June 30. Felipe Medalla, anothe former NEDA head during the Estrada administration, will replace Diokno as he is a current member of the Monetary Board, the policy-making body of the BSP. Arsenio Balisasan has accepted his appointment at NEDA. Former UP President Alfredo Pascual has been named DTI Secretary. This makes for an economic managerial team of UP alumni.
NEDA’s Karl Chua has called for the passage of pending economic reform legislation in Congress including the last packages of the CTRP on property valuation and financial taxes along with the National Land Use Act. There is also the ratification of the RCEP and the corn, livestock and poultry bill and water sector reforms, which are all meant to stabilize food inflation.
Foreign direct investment will not automatically come in despite the passage of amendments to the laws mentioned above. Investors are still apprehensive due to the high power costs, labor costs, corruption and red tape. Another serious concern is regulatory capture of government agencies by oligarchs who are in the specific industries opened up such as telecommunications, transport and utilities. It remains to be seen if Marcos will be like Duterte when it comes to cracking the whip on oligarchs crossing the line.
Increased agricultural productivity is an area of concern for food security. This was a priority during the first Marcos administration and Marcos has stated that it will be again during his tenure. Agricultural modernization should be driven by technology, research and development and the elimination of the middlemen who profit more than the farmers and fishermen. Shipping and logistics should improve and become cheaper once the Luzon-wide rail system is completed. More importantly, there are also the cartels which have become more brazen over the years in controlling supply and prices as compared to the first Marcos administration when they were disbanded by force.
The serious external threat not only to the Philippine economy but the global economy as well is the US. The US economy is at serious risk of stagflation owing to record-high inflation, burgeoning budget and trade deficits, leading to higher interest rates. It does not help also that US-led sanctions on Russia have caused commodity prices to spike and supply chain disruption causing shortages of certain commodities. The BSP has raised its lending rates by 25 basis points in reaction to the US Federal Reserve hike and also in a bid to contain domestic inflation.
But as most have noted, there is the pressing need for a revamp of the political and economic structures which can only be addressed by constitutional amendments. Marcos has to make the decision which comes first. The country’s progress has been hampered by its political structure which does very little for continuity and consistency unlike our regional counterparts which is why have overtaken the Philippines.
There is also the peace and order situation relative to the economy. Duterte has managed to make peace in Mindanao with Muslim-Filipinos who now have the Bangsamoro Autonomous Region of Muslim Mindanao. There is still the issue of the Nur Misuari faction, the MNLF and their hope of their own federal region in Western Mindanao since BARMM is mostly focused on Central Mindanao Muslims.
There is also the insurgency of the CPP-NPA-NDF which Duterte has cracked down on due to their impossible demands during the peace talks. Filipinos have had enough of the revolution without direction being waged by Jose Maria Sison from the safety and comfort of the Netherlands. The NPA’s last bastion is northeastern Mindanao and the AFP has made gains in dismantling other regional fronts.
Mindanao has a vast potential to become the country’s food basket and is also rich in mineral and energy resources. It also offers a plethora of tourism destinations which will accelerate its development if only the peace and order situation greatly improves.
Marcos definitely has his work cut out for him but this would have been more of a challenge if Duterte did not pave the way. As it is, Duterte’s economic team has achieved a lot despite the challenges it faced on both the political and economic front, what with the pandemic throwing the monkey wrench into the equation unexpectedly.
The onus is on Marcos as he has the disadvantage of the baggage he brings with him from his father’s Presidency. Marcos has succeeded in the restoration of his family to power. Now the hardest part is vindication and legacy. There is no room for failure because his countrymen have given him the mandate he asked for.
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