A growth strategy for the country in perilous times
By Sen. Edgardo J. Angara | 12/07/2008 11:57 PM
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Allow me to begin with one inevitable fact: 2009 will be a Perilous Year.
What started out in the United States as an innocuous sounding name – subprime lending – has spread like a computer virus infecting the banks of the rich countries and then the banking system of the emerging markets.
Today, we are faced with, as a governor of the US Federal Reserve puts it, “the greatest economic challenge of our time.” The global financial system has been turned on its head: there is an ongoing “fundamental reassessment of the value of every asset everywhere in the world.”
The Rich world is already in recession: the US, Japan, the 15-member Euro zone, the United Kingdom and Russia. In our own neighborhood, South Korea, Taiwan and Singapore are in recession. China and India, two of the fastest-growing emerging markets, are in economic slowdown.
It is a pandemic. And countries are asking themselves, if the mighty economies can succumb, who is safe? No one is.
Unfortunately, this news, while persistent and constantly disseminated doesn’t seem to concern most of our countrymen, perhaps because the words “recession” and “credit crunch” seem intangible. Allow me then to express it in more concrete terms.
In just one week starting from November 22, 80,000 jobs have already been lost worldwide mostly coming from countries that are trading partners with the Philippines. This figure, however, does not yet include the jobs already announced to be lost over the next coming weeks and months.
Global recession
These facts point to one truth. We face a global recession, which we are not ready for. It is a negative spiral of consumers not spending and deflating consumer prices, which will ultimately lead to production cuts, worker layoffs and to a sharper slack in demand.
The problem is exacerbated by our complacency. Politicians and economists are being too timid with their warnings. This is folly. Closing our eyes to the new reality facing us is pointless. In a globalized world, there is no safe haven. The Philippines, all of us, will be affected.
As I speak, the traditional pillars of our economy, exports and remittances, are shaking. Why? The US, Europe and Japan form two-thirds of our export market, a third to China and the ASEAN, and they are all in recession or slowdown.
By next year, of the 5.1 million Filipinos working abroad, 590,000 are at risk of losing their jobs.
• 129,000 in the US under temporary working visas, particularly those in hotels, casinos as well as agricultural workers
• 48,000 seafarers in cruise ships
• 268,000 factory workers in South Korea, Taiwan and Macau
• 130,000 Household Service Workers in Singapore, Macau and Hong Kong
Of this number, 50,000 to 100,000 are losing their jobs now:
• 30,000 to 40,000 holders of temporary working visas in the US
• 5,000 to 15,000 seafarers in cruise ships and 15,000 to 30,000 factory workers in South Korea and Taiwan
In Dubai, massive lay-offs have begun. Nakheel, a major property developer that built the Dubai Palm, recently shed 15 percent of its workforce.
Last Monday, the administration announced that the country will miss this year’s $1 billion mining investment target, while our top ten largest and most profitable banks posted diminishing profits in the first 9 months. The “most profitable”, BPI, reported a reduced profit of 30 percent from last year.
If not handled correctly, the financial crisis we see today will become tomorrow’s human crisis. The cascading series of crises, each building upon the other, bears potentially devastating results for all. History tells us that deep depressions deliver unhealthy cleansings of excess and foment social and political catastrophe. Preparations must be done today. And the duty to alert the citizenry lies on us.
2009 budget
The 2009 budget debate is the best platform to warn our citizens. The shifting of our spending priorities sends a clear message that we are girding for a coming storm. At the same time, the 2009 Budget is also the best vehicle to begin a carefully measured Growth Program. Our government must, at least temporarily, pick up the slack to generate jobs, as the private sector continues to be hard hit by the ongoing crisis.
We need to utilize a two-pronged strategy: first, we focus our country’s limited resources to job creation and investments in human capital; and second, we stress the importance of coordinated spending among agencies.
We are targeting our spending on basic infrastructure, education and health, housing and the environment. We are strongly complementing these activities with a vigorous R&D and training program.
In the face of slowed remittances and weak export markets, we must look inwards. Both science and experience tell us that Infrastructure spending is the best way to create jobs and stimulate consumption, especially in the rural areas where we need it the most. Public Works put money in the pockets of our citizens. This will provide us with a safety net for our people.
For 2009, we allocated P177 billion for infrastructure projects. Of this amount, thirty percent (30 percent) or P54 billion will be for direct labor. Since every P100,000 creates one job, this P54 billion means that 540,000 Filipinos will be employed.
The same approach applies to housing, whose total budget for 2009 is P5.3 billion. By using data provided by the shelter agencies, an additional 607,003 jobs will be created.
These domestic employment opportunities will serve our people well in the coming year, when working abroad will start losing its luster and the outsourcing jobs we currently rely on will slowly shrink.
Coordinated infra spending
We took the initiative in convincing these agencies to coordinate their spending. The results are very promising. From this point on, all the infrastructure agencies will be using just one common infrastructure map. This means that when the DA builds a farm-to-market road, it not only leads to a market, as it should, but also leads to another road. Interconnection will ensure that our bridges will lead to somewhere, not nowhere.
Having funds available is useless if they are not readily accessible. Thus, the Committee worked closely with the Department of Budget and Management. I am glad to report that DBM gave their commitment to let projects for 2009 be bidded on today, cutting down the time lag between the bidding process and the actual initiation of the project. This means we can start building those projects now when we need them, not six months into 2009.
The beauty of this approach is that it addresses two of our problems at the same time. By building roads, school houses and bridges we prepare for the long-term health of the economy, especially that of the countryside, leading to opportunities for employment.
The short-term prospects are also good. Since roads and bridges don’t build themselves, we offer a ready cushion for the crisis for our citizens by engaging in infrastructure spending.
Reducing poverty, investing in human capital
Beyond economic concerns, infrastructure spending is also vital to poverty reduction. International economic data suggests a strong connection between agricultural development and poverty reduction. Since infrastructure fosters productivity in agriculture, it lifts tens of thousands of farmers out of poverty.
Some observers may ask, what is the relevance of poverty reduction to efforts to strengthen an economy?
The answer is one that is rooted in fundamental economic principles. The economic history of nations tells us that economic growth without a human face is short-lived. Destitution will, sooner or later, weigh down growth. Further, focusing on growth alone is incomplete and will only exacerbate inequities. The poor must be allowed to participate in the growth process. Redistributive reforms are needed. Put simply, poverty reduction is essential for sustained growth.
Prioritized spending on infrastructure, as well as the social services, specifically education, housing, environment and health is complemented by training investments in human capital. A Budget is not just for the here and now, but the future as well.
In line with this, the DTI will sharpen its focus on two items:
a. Small and Medium-Scale Enterprises, which account for almost 90 percent of the jobs created in our country; and
b. Creative industries, which cover artists, designers, animators and architects.
At the same time, State Universities, as well as the Commission on Higher Education (CHED) agreed to concentrate on Four Specific Thrusts:
a. Faculty development;
b. Facilities improvement;
c. Student access through scholarships and grants; and
d. Research and Development.
These concentrations target the very heart of higher education: the teachers, the students, laboratories and research facilities. The Philippines has been long identified around the world as depriving its children of basic literacy and numeracy skills by failing to address “deep and persistent” inequalities in education. This stops now.
We also paid particular emphasis on Research and Development. All agencies with R&D budgets will convene in an unprecedented meeting to pool limited R&D resources and identify key research thrusts for 2009 – something that has never been accomplished before. R&D agencies have agreed to hold the Conference at the UP on 15 December to fix the Research Agenda for 2009.
Innovations
In all, the committee is presenting a Budget that introduces three innovations to cope with the global economic slowdown:
First, it is a Growth Budget finely calibrated to effect reforms in policies and institutions to maintain the momentum for growth and sustained development even as current global economic difficulties weigh down on short-term prospects.
Second, it prioritizes massive and coordinated infrastructure spending on roads, schools, housing, irrigation and other public works.
Finally, in anticipation of the recovery, it provides stepped up training of the workforce and increased R&D work.
The storm is inevitable. At this point, how we spend our precious little resources, and putting it into good use, will determine whether we can provide a crucial safety net for our people. If we fail to do this now, the outcome is stark and simple: we WILL FALL - just like Iceland, just like our neighbors in the Asian region.
And one final point, quickly.
What we have done in the 2009 Budget is just a beginning. Our survival depends on something more jugular. We need to sit down and work on a strong, focused Stimulus Package built on a clear-cut, do-able program of job creation, and to some extent tax relief. We must invest massively in infrastructure, research, innovation, education, and the training of our people. It is now or never.
80,000 jobs are being lost every week. It is lunacy to believe that those figures do not and will not include Filipinos. In this environment, there are no sacred cows. Ultimately, the length and effect of the crisis depends on all of us. We must look towards the future, not just with faith, but with action.
This is the perfect moment for us to clean up our economic house and reform our institutions.
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These are excerpts from the author’s sponsorship speech for the 2009 Budget (Sub-Committee “C”) delivered on December 3, 2008.
