The Philippine government is preoccupied with the impeachment trial of Chief Justice Renato Corona. But with the recent World Bank warning that the global economy is on the edge of another damaging financial crisis this year, how prepared is the Aquino government to address the risks on the Philippine economy?
The World Bank this week issued a warning against more risks in the global economy in 2012, forecasting a downturn that it said will be worse than the financial crash in 2008.
In the Philippines, there is a guarded public optimism that things may get better in the coming period, especially with the ongoing impeachment of CJ Corona and the drive against the previous Arroyo administration. However, according to IBON research head Mr Sonny Africa, while the unfolding impeachment trial may bring important progress against Arroyo, it cannot divert the public attention from the present economic problems caused by the worsening crisis.
More importantly, Africa said, government is not doing enough to prepare for the looming global downturn. The adherence to failed globalization policies is blinding it to adverse trends in the world economy and compromising Philippine development and the welfare of Filipinos. On the contrary, there are strong reasons to doubt the Aquino administration’s optimism that increased government spending, improved exports and foreign investment, and continuing remittances to sustain the economy in 2012.
Government spending in 2012 is higher but there is still no significant stimulus spending. The P1.8 trillion national government budget for 2012 is 10% larger than in 2011 but non-debt spending is equivalent to just 13.3% of gross domestic product (GDP). This non-debt spending as a share of GDP is the sixth lowest in the last 20 years and much less than the 17.1% peak in 1997. There were even six years under the previous Arroyo administration where this was higher and ranged from 13.4% to 14.7 percent.
There will be a contribution to growth but this is not necessarily going to be significant. The mid-1990s saw the country’s peak non-debt government spending as a share of GDP: 15.6% (1996), 17.1% (1997), 16.4% (1998), 15.9% (1999) and 16.1% (2000). But this was still not enough to compensate for the Asian crisis at the time and growth in GDP still collapsed from 5.8% in 1996 to 5.2% (1997) and negative 0.6% (1998).
There is also weak or slowing growth in the country’s major export and investment partners. Japan, the United States (US), European Union (EU), China and Southeast Asia together account for over two-thirds of the country’s exports and foreign investments. Yet the World Bank expects Japan to grow by a sluggish 1.9% in 2012 and the US by just 2.2%, while China will slow to 8.4% (from 9.1% in 2011) and the EU will even contract by 0.3 percent.
Overseas remittance growth is also slowing and in the last two years already much slower than the double-digit rates of pre-crisis years. Cumulative remittances in January-November 2011 grew just 7.3% which is lower than the whole-year 8.2% rate in 2010. While a recovery from the 5.6% growth in 2009 these rates are still much less than 13-25% rates in the years immediately preceding the global crisis: 25.0% (2005), 19.4% (2006), 13.2% (2007) and 13.7% (2008).
All these point to the need for the government to break old ideas and focus on increasing domestic demand. Mr Africa, who presented the latest IBON’s yearend briefing, also noted that public approval for the Aquino administration is not absolute and may go down if there are no tangible accomplishments as the economic conditions worsen in the coming period. Public approval improved with the start of the anti-Arroyo offensive in late 2011, but this could fall again in the second semester of 2012 as the economic crisis worsens amid government inaction and if the anti-Arroyo campaign ceases to be diverting (for instance, after the trial is over or court cases drag on). According to Africa, tangible actions from the government may begin with the administration having a change of attitude to redistributing income, wealth and assets and focus on the domestic economy. (end)