IF the current administration wants to bring down the country’s poverty rate to single-digit levels, the economy must grow faster—even at double digits, according to the Philippines’s “Prophet of Boom.”
In a recent economic briefing for EastWest Bank, University of Asia and the Pacific [UA&P] Professor and constitutionalist Bernardo M. Villegas said the country needs to attain a GDP growth of 8 to 10 percent in order to bring the poverty rate to single-digit.
Based on the Philippine Statistics Authority [PSA], poverty incidence per population was at 18.1 percent while poverty incidence in terms of households was at 13.2 percent in 2021.
“GDP growth is not the end-all and be-all of economic development. We have to address our biggest challenge, which is poverty eradication. We have the highest rate of poverty still in East Asia. Most of our Southeast Asian neighbors have brought down their poverty incidence to single digit, anywhere from 1 to 4 percent,” Villegas told the BusinessMirror on the sidelines of the event.
“In fact, Malaysia had one year when it had zero percent poverty incidence. Ours is still at 13 to 15 percent. We cannot make a dent on that if we just grow at 6 to 7 percent. We have to grow at 8 to 10 percent which is the experience of the so-called ‘Tigers’ when they were growing,” he added.
Villegas said attaining a growth of 6 to 7 percent is already possible for the current administration given the momentum of the economy and the reforms introduced in the past two administrations.
He said the Marcos administration does not even have to do anything to attain this level of growth.
However, poverty reduction is crucial. Villegas said bringing poverty rates down was the Asian Miracle that propelled China, Hong Kong, South Korea, Singapore, and Taiwan into prosperity from the 1960s to the 1990s.
In 1978, Villegas said, the reforms introduced by Deng Xiaoping, then leader of the Chinese Communist Party (CCP) who opened up the Chinese economy, led to the “biggest miracle of the century” as it lifted 600 to 700 million Chinese from poverty.
At that time, China was growing steadily by 12 to 14 percent. This meant that the reduction in poverty in China happened only over a span of 20 years, Villegas said.
“China in less than 20 years redeemed 600 to 700 (million) poor people out of poverty. And so the challenge to Marcos is how to accelerate the growth rate from what I consider a mediocre 6 to 7 percent, even though it’s already the highest in the region, because we have a lot of catching up to do,” Villegas pointed out.
In order to attain this growth, the Marcos administration needs to do three things, according to him: increase the productivity of the agriculture sector; increase the country’s investment-to-GDP ratio; and eradicate corruption.
Increasing the productivity of the agriculture sector means improving farm growth to 2 to 3 percent per year. Villegas noted that this level of growth is already significant in other parts of Southeast Asia.
Villegas said that even the country has not posted an annual growth at this level in many years. The country’s agriculture sector has only been growing at one percent or its growth starts at zero.
However, based on PSA data, agriculture sector growth increased by 2.1 percent in the first three months of the year. This is considered the highest growth of the sector in over two years.
“Agriculture is a very tricky sector. (You have) all sorts of pests, all sorts of climate, etc. So 2-3 percent is reasonable. He (the President) already knows how to do it. In fact, as Secretary of Agriculture, he has been getting so much good advice from the right people. I think he’s been doing his homework. I don’t agree with people saying it was a mistake for him to become Secretary of Agriculture,” Villegas said.
Maharlika helpful
In terms of increasing investments, Villegas said the creation of the Maharlika Investment Fund (MIF) will be very helpful as this could draw in more investments.
This means bringing the country’s investment-to-GDP ratio to at least 30 percent from the current 20 to 21 percent. Villegas noted ratios of 25 to 35 percent among the country’s neighbors.
Based on Bangko Sentral ng Pilipinas (BSP) data, the foreign direct investments (FDI) that entered the country reached $876 million in April 2023, a 14.1-percent contraction from the $1 billion recorded in the same period last year (full story here: https://businessmirror.com.ph/2023/07/11/april-fdi-dip-on-global-slowdown-inflation/).
Villegas said the MIF could help finance infrastructure constraints, particularly in terms of addressing Right of Way Acquisition (ROWA) problems. The 1987 Constitution provides the State the power of eminent domain and what is needed is to better enforce this and implement through funding.
The only criticism Villegas had about the fund was the name which, he said, should be changed to the ‘Philippine Long-term Investment Fund.’ Changing the name, he believes, could make it acceptable to more Filipinos.
“This (increasing investment-to-GDP ratio) cannot be done from local sources. We are overborrowed, our savings rate is so low that we don’t have long-term capital. This is why I want to call the Maharlika fund, the Philippine Long-term Investment Fund because it can be used as an instrument to address this problem by bringing in billions of dollars of foreign investments. That’s the only way. Our local sources have dried up, even the San Miguel’s, the Ayala’s don’t have long-term capital,” Villegas said.
Corruption
The third task, that of eradicating corruption, “is a no brainer” according to Villegas. However, he said, economic development can still be achieved even if corruption cannot be immediately eradicated.
One example is South Korea which is one of the Tiger economies and is already a first world country. Villegas said watching Korean drama already illustrates the deep-seated inefficiencies of their government.
Villegas said South Korea sent three of its Presidents to jail for corruption. Malaysia, an advanced economy in Southeast Asia, also sent its former Prime Minister to jail for corruption for his involvement in the misuse of Malaysia’s wealth fund.
What is crucial is that there are policies in place that will work to wipe out corruption. Putting these policies in place will allow the government to do more in terms of economic development.
“I know it will not happen overnight. But I always tell people, ‘yes corruption is so difficult to eradicate, it will take us years and years but don’t despair.’ Even if corruption continues to a certain extent, we can still become first world,” Villegas said.
Earlier, the Association of Southeast Asian Nations (Asean) Macroeconomic Research Office (Amro) maintained its growth and inflation forecast for the Philippines this year and in 2024 despite global headwinds.
In a briefing on Tuesday, Amro Chief Economist Hoe Ee Khor said the Philippines is still expected to post a growth of 6.2 percent this year and 6.5 percent next year, while inflation is seen averaging 5.9 percent in 2023 and 3.8 percent in 2024.
Khor said the Philippine economy remains a service-oriented one and may be insulated from the slowdown of the trade of goods that is expected in other Asean economies (Full story: https://businessmirror.com.ph/2023/07/12/amro-keeps-inflation-gdp-forecasts-for-phl/).
Image credits: Nonie Reyes