My previous articles have received various reactions lately, ranging from safe to strong objections.
My take on stock investing did not exactly draw passionate ones, yet people still questioned its role in the success of investors in winning their game.
These readers may be in for a bigger surprise as to what the investing greats have said about the power of common knowledge. Besides this, there are two other key factors often mentioned in making sure there’s success in the market: money management and technical analysis.
The successes of the investing greats can be attributed to 60 percent common knowledge, 30 percent money management and only 10 percent technical analysis.
On the state of the economy, reactions have become more negative. My attention was called to the statement of former Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. before members of the Joint Foreign Chambers of Commerce (JFC) when he received the Arangkada Philippines Lifetime Achievement Award. Tetangco has been credited for his contributions to the country’s much improved economic status and current good international credit standing.
Tetangco said the “economy remains on track for expansion” and that with strong macroeconomic fundamentals, the country “looked set to becoming an upper middle-income economy by the end of the Duterte administration.”
Unperturbed by the lower-than-expected performance of the economy in the second quarter, he upheld the idea of the country becoming one of Asia’s next economic powerhouse as earlier published in the World Bank’s June 2017 Global Economic Prospects report. The latter asserted the Philippines “will be in the top 10 fastest growing economies in the world with a GDP growth forecast of 6.8 percent.”
For Tetangco, this would happen in view of the government’s reform-oriented posture and the collaborative stance of the private sector.
I was also told of Budget Secretary Benjamin Diokno’s pronouncements allaying fears that the “Build, Build, Build” program would push the country deep in debt like what happened during the 20-year regime of former President Ferdinand Marcos.
Diokno said they would not do a Marcos: He borrowed abroad, only to get hit in the ensuing crises.
The government will follow an 80:20 borrowing mix, in favor of domestic credit. The government said there were local funds available and because the economy was expected to grow much faster, the country would be able to outgrow its debt.
Bottom line spin
Expectedly, the most vehement of reactions were in connection to the war on drugs. Many have condemned it for its propensity for abuse.
But the President, in particular, conflates the issue of drugs with peace and order, development and economic growth. He has shown this mindset during his 23-year stint as mayor of Davao City, which they claim is now known for being progressive, peaceful and highly-sought investing haven.
The Philippines looked set to becoming an upper middle-income economy by the end of the Duterte administration, according to former central bank governor Amando M. Tetangco Jr.
MB File- Amando M. Tetangco Jr.
“With a reform-oriented government and a collaborative private sector, achieving the Philippines’ goal of becoming an upper middle-income economy by 2022 is indeed highly feasible,” said Tetangco in a speech before members of the Joint Foreign Chambers of Commerce (JFC). The group awarded him the Arangkada Philippines Lifetime Achievement during a forum last week.
Tetangco, who stepped down as a two-term governor of the Bangko Sentral ng Pilipinas (BSP) last July, continues to see the country’s “strong macroeconomic fundamentals, sound economic management, solid domestic demand and a young and vibrant workforce.”
“The Philippines is touted to become Asia’s next economic powerhouse,” said Tetangco, citing the World Bank’s June 2017 Global Economic Prospects projects that the Philippines “will be in the top 10 fastest growing economies in the world with a GDP growth forecast of 6.8 percent.”
Arangkada Philippines Forum has its own “Implementing the 10-point Agenda” proposals and Tetangco thanked the group for its “valuable partnership and inputs (and) its constructive criticisms.”
Tetangco said it is important to this agenda to enhance the competitiveness of the business environment, to fast-track economic growth and for inclusive growth. Tetangco pointed out that this was achievable and listed the factors that would continue to support growth such the country’s “low and stable” inflation, the well-capitalized and liquid banking system that he said “continues to intermediate funds to the productive sectors of the economy” and “poverty incidence that continues to decline over the years.”
“The BSP has helped cultivate this positive alignment of macroeconomic indicators through calibrated monetary policy, aided by enhanced surveillance and an expanded tool kit; responsive banking regulations, aligned with international standards but recognizing relevant domestic conditions; and market determined external policy, including the liberalization of foreign exchange regulations,” he said. The JFC Arangkada Lifetime Achievement Award is for individuals – not strictly Filipinos – who have “contributed significantly to improving the country’s business environment.”
“Mr. Tetangco was chosen by the JFC for accomplishments as BSP governor that were very important to the foreign investment community,” a statement from the group said. Past awardees include former President Fidel V. Ramos, former PEZA director general Lilia de Lima, SGV founder Washington Sycip, and former foreign affairs secretary Roberto Romulo.
Corporate Watch by Amelia H.C. Ylagan | September 18, 2017
Budget Secretary Benjamin Diokno and National Economic Development Authority (NEDA) Secretary Ernesto Pernia keynoted the Arangkada 2017 Forum on Sept. 14, when the Joint Foreign Chambers of Commerce and Filipino partners in business listened to economic opportunities in the near-, medium- and long-term.
“The Duterte administration will be different. We envision that by the time we step down in 2022, we would have ushered in the Golden Age of Infrastructure in the Philippines, an era that Filipinos will look back with affection as one that laid the necessary foundations for robust and equitable growth in the long-term,” Diokno said.
Sec. Diokno lamented the opportunities lost in the less than 2% of GDP of infrastructure spending from 1986 to 2016, which he said “reflected decades of neglect and misallocation of public resources.” He noted that “the suggested ratio for infrastructure spending as a share of GDP is 5% for developing countries.” Loud and clear, the “Build, build, build” program will reverse previous alleged “inaction” to high-gear “Spend, spend, spend” to stimulate economic development.
Sec. Pernia acknowledged past administrations’ accomplishments: “GDP growth has been on a sharp monotonic uptrend over the last three and a half decades. With a 6.9% GDP growth in 2016 — high end of the government’s target of 6% to 7% — the Philippines is poised to be one of the fastest rising economies in Asia over the medium-term.” Regarding the relative slowdown in the first two quarters of 2017 under Duterte, Pernia pointed out that this phenomenon seems normal, reflecting post-election-year effect on growth.
“The economy is also undergoing structural transformation — growth is increasingly being driven by investments vis-à-vis consumption, and is led by the industry sector relative to the service sector. In other words, sources of economic growth have broadened. Total factor productivity growth of the economy in recent years has been the fastest among ASEAN-6 countries at 3.3% for the period 2010-2014, and the highest in the group at 1.48% over the period 2010-2016” Pernia objectively said of the economic situation prior to “Dutertenomics.”
Pernia is confident that the economy is robust and sustainable, but he laments the inequality across households and regions, and the chronic poverty that persists amidst the glowing GDP numbers. “The country’s GDP remains concentrated in the Mega Urban-Industrial Region comprising the National Capital Region (Metro Manila), Calabarzon (Region 4A), and the Central Luzon Region (Region 3), which collectively accounted for nearly two-thirds of total GDP for the period. But the per capita income of NCR is almost triple the national average of P78,712 for 2016, while ARMM’s per capita income is now only 1/4 of the national average and 1/13th of NCR’s,” Pernia said.
“This is why we have identified infrastructure development as a priority of the Duterte administration,” Diokno emphasized. “We have to close the infrastructure gap soon if we are to realize our development objectives of becoming an upper-middle income economy by 2022 and reducing poverty rate to 14%. DBM is targeting at least 5% of GDP for infrastructure financing in the medium term; 5.4% for 2017; and 6.3% for 2018. In nominal terms, these figures translate to P858 billion and P1.1 trillion for FY 2017 and 2018, respectively.”
Diokno plans to finance this through an expansionary fiscal policy that first, increases the planned deficit from 2% to 3% of GDP. Second are the assumed increased revenues from the Tax Reform program. Combining the two expansionary measures, the government would generate an additional fiscal space amounting to P309 billion in 2018 and rising up to P524 billion in 2022, Diokno assumes.
But what if Diokno’s assumptions on revenue inflows do not actually happen? Would the brave swing to “Spend, spend, spend” from past “inaction” dent the “monotonic (boring?) uptrend of GDP” — the close to 7% GDP growth — acknowledged by Pernia?
The government will have to borrow more, that’s what it means.
Hopefully, the shortfall from unrealized revenues will not drive up long-term debt for future generations to pay for — we are still paying, until 2025, for the debts in Marcos’s martial law: “During the Marcos regime… many ‘successes’ were built on ‘debt-driven growth.’ While it is true that the regime embarked on an infrastructure spending spree, this was pursued largely to justify its existence and at the exorbitant cost of the ballooning of the country’s external debt (Rappler, 03.25.2016).”
And the spending of Marcos did not translate to higher GDP growth for him to brag about. “The economic setback due to the Marcos regime cemented our title as the ‘sick man of Asia’ for the good part of the past 3 decades, and prevented us from partaking of the so-called ‘East Asian miracle’ where by the time we recovered in 2003 the incomes of our neighbors had grown 2-4 times their 1982 levels (Ibid.).”
Many economists have warned that increased government spending does not necessarily stimulate GDP growth, and that the Keynesian recipe of “Spend, Spend, spend” (originally for the post-war economic rehabilitation) has lost flavor in the recent unpredictable, anti-cyclical booms and busts of financial and economic crises. Some even say that increased government spending can hamper economic growth, for the “crowding out” of the private sector, and for the politics that murk the decision factors for government intervention in economic planning.
Professor Emeritus of Law at George Mason University Gordon Tullock suggests that politicians and bureaucrats try to gain control of as much of the economy as possible. Demand for government resources by the private sector leads to misallocation of resources through “rent seeking” — the process by which industries and individuals lobby the government for money. Rather than spend money where it is most needed, legislators instead allocate money to favored groups. Though this may yield a high political return for incumbents seeking reelection, this process does not favor economic growth (mercatus.org, 06.10.2010).
A note to our present leaders and economic planners: Yes, we need roads and bridges, and other infrastructure. But when and if you decide to (over)spend on the “Build, build, build” hybrid PPP program, please be careful to study recent abundant analyses on the advantages and disadvantages of government spending as a stimulus to that much-desired GDP growth figure — make sure there is something to brag about in the end, as our economic history writes itself.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.