Awash with cash but knee-deep in poverty: PHL’s inclusive growth problem
April 25, 2013 at 13:38
The poverty level in the Philippines has remained unchanged since 2006 despite a skyrocketing stock market and the robust economy. The problem, say experts, is that the money goes to financial markets and not to industries, where jobs are created.
(Updated 7:30 p.m.) Setting 27 new records since January, the Philippine Stock Exchange is expected to climb to even greater heights, with the economy forecast to grow at one of the fastest paces in the world despite external headwinds.
With the Philippines’ recent upgrade to the much-coveted investment grade rating by global debt watcher Fitch, more funds are also expected to flow into the country’s already liquid financial markets.
So why has the percentage of people living in poverty in the Philippines remained unchanged with all of these gains?
On Tuesday, the National Statistical Coordination Board (NSCB) reported that the ratio of poor Filipinos to the overall population leveled off at 27.9 percent in the first half of 2012 from 28.6 percent in the same period in 2009—despite the fact that domestic liquidity as measured by M3 (the widest measure of money, including currencies in circulation, bank deposits, and money market funds, among other highly liquid assets) had been rising steadily as foreign funds kept flowing into the Philippine financial markets, just as they have done since the dawn of the 2008 financial crisis.
With a financial system flush with cash, the PSE hit 38 incidences of all-time closing highs in 2012.
It remains to be seen whether the upgrade to investment grade will lead to the ratio falling, but experts are already noting that the improving economy may not lead to lower poverty numbers if investment habits do not change.
Money for financial markets, not for factories
The problem, experts say, is that money funneled into financial market instruments – stocks, corporate and government debt papers – do not immediately create jobs, unlike investments in manufacturing and other industries.
“The environment is starting to change now. We are now awash with cash, but that money goes to financial markets and not industries and plants which generate more jobs,” Socioeconomic Planning Secretary Arsenio Balisacan said after the release of the latest poverty data on Tuesday.
While these funds can result in the expansion of businesses in the long term, experts explain that cash flows in the stock market do not directly cause the building of plants and the strengthening of industries.
“Any cash flow from the stock market highs and investment upgrade will go primarily to the financial and speculative sectors of the economy, such as the stock market and financial institutions, rather than the real economy,” said Sonny Africa, executive director at think-tank IBON Foundation Inc.
“The poor majority will never benefit from these improved financial indicators if there is no fundamental change in the economy towards increasing domestic production and increasing the domestic market.”
Jobs needed
Government data show the January 2013 jobless rate stood at 7.1 percent, while 20.9 percent of Filipinos are under-employed or work two or more jobs to make ends meet.
So despite all the gains made by the economy so far, 28 of 100 Filipinos on the average have remained poor in the past six years, state data show.
This statistic will only improve if more jobs are created, said Philippine Chamber of Commerce and Industry chairman Edgardo Lacson.
“Lahat ng jobs will be helpful in alleviating poverty. Currently, two to three million are unemployed while seven million are underemployed. We need to focus on this.”
The focus on services and BPOs
Other than money being mostly funneled into financial instruments, businesses have also heavily focused on the services sector, which experts say do not generate as many jobs as hard industries.
The much-trumpeted 6.6-percent growth was achieved through a buoyant services sector and robust domestic demand driven by remittances of overseas Filipinos.
Lacson, who is also president of Employers Confederation of the Philippines, said businesses invested most of its capital in the services sector, particularly in business process outsourcing (BPO), instead on manufacturing, infrastructure, power and tourism.
“BPO is good while it lasts, but it is a cost-driven industry so it can pull out anytime. Manufacturing needs years before it can pull out,” Lacson said.
The lesson, said Africa, is to revive the country’s manufacturing and agriculture based on “a strategic framework of developing genuinely Filipino manufacturing and agriculture.”
Structural problems in infrastructure and business environment, however, should be addressed in order for the private sector to pour more money into more productive sectors.
The infrastructure backlog
The Aquino administration is having to play catch-up in terms of transport and power infrastructure development, which businesses have long complained about.
Peter U, economist and dean at the University of Asia and the Pacific School of Economics, said a hike in public investments in infrastructure is needed.
“What we need to do is bring in more investments both local and foreign on capital assets or purchase of productive capacity by making sure that there are good roads, ports and sufficient power. So, businesses can compete,” U said.
But even as it noted that the government’s commitment to infrastructure spending is beginning to show results, Moody’s Analytics said that more needs to be done.
“Public investment accounts for just 2.75 percent of GDP (gross domestic product), far too low for a country at this stage of development,” Glenn Levine, senior economist at Moody’s Analytics, said.
The bureaucracy problem
U explained that businesses will not be put up if local and foreign investors are faced with too much red tape and too many requirements.
“Still, the biggest risk for Philippine investment is operational,” said Levine, referring to “complicated and changeable” regulations and taxes.
Foreign and local investors have complained about policies changing whenever a new set of legislative leaders and a president is elected.
For its part, the Aquino administration has vowed to cleanse the government and combat corruption under its “Daang Matuwid” platform.
Moreover, Balisacan said, “the problem of poverty requires a comprehensive, multi-pronged, multi-sectoral solution involving many stakeholders.”
“We are serious about the fight against poverty,” he said. “As a researcher of development, I know that these problems take some time to be resolved. But now that I wear a government hat and join my fellow public servants here in forwarding the inclusive development agenda, I cannot help but be impatient about delivering results.”
Source: SIEGFRID O. ALEGADO, DANESSA RIVERA and MARC JAYSON CAYABYAB. GMA News Online. 24 April 2013.
