February 20, 2022 | 9:11 pm
Introspective by Romeo L. Bernardo
In a two-part column last year, “The First 365 days” (https://www.bworldonline.com/the-first-365-days-2/), I wrote a wish list for the first year of the next administration, a collective work of a handful of economist and subject matter expert friends from the Foundation for Economic Freedom, the Management Association of the Philippines (MAP), the Makati Business Club, the Philippine Disaster Resiliency Foundation.
Last week, I had the privilege of moderating a MAP forum on the Philippine economic outlook, featuring three most knowledgeable and articulate economists — current Socioeconomic Planning Secretary Karl Chua, professor and former Socioeconomic Planning Secretary Ciel Habito, and World Bank Senior Economist Rong Qian.
There was good alignment in their basic analyses and thrusts, and richness in their recommendations. As I concluded in the forum, “I so hope national candidates and/or their teams were tuned in.” Here is the video recording for the benefit of readers, maybe including some candidates: https://youtu.be/XB0LoxxOu4E.
What struck me most is how much we are in agreement on “what not to do,” and that surfaced sharply especially during the open forum. I summarize: “Don’t reverse reforms that have been done over successive regimes that strengthened Philippine macro stability and resilience, and improved productivity and global competitiveness, and helped contain inflation by opening up the economy.”
This is important to keep in mind as politicians are under pressure to promise the moon during the campaign period, and worry about delivery later on. Many may know the adage that “one should never hold to their word three kinds of people: those who are drunk, those who are proposing marriage, and those running for public office.” However, with the prevalence of recording and social media, candidates may have boxed themselves into having to do shortsighted populist measures, despite being inimical to long-term broad public interests.
What are these past reforms that need preserving?
1) Tax Reform for Acceleration and Inclusion (TRAIN) Law, Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, and other tax reform measures over several administrations that have made the tax system more buoyant, equitable, and investment-friendly. These have provided us the fiscal space to manage the pandemic, as the pre-COVID public debt-to-GDP ratio was brought down over time to a record low of 40% in 2019. Today it is now up to 60%, on account of much needed COVID-related spending, the lower tax revenues that raised the public debt numerator, and the contraction in GDP that accompanied restricted mobility over two years that depressed the GDP denominator.
Candidates have been promising suspending one tax or another, generous fiscal incentives for one deserving sector or another. And yes, side by side with massive spending programs — from free houses for all to legislated minimum wages that are multiple the current levels. Clearly a recipe for fiscal disaster and a debt crisis.
What is needed instead is what Dr. Qian said during the forum:
“To regain policy space, the government will need to start a gradual, fiscal consolidation process, the pace of fiscal consolidation needs to be studied. Too fast consolidation might slow down growth, which will be counterproductive to reduce debt-to-GDP ratio. Too slow, it will dampen confidence in government’s commitment to consolidate, while the higher interest payment will prevent productive investment.
On the revenue side, the government can introduce new taxes, increase existing taxes, and expand tax collection. As for spending, the government could spend less in areas that produce fewer jobs so it could spend more in areas that do, such as education. The government could also spend better by trying to use fewer resources to get the same outcome.
Finding the right mix to achieve the inclusive growth agenda needs to be a priority for the next government.”
2) Rice Tariffication Law and other liberalization in imports of food (pork, chicken, fish) that have helped contain inflation especially in the past two years. More fundamentally — as well discussed in the columns of Dr. Ciel Habito, University of the Philippines Economics Professor Ramon Clarete, and Agriculture Undersecretary Dr. Fermin Adriano — this milestone reform will improve the nutrition of the poorest quarter of our people (addressing physical and mental stunting), prevent the past fiscal wastes, leakages and rent seeking of the National Food Authority and its patrons, redirect public spending and implicit subsidies towards more productivity-enhancing activities, esp. within the agriculture sector.
This will also enable us to be more wage competitive, since our high cost of food is pushing up wages — a drag on investments and job creation economy-wide.
Finance Secretary Carlos G. Dominguez III and the whole economic team working with reform minded legislators deserve our gratitude and congratulations for this difficult milestone reform — started over three decades ago — that rent seekers are now actively lobbying to reverse; and at least one national candidate has embraced harking back to a flawed reading of economic history, so-called rice self sufficiency in the ’70s. (See, for example, the column of Dr. Clarete: https://www.bworldonline.com/rtl-can-modernize-the-countrys-rice-industry-and-lock-in-rice-security/ )
3) Opening up the economy to more FDI (foreign direct investment). Credit again to the economic team and progressive legislators for bringing to the finish line three investment liberalization laws for economic recovery. More FDIs will mean more jobs, increased competition to bring down prices and improve productivity. These have just hurdled both houses of Congress and are awaiting the President’s signature.
a) amendment of the Public Service Act — opens up to 100% foreign investors such essential infra as shipping, telcos, rail, ports, transportation, digital services, etc.
b) amendment of the Retail Trade Liberalization Act — that lowers the minimum capital investment by foreign investors.
c) amendment of the Foreign Investment Act — excluding the “practice of professions” from the coverage of the law and reducing the number of required direct local hires of foreign investments in small and medium enterprises from 50 to 15.
d) The Regional Comprehensive Economic Partnership (RCEP), negotiated by Trade Secretary Mon Lopez, signed by Pres. Duterte, and now awaiting ratification by the Senate — As I wrote in a column a year ago: “… RCEP with the lower tax regime under CREATE along with proposed amendments to the Public Services Act (PSA), the Foreign Investments Act (FIA), and the Retail Trade Liberalization Act (RTA) strung together would send a powerful signal of the Philippine’s readiness to welcome foreign capital to help with post-pandemic recovery, offering a light at the end of the current gloomy tunnel.” (https://www.bworldonline.com/legislation-in-aid-of-investments-jobs-recovery/)
4) Energy sector reforms
a) Oil deregulation done during the Ramos Administration. Christine Tang and I wrote a case study on this for the World Bank Growth Commission chaired by Nobel Laureate Michael Spence (https://openknowledge.worldbank.org/handle/10986/28020).
We concluded in 2008, a time when oil prices were surging like we are again seeing today.
“… The benefits of oil deregulation became evident during the most recent run-up in world oil prices. The full pass-through of world oil price increases to domestic oil prices helped to shield the fiscal sector from the burden of providing oil subsidies at a time when government finances were most fragile. Other benefits have included (i) increased competition in the industry with the entry of new players; (ii) less politicization of oil pricing; (iii) proper market response to high oil prices, including conservation and the search for substitutes like biofuels; and (iv) clean and good restrooms at service stations all over the country as a byproduct of introducing competition in the industry, helping support tourism.”
b) Electric Power Industry Reform Act (EPIRA) — there have been noises about government getting back into power generation, to address the high cost and possible shortage of power. This will be a big mistake. As I have written in the past, the way forward is to fully and properly implement EPIRA. (See https://www.fef.org.ph/opinion/the-way-forward-for-the-power-industry/, and https://www.bworldonline.com/power-regulation-in-the-dark/)
My appeal to the next administration: preserve our gains; build on what has been built by past administrations, that have, until COVID came along, propelled our economy to a higher and more inclusive growth path. Primum non nocere, “first, do no harm.”
Former Pres. Gloria Arroyo in her 2002 State of the Nation Address paid homage to Dr. Jose Rizal and her father who captured poetically what is the job of a President:
“Jose Rizal wrote: ‘A life not dedicated to a great ideal is useless; a mere pebble in the field that forms no part of an edifice.’”
Diosdado Macapagal touched on this theme as he assumed the mantle of national leadership 40 years ago: “No President can build the whole edifice of a nation. All that he is called upon to do is add a fine stone to that edifice, so that those who shall come after him may add other fine stones that will go for a strong and enduring structure.”
Source: https://www.bworldonline.com/to-the-next-administration-primum-non-nocere-first-do-no-harm/