On Our Way to Inclusive Growth

By Cesar B. Bautista
Philippine Daily Inquirer
3:53 am | Monday, March 4th, 2013 http://philippinedailyinquirer.newspaperdirect.com/epaper/viewer.aspx

The Philippines has achieved considerable progress in tackling corruption and upgrading competitiveness, which makes it earn the respect of world economists, thanks to the high confidence enjoyed by President Aquino. From the “Sick Man of Asia” in the past, the country is now considered as the possible “Tiger Economy” before long.

The President has stated that in the second half of his term, the government will focus on providing opportunities for the creation of quality employment and livelihood, since these are the country’s pathway out of poverty.

Building on the substantial improvements so far reached by the Cabinet economic cluster, the various business organizations have reiterated the need for sectoral economic planning of products and services, which have the potentials to be globally competitive and where the country can benefit from the global economies of scale that will meet the challenging targets of generating 14.6 million employment and livelihood until 2016. The Philippines will become a global player in a broad field of products and services, which will benefit its resources (both human and natural), financially, technologically, socially and culturally. It will provide the seed of economic renaissance, which was proposed by the combined local and joint foreign business chambers two years ago.

The approach is similar to the ADB’s “Taking the Right Route to Inclusive Growth”—a strategy supported by the National Competitiveness Council’s private sector experts (NCC being a public-private sector partnership).

This transformation is proposed to be an active (not passive) attack in identifying the major problems of the key sectors. Such obstacles may be policy-matters, infrastructure deficiencies, governance issues of executive officials and others. There will also be positive trends such as potentials for spillovers and clustering with other sectors that must be identified for immediate synergies.

Due to the exigent nature of this renaissance, NCC should “prioritize, prioritize, prioritize” and push for “execution, execution, execution”—focusing on the potential “winning sectors” in agriculture, industry and services that have already been identified by the business chambers and, through NCC, have been noted in the latest MTPDP, instead of “reinventing the wheel.” The business chambers believe that the world demand for these key products/services will be such that 20 million jobs will be generated and $75 billion in direct investments will be attracted from foreign/local sources during the 10-year planning period. These achievements will be made even while the lengthy amendments to the constitution and the labor code are not yet fully resolved. The strategic importance of these sectors can be confirmed by the PIDS economic model known as the Aldaba framework.

Additional sectors will undoubtedly be proposed by other lobby groups but in order to avoid unduly burdening the capabilities of our economic strategic teams, these must first pass the test of “significance” by the above PIDS model Aldaba framework. Otherwise, the country might run the risk of delayed inclusive growth due to lack of focus.

The eight key products and services considered to be world-class are: 1. Agri products/services 2. Tourism 3. Electronics 4. IT-enabled services—BPOs. Software, medical transcripts, professionals, creatives, etc. 5. Logistics-enabled products—garments, furnitures, creatives, decors, food, components, etc. 6. Health, wellness, retirement services 7. Manufacturing—vehicles, ships, chemicals, housing, etc. 8. Mining products

The DTI is already playing a professional coordinating role with the NCC in developing road maps with the various agencies concerned for some of the above products/services. However, a coordinating role must be given to the chair of the NCC to ensure achieving parallel progress in different sectors, clusters and in nationwide consideration, especially with the synergies that can be achieved from common processes or infrastructure, technologies or training resources.

It is envisioned that each sectoral team, headed jointly by a business expert and a policy official, will provide end-to-end support to enterprises in their sector. Hence, the importance of having the coordination czar at NCC, strategic planning where political (not business) considerations may bring the country to grandiose, unrealistic expectations such as during the Marcos regime.

Strategic planning must therefore be actively owned by the private sector to be credible, guided by the following three principles as reported in my earlier article:

First, the government must not overreach to the point that it substitutes its own wisdom for those of the private sector.

Second, the challenge of finding ways of meaningfully fostering private institutions without posing a threat to public finances, especially when plans stray outside the defined priorities.

Third, keep in mind that the aim is to serve society at large—not the bureaucrats or the businessmen who receive the incentives. Such incentives must be open to new entrants and passed on to the consumers in terms of reduced pricing, in an environment of transparency and accountability.

Michael Fairbanks and Stace Lindsay of Harvard Business School describe in their book “Plowing the Sea” a host of examples of developing countries that nurtured their sources of growth and allowed both government and the business leaders to succeed in the world market and eliminate poverty. The challenge is to have a good relationship between the government and private sector built on trust and confidence.

MAP and the rest of the business chambers have played the part of a responsible partner of the government with numerous cooperative projects that have been beneficial to the governance and anti-corruption programs of the President during the first half of his term. While the opportunities for successes and more growth can be foreseen by the entrepreneurs and their technical experts, the benefits will only emerge once government policies are changed to be supportive and responsive.

When the strategies bloom in the next few years, the Philippines will achieve the distinction of having sizably reduced its poverty level by a sustainable economic strategy, meeting one of the Millennium Development Goals.

Our top-level investment support officials can guide potential investors identify which of the above sectors will be in line with their specific interests/expertise, as supported by the government’s stable and transparent policies, and where we have comparable advantage, with sizable market prospects, with end-to end support in an environment of good governance. The identified leaders of these sectors will be available 24×7 to respond to any questions or hurdles facing the investors along the way—even until the actual operations.

The author is chairman of the Committee on National Competitiveness of the Management Association of the Philippines.

SUMMARY:

This article tackles about the current economic condition of the country under the leadership of President Noynoy Aquino and also his plans to further maintain economic growth and stability. It sights that our country is currently progressing to become a Tiger economy in Asia. Increasing employment and livelihood is one major focus of his agenda towards economic growth and eliminating poverty. Their target is to generate 14.6M by 2016.

The business chambers identified 3 winning sectors namely agriculture, industry and services. They plan to achieve $75B direct investments from foreign and local services during the 10 yr period. DTI and NCC work hand in hand in coordinating and developing road maps with various agencies concerned to achieve progress. Strategic planning is guided by 3 principles: Government should prioritize and rely on their capabilities, find ways to encourage investments without posing risks to public finances and aim to serve for the benefit of the majority. Such principles can be achieved and would result in reduced pricing and an environment of transparency and accountability.

ANALYSIS:

The article addresses 3 ultimate goals of macroeconomics which are increasing economic growth, reducing unemployment and stabilizing price levels. Under the leadership of PNoy the country has achieved economic progress from having economic recession in the past years.

In macroeconomics, the focus is on the demand and supply of all goods and services produced by an economy. In relation to the article there are 2 factors sighted that would increase productivity which are namely: increased employment and livelihood and investments that would modernize technology. It would shift the Aggregate supply curve to the right because it would increase labor productivity which would in turn Increase aggregate output(Y) and decrease the price levels(P) as illustrated in the graph below.

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On the other hand employment would mean increase in income which would have a positive effect on consumption which would shift the aggregate demand curve to the right. Another factor is Investment of foreign and local firms would also result in Increased Aggregate Expenditure (Y) and Increased Price levels (P). Please see graph below.

[pic]

The Increase in Price levels triggered by the shift of Aggregate Demand curve to the right is the event that the government plans to control. That is why their strategic plan is based on 3 principles in order to also control price levels. Strategic planning is guided by 3 principles: Government should prioritize and rely on their capabilities, find ways to encourage investments without posing risks to public finances and aim to serve for the benefit of the majority. Having a strong political mandate which fosters these changes would in the future sustain economic development for the welfare of the Filipinos specially those affected by poverty.

Current Account Surplus Totals $7.1B
By Lee C. Chipongian
Published: March 25, 2013 http://www.mb.com.ph/article.php?aid=4883&sid=2&subid=9 The Bangko Sentral ng Pilipinas (BSP) said current account surplus reached $7.126 billion at the end of last year, up 2.23 percent from $6.97 billion as of end 2011.
The BSP in its latest balance of payments (BOP) quarterly report attributed the current account surplus to the narrowing of the trade-in-goods deficit and net receipts of secondary income which increased during the period.
Current account, which is the country’s transactions in goods, services, income and current transfers, tracks the net transfer of real resources between the domestic economy and the rest of the world. As a ratio to GDP, the current account stood at 2.8 percent at the end of 2012 compared to the previous year’s 3.1 percent ratio. The BSP said lower trade-in-goods deficit and the improved secondary income account which are transfer accounts and inflows from remittances, offset the decline in net receipts in the services and primary income accounts.
The deficit in trade-in-goods fell by 10.4 percent as exports grew faster than imports, said the BSP. Exports of goods increased 20.9 percent to $46.3 billion in 2012 as against growth in imports of 11.3 percent to $61.5 billion.
The services account, however, registered lower net receipts of $3.9 billion in 2012 from what was reported in 2011 of $5.3 billion, or down by 26.1 percent.
The primary income account posted net payments of $746 million, reversing the net receipts of $280 million recorded in 2011.
The net receipts in the secondary income account, in the meantime, went up by 4.3 percent which the BSP explained got a boost from the 4.9 percent growth in remittances of non-resident overseas Filipino workers which totaled $18 billion last year.
For the last quarter of 2012, the current account surplus declined slightly to $2.2 billion. The BSP said the “modest contraction” was due to “lower net receipts in the primary income and services accounts which more than offset the higher net receipts in the secondary income account and the lower deficit in the trade-in-goods account.”
For this year, BSP Governor Amando M. Tetangco Jr. said they expect a lower current account surplus of $4.9 billion since they expect that with sustained economic growth, there will be more requirements for the imports of goods.
The BSP also has a conservative BOP surplus forecast of $3 billion for 2013 compared to actual 2012 numbers of $9.2 billion. Last year’s BOP was 19 percent lower than the surplus recorded in 2011 of $11.4 billion.
The BSP since 2010 has made revisions in the way it calculates and summarizes the BOP and all its components. It started with changes in the treatment of the special drawing rights received from the International Monetary Fund (IMF) in its statistics. The revisions, upon the recommendation of the IMF, significantly impacted on various external sector statistics not only the BOP but also the external debt and the gross international reserves.
In a statement last Friday, the central bank said the BOP numbers have been compiled using the new Balance of Payments and International Investment Position Manual, 6th edition or simply BPM6. “This initiative is aligned with the international best practice of using the standards prescribed by the IMF,” said the BSP.
The shift from BPM5 to the BPM6 framework will be completed next year, the BSP added. The BOP data for both 2011 and 2012 is already using BPM6

SUMMARY:

According to Bangko Sentral ng Pilipinas, there has been an increase of 2.23% in the current account surplus in the year 2012 as compared to that of 2011. They attributed the current account surplus due to the decreasing deficit in the trade-in of goods and increased secondary income which includes remittances from Filipinos working abroad or OFWs. The 2 factors mentioned offset the decline in net receipts in the services and primary income accounts.

For the year 2013, BSP Governor Armando Tetangco Jr. said they would expect lower account surplus of $4.9B because of the higher requirements of importing goods due to the sustained economic growth achieved by the Philippines.

ANALYSIS:

The article discusses the Current Account which is one of the components in the Balance of Payments. Current Account is where goods, services, income and current transfers are documented. The formula to find Current Account Balance is showed below:

CAB = X - M + NY + NCT

Where:

X = Exports of goods and services

M = Imports of goods and services

NY = Net income abroad

NCT = Net current transfers

Shown below is a table presenting the current account of the Philippines from Dec 2011 up to Dec 2012:

[pic]

Surplus is achieved when credit is greater than Debit. On the other hand, Deficit is achieved when debit is greater than credit. In the case of the Philippines, there are many OFW’s working abroad who remits money to their relatives in the country which positively affects the credit side by increasing current transfers through the receipt of foreign money which is probably the reason which is probably a reason why our country is enjoying the surplus in current account. However, there are factors that negatively affect current accounts such as the deficit in trade of goods and services meaning there are greater imports than exports. Our current government does its best to decrease the deficit in goods by focusing in agriculture which is a key sector in our industry.

In relation to Aggregate Expenditure, the formula is:

↑AE= C+I+G+↓NX

Where:

↓NX= ↑ Exports-↓Imports.

Having lesser exports and greater imports of goods would have a negative effect on Aggregate Expenditure. Increasing surplus in current account is a good indicator of economic growth because there are relatively more inflows than outflows of money. However, a surplus funded by donations or remittances from OFW’s may not be the most sensible way to improve our economy. The government should probably device an economic program that would focus on other ways to sustain our economy rather than relying on the factors mentioned above.