Manila, October 31 2010: President Benigno Aquino III appears determined to be a president for all the people but while he may enjoy massive support among the population at large, will it be sufficient for him to make a difference during his term of office – assuming he is able to complete his term?
Corruption and violence have become so deeply rooted in Filipino society that the sheer inertia of a political system based on self-interest is working against him and will take both effort and statecraft to turn around. Then there are the hurdles being placed in his way by powerful vested interests. These range from the conservative Catholic hierarchy to powerful political families intent on maintaining the status quo and their privileged positions.
It should not be forgotten that during the presidency of his mother, Corazon Aquino (1986–1992) there were no less than seven coup attempts made against her. Two cameos from recent weeks demonstrate the difficulties he faces.
Local elections marred by violence
On October 25, fifty million Filipinos again went to the polls. This time it was to vote in local elections.
In the Philippines, the barangay (village) is the smallest self-governing political unit. There are 42,025 of them scattered throughout the country and each one elects a barangay chair and seven members of the barangay council — a total of 336,200 positions. Concurrently, elections were held for a similar number of youth council positions – again one council for each barangay. Originally these youth councils were intended to foster a new generation of political leaders but they too have become corrupted perpetuating the vicious cycle of self-interest that pervades politics at all levels. They have become part of the problem.
No wonder then that, just like the national elections held earlier in the year, these local elections have been marred by political violence, intimidation and rampant vote buying. Since the campaign started on September 25, 33 people have been killed and another 14 wounded in 47 election-related incidents including four people murdered on the day of the poll itself. Organisers within the Commission on Elections (COMELEC) congratulated themselves on the fact that the poll was “more peaceful” than in 2007 when 67 were killed in 101 election-related incidents including 23 on polling day. True, it does represent progress of a sort.
Delayed distribution of voting materials forced postponement of the election in 1,732 barangays and allegations have surfaced that the delay was deliberately caused by a faction within the poll body seeking additional “monetary consideration” for doing their job. This may or may not be true but to many people it has a ring of plausibility. Such is the low esteem in which the COMELEC is held in many quarters. President Aquino was reported to be angered by the lack of professionalism shown and has vowed to investigate. Corruption and violence is alive and well and extends to the village level.
Reproductive health bill angers the Catholic Church
Then President Aquino has the Catholic hierarchy to deal with. The bishops, who remained blissfully silent throughout the tenure of former President Gloria Macapagal-Arroyo while she and those around her plundered the country, are up in arms at the introduction into Congress of a reproductive health bill that would give families freedom of choice in birth control matters.
The church in the Philippines claims that artificial contraception is a form of abortion and is against giving families informed choice. Aquino has incurred the wrath of the bishops – not for advocating contraception – but simply by expressing the view that families should have freedom of choice. Aquino, himself a Catholic, at one stage was threatened with excommunication, but church officials have back peddled on this claiming this was merely “one possibility.” A more likely outcome, should the bill be passed into law, is that the church will put pressure on medical practitioners at the local level to counsel their patients against using artificial contraception. While constitutionally, there is total separation between church and state, a spokesperson for the Catholic bishops claimed that “if a law or a state policy is against Christian teachings, persons, Christians, Catholics are not bound by conscience to obey that”.
At this stage both sides have backed away from outright confrontation preferring dialogue; however (and as the secular press has been quick to point out) it clearly reveals to all the priorities of the bishops who are prepared to turn a blind eye to human rights abuses and rampant corruption but who take the moral high ground when it comes to making birth control advice available to the poor and needy.
Even prominent Catholics have warned that the bishops need to tread carefully or risk alienating significant elements of the population especially the urban educated elite, most of whom – according to surveys —practice contraception in defiance of the teachings of the Church. As is so often the case, it is the poor whose faith is born out of desperation, who stand to benefit most from passage of the bill and most to lose if it fails. Perhaps unsurprisingly, former President Arroyo, now a congressional representative for Pampanga is supporting the position of the bishops.
Positive news on the economic front
News that the economy is regaining its health has come as welcome news and may give President Aquino some wiggle room. In recent weeks both the World Bank and the IMF have released revised growth forecasts for the Philippines which exceed earlier expectations. With the economy growing, there will be less incentive to rock the boat – that at least is the theory.
Citing better than expected growth in both internal and external demand, the World Bank now expects the Philippine economy to grow this year by 6.2 percent – up from its previous estimate of 4.4 percent. Continued strong inflow of remittances from overseas Filipino workers has stimulated domestic consumption and new investments from abroad, particularly into the business process outsourcing industry have been among the main drivers. Growth in the first half of 2010, at 7.9 percent, was the best semestral outcome in more than 30 years. However, account must be taken of the low base effect since the figure for the corresponding last year was only 1.1 percent.
The IMF is now punting on seven percent growth this year – well above the forecast of 3.2 percent made at the start of the year and the revised April figure of 3.6 percent.
Remittances, which kept the country out of recession during the GFC, continue to rise. Total remittances for the first eight months of the year stood at $12.2 billion, an increase of 7.4 percent over the same period last year.
Inflation for the first three quarters averaged 4.1 percent and well within the official target of 3.5 to 5.5 percent for the year as a whole.
A government for the people
In a speech marking the first 100 days of his presidency, President Aquino announced that with a strengthening economy, the Philippines was now “ready for takeoff.” Filipino politicians are well known for making extravagant claims but compared to that of President Arroyo who announced just before the GFC hit that the Philippines would be a First World country by 2020, this claim was downright modest.
Baby steps have been taken. The new administration has resolved the disputed contract relating to the Ninoy Aquino International Airport Terminal 3 which had festered throughout the Arroyo term; it has revised the bidding process for public works contracts to make the procedure more transparent, and has revised some defence contracts where the tenders were drafted to blatantly favour one company. Other achievements include the setting in place of a monitoring system for public projects and an overhaul of the excessive payments and bonuses made to the fat cats of government-owned corporations. Savings have been directed at improving the budgets for health, education and social welfare programmes as well as the conditional cash transfer programme which helps the poorest of the poor.
A new system of public private partnerships – which throughout the Arroyo years existed in name only – has been introduced to encourage private investment into mass transit, airports and schools.
Positioned for takeoff may be an overstatement. That baby steps have been taken in the right direction is certainly true.
Monday, November 1, 2010
Monday, August 30, 2010
The ties that bind
Taipei, China August 28 2010: The Economic Framework Cooperation Agreement (EFCA) with China has now passed into law. Taiwan’s unicameral legislature ratified the accord on 17 August after 10 hours of debate. Not unexpectedly, the KMT dominated house, voted down all amendments proposed by the opposition DPP party. Government legislators naturally praised the accord saying “its implementation will ensure the country’s prosperity for 50 or 60 years”. Those in the Opposition naturally took the reverse view claiming that the ECFA has been “cooked up by the KMT and the Chinese Communist Party” to bring Taiwan under the control of China economically and hastening unification.
It is still too early to tell how the ECFA will alter the course of Taiwan’s future development but given the continued expansion of China’s hegemony over East Asia, analysts are probably right to sound the warnings – they are there for all too see.
Over the past decade and even under the DPP leadership, Taiwan’s economy has become increasingly dependent on the Chinese mainland in what has been termed a triangular pattern of trade whereby orders are booked in Taiwan but manufactured and shipped from China to other markets. One Taiwanese newspaper editorial has pointed out that the percentage of Taiwan’s trade carried out in this manner has grown from 13 percent in year 2000 to 50 percent this year. It is this triangular trade arrangement that has led to a hollowing out of Taiwan’s manufacturing base (with consequent declines in employment levels) despite the continued growth of exports and GDP.
The key question is whether the signing of the ECFA will reverse this pattern by allowing Taiwan to sign trade agreements with other countries and perhaps develop new industries (especially in services) or will it act as a vacuum cleaner sucking up what remains of Taiwan’s industrial base and transplanting it to China. The signs so far do not give much cause for optimism.
But first the good news; the government has once more upgraded Taiwan’s domestic growth prospects for this year based on improving export orders, better than expected private investment as well as robust consumer spending. The 6.14 percent domestic growth forecast for 2010 announced back in May, has now been revised to 8.24 percent.
GDP rose 12.53 percent year-on-year in the second quarter, the third consecutive quarter of growth since Taiwan came out of the 2009 recession. For the two remaining quarters of the year, further quarterly expansion rates of 6.9 percent and 1.37 percent are forecast. Looking ahead, the outlook for 2011 is for a growth rate of 4.64 percent.
The main reason for the slowdown of growth in the latter part of the year has been attributed to the base effect rather than any significant real slowdown. This could be an oversimplification as the most recent economic data from the major economies suggest that the pace of recovery could be slowing with the debt crisis in Europe not yet resolved and unemployment in the United States remaining stubbornly high.
The value of export orders in July, at US$33.8 billion, climbed to their fourth highest level ever and their second highest level since the global financial meltdown. Cumulative orders from January to July totalled $227.9 billion, a year-on-year rise of 35.2 percent (but remember the low base effect). Taiwan is hoping that for the year as a whole, orders will surpass $400 billion.
All of this looks very encouraging, but as the Taipei Times pointed out recently in an editorial, few benefits from this continued economic expansion are trickling down to the person in the street. The wealth disparity in Taiwan is at a record high: “In 2008, those in the top 5 percent of the income pyramid enjoyed, on average, an annual income of NT$4.5 million (US$140,530). The bottom 5 percent only earned an average of NT$68,000. In 1998, the highest incomes were only 32 times more than the lowest.” It appears that the winners in the economy are the exporters and their shareholders who are able to invest their growing wealth in property, pushing home prices ever higher. The same editorial pointed out that the cost of a home in Taipei City now represents more than 11 years of salary for the average wage earner.
It is hard to see how the ECFA can improve matters for the man in the street. Other commentators have drawn attention to the manner in which China is now enticing Taiwan’s high-tech farmers to China under the guise of cross-straits agricultural cooperation. As a result, high-value domestic Taiwan species: animal, fish and plant are now being bred in China on a large-scale sufficient to become a threat to Taiwan’s rural industries. Low cost entry of these products into China from Taiwan is only possible if there is a market for them. If China is replacing Taiwanese exports with domestic local production, then rather than expanding the market for Taiwan produce, it will simply disappear entirely. And once China produces these species in sufficient quantities to export, Taiwan is in further difficulty.
Despite the continued reassurance from President Ma Ying-jeou that the signing of cross-straits economic pacts have no political significance; such claims are sounding increasingly hollow. China’s agenda for Taiwan is clear for those who want to read the signs and is worrisome not only for Taiwan but for much of East Asia.
Back in the 1990s China passed domestic legislation claiming the entire South China Sea as its territorial waters; this was widely considered to be an ambit claim since many other countries bordering the Sea, including Vietnam, Malaysia, Indonesia and the Philippines were making claims of their own. Recently China upped the ante by proclaiming to visiting US officials in March that the South China Sea was part of its “core national interests” and crucial to its territorial integrity.
Similar to its claim to Taiwan, this puts the matter beyond negotiation as far as China is concerned.
One third of the world’s maritime commerce passes through the South China Sea and the implications of this declaration are only too clear. This is a clear laying down of the gauntlet to the United States and in particular the US Navy.
The US attitude towards China’s strategic expansion has appeared ambivalent and as a consequence, President Barack Obama’s overtures towards China have given Beijing the impression of US weakness. This has tempted China’s leaders to press their advantage believing that the US is unwilling to challenge China directly. While US Secretary of State Hillary Rodham Clinton was quick to reassure ASEAN nations that the US considers the maintenance of security and stability in the South China Sea as matters of US national interest, China’s foreign minister Yang Jiechi, was equally quick to issue a condemnation of Clinton’s comments.
And while ASEAN is seeking multinational negotiations to resolve issues involving common interest maritime areas, Beijing is equally adamant in insisting that the ASEAN countries negotiate bilaterally.
A multilateral forum would, of course, involve the United States, Japan and possibly Korea and this is the last thing that China would want to happen. Nevertheless, where there is action there is reaction. The interesting aspect in all of this is that such a multilateral form – whether or not Taiwan was given a seat at the table (and the likelihood is that it would not be invited) – would serve to give Taiwan a little more freedom to manoeuvre.
But not only has Taiwan’s President Ma Ying-jeou followed a policy of appeasement towards Beijing, he is on the record as vowing that no matter what, he will never ask the US to defend Taiwan. No wonder that most of Taiwan’s population are bewildered.
With the US economy decidedly shaky, the question for the State Department to ponder is how to deal itself back into the game.
It is still too early to tell how the ECFA will alter the course of Taiwan’s future development but given the continued expansion of China’s hegemony over East Asia, analysts are probably right to sound the warnings – they are there for all too see.
Over the past decade and even under the DPP leadership, Taiwan’s economy has become increasingly dependent on the Chinese mainland in what has been termed a triangular pattern of trade whereby orders are booked in Taiwan but manufactured and shipped from China to other markets. One Taiwanese newspaper editorial has pointed out that the percentage of Taiwan’s trade carried out in this manner has grown from 13 percent in year 2000 to 50 percent this year. It is this triangular trade arrangement that has led to a hollowing out of Taiwan’s manufacturing base (with consequent declines in employment levels) despite the continued growth of exports and GDP.
The key question is whether the signing of the ECFA will reverse this pattern by allowing Taiwan to sign trade agreements with other countries and perhaps develop new industries (especially in services) or will it act as a vacuum cleaner sucking up what remains of Taiwan’s industrial base and transplanting it to China. The signs so far do not give much cause for optimism.
But first the good news; the government has once more upgraded Taiwan’s domestic growth prospects for this year based on improving export orders, better than expected private investment as well as robust consumer spending. The 6.14 percent domestic growth forecast for 2010 announced back in May, has now been revised to 8.24 percent.
GDP rose 12.53 percent year-on-year in the second quarter, the third consecutive quarter of growth since Taiwan came out of the 2009 recession. For the two remaining quarters of the year, further quarterly expansion rates of 6.9 percent and 1.37 percent are forecast. Looking ahead, the outlook for 2011 is for a growth rate of 4.64 percent.
The main reason for the slowdown of growth in the latter part of the year has been attributed to the base effect rather than any significant real slowdown. This could be an oversimplification as the most recent economic data from the major economies suggest that the pace of recovery could be slowing with the debt crisis in Europe not yet resolved and unemployment in the United States remaining stubbornly high.
The value of export orders in July, at US$33.8 billion, climbed to their fourth highest level ever and their second highest level since the global financial meltdown. Cumulative orders from January to July totalled $227.9 billion, a year-on-year rise of 35.2 percent (but remember the low base effect). Taiwan is hoping that for the year as a whole, orders will surpass $400 billion.
All of this looks very encouraging, but as the Taipei Times pointed out recently in an editorial, few benefits from this continued economic expansion are trickling down to the person in the street. The wealth disparity in Taiwan is at a record high: “In 2008, those in the top 5 percent of the income pyramid enjoyed, on average, an annual income of NT$4.5 million (US$140,530). The bottom 5 percent only earned an average of NT$68,000. In 1998, the highest incomes were only 32 times more than the lowest.” It appears that the winners in the economy are the exporters and their shareholders who are able to invest their growing wealth in property, pushing home prices ever higher. The same editorial pointed out that the cost of a home in Taipei City now represents more than 11 years of salary for the average wage earner.
It is hard to see how the ECFA can improve matters for the man in the street. Other commentators have drawn attention to the manner in which China is now enticing Taiwan’s high-tech farmers to China under the guise of cross-straits agricultural cooperation. As a result, high-value domestic Taiwan species: animal, fish and plant are now being bred in China on a large-scale sufficient to become a threat to Taiwan’s rural industries. Low cost entry of these products into China from Taiwan is only possible if there is a market for them. If China is replacing Taiwanese exports with domestic local production, then rather than expanding the market for Taiwan produce, it will simply disappear entirely. And once China produces these species in sufficient quantities to export, Taiwan is in further difficulty.
Despite the continued reassurance from President Ma Ying-jeou that the signing of cross-straits economic pacts have no political significance; such claims are sounding increasingly hollow. China’s agenda for Taiwan is clear for those who want to read the signs and is worrisome not only for Taiwan but for much of East Asia.
Back in the 1990s China passed domestic legislation claiming the entire South China Sea as its territorial waters; this was widely considered to be an ambit claim since many other countries bordering the Sea, including Vietnam, Malaysia, Indonesia and the Philippines were making claims of their own. Recently China upped the ante by proclaiming to visiting US officials in March that the South China Sea was part of its “core national interests” and crucial to its territorial integrity.
Similar to its claim to Taiwan, this puts the matter beyond negotiation as far as China is concerned.
One third of the world’s maritime commerce passes through the South China Sea and the implications of this declaration are only too clear. This is a clear laying down of the gauntlet to the United States and in particular the US Navy.
The US attitude towards China’s strategic expansion has appeared ambivalent and as a consequence, President Barack Obama’s overtures towards China have given Beijing the impression of US weakness. This has tempted China’s leaders to press their advantage believing that the US is unwilling to challenge China directly. While US Secretary of State Hillary Rodham Clinton was quick to reassure ASEAN nations that the US considers the maintenance of security and stability in the South China Sea as matters of US national interest, China’s foreign minister Yang Jiechi, was equally quick to issue a condemnation of Clinton’s comments.
And while ASEAN is seeking multinational negotiations to resolve issues involving common interest maritime areas, Beijing is equally adamant in insisting that the ASEAN countries negotiate bilaterally.
A multilateral forum would, of course, involve the United States, Japan and possibly Korea and this is the last thing that China would want to happen. Nevertheless, where there is action there is reaction. The interesting aspect in all of this is that such a multilateral form – whether or not Taiwan was given a seat at the table (and the likelihood is that it would not be invited) – would serve to give Taiwan a little more freedom to manoeuvre.
But not only has Taiwan’s President Ma Ying-jeou followed a policy of appeasement towards Beijing, he is on the record as vowing that no matter what, he will never ask the US to defend Taiwan. No wonder that most of Taiwan’s population are bewildered.
With the US economy decidedly shaky, the question for the State Department to ponder is how to deal itself back into the game.
Wednesday, August 25, 2010
A new paradigm for the Philippines
Manila, 24 August 2010: As this is being written, the Philippines once again has been thrust into the glare of international media attention and for all the wrong reasons. A former officer of the Philippine National Police, sacked over corruption charges, hijacked a bus full of Hong Kong tourists and held members of the 200-strong rescue team at bay for more than 11 hours on August 23. Eight tourists were killed together with the hostage taker during the bloody shootout as police eventually stormed the bus.
The entire event was played out on national TV and relayed around the world for all to see. Up to the minute reporting took on a whole new meaning as reporters covered live, all police activities allowing the hostage taker to monitor what was happening outside the bus and anticipate police moves.
To make matters worse, a group of college girls visited the scene in their school uniform and treated the entire affair as a party even posting their group photos to their Facebook accounts. Tasteless activity in the extreme – whatever were they thinking?
Former Senior Inspector Rolando Mendoza, who – according to reports – was dismissed in 2008, had seized the bus in an attempt to negotiate reinstatement into the police force. Live coverage of his brother being taken in for questioning by police apparently threw the hostage-taker into a frenzy. According to reports from hostages posted to their Facebook accounts, to that point Mendoza had been civil and considerate towards them. It was seeing the manner in which police manhandled his brother which sent him into a rage and changed the entire mood.
President Aquino declared August 25 as a day of mourning as anger mounts in Hong Kong over the manner in which the incident was handled. Four senior members of the Philippine SWAT team have been relieved of their posts over the botched rescue. Hong Kong authorities have issued a travel advisory warning against travel to the Philippines and China itself is expected to follow suit. Overseas Filipino domestic workers in Hong Kong are being summarily dismissed from their jobs as retaliation according to reports.
In the overall scheme of things, while the deaths of eight people will be quickly forgotten by the world at large it has once again signalled the violent nature of Filipino society. It may be recalled that the last time the Philippines made world news was in November 2009 when more than 50 people were gunned down in Maguindanao during a turf war between rival political clans.
Despite the contraction in global tourism worldwide in the aftermath of the Global Financial Crisis, inbound tourism to the Philippines held up well in 2009, rising by 1.5 percent to 3.14 million. Tourism accounts for 6.2 percent of the country’s GDP and China has been emerging as an important and rapidly growing market with arrivals from China, Hong Kong and Taiwan all posting significant recent growth thanks especially to the introduction of direct charter flights to regional tourism centres in the Philippines. Undoubtedly, as a result of this incident, there may be a dip in numbers from East Asia for some time to come denting prospects of further growth in the months ahead.
In terms of foreign direct investment, immediate fallout within the East Asian region is expected to be minimal. China (including Hong Kong) accounted for a little over five percent of FDI in 2009 – up from 1.9 per cent in 2008. Much of China’s investment is strategic and goes into agriculture and resources and this is expected to continue. Rather, this episode has once again demonstrated the volatility of the local environment for foreign investors generally.
It is the last thing that newly installed President Benigno Aquino II (already dubbed P-Noy – a clever play on the term “Pinoy” which loosely translates as “quintessentially Filipino”) needed. President Aquino has been in the job less than two months but already the mood of the country has shifted, and for the better. While his detractors have been quick to criticise his lack of a roadmap for getting the country out of poverty as he has promised to do, he has been given full marks by most people for changing the paradigm of government. His proclaimed mission statement is to wipe out corruption and to make the government more responsive to the basic problems of the Filipino people – mass poverty, increasing malnutrition, unemployment and underemployment, substandard education and poor social services. And that is just to begin.
Both his inaugural speech delivered on 30 June and his State of the Nation (SONA) address to the Philippine Congress four weeks later, underscored this basic theme. His message was not about programs of governance – that will come later, but rather about quality of leadership. Despite his detractors, his message resonated with the ordinary people; and as one newspaper columnist put it, he is regarded as the most credible and most sincere politician to emerge in a long time. It is leadership by example: a leadership which does not exploit power, a leadership that immediately confronts corruption by refusing pomp and perks and disables a source of abuse and discrimination.
While it may be too much to expect corruption to be wiped out during the term of his presidency, with the right leadership from the top, he stands a very good chance of making a significant dent in the problem and rolling back the tide that engulfed the nation during the Arroyo years.
His task is a formidable one. The Central Bank has pointed out that even if the rate of growth can be accelerated, the Philippines has fallen so far behind its neighbours that it will take decades to catch up. Even if the country could achieve a GDP growth rate of 10 percent over the term of his presidency, by 2015, in per capita GDP terms, the country would only be where Indonesia was in 2009. To get to where Thailand is today would take until 2028 and current Malaysian levels of prosperity would only be achieved by 2038.
The refreshing aspect of this announcement was in its honesty – a far cry from the ludicrous claim of Arroyo and her supporters that the Philippines would achieve developed country status by the end of the current decade.
Change will not come easy and already it is evident that there are many, especially those who prospered during the Arroyo years who want to see business as usual. Ten days into his presidency there were five extrajudicial killings including two teachers, a peasant leader a local official and a journalist. Nobody has yet been brought to account.
While resistance to reform is expected, especially from those in Congress used to presidential largesse, Mr. Aquino has something going for him that former President Arroyo never had – the support of the people. That can be a formidable weapon.
The entire event was played out on national TV and relayed around the world for all to see. Up to the minute reporting took on a whole new meaning as reporters covered live, all police activities allowing the hostage taker to monitor what was happening outside the bus and anticipate police moves.
To make matters worse, a group of college girls visited the scene in their school uniform and treated the entire affair as a party even posting their group photos to their Facebook accounts. Tasteless activity in the extreme – whatever were they thinking?
Former Senior Inspector Rolando Mendoza, who – according to reports – was dismissed in 2008, had seized the bus in an attempt to negotiate reinstatement into the police force. Live coverage of his brother being taken in for questioning by police apparently threw the hostage-taker into a frenzy. According to reports from hostages posted to their Facebook accounts, to that point Mendoza had been civil and considerate towards them. It was seeing the manner in which police manhandled his brother which sent him into a rage and changed the entire mood.
President Aquino declared August 25 as a day of mourning as anger mounts in Hong Kong over the manner in which the incident was handled. Four senior members of the Philippine SWAT team have been relieved of their posts over the botched rescue. Hong Kong authorities have issued a travel advisory warning against travel to the Philippines and China itself is expected to follow suit. Overseas Filipino domestic workers in Hong Kong are being summarily dismissed from their jobs as retaliation according to reports.
In the overall scheme of things, while the deaths of eight people will be quickly forgotten by the world at large it has once again signalled the violent nature of Filipino society. It may be recalled that the last time the Philippines made world news was in November 2009 when more than 50 people were gunned down in Maguindanao during a turf war between rival political clans.
Despite the contraction in global tourism worldwide in the aftermath of the Global Financial Crisis, inbound tourism to the Philippines held up well in 2009, rising by 1.5 percent to 3.14 million. Tourism accounts for 6.2 percent of the country’s GDP and China has been emerging as an important and rapidly growing market with arrivals from China, Hong Kong and Taiwan all posting significant recent growth thanks especially to the introduction of direct charter flights to regional tourism centres in the Philippines. Undoubtedly, as a result of this incident, there may be a dip in numbers from East Asia for some time to come denting prospects of further growth in the months ahead.
In terms of foreign direct investment, immediate fallout within the East Asian region is expected to be minimal. China (including Hong Kong) accounted for a little over five percent of FDI in 2009 – up from 1.9 per cent in 2008. Much of China’s investment is strategic and goes into agriculture and resources and this is expected to continue. Rather, this episode has once again demonstrated the volatility of the local environment for foreign investors generally.
It is the last thing that newly installed President Benigno Aquino II (already dubbed P-Noy – a clever play on the term “Pinoy” which loosely translates as “quintessentially Filipino”) needed. President Aquino has been in the job less than two months but already the mood of the country has shifted, and for the better. While his detractors have been quick to criticise his lack of a roadmap for getting the country out of poverty as he has promised to do, he has been given full marks by most people for changing the paradigm of government. His proclaimed mission statement is to wipe out corruption and to make the government more responsive to the basic problems of the Filipino people – mass poverty, increasing malnutrition, unemployment and underemployment, substandard education and poor social services. And that is just to begin.
Both his inaugural speech delivered on 30 June and his State of the Nation (SONA) address to the Philippine Congress four weeks later, underscored this basic theme. His message was not about programs of governance – that will come later, but rather about quality of leadership. Despite his detractors, his message resonated with the ordinary people; and as one newspaper columnist put it, he is regarded as the most credible and most sincere politician to emerge in a long time. It is leadership by example: a leadership which does not exploit power, a leadership that immediately confronts corruption by refusing pomp and perks and disables a source of abuse and discrimination.
While it may be too much to expect corruption to be wiped out during the term of his presidency, with the right leadership from the top, he stands a very good chance of making a significant dent in the problem and rolling back the tide that engulfed the nation during the Arroyo years.
His task is a formidable one. The Central Bank has pointed out that even if the rate of growth can be accelerated, the Philippines has fallen so far behind its neighbours that it will take decades to catch up. Even if the country could achieve a GDP growth rate of 10 percent over the term of his presidency, by 2015, in per capita GDP terms, the country would only be where Indonesia was in 2009. To get to where Thailand is today would take until 2028 and current Malaysian levels of prosperity would only be achieved by 2038.
The refreshing aspect of this announcement was in its honesty – a far cry from the ludicrous claim of Arroyo and her supporters that the Philippines would achieve developed country status by the end of the current decade.
Change will not come easy and already it is evident that there are many, especially those who prospered during the Arroyo years who want to see business as usual. Ten days into his presidency there were five extrajudicial killings including two teachers, a peasant leader a local official and a journalist. Nobody has yet been brought to account.
While resistance to reform is expected, especially from those in Congress used to presidential largesse, Mr. Aquino has something going for him that former President Arroyo never had – the support of the people. That can be a formidable weapon.
Tuesday, August 10, 2010
The Philippines and the Clean Development Mechanism
Preface to the report
In geological terms, the world's climate has gone through periods of warming and cooling over eons but, as far as we are aware, never as rapidly as that being experienced at the present time. Perceptible change can now be measured within the space of a decade. There is a conclusive body of scientific evidence that this present period of warming is being caused by anthropogenic emissions of greenhouse gases. Global warming will not only change the earth's biomes, it will impact on all human activity from agriculture and food security, coastal and marine resources, water resources, land use and forestry, energy and energy security as well as human health.
Although responsible for only a small portion of anthropogenic greenhouse gas emissions globally, Southeast Asia, including the Philippines, has been identified as being among the regions of the world most vulnerable to climate change. Local consequences will include sea-level rise and flooding, altered crop cycles and land-use patterns as well as an increasing number of extreme events (typhoons) as weather becomes less predictable. Changing water temperatures will also impact on the marine environment compounding the effect of sea-level rise and introducing additional uncertainty into fisheries and aquaculture which remain important generators of income for many.
While debate continues as to the extent that the world's climate will change, there is general agreement that over the short to medium term, it is irreversible.
Seeking global solutions to protect the atmosphere
Global warming has been on the international agenda since the 1970s. Initial concern was over depletion of the earth's Ozone Layer. This layer found at altitudes of 10–50km above the ground protects us from the harmful effects of certain wavelengths of ultra-violet (UV) radiation that can cause skin cancer and other diseases. Chlorofluorocarbons (CFCs) used in many aerosols; refrigeration and air-conditioning equipment as an industrial solvent were found to be the main culprit.
In 1977, the United Nations Environment Programme (UNEP) began addressing this issue. This led to the Vienna Convention on the Protection of the Ozone Layer in 1985. The 1985 Vienna Convention was followed by the 1987 Montreal Protocol which set clear targets for phasing out CFCs. Over the years, the list of substances to be phased out has increased to nearly one hundred including the hydrofluorocarbons, carbon tetrachloride, and methyl chloroform. The agreement, ratified by 191 countries, has helped cut production of ozone-depleting chemicals from more than 1.8 million metric tons in 1987 to 83,000 metric tons at the end of 2005.
Ozone depleting substances, the focus of early attention, are greenhouse gases (GHG) that contribute to climate change. Their radiative force is about 20 per cent that of carbon dioxide (CO2). Carbon dioxide emissions were not addressed in these early international agreements but this early debate did provide a focus for addressing the broader problem of global warming.
The ozone debate directed world attention to the atmosphere as a finite resource. Aided by advances in meteorology and satellite mapping, during the 1980s, scientists were able to demonstrate not only that the earth's atmosphere was showing increased and unnatural signs of heating up but that climatic changes were occurring faster than had earlier been thought possible.
Established in 1988, The Intergovernmental Panel on Climate Change (IPCC) is an expert body appointed by the United Nations General Assembly to review and assess the scientific literature and make recommendations for broad action by the United Nations on climate change.
On the basis of the 1st IPCC report in 1990, the United Nations Framework Convention on Climate Change (UNFCCC or simply FCCC) was adopted and opened for signature at the UN Conference on Environment and Development held in Rio de Janeiro in 1992. The UNFCCC commits all parties to combat global warming under the principle of "common but differentiated responsibilities" (see Box 2) and covers all greenhouse gases not controlled by the Montreal Protocol. The developed countries, which are collectively responsible for 75 per cent of global emissions, recognized that emissions from developing countries will continue to grow in the short term to accommodate their development needs. They also recognized the need for financial incentives as well as technology transfer that would encourage developing countries to reduce their greenhouse emissions. The Philippines became a party to this Convention in 1995.
The IPCC continues to issue regular reports which are noteworthy in the fact that as more data becomes available for analysis, even the worst-case scenarios of earlier reports are found to be overly optimistic and that change is occurring at a faster rate than earlier thought.
The IPCC Fourth Assessment Report issued in 2007 used a number of different emission scenarios to project the range of future climate change patterns throughout the world including in Southeast Asia. Under a continued high emission scenario (known as the A1FI scenario), the mean surface air temperature in the region is likely to increase by 0.87ºC in 2020 over year 2000 levels; by 2.01ºC in 2050; and by 3.77ºC in 2080. For the low emission pathway (referred to as the B1 scenario), the temperature increases will be smaller but still noticeable: projected at 0.75ºC increase in 2020, 1.32ºC by the mid century, and to around 1.96 ºC at the end of the century. Between these boundaries there are a number of other outcomes depending on the variants and parameters selected. The 2007 Special Report on Emission Scenarios points out:
For the next two decades, a warming of about 0.2°C per decade is projected for a range of SRES emission scenarios. Even if the concentrations of all greenhouse gases and aerosols had been kept constant at year 2000 levels, a further warming of about 0.1°C per decade would be expected.
Efforts to combat global warming take two forms: mitigation — whereby action is taken at a range of levels (from global to local) to change human activity to reduce carbon emissions as well as those of other GHGs, and adaptation — the modification of human activity patterns (such as changes to crops and crop cycles) in recognition that over the short to medium term, climate change is irreversible. Stabilising atmospheric temperatures and eventually reversing the warming cycle may take hundreds of years. Reputable scientists are already warning that the atmosphere may be close to a tipping point beyond which climate change becomes irreversible within a geological time-frame and that urgent and concerted global action is needed to keep global warming under the dangerous 2°C level relative to 1990 levels. This will require a global reduction of anthropogenic emissions by between 25 and 40 per cent below 1990 levels by 2020. In turn countries need to move to "low carbon" economies as quickly as possible.
While the UNFCCC established the framework and the principles, it is the Kyoto Protocol that provides the "regulatory" detail by which these principles are converted to action. The Kyoto Protocol is an international agreement linked to the UNFCCC. As of November 2009, 187 states had signed and ratified the Protocol including the Philippines.
Unlike the Convention which merely encourages industrialized countries (and the European Community) to stabilize GHG emissions, the Kyoto Protocol sets binding targets for 40 developed countries (known as the Annex I countries) to reduce their GHG emissions. These countries have agreed to put in place policies and measures to collectively reduce GHG emissions (as a first step) by 5.2 per cent of their emissions against 1990 levels during the period of 2008 to 2012.
Furthermore under Article 11, Para 3, the Protocol provides an additional option for Annex II countries of meeting their commitments through cooperation with developing country Parties:
"The developed country Parties and other developed Parties in Annex II to the Convention may also provide, and developing country Parties avail themselves of, financial resources for the implementation of Article 10, through bilateral, regional and other multilateral channels."
The Clean Development Mechanism
Under the UNFCCC, countries meet their emission reduction targets primarily through national measures. However, a key feature of the Kyoto Protocol is the creation of additional measures by way of three market-based mechanisms. These are (i) the Clean Development Mechanism (CDM), (ii) Joint implementation (JI), and (iii) International Emissions Trading (IET). Parties from Annex II countries which have ratified the Kyoto Protocol, regardless of emissions reductions commitments, are permitted to utilize one or more of these mechanisms in order to meet their Kyoto commitments.
These three mechanisms are all intended to provide market-based stimuli to green investment incentives that will encourage Parties to meet the emission targets.
It is the CDM that is of special interest to developing countries such as the Philippines. CDM allows emission reduction projects that assist developing countries in achieving sustainable development and generate "Certified Emission Reductions (CERs)" for use by the investing countries or companies (the Annex II Parties). Through qualified emission reduction projects, the CDM is able to stimulate international investment and provide the essential resources for cleaner economic growth in all parts of the world. The CDM assists developing countries in achieving sustainable development by promoting environmentally friendly investments from industrialized governments and businesses.
The CDM provides a business reason for Annex II countries to implement project activities that reduce anthropogenic emissions in non-Annex I Parties, principally the developing countries. The CERs generated by such projects can be used by the Annex II Party to help meet their own emissions targets under the Kyoto Protocol. International emissions trading can be linked to regional or domestic trading schemes, the most notable of which is the European Union Emissions Trading Scheme (EU ETS). These credits can then be sold to companies or governments to meet their own targets, enabling an economic interchange and transfer of technology to the seller and the host country, and a more cost effective method of meeting targets for the buyer. Many countries have established government bodies to promote and help with the development of CDM projects including the Philippines.
Building a green economy
As countries emerge from the Global Financial Crisis, there is widespread recognition that future development, to be sustainable, must also be green. This means a global shift towards low carbon economies. The Philippines stands to benefit from this shift over the short to medium term, in a number of ways:
- The CDM provides opportunities for the Philippines to participate in the global carbon trading market while at the same time gaining new technologies that can contribute to future economic development.
- The CDM also provides incentives for reforestation activities that can benefit local communities — as demonstrated through examples cited in this report.
- Greening produces new jobs and new skills that can be used as the basis for enhancing the Decent Work Agenda.
- Greening does not necessarily impose costs on companies but can also (depending on circumstance) bring rewards.
There are longer term benefits too provided the incoming administration of President Aquino can improve the domestic investment climate. In recent years, foreign direct investment into the Philippines has been among the lowest in Southeast Asia due to the high cost of doing business as well as perceptions of problems with governance and rule of law.
The Philippines has a number of advantages to exploit. Firstly of course there is the educated and available labour force. The availability of industrial land and the proximity to major Asian markets provide a second set of advantages. If the government can address negative investor perceptions and improve the investment climate then there is an ideal opportunity for the Philippines to benefit from a new wave of "green" industrialization that will reinvigorate the manufacturing sector and provide long term sustainability for the economy.
A necessary first step is to identify the skills available, those needed and the gaps in the market. This report seeks to do this and to recommend policy directions necessary to produce desirable outcomes in areas related to the environment, education and skills development.
This report, commissioned by the International Labour Organization as part of a global partnership with the European Centre for the Development of Vocational Training (CEDEFOP) and covering 21 countries is the first step towards identifying the skills needed to make the transition to a greener economy through policy applied research. The twenty one country reports together with the report of the technical validation workshop as well as the synthesis report are being published progressively on the ILO website at http://www.ilo.org/skills/what/projects/lang--en/WCMS_115959/index.htm. A summary version of this report will also be contained within another ILO report Overcoming the Jobs Crisis and Shaping an Inclusive Recovery: The Philippines in the aftermath of the global economic turmoil, to be published by the ILO Country Office for the Philippines in Manila, Philippines.
Saturday, July 24, 2010
The deal is done
Taipei, July 24th 2010: The much talked about Economic Framework Cooperation Agreement (ECFA) between Taiwan and China is now a fait accompli. The agreement was signed June 29 during the fifth round of cross-straits negotiations held in Chongqing, China between Taiwan's semi-official Straits Exchange Foundation (SEF) and its Chinese counterpart, the Association for Relations Across the Taiwan Straits (ARATS). A copyright protection agreement establishing a mechanism to reinforce anti-piracy laws was signed at the same time although an investment protection pact and a proposed cross-straits medical cooperation pact have been held over until the sixth round of talks scheduled for later in the year.
Only following signature were the contents of the ECFA revealed and Taiwan's KMT-dominated legislature will only be able to accept or reject the agreement in toto. The government has ruled out any opportunity to review individual clauses. The status of the accord has already come into question as in law it is an agreement signed between two private organizations. Critics have pointed out that this may cause some problems if the agreement is lodged with the World Trade Organization (WTO) (which Taiwan has said it would do) and could be used by China to further erode Taiwan's status by claiming it to be a domestic agreement rather than an FTA, but this has been brushed aside by supporters as a mere technicality. The agreement does provide for establishment of a cross-straits economic commission to be responsible for follow-up negotiations and overall supervision of the agreement and this may go some way towards mitigating concern over this aspect.
In many respects the ECFA follows the Closer Economic Partnership Agreement (CEPA) signed between China and Hong Kong back in 2003. However, one key clause — that pertaining to safeguards, contained in the CEPA, appears to be missing from this latest document. Article 9 of the CEPA states that either side can temporarily suspend tariff reductions in the event that "the implementation of the CEPA causes a sharp increase in the import of [certain] products originating from the other side which has caused or threatened to cause serious injury to the affected side's domestic industry." There is no such clause in the ECFA and therefore no feasible means for Taiwan to suspend imports from China that threaten domestic industries. Taiwan's only recourse would be to the termination clause whereby either side could give written notice of termination of the entire agreement. Only after such notice had been given would Taiwan and China hold negotiations within 30 days to resolve differences and if the parties failed to reach consensus, termination would occur after 180 days. The problem is that such termination would be seen as a political act with dramatic consequences; the reality is that Taiwan must rely on China's goodwill not to undertake dumping or other actions that would damage Taiwan's manufacturing base.
Supporters of the pact are placing much emphasis on the "early harvest" provisions which will be implemented in three phases over the next two years. When the ECFA takes effect, which is expected to be towards the end of this year once both sides have completed their internal procedures, the early harvest lists will allow the 539 items on Taiwan's list, amounting to around US$13.8 billion in exports per year, to receive zero tariff treatment within the next two years, while Chinese exporters will get a reciprocal deal on 267 items representing some US$2.9 billion in exports per year. The real value has yet to be determined. While heavy industrial items such as iron and steel from Taiwan will have easier access to China's market, these are industries which are now being downsized in China and so it suits Beijing to allow entry of these items. On the other hand, high tech items such as flat panels, machine tools and inputs to solar power generation have not been included. China has embarked on an industrial upgrading strategy which will see it in the future competing with Taiwan in these high-end items and their exclusion from the early-harvest list will force Taiwanese companies to shift some of their production to the mainland of China. In short, at first sight it appears that the immediate benefits are slanted in Taiwan's favour while the longer-term benefits accrue to China.
Nevertheless despite the reservations in some quarters, the general mood among economic analysts is upbeat. A number of institutions and think tanks have once again upgraded their economic outlook for Taiwan over the immediate term. The International Monetary Fund (IMF) is now forecasting GDP to grow by 7.7 percent this year (up from the April estimate of 6.5 percent). The local Chung-Hua Institute of Economic Research is now forecasting 6.94 percent (up from 4.99 percent). With early harvest provisions not expected to kick-in until 2011, the immediate reason for better than expected GDP growth is attributed to better than expected export orders (Export orders for June totalled US$34.22 billion and analysts predict orders could reach a record-breaking US$400 billion for the whole year) and improved domestic consumption.
Domestic investment is also recovering. CIER expects domestic investment to increase 15.79 percent for the full year, its highest level since 1992, with private investment expanding 22 percent, compared with a contraction of 19.38 percent last year.
Unemployment, inched up slightly in June to 5.16 percent (seasonally adjusted 5.2 percent) on the strength of new graduates entering the workforce. For the first half of 2010, unemployment averaged 5.47 percent, down 0.26 percentage points compared with the same period last year. Most analysts are forecasting a steady drop in the unemployment rate as the employment generation effects from closer cross-strait ties and the government's various initiatives to attract foreign investment. take hold. The general consensus among the various agencies is that the jobless rate will fall below five percent by the end of the year.
Barring unforeseen events, the general expectation is that now that China has the deal it has been wanting with Taiwan, the pressure will be lifted for a period to win over Taiwanese hearts and minds and ensure the re-election of President Ma Ying-jeou and his KMT administration in 2012. While both sides have emphasized that the EFCA is an economic agreement, the political ramifications are evident for all to see. Taiwanese vote for the most part with their hip pockets and just as President Ma's popularity plummeted with the onset of the global financial and economic crisis, it could just as easily rebound as the economy recovers – and that appears to be precisely what is happening. Recent telephone polls conducted by the Cabinet Research Office have shown that Ma's overall approval rating now stands at 46.8 percent and that 68.3 percent of voters approve of his efforts to approve cross-straits ties. These numbers need to be seen against the backdrop of another independent survey which showed that 69.9 percent remained against unification with China notwithstanding the signing of the ECFA. This was the highest figure recorded since February 2006. Tellingly, even among government supporters, 60 percent were opposed to unification with China and only 30.6 percent supported unification.
Clearly Mr. Ma and his team remain where they have been for some time now – between a rock and a hard place.
Friday, July 23, 2010
The different faces of corruption
Manila, 23 July 2010: An opinion survey conducted in late June by Philippine pollster, Social Weather Stations, shortly before the inauguration of President Beningno Aquino (on 30 June) showed an approval rating of no less that 88 percent. Clearly the country has high expectations of his presidency. What surprised many was that the incoming vice-president, former Makati City mayor, Jejomar Binay scored almost as high at 77 per cent. Binay, it may be recalled was running on a separate ticket and was allied with former president, Josef Estrada.
Binay is a controversial figure in many quarters, while successfully running the premier business hub in the Philippines for many years, he and his family has in the past been accused of corruption, of rigging votes and stealing taxpayer funds (not to mention the alleged mistress). For a period, and in order to keep control of Makati within the family; his wife replaced him as the mayor after his initial two terms had expired. Other family members run a development company that has an uncanny habit of bagging many Makati construction projects. Yet none of this appeared to matter in the eyes of voters.
Respected Filipino columnist, Conrad de Quiros, writing in one of the country's leading newspapers recently gave an interesting interpretation of the high marks given both Aquino and Binay. He noted that the public view of corruption had less to do with stealing money which has been a common feature of politicians across several presidencies and is certainly not confined to the Philippines; rather it had to do with public revulsion at the manner in which former President Arroyo and her clique stole not only the vote, but debased society's democratic values and its institutions, destroyed lives (often through summary execution of journalists and those opposed to her) and, in his words "the theft of decency." He went on to note that, aside from the Arroyo presidency, that kind of corruption was evident only during the Marcos years:
They trust, and expect, the two leaders who have fought GMA to undo her rule, bring justice to this country, and stand the world back on its feet by punishing the guilty and rewarding the innocent. They trust and expect the two leaders who have fought GMA to run after those who helped her trash everything this country holds sacred, wrench this country from its moral moorings, plunge this country into a pit beyond the pale of the very word "corruption."
Those are strong words but represent as good a summation of the Arroyo legacy as any. People do not expect President Aquino to be a miracle worker; they do expect him and his government to restore a semblance of order in society. Binay is trusted and respected because as mayor of Makati he stood firm against Arroyo and because – despite the allegations made against him – Makati was a modern, efficient and well-run city.
Yet Gloria Arroyo and her ilk refuse to fade into history. Rather, with the Filipino Congress due to reconvene in late July, the former president appears to be engineering a new power base there. Now the representative of the electorate district of Pampanga she has already announced she will seek the speakership and a move to change the system of government from a presidential to a parliamentary system – which would effectively put her back in control. She has entered Congress by winning the seat formerly held by her son Mikey Arroyo. Yet Mikey remains in Congress as a representative of the party-list group Ang Galing Pinoy, which supposedly represents the marginalized group of security guards and tricycle drivers. It appears that COMELEC has issued contradictory decisions regarding who can represent such groups.
Introduced in 1995 through Republic Act, 7941, the party-list introduced a system of proportionate representation whereby voters are given two votes for their congressional representatives; the first vote is for a district representative. The second vote is for a national party-list representative in which the voter selects a party rather than an individual and on a nationwide basis. Twenty percent of all Congressional seats are reserved for party list candidates as a means of providing representation to marginalized and under-represented sections of society. However, unsurprisingly under the Arroyo watch, even this system became debased with wealthy friends of the former president nominating themselves to represent marginalized voters. And with others from this group making the decisions in COMELEC as to who is in and who is out, and with a tame High Court (all members of which were personally selected by Arroyo), even this system has been totally debased.
Prosecuting those who corrupted the entire system is not going to be easy in such an environment and while Filipinos expect the former administration to be held to account for its excesses, the danger is that the country may once again be plunged into political turmoil as a result. Philippine ombudsman, Merciditas Gutierrez, a friend of the former First Gentleman who was roundly criticized for shielding friends and relatives of the Arroyo family from investigation during the former administration has let it be known publicly that she has no intention of standing down. Arroyo it seems has covered all bases.
And so while the focus of the incoming administration needs to be on reforming the economy, creating investment and jobs that will finally bring down the appalling rate of poverty in the country, much of the focus will be on the fancy footwork needed to thwart Arroyo's plans of returning to "business as usual."
The economy is expected to do relatively well this year as the worst of the recent global financial and economic crisis recedes. The Manila-based Asian Development Bank has raised its growth forecast for the Philippines for 2010 to 5 percent from an earlier 3.8 percent. While raising the 2010 outlook it has kept the 2011 forecast steady at 4.6 percent. For the entire Developing Asia, ADB now forecasts a 7.9 percent rise this year (earlier 7.5 percent) and for Emerging East Asia, 8.1 percent (7.7 percent).
While at face value this appears to be a pleasing result, the macroeconomic number hides some serious problems that need to be addressed as a matter of urgency. First among these is the budget deficit which since its low of PhP12 billion in 2007 has been creeping up again. The deficit rose to PhP68 billion in 2008 and to PhP299 billion in 2009 due in part to the stimulus package introduced by the government at the time of the financial and economic crisis (and to counter the impact of two strong typhoons, Ondoy and Pepeng, that wreaked havoc in Luzon in September/October of that year). But the real worry is that for the first half of this present year, largely as a result of overspending ahead of the election, the deficit has climbed to PhP196.7 billion. This is 35.5 percent higher than the target of PhP145.2 billion for the period. As a result the target deficit for the year as a whole has been increased to PhP340 billion. This represents around four percent of GDP. It has also been revealed that ahead of the May elections, the Arroyo administration realigned a French government loan of 150 million euros or roughly PhP8.9 billion intended for climate change mitigation, to plug the budget deficit.
Incoming Finance Secretary, Cesar Purisima, has vowed to halve the budget deficit by 2013. This will be done by targeting tax evaders rather than increasing the burden on existing tax payers.
To this effort might be added that of enticing greater direct foreign investment into the country. In recent years, FDI into the Philippines has been among the lowest in Asia, especially when considered on a per capita basis. According to the Central Bank, net equity infusion in the first four months of 2010 amounted to a paltry $57 million which was 91 percent lower year-on-year than in 2009. Admittedly the 2009 base year was high because of a foreign acquisition.
Foreign investment is desperately needed to create new jobs. While unemployment dipped slightly in 2009 on the strength of government stimulus spending, as that runs its course unemployment is again creeping upward. The employment data shows that much of the job creation in recent years has been in intermittent or part-time employment rather than full-time wage earning opportunities. This has taken the edge off claims that the (previous) government had brought down unemployment. Even the business process outsourcing sector claims that the talent pool has been all but exhausted.
Underemployment of course remains at around the 20 percent mark and there has been a continued drift to the informal sector as jobs in manufacturing have dried up. Informal employment – much of it self-employment – now accounts for more than 70 percent of the workforce; after all the very poor cannot afford to be without some form of work. The middle class – that sector that can afford it – sends family members overseas. For the very poor, the option is street vending or household service – or a drift into illicit occupations such as the sex trade.
The picture is not a pleasant one. The saving feature is that the Philippines now has an administration that cares.
Thursday, June 24, 2010
The marginalisation of Taiwan
Taiwan's economy continues its rebound with a number of research agencies upgrading their economic forecasts. Trade has returned as the driver of growth. While the trade figures look particularly good thanks to the low base effect, the fact that exports have reached record high levels underscores the positive sentiment. Despite the good macroeconomic picture, unemployment continues to be a major problem with job vacancies, particularly unskilled jobs, in short supply. Government debt also appears to be a looming problem. President Ma Ying-jeou, continues to insist that Taiwan has to tie itself in with China to secure its future; many others remain unconvinced of the wisdom of this approach.
June 24 2010: Taiwan's exports in May rose to US$25.54 billion or by US$9.4 billion from the same time last year—a year-on-year increase of 58 percent. While the percentage growth was influenced by the low base effect, this amount represents a record high. Imports reached $22.3 billion, the highest amount since September 2008 when the global financial crisis first hit. Year-on-year the increase was 71.4 percent. Demand came from Asia; exports to China, Hong Kong, the ASEAN-six and the Republic of Korea were all at historic levels.
Exports to ASEAN showed the largest increase rising more than 67 percent from a year earlier, followed closely by China (including Hong Kong) which rose by nearly 66 percent. For the first five months of the year, Taiwan's exports totalled US$109.2 billion, an increase of 52.7 percent year-on-year, while in the same period imports rose 71.4 percent to US$98.55 billion. The trade surplus reached US$10.7 billion, down by 23.1 percent from the previous year.
The pleasing trade numbers plus suggestions of recovering domestic demand have enabled a number of Taiwan's economic research agencies to again revise upwards their growth forecasts for 2010. Polaris Research institute is now forecasting 6.82 percent GDP growth for this year—up from 4.65 percent in March. Cathay Financial Holdings is punting on seven percent growth which could increase to eight percent should Taiwan conclude an economic framework cooperation agreement with China. Provided global recovery continues and exports remain robust, Citibank Taiwan concurs that eight percent growth is achievable.
There are downside risks of course. Globally, the primary risk is that recovery will not be sustained and that export growth will falter should the present crisis in Europe worsen and flow on to other markets. The state of the US economy also gives cause for concern. While Taiwan's economy is recovering slowly, much uncertainty remains and latest data suggests that companies are remaining cautious about hiring new workers – preferring instead to extend the working hours of their existing workforce.
Unemployment fell by 0.25 percentage points in May to 5.14 percent of the workforce and the lowest level in 17 months. The ranks of the unemployed now numbers 567,000. Despite the improvement, Taiwan's unemployment rate is still the highest among comparable Asian economies, outstripping Japan at 5.1 percent, Hong Kong at 4.6 percent, the Republic of Korea at 3.2 percent and Singapore at 2.2 percent. The government's stated objective of lowering the unemployment rate this year to below three percent seems a forlorn hope. Most expect unemployment to remain above the five percent mark until next year.
The government is still banking on an economic cooperation framework agreement (ECFA) with China to boost growth and employment but many remain sceptical. A third round of talks on the ECFA was held in Beijing on 13 and 14 June and while progress appears to have been made, no consensus was reached on the so-called "early harvest list" or those items that would be marked for immediate tariff reduction or elimination. According to reports there are around 500 items from Taiwan including petrochemicals, machinery, auto parts and textile products. Tariff reductions will likely be around 60 percent for petrochemicals and 80 percent for textiles. China has around 250 products on its own list. However, neither list has yet been finalized.
President Ma claims that without a trade and investment agreement, Taiwan will be marginalized. He has sought to sell the ECFA on the basis that with China set to become the world's second largest economy, Taiwan can be transformed into a global innovation centre and regional trade hub as well as a global operation headquarter for Taiwanese businesspeople and a regional operation centre for foreign investors.
This concept was fashionable during the last KMT administration during the 1990s but time has moved on. It may be an overly optimistic ambition nowadays since Shanghai has already become the regional trade hub as well as the regional operational centre for many foreign investors—as the hollowing out of Taiwan's international business community over the past decade clearly attests.
Fearful that Ma may be a single-term president, China is placed in a dilemma. On the one hand it wishes to lock down its pre-eminence over Taiwan as early as possible so as to reduce any future government's freedom to manoeuvre while at the same time it wishes to avoid forcing Ma into accepting unpopular terms that move ahead of public opinion in Taiwan. The sticking point at the present time appears to be the issue of whether Taiwan, under an ECFA, will be allowed to enter into bilateral trade agreements with other countries which, in the absence of a successful Doha round of WTO negotiations, have now become fashionable.
Here much ambiguity abounds. Ma Ying-jeou appears to have changed positions several times claiming on different occasions that an ECFA must be a precondition to Taiwan being able to negotiate bilateral trade agreements with other countries; then the conditional tense was introduced with the statement that "an ECFA should lead to…" and then further doubt was introduced when he said that it "might lead to…".
China has been less equivocal. According to a Chinese spokesperson the idea that an ECFA would lead to other FTAs for Taiwan was not even on the table. A Chinese Foreign ministry spokesperson went further during a routine press briefing in saying that China "strongly opposes any official ties in any format that Taiwan might develop [with other countries] although it was not against any unofficial trade ties between Taiwan and China's diplomatic allies.
One newspaper editorial (admittedly pro-Taiwanese) has claimed that Taiwan's "worst nightmare" will be realized if China blocks Taiwan from concluding FTAs with other countries. The press has also pointed out that for many years, Taiwan's economy prospered without China. During the martial law years when Taiwan was run by former presidents Chiang Kai-shek and his son Chiang Ching-kuo Taiwan often posted double-digit economic growth. The mantra at that time was that Taiwan had to open up a wide range of markets in order to minimize the risk to its economy. Of course, that was in a different age and before China embarked on economic reform but the fact remains that it is only in recent years that Taiwan's investments into mainland China have skyrocketed and that investment, some of it quite high risk, correlates strongly with a drop in domestic investment. This goes some way to accounting for the historic high levels of unemployment now being experienced in Taiwan.
Given this constant increase in investment—more than $1 billion since Ma came to power in 2008, China accounts for an increasing share of Taiwan's GDP that may be difficult to reverse. According to this line of reasoning, this shows that Taiwan itself is embarked on a high risk gamble in getting too close to China instead of using the opportunities of globalization to adopt policies that would involve diversifying investments and risks around the globe. When it comes to the marginalisation of Taiwan, perhaps that has already happened; the only question is which is the best road back?
Wednesday, June 23, 2010
The long road back
22 June 2010: The Philippines stands on the cusp of a new administration, and one which (once again) has promised to bring transparency, accountability, reform and the rule of law to a country that (to paraphrase one Filipino commentator) has been hobbled by problems of political instability, bad governance and mass poverty throughout the nine-year term of President Macapagal-Arroyo. At this time it is worth remembering just how far the country has fallen behind the rest of the world.
In 1950, shortly after the end of the Second World War and at the infancy of the Philippines as an independent republic, it was regarded as the second most advanced country in Asia when measured in terms of per capita GDP. Back then, and with a per capita GDP of US$1293 the Philippines ranked 34th in the world. In Asia, only Japan outranked the Philippines. Japan at that time stood in 29th place with a GDP p.c. of $1873.
Fast forward to 2006 (latest comparable data available) and the Philippines had dropped to 111th place (among 171 surveyed countries). Per capita GDP had barely grown to $1382. Looking at these same numbers another way, in 1950, the US was 740% ahead of the Philippines; by 2006 it was 3194% ahead. For South Korea the comparable numbers are 68% and 1327%; for Thailand, 66% and 118%; and even Indonesia is ahead (68% and 118%).
What went wrong? The glib excuse for the present state of affairs made by many Filipinos is that their country is paying the price of living for 400 years in a monastery and then 50 years in Hollywood. There is an element of truth to this. The Spanish ruled the Philippines (much of it anyway) through the Catholic Church and through bestowing patronage on prominent families. It was a European-style semi-feudal system of government imposed on an Asian people. The Americans did not change things much—perhaps there was not enough time and during the first half of the 20th century American priorities lay elsewhere. Americans introduced a modern education system and an American style democratic system but made little change to the administrative structure of the country.
When independence finally came, in 1946, the result was probably inevitable. Despite ostensibly being a secular state, the Church has retained its pre-eminent position of influence and remains a part of the "establishment." Powerful families remain entrenched within the national and local political systems and despite pockets of modernism, continue to run many of the provinces along feudal lines. Many such families continue to regard themselves not only as being above the law—but as being the law. How else do you account for the alarming level of summary executions throughout the country? To cite one statistic, one hundred and thirty-nine media workers have been killed since 1986. Of this number, 106 have been murdered (summarily executed) under the watch of President Gloria Macapagal-Arroyo. Two broadcasters have been murdered in the past week.
As this was being written, a fresh report from Human Rights Watch claims that an unidentified gunman shot and killed Suwaib Upham, a witness to the November Maguindanao massacre in which 57 people lost their lives. The witness was a member of the militia that had carried out the killings, allegedly under orders of the politically powerful Ampatuan clan, allies of President Arroyo. He had agreed to testify against the Ampatuans provided he was afforded witness protection. Three months before he was killed, Human Rights Watch had raised protection issues with Justice Department officials in Manila, yet the NGO claims that the department was still considering his request for protection at the time of his killing.
Under the Arroyo watch and more than ever before, the law is meant to serve the elite. Examples abound of courts being manipulated and made to serve the ends of prominent individuals. Foreigners are especially vulnerable. False testimony is often used to grab the assets of foreigners and force them out of the country under threat of incarceration or death.
A culture of impunity pervades the country. President Gloria Macapagal-Arroyo, did not create the present alarming situation; but she did very little during her nine years in office to reverse it. Indeed the slide has continued under her watch. I am indebted to one Filipino columnist for recently introducing me to a new word "kakistocracy" which he used to describe his country—a government run by the least qualified or most unprincipled.
In what may well be her final address to the nation, President Arroyo used Philippine Independence Day (June 12) to extol the achievements of her term in office. Although invited, President-elect Beningno Aquino snubbed the event. To have done otherwise would have been tantamount to a reconciliation. A "seamless transition" in present circumstances could be misinterpreted.
The incumbent President has made much of the "36 quarters of uninterrupted growth" achieved during her presidency. What is conveniently overlooked is the fact that the past decade—at least until the bubble burst in mid 2008—had seen the fastest expansion of the global economy in fifty years. A rising tide raises all boats and it would have been virtually impossible for the Philippines not to have done well. She has also been fulsome in her praise for the Armed Forces of the Philippines, crediting them with bringing peace to Mindanao even though a peace agreement appears to be as far away as ever. Lacking a popular mandate she has been beholden throughout her presidency to the armed forces, the Church and to the local political establishment and it is those groups that have prospered under her watch.
Independent commentators believe that perhaps her most significant achievement was reform of the value added tax system brought about in 2006. This has allowed the debt to GDP ratio to fall from a high of 82.3 percent in 1998 (following the Asian crisis) to a low of 38.9 percent in 2008 although things may once again be faltering with reports of a budget blowout this year. But with the GFC, natural disasters and election spending, perhaps that was inevitable. Aside from her record on VAT reform the list of achievements is dismal indeed. It is one thing to benchmark recent performance against that of her predecessors. It is quite another to benchmark against neighbouring countries. The competitive position of the Philippines in Asia has continued to slide.
According to a recent survey by the World Economic Forum, the Philippines continues to become less attractive as a business destination. The latest WEF Enabling Trade Index (ETI) has the Philippines in 92nd position this year—down from 82nd spot in 2009. Among the ASEAN group, even Viet Nam and Laos outranked the Philippines which bested only Cambodia at 102.
Domestically, most of the numbers paint the same dismal picture. From 2000 to 2006, the proportion of low-income families rose from 77 percent to 81 percent. Numerous surveys show that the number of people rating themselves as poor has been increasing as has the number of those who complain of hunger. According to data published by the World Bank, both infant mortality and malnutrition are higher in the Philippines than the average for East Asia and the Pacific.
Nor have the rich been spared. According to the National Statistical Coordination Board, in 2000 there were 51, 160 families classified as rich (0.3 percent of the total) with monthly incomes above PhP200,000 (or around US$4,300 a month). By 2006, this number had declined to 19,738 or around 0.1 percent of total families.
Unemployment and underemployment remain a problem at all levels of society; around 1.3 million people join the workforce every year. Official unemployment is high by East Asian standards and few people believe that the official figures tell the entire story. While unemployment hovers around 7.5 percent; more telling is the fact that underemployment is at about 20 percent. The labour market is characterised by low quality jobs with around 70 percent working in the informal sector. The situation has been aggravated by the GFC which has hastened the hollowing out of the manufacturing sector.
Over recent years, the Philippines has become primarily a service driven economy with domestic consumption accounting for around 70 percent of GDP. However, aside from jobs in business processing outsourcing and in telecommunications—both areas of rapid growth—much other service employment is at the low end, dominated by domestic household workers or self-employed street vendors.
The situation would be far worse were it not for the fact that around 10 percent of Filipinos have found work abroad. It is the overseas Filipino worker (OFW) that has kept the economy afloat. Filipinos have been going overseas to work since the 1970s but the efflux has grown in recent years influenced both by the buoyancy of the global economy (especially in the Middle East) and the dearth of opportunities at home. Indeed even throughout the recent GFC, remittance earnings continued to increase (albeit at a slower pace than previously) and this alone is what saved the economy from recession.
A recent estimate by the Commission on Filipinos Overseas (CFO) suggests that around 8.7 million are now working overseas. Most are employed in skilled or semi-skilled occupations. About 47.36 per cent or 4.13 million of these are temporary workers while permanent residents account for 42.31 per cent or 3.69 million. Irregular workers meanwhile comprise an estimated 10.32 per cent of the total or 0.9 million. These are workers without valid visas or those who entered host countries illegally, many on tourist visas. This problem is particularly worrisome in the Middle East and gives rise to human trafficking, especially of young women.
More than 1,000 now leave the Philippines every day of the year for overseas jobs. Whether or not this can be regarded as an accomplishment of the outgoing administration in finding these positions depends on your point of view. While, undoubtedly it is a safety valve for frustrated work-seekers, given the dearth of opportunity within the Philippines; it has led to a hollowing out of key professions such as teaching, nursing and engineering which adds to the long-term vulnerability of the country. Then there is the human factor to consider as families face long-term separation with many children now in single-parent families or bought up by relatives other than parents.
Lack of investment is the root cause of much of the problem. Gross Capital formation has declined from a high of 20.3% of GDP in 1998 to a low of 15.2 percent in 2008 (World Bank Data). Gross domestic savings as a percentage of GDP has been stagnant for much of the past decade going from 20.1% in 1988 to 13.7% in 1998 and down to 13.4% in 2008. Over the past decade exports of goods and services as a percentage of GDP has fallen from 52.2% in 1998 to 36.9% in 2008.
So much for the "glorious decade."
The mood in the Philippines right now is one of relief, tinged with a measure of optimism. People are relieved that the presidency of Gloria Macapagal-Arroyo will soon be over; and optimistic that the inauguration of a new president on 30 June will reinvigorate the country and bring respect back to governance. President-elect, Aquino, will have no easy task in turning the country around despite the overwhelming mandate he received from the electorate. Chosen precisely because he represents a break from the past, the "past" will inform his present for some time to come. Confirmed on 9 June as the winner of the presidential race he will have Makati Mayor Jejomar Binay for his vice-president. Binay wants to be an active "vice" and is rumoured to be wanting to be put in charge of local government. He would be well suited to the position.
Like Arroyo, Aquino is known as a hard worker. There the similarity may end. Unlike Arroyo, Aquino is known to be an advocate of clean and accountable governance and he has already promised to make his predecessor accountable for the systemic corruption that was endemic to her administration and its transactional style.
But we cannot expect miracles overnight. It will be a long and hard road to turn the Philippines around. Institutions of democratic government, never strong, from the Supreme Court down have been damaged over the past nine years.
The Philippines needs to attract new investment, domestic and foreign to soak up its educated workforce. To do so the incoming president will need first to address some domestic issues.
His promise to rein in corruption is a welcome signal and if he can ensure he surrounds himself with people of similar mindset he is off to a promising start. Corruption can be beaten but it has become so systemic that it will take time—and there appears to be plenty of people who believe that it will continue to be "business as usual."
The second domestic issue to tackle is that of population growth and to ensure that national policy is not dictated by any religious group, no matter how powerful that group may be. In 2000, there were 76.5 million Filipinos according to the national census. By the time of the 2007 census this had grown to 88.6 million and by 2010, the number is estimated at 94.01 million. There are now 17.5 million more Filipinos than there were at the turn of the millennium—or 23 % growth over the space of a decade. No wonder attempts at job creation are never sufficient.
What then would be a realistic goal for the Aquino presidency? Stemming corruption and simplifying business processes (an intrinsic part of the corruption equation) would lead to new foreign direct investment as well as plugging the leakage of revenues from government coffers. New FDI would create new jobs and greater resources available to government would allow greater social investment into education and health care. In time, greater and meaningful employment would allow domestic savings to bounce back. Labour productivity would improve. Once this happens a virtuous cycle would be created.
It is a herculean task but not an impossible one. Consider what has been achieved elsewhere in Asia over the past fifty years. There are plenty of examples from Korea to Thailand on which to draw (and leaving aside the city states of Hong Kong and Singapore which are special cases). There are plenty of hurdles ahead including the possibility of a hostile legislature. But against this must be balanced the overwhelming mandate he received—more than 40 percent of the popular vote in a field of nine candidates. He did not have to cheat in order to win an election; the country is on his side. Let us hope he can make a difference.
Thursday, April 29, 2010
Philippines | April 2010
The final countdown
Thailand is in crisis and is once again hogging the world headlines when it comes to news of Southeast Asia. Filipino politicians must be heaving a collective sigh of relief because it has taken the focus of international media away from the shenanigans in the Philippines for a while. Besides which, just how many times can you report on a regime in terminal decay and still find something interesting to say?Or is it? Filipino President Gloria Macapagal-Arroyo, the president nobody really wanted is into the twilight of her presidency but you do not need to read the teacups to realize that she is planning to be around for a long-time yet. Indeed in all the pre-election manoeuvring that is taking place, much of it seems to centre around a president who far from making a graceful exit appears rather to be simply regrouping.
May 10 is the day that the Philippines goes to the polls to elect a new president, a new vice president and a plethora of other officials. More than fifty million voters—16.5 percent more than in 2004—spread across 76,300 precincts will choose from over 85,000 candidates who are seeking 17,943 national and local posts. By any yardstick that is an enormous undertaking to manage and this time around the entire exercise will be automated for the first time. Knowing the poor track record of the poll oversight body, COMELEC, many observers doubt that the computerized vote tallying will be either credible or accurate.
The presidential race is now dominated by three candidates of which Benigno "Noynoy" Aquino III, son of the late president Corazon Aquino is the front runner and, if recent polls are to be believed, is increasing an already commanding lead. In second place is property tycoon, Manuel "Manny" Villar while running third is former president Joseph "Erap" Estrada who says he is running for no other reason than he wants to be president again. Knowing the mentality of the man, it is probably as good a reason as any, after all his time guarding the till was cut short. Others believe he may have dealt with the devil and is running as the administration's secret weapon—to take the votes of the poor away from Noynoy. The question is a valid one but the answer is that we don't know. In this toxic environment anything is possible.
Running well behind the front-runners is the administration's official candidate Gilberto Tedoro Jr. Tedoro was only ever given an outside chance and news that the Arroyo family is actually secretly bankrolling the campaign of Villar in what has now become popularly known as the Villarroyo candidacy has further muddied the waters—if that were possible. The undercurrent of opinion is that if elections have to be held, President Arroyo will do whatever she can to ensure that Aquino does not get the presidency so that whoever succeeds her will guarantee her safety from litigation over her failings.
But what if he does win? With Mrs Arroyo and many of her family standing for Congress and with the institutions of governance so weakened over the term of her presidency, a power struggle between Congress and the Administration looks increasingly inevitable in that instance. Not content to be an elder statesperson, Arroyo is standing for seat in Congress where it is believed she wants first the speakership and after that the prime ministership if she can engineer a switch to parliamentary government. Giving up her power is farthest from her mind. As one respected newspaper put it in its editorial "For Ms Arroyo, the speakership represents the one thing she craves most, which is power, and the one thing she needs most, which is impunity. She will do anything to get it."
The watchword is "impunity." As the election heads into the home strait, President Arroyo is remaining true to form. Despite her professions of pious faith, meant to ensure the Catholic hierarchy remains on her side (although in some quarters even that is now doubt), consider some of the other irregularities that have surfaced in the past month.
Firstly, the newly appointed Secretary of Justice, no less than her former election lawyer, Alberto Agra, has cleared Governor Zaldy Ampatuan of the Autonomous Region of Muslim Mindanao and acting Maguindanao Vice Governor Akmad Ampatuan of murder charges in the massacre of 57 people from a rival political faction late last year. This has been described in the press as President Arroyo's "debt service" (utang na loob) to the Ampatuan family for their past loyalty and for delivering the vote to Arroyo in the 2004 election. The actions of Secretary Agra have been universally condemned in the local press and Mrs. Arroyo herself has disingenuously called for a review of his decision, but it is looking increasingly unlikely that the Ampatuans will ever stand trial; instead some lower-level flunkies will be made scapegoats for the massacre. Given the transactional nature of this presidency has a further deal been struck to ensure that areas of Mindanao under the control of the Ampatuan clan deliver votes this time around in accordance with the wishes of the Arroyos? The question is being asked.
Secondly, the senior Amapatuan, despite being held in detention, was given the courtesy of holding a press conference from his cell. The press conference he called had nothing to do with his case; rather it was called to announce the support of the Ampatuans for the Noynoy campaign. Now, given that all of this had to be cleared with Malacañang Palace, the only logical explanation for this is that by associating himself with the Aquino campaign, Aquino would be tarnished in the process. If that was the plan, then it appears to have backfired.
Despite ongoing concern at the lack of transparency in the automated vote counting system and continued questions over the accuracy of the machines being used, COMELEC, has again dismissed calls for a parallel manual count to match the computerized tallying claiming this is unnecessary. Since no politician ever loses an election in the Philippines, the stage is being set for some massive disputes to arise. Furthermore the poll body has once again been mired in scandal with new revelations of further rigged contract bidding.
Finally, or at least finally for purpose of this essay, came the news that the seats reserved in the Philippine lower house for marginalized constituents—the so-called "party list" seats—have been hijacked by the political elite. At least 15 party-list groups have been linked to people close to the Arroyo administration thereby ensuring that instead of standing for the poor and dispossessed as was the intention when the present Constitution was framed, these votes in Congress will form part of the Arroyo bloc. Under President Arroyo's watch, the marginalized have become marginalized even further.
We haven't mentioned here the so-called "midnight appointments" but we covered that topic earlier. For a country that takes seriously the concept of delicadenza, the president has none of it.
All of these tales (and they are only the tip of the iceberg) merely reinforces the "culture of impunity" which has pervaded the later years of the Arroyo government just as it did during the Marcos years. As one respected commentator wrote "the rich grab what they want and the poor grant what they must. Thus abuses proliferate, both by state and by insurgents. "
Or as another commentator put it:
"Many of us are stunned by Ms Arroyo's cavalier attitude toward institutions. Unlike ordinary mortals, she seems simply not awed by them. Clearly, her staying power as a politician resides in this-that she looks at the law not as a moral guide but merely as a tool of politics. ... That her weapons of choice, ultimately, are coercion and remuneration. Not since Marcos has the nation seen a politician quite like her.In the past it has taken up to 60 days to tally the nationwide vote during which time the entire country was in a surrealistic twilight state. This time a result is expected within 48 hours. It may not be the result expected but if will be a result. If we can try and find anything positive in all of this it is that the suspense will be short-lived. Within the week after the election we will know whether order and calm will prevail or whether Thailand will start to look like a Sunday School picnic compared to the mayhem that could be unleashed in the Philippines.
The irresistible force is about to meet the immovable object.
Bouncing back
Taiwan | April 2010
For the "old China hands" news in recent weeks from Taiwan has provided us with a refreshing blast from the past. After all the doom and gloom or recent months there was an air of familiarity about the recent newspaper headlines such as we have not seen for a long time.True with the Republic of China due to celebrate its centennial later this year, announcement that the slogan for the occasion would be "100 Years of Excellence" seemed to be more appropriate to a venerated department store than a country that has become an Asian wűnderkinder, but then, perhaps after all that is what Taiwan is all about. Democracy, liberty and personal freedom are all very well but it is the ring of the cash registers and (these days) the swiping of the credit card that give people here the warm fuzzies. And after all, talking about democracy and freedom under Ma Ying-jeou are tantamount to treason and best left off the agenda lest someone across the water gets offended.
So for a change, it is good news month! Firstly there is news that Taiwan's economy appears to be well and truly out of the recessionary tailspin of recent times and is once more gaining altitude. All major economic indicators have rebounded, the economy is in expansionary mode and activity has returned to pre-crisis levels. Importantly, consumer confidence is also increasing despite a doggedly high unemployment rate. Unemployment is coming down but only slowly and is proving to be the laggard in the recovery process. Nevertheless unemployment has fallen to a 14-month low but is predicted to remain above five percent for the rest of the year.
Most economic think tanks have again revised their economic growth targets for this year. The Taiwan Institute of Economic Research (TIER) is now forecasting GDP expansion of 5.11 percent year-on-year for 2010, while the other government think tank, the Chung Hua Institute of Economic Research is punting on 4.99 percent. The IMF set heads turning with its announcement in the latest World Economic Outlook report that it expected Taiwan to achieve a 6.5 percentage point growth. Amongst these heady announcements, the government is being a little more circumspect; the Council for Economic Planning and Development is saying that it expected the economy to grow "by at least five percent."
When Taiwan comes out of recession it does not mess around, it is bouncing back with a vengeance.
Exports are now expected to grow by 26.83 percent over the course of the year to US$258.3 billion, according to the TIER. This exceeds the previous estimate of a 10.51 percent increase to US$225.1 billion, by a wide margin.
This optimistic forecast comes on the strength or a rapid rebound in export sales during the first quarter. In March alone exports rose US$7.8 billion, or by 50.1 percent, year-on-year to $23.4 billion; while imports were up US$9.74 billion, or 80.3 percent to $21.9 billion. These were the highest levels recorded since the onset of the global financial crisis. The trade surplus reached US$1.5 billion in March according to the official figures.
Looking at the first quarter as a whole, exports rose by US$21.28 billion, or 52.5 percent from a year ago, to US$61.8 billion. This was the second-highest figure for that period in Taiwan's history. With export activity strengthening, local manufacturers are taking the opportunity to retool and reinvest in plant and equipment. This in turn is driving imports, which were up US$25.1 billion, or 78.4 percent, year-on-year for the quarter. Now admittedly, with the economy mired in recession this time last year, these numbers are influenced by the low base effect but it does mean that Taiwan's export driven economy is back on track—and in the fast lane.
Exports to China, including Hong Kong, rose to a record US$10.26 billion in March, accounting for 43.9 percent of total exports, followed by ASEAN at 14.4 percent and Europe at 10.5 percent.
Export orders in contrast to shipments are a means of looking ahead at the position in coming months. Again the figures are pleasing. Taiwan's export orders in March grew by 43.66 percent from a year earlier to US$34.39 billion. Reportedly this was the highest total in the Taiwan's history and came on the back of strong demand from Asia-Pacific markets for Taiwan's sophisticated electronic products. For the first quarter of the year, total orders amounted to US$92.2 billion—up by almost 50 percent from the same period last year and 28 percent higher than in the final quarter of 2008.
For the first quarter, total orders amounted to US$92.17 billion, up 49.31 percent from the same period last year and 28.03 percent higher than the previous quarter.
Foreign exchange reserves reached a record high of $355 billion topped only by China, Japan and Russia and higher that Korea, Hong Kong and India.
Now these are the numbers that Taiwanese like to hear.
Despite all the good news coming out of the statistical bureau, the Ministry of Foreign Affairs was quick to sound a cautionary note claiming that Taiwan's export competitiveness had steadily declined over the past nine years in comparison with its major trade competitors, especially the other Asian tigers. Of course, this was meant to signal the need for Taiwan to sign the economic cooperation framework agreement with China (ECFA) which, so the government claims, will ensure Taiwan will not be marginalized in the wake of the creation of the ASEAN Plus One (China) free trade area.
Others disagree claiming that despite the agreement between China and ASEAN, Taiwan's economy is proving exceptionally resilient—as the latest export figures show. The fear is the hub and spoke effect whereby Taiwan's future exports to ASEAN would be funnelled through China rather than allowing Taiwan to continue to deal directly with its ASEAN neighbours.
The problem with any proposed agreement with China is that the "devil is in the detail" and the government has been rather coy about revealing any of the detail. It hopes that the framework agreement will be ready for signature within the next two months but President Ma has repeatedly ducked questions as to whether it will be put to the legislature for ratification or not. The implication is that it will not.
What is in the proposed agreement is still a matter of conjecture. Since negotiations are still underway and the issue has such sensitivity—very few people are neutral about it; most have either strong views in favour or strong views against—this is understandable. Much has been made of the so-called "early harvest" provisions which, so the government claims, will bring early benefits to Taiwan by reducing tariffs on a number of items—but so far we do not know which. President Ma has stated that the agreement will not allow Chinese agricultural items into Taiwan thereby protecting Taiwan's own farmers; nor will it allow Chinese labour into Taiwan. Probably it does not need to do so because already most Taiwanese factories are located on the Chinese mainland anyhow. If there has been any rational debate in the local press it has been over the investment conditions, and more precisely, the laws that limit China's state-owned corporations investing into Taiwanese companies. Already China is circumventing these conditions by investments through Hong Kong companies to gain greater leverage in Taiwan's commercial and financial sector.
So is the ECFA a Trojan horse, a gun to Taiwan's head or a panacea to solve all problems? You can find it described as all of these and much more. One thing is certain however, President Ma intends to push it through at whatever cost. People can do nothing other than watch and hope that it will not be a replica of the closer economic partnership agreement Chine signed with Hong Kong.
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