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 34^th in the world. In Asia, only Japan outranked the Philippines. Japan at that time stood in 29^th place with a GDP p.c. of $1873.

Fast forward to 2006 (latest comparable data available) and the Philippines had dropped to 111^th 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 20^th 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 92^nd position this year—down from 82^nd 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.