Dark Legacies: The Economy Under Arroyo

The disturbing divergence between the fortunes of a few and the welfare of the many is the most troubling legacy that the Arroyo presidency leaves behind– and among the greatest challenges that the incoming administration has to confront to deliver any real change

By Sonny Africa
June 11, 2010

IBON Features-- The Arroyo administration will be remembered for lost ground on important measures of development and progress in the face of economic growth. Filipinos are worse off today than when President Gloria Macapagal-Arroyo came to power nine years ago.

Unemployment is at record sustained highs, household real income declined, poverty increased, inequality worsened, and Filipinos were forced abroad in unprecedented numbers. Prospects have been undermined by the steady erosion of domestic manufacturing and agriculture, a rapidly deepening fiscal crisis, and defeatist international trade and investment policies. In contrast, the profits of the country’s biggest corporations and the wealth of its richest families have continued to improve substantially.

This disturbing divergence between the fortunes of a few and the welfare of the many is the most troubling legacy that the Arroyo presidency leaves behind– and among the greatest challenges that the incoming Aquino administration has to confront to deliver any real change.

The Arroyo administration plays up the economic growth over its term– touted as the best in over 30 years– as the gold standard of its performance. Official reported growth in gross domestic product (GDP) during the Arroyo administration (2001-2009) averaged 4.5% annually compared to 3.9% under Aquino (1986-1991), 3.8% under Ramos (1992-1997) and 2.4% under Estrada (1998-2000). The economy expanded by 47.2% in real terms since 2001. The results however speak for themselves.

Rising joblessness and poverty

The period 2001-2009 is the longest period of high unemployment in the country’s history with the true unemployment rate averaging some 11.2% (correcting for the government’s not counting millions of jobless Filipinos as unemployed since 2005). The number of jobless and underemployed Filipinos grew to 11.4 million in January 2010 which is 3.1 million more than in January 2001, when Pres. Arroyo came to power. The 4.3 million jobless Filipinos as of last January is an increase of 730,000 from nine years ago; the 7.1 million underemployed is 2.4 million higher.

Some 877,000 jobs were created annually since January 2001 to reach 36 million in January 2010. However the quality of jobs created is very poor: 3.8 million are “unpaid family workers” (585,000 increase from January 2001), 12.1 million are “own account workers” mainly in the informal sector (1.6 million increase), and around 12.6 million are “wage and salary workers” but without written contracts. The number in merely part-time work increased by 3.8 million to reach 12.3 million last January and now accounts for over one out of three jobs.

Poverty has continued to rise even by the government’s low official poverty line. The number of poor families increased by 530,642 or 13% since 2000 to reach 4.7 million in 2006. The number of poor Filipinos increased by 2.1 million over that same period to reach 27.6 million. But the official poverty line is only P42 per person per day in 2006 which buys just a kilo of rice and a chicken egg; a higher threshold of P86 more than doubles the number of Filipinos classified as poor.

As it is, household real incomes fell by an average of 20% across all surveyed homes between 2000 and 2006– the recorded 19% increase in nominal income over the period was easily offset by the 38% rise in prices. The latest available poverty data is for 2006 so these trends occurred long before the global turmoil and natural calamities since 2008 which can only swell the numbers even more.

Growing inequality

The country’s inequalities remain severe. In 2006, the net worth of just the 20 richest Filipinos– including close Arroyo allies Lucio Tan, Enrique Razon, Jr., Eduardo Cojuangco, Enrique Aboitiz and others– was P801 billion (US$15.6 billion) which was equivalent to the combined income for that year of the poorest 10.4 million Filipino families.

The net income of the Top 1,000 corporations in the country rose from P116.4 billion in 2001 to average P416.7 billion annually in the period 2002-2008. On the other hand, workers have seen the smallest increase in their real wages during the Arroyo administration than over any government since the Marcos dictatorship. The minimum wage in NCR increased just P5 in real terms over the almost decade-long Arroyo term compared to P82 during the time of Aquino, P16 of Ramos, and P22 of Estrada (inflation-adjusted figures based on 2000 prices).

The hyped economic growth has also been largely concentrated in Metro Manila which increased its share of the country’s GDP from 30.9% in 2001 to reach 33.0% or a third of the national economy in 2008. This was at the expense of 10 other regions which each saw their share of GDP fall – Cordillera, Ilocos, Cagayan Valley, Central Luzon, Southern Tagalog, Eastern Visayas, Zamboanga Peninsula, Davao, ARMM and Caraga. Only two other regions, Northern Mindanao and SOCCSKSARGEN, saw about a percentage point each increase in their share of GDP.

This has caused income disparities to widen even more. In 2001 income per head in Metro Manila, the richest region, was eight (8) times that of the poorest region ARMM. By 2008, income per head in Metro Manila was 12 times that in ARMM.

Eroding domestic production

The fundamentals for modernizing the economy have eroded. Manufacturing’s share in GDP was down to 21.8% in 2009 or as small as in the 1950s. The sector created just 15,370 jobs annually since January 2001 to reach 3 million in January 2010. In contrast, seven times more household help jobs were created over the same period– 107,730 were added annually to reach 2.1 million last January. The number of household help in the country is fast approaching the number of its manufacturing workers.

The agriculture sector meanwhile has shrunk to 18.1% of GDP or its smallest share in the country’s history. Only 172,600 agricultural jobs were created annually over the last nine years to reach 11.8 million last January, most of which were in low- or even non-paying work. Rural poverty persists due, among others, to the slow pace of agrarian reform: the Department of Agrarian Reform (DAR) of the Arroyo administration only distributed an average of 119,301 hectares annually (2001-08) which is smaller than under Estrada (121,274 ha.), Ramos (296,395 ha.) and Aquino (169,063 ha.).

The deterioration of domestic manufacturing and agriculture go far in explaining the weak job creation. This also highlights how the period 2001-2009 has seen the most Filipinos forced abroad to find work in the country’s history. Deployments during the Arroyo administration averaged 1.04 million annually compared to 469,709 (Aquino), 713,505 (Ramos) and 839,324 (Estrada); 1.42 million were deployed last year which was equivalent to almost 3,900 Filipinos leaving every day. The economy’s over-reliance on remittances reached record levels during the Arroyo watch and, in 2005, breached the psychological threshold of being equivalent to 10% of GDP.

The erosion of domestic production is also causing an over-reliance on external sources of growth – especially overseas work but also such as low value-added export manufacturing and business process outsourcing (BPO). These activities are essentially disconnected from the domestic economy though and do not contribute to any broad-based economic dynamism. BPOs for instance have been hyped in growing rapidly from 5,600 employees and US$56 million in revenues in 2001 to 442,164 employees and US$7.2 billion in revenues in 2009. Yet the sector can only ever account for a tiny share of the economy and in 2009 was just 1.3% of total employment and only some 2% of GDP.

Fiscal troubles

It is also clear that nothing has been done to address the root causes of the country’s fiscal troubles. The Arroyo administration is exiting upon the steepest increase in the national government (NG) deficit in the country’s history– a P286 billion or 2,300% increase over just two years from P12.4 billion in 2007 to P298.5 billion in 2009. This is on top of the government having it worst deficits already with a cumulative NG deficit of P1.34 trillion over the period 2001-2009 or more than triple the deficits of the Aquino, Ramos and Estrada administrations combined (P422 billion).

It also passes on a heavy debt burden that already reached P4.36 trillion in February 2010, or more than double the P2.17 trillion debt inherited from the Estrada government. The Arroyo administration has effectively been borrowing an additional P243 billion annually since coming to power. This is even after paying P5.1 trillion in debt service from 2001 to 2009 which is nearly triple the P1.8 billion in debt payments made over 15 years by the Aquino, Ramos and Estrada administrations combined.

The government’s tax effort has barely kept pace with nominal growth in gross national product and only stop-gap measures such as record privatization– including selling off as much in 2007 as had been sold off in the previous 15 years spanning three administrations– made it momentarily appear that fiscal reforms were in place.

The Arroyo administration has made the country’s tax system even more regressive, burdening the poor (such as with RVAT) and unburdening those most able to pay (such as by lowering corporate income taxes). Meanwhile the most important sources of deficit pressures are unaddressed: graft and corruption, trade liberalization, foreign investment incentives, unproductive debt service, and bloated military spending.

Policy errors

Recent years have seen some external global events beyond the administration’s control but the country’s problems were there even earlier– poor job growth, manufacturing decline, low rural incomes, and a bloating informal service economy. These troubles were not primarily due to the consecutive food, fuel and financial crises but to flawed economic policies.

The Arroyo administration pushed an economic strategy built on ‘free market’ policies of globalization– removing trade barriers, taking away investment controls, privatizing public utilities and social services, deregulation, and continued debt payments. These far-reaching measures are the biggest factor behind the country’s severe economic troubles and need to be reversed for there to be any prospects of steering the economy towards real social progress. Even corruption, which has certainly become severe, has not caused as sweeping damage.

Foreign investors were aggressively courted and enticed with generous incentives, as well as the freedom to operate with hardly any obligations to contribute to domestic economic development. Transport, power and water infrastructure were built mainly geared towards serving the needs of big foreign and domestic business interests.

Trade deals such as the Japan-Philippines Economic Partnership Agreement (JPEPA) and with the Association of Southeast Asian Nations (ASEAN), World Trade Organization (WTO) and others were entered into. The government even pushed to seal a free trade deal with the United States (US). All these have made the Philippines more vulnerable and more exposed than ever before to the global economy. They also hamper meaningful progress by preventing nationalist economic policy-making.

Overturning the legacy

The economic legacy of the Arroyo administration will be the biggest obstacle on any effort to improve the welfare of the people. Yet while heavy, these are not insurmountable. Charting a path to real, sustainable and durable economic progress for the country begins though with acknowledging those realities and recognizing the basic fragility of the national economy. It also has to be accepted that relying on the market, remittances, private corporations, and foreign investors to spontaneously bring about development has been a huge error.

There needs to be an admission that the economic policies of the past have failed and that a thorough overhaul is needed. There will have to be greater emphasis on building solid domestic economic foundations rather than relying on temporary palliative measures, unsustainable financing or external sources of growth. Meaningful income, asset and wealth distribution are long overdue. Corruption has to be tackled, but so too the globalization policies that have resulted in an ever more undemocratic economy whose resources and benefits are cornered by a few. Much more progressive governance is needed to able to overturn the dark legacies of the outgoing Arroyo administration. IBON Features