GOV’T CAN ENSURE CHEAPER RICE BY DOING AWAY WITH LIBERALIZATION, RESISTING CREDITOR PRESSURE

Government can actually provide the much-needed relief of low-priced rice if it only gets out of its liberalization framework in coming out with remedies to the current rice crisis, said independent think-tank IBON Foundation.

Its responses to the rice crisis such as lifting the rice import quota and the proposal to increase the selling price of National Food Authority (NFA) rice are all conditionalities imposed on government by multilateral creditors like the World Bank and the Asian Development Bank (ADB) for further liberalization.

The Arroyo administration could, for instance, increase NFA procurement to help local rice producers, but it clearly prefers to preserve its “fiscal gains” by denying the agency enough subsidy, said IBON research head Sonny Africa.

Rice imports needed to make up for shortfalls in local production could mean as much as a P64.1-billion subsidy for NFA rice this year, an amount that is already over five times the national government deficit in 2007. Providing this much subsidy– even if it will benefit farmers and consumers– would not sit well with creditors. Hence, instead of strengthening the NFA, government has removed rice import quota to allow private traders to import larger amounts of rice, and now proposes for a hike in NFA prices.

These recent government proposals, Africa said, all comply with the ADB and World Bank conditionalities of NFA privatization and full liberalization of rice importation. It clearly shows that while it can ensure cheaper rice, government chooses to abandon its responsibility to the people and give in to creditor pressure

OBSESSION OVER FISCAL BALANCE BEHIND GOV’T PROPOSAL TO INCREASE NFA PRICES

The government’s obsession with balancing the budget to satisfy its creditors is behind the proposal to increase National Food Authority (NFA) rice prices, according to independent think-tank IBON Foundation.

Record rice imports are needed to make up for shortfalls in local production, which could mean as much as a P64.1-billion subsidy for NFA rice this year— an amount that it is over five times the 2007 national government deficit of P12.4 billion. To achieve fiscal balance, the administration has opted to increase NFA prices and lift the rice import quota to allow more private importation, said IBON research head Sonny Africa.

“This is another situation of the administration being more concerned about impressing creditors than addressing the deteriorating welfare of the country’s poorest,” Africa said. “It comes on top of the regressive increased value-added tax in 2005 and drastic cuts in social services spending especially in the period 2001 to 2006.” As it is, the country’s rice cartel and other hoarders are already
exploiting the situation of expensive NFA rice to manipulate stocks and raise prices even higher, he added.

The administration trumpets successes on the fiscal front. But the current problem of rising rice prices confronts it with the challenge of translating any so-called gains into concrete benefits for the people, said Africa

AMID BARRAGE OF HYPE, REALITY OF WEAK ECONOMY PERSISTS

The clearest signs of economic failure under the Arroyo administration are in the poor conditions of millions of Filipinos.

By Sonny Africa
IBON research head

IBON Features– The administration has made much noise of its economic performance in 2007. Most of all it crows about rapid growth in gross domestic product (GDP), the peso’s appreciation against the dollar, and reining in the national government deficit. Unfortunately these are not the whole story. There is a barrage of hype but the reality is of a weak economy and, absent fundamental economic reforms, millions of Filipinos consigned to joblessness and poverty.

A more complete descent into economic turmoil was averted last year by record overseas remittances, debt-driven spending, an upsurge in “hot money”, the fortuitous weakening of the United States (US) dollar, and a US economy that had yet to fall into recession. There was also an unmatched privatization spree with the P91 billion worth of public assets sold equivalent to nearly as much as had been sold in the previous 15 years spanning three administrations. These conditions are unlikely to recur in 2008– and the downward pull of accumulated economic problems is unavoidable.

Crisis times

The clearest signs of economic failure are in the poor conditions of millions of Filipinos. The 11.3 percent average annual unemployment rate over the period 2001-2007 is the worst 7-year period recorded in the country’s history. There were 4.1 million jobless Filipinos and 6.8 million underemployed last year, or almost 11 million Filipinos looking for work.

The government uses statistical sleight of hand to give the illusion of an improved jobs situation. Its definition of unemployment since April 2005 cuts the number of jobless not by giving them jobs but by classifying long-discouraged jobseekers and those not available/willing to immediately take up work as “not in the labor force”. This had the effect of reducing the “official” unemployment by around 3.5% and the number of jobless by 1.4 million in 2007.

Yet job creation is far short of the targeted million jobs a year and also of poor quality. Despite supposedly record growth the 861,000 net additional jobs created in 2007 is only a 2.6% increase in employment from the year before and is the fourth slowest rate of job creation in the last seven years.

The sources of jobs also betray economic backwardness. The leading sector in job creation is domestic household help with an additional 142, 000 jobs, followed by 116,000 jobs in transport, storage and communication, and 111,000 jobs in wholesale and retail trade. These are among the lowest-paying, most temporary and insecure jobs in the country. In stark contrast only 72,000 agriculture jobs and 4,000 manufacturing jobs were added yet these sectors constitute the internal productive base of the national economy.

The latest Family Income and Expenditure Survey (FIES) noted average family income dropping between 2000 and 2006 with nominal incomes not keeping up with inflation. The incomes of the poorest four-fifths of Filipino families – or some 13.9 million families – fell between five and almost 13 percent. These 70 million or so Filipinos each struggle to survive on P110 or even much less a day.

Critical times

Things can only get worse in 2008 with the US recession and a generalized slowdown in the world economy. The domestic situation is made worse than it should be by internal weaknesses resulting from “globalization”, the erosion of domestic productive sectors and over-dependence on trade, foreign loans and capital.

As it is, manufacturing sector growth slowed to 3.3% in 2006 and its 23.1 percent share in GDP is as low as in the late 1950s. Agriculture grew at a faster 5.1% clip but then wide year-to-year variances are the norm for the sector and the its 18.4% share in GDP is the smallest in the country’s history. This internal domestic weakness makes the country unduly vulnerable.

The country has significant links to the US economy which remains our top investment and exports partner (accounting for 20 percent of the country’s respective totals). Drops in US consumption and investments will be deeply felt. This effect is magnified by “globalization” where much of Philippine exports to East Asian countries like China, South Korea, Taiwan and Malaysia are actually intra-firm trade with the US still the ultimate destination. Slower growth in third party countries that depend on US and which Philippines deals with will also cause problems.

Even the vaunted local information technology (IT)-enabled industry will likely be hit hard because of its considerable dependence on the US market, further aggravated by the continued peso appreciation. The US is an overwhelming presence in the business process outsourcing (BPO) sector and accounted for nearly nine-tenths of total BPO exports revenue and over two-thirds of foreign equity in 2005. Nearly nine-tenths of BPO service exports were to the US market. The impact will be most felt in the National Capital Region (NCR) where an estimated 80% of BPO employees are located.

There are also other sources of problems. Slow global growth could restrain OFW deployments and slow down remittances which will reduce domestic consumption. The administration’s inability to even let revenues keep up with nominal GDP growth, compounded by the dearth of remaining assets to sell, could lead to an uncontrolled intensification of its fiscal crisis in 2008.

The rumbling political instability stemming from unresolved issues of legitimacy, graft, corruption and political violence are also taking their toll. If these are amplified by a drop in local business sentiment then this year or the next might even see the beginning of a steep downward economic spiral.

All this highlights the folly of government economic strategies which unduly rely on external factors instead of creating jobs and producing goods by building domestic agriculture and industry. The country’s economic prospects are unfortunately made even worse by the crying need for credible leadership underpinned by a broad-based democracy.

2006 Official Poverty Statistics: Worse Than It Looks

Poverty in the Philippines has become so prevalent that it can no longer be hidden, only downplayed through the statistical manipulation that has become an Arroyo hallmark

By Joseph Yu

IBON Features– With the recent release of 2006 poverty statistics, the Arroyo administration was finally forced to admit that its much-hyped “28 quarters of continuous growth” has failed to benefit the ordinary Filipino.

According to the official figures by the National Statistical Coordination Board (NSCB), some 32.9% of the population, or 27.6 million Filipinos are poor. This was a reversal of the trend experienced in 2003, when the poverty incidence fell to 30% from 33% in 2000. It should also be noted that there were actually more Filipinos in 2006 than in 2000 (when some 25.5 million Filipinos were poor).

But despite the admission that poverty has risen despite high economic growth, the official poverty figures may actually be understated and obscure how widespread poverty is in the Philippines. This is because of the low poverty threshold the NSCB uses to estimate the extent of poverty.

For 2006, the NSCB pegged the per capita annual poverty threshold at P15,057, or P75,285 for a family of five members. The poverty threshold is defined as the minimum income/expenditure required for an individual to meet its basic food and non-food requirements. The poor are thus considered as those individuals or families whose incomes fall below the official poverty threshold and cannot afford to provide in a sustained manner for their minimum basic needs for food, health, education, housing and other social amenities of life.

The use of the term minimum basic needs highlights the limitations of the government’s definition of poverty. The government considers only minimum survival standards to measure poverty, thus capturing only those who are desperately poor and cannot meet even their most basic needs. But those individuals and families who fail to meet decent living standards should also be considered poor. For example, a family with one or two minimum wage earners whose incomes fail to meet their needs are also poor, even if their income is above government’s poverty line.

In fact, the government’s own National Wages and Productivity Commission (NWPC) accepts this reasoning. Thus, the NWPC releases regular estimates of family living wages; such figures measure what is needed for a decent standard of living plus a 10% allowance of total expenses for savings or investments.

As of 2005 (to ensure compatibility with the 2006 poverty threshold since the next estimate was as of December 2006), a family of five needs P16,218 for decent living, or 258% of the P6,274 that the NSCB claims that a Filipino family needs to stay out of poverty in 2006. If only the NWPC’s food and non-food expenses estimates are considered, then the poverty incidence is 42.5% of NWPC’s estimates.

Thus, it is clear that the actual extent of poverty in the country is grossly understated. In IBON’s January 2008 nationwide survey, 7 out of 10 Filipinos rated themselves as poor.

Poverty Despite Growth

The increased poverty incidence also raises the question of why the number of poor increased even as government figures showed increasing economic growth. Gross domestic product (GDP) grew an average of 4.6% from 2001 to 2006, while gross national product (GNP) grew by 5.1% over the same period. From 2004 to 2006, when the poverty increase was recorded, GDP and GNP grew by 5.5% and 6.1%, respectively; this was substantially higher than the 3.7% and 4.1% recorded from 2001 to 2003.

The NSCB attributed the higher poverty incidence to the insufficient rise in personal incomes coupled with higher prices, thus making it difficult for poor Filipinos to meet their basic needs. NSCB also admitted that the implementation of the reformed value-added tax (RVAT) increased prices.

But what economic planners failed to point out was that government itself is responsible for low wages prevailing in the country. Government actually uses the poverty threshold as the basis for setting the minimum wage– thus, a low poverty line justifies low subsistence-level wages as part of government’s foreign income-driven development strategy. Despite this, the NSCB still said that a worker in the National Capital Region earning the minimum daily wage of P362 (or P9,412 a month) can support a family of five based on a monthly poverty threshold of P8,569.

Also contributing to the rise in poverty figures was record-high unemployment rates. From 2001 to 2006 the country suffered from an average of 11.3% unemployment and 18.5% underemployment, the worst such six-year period recorded in the country’s history.

If jobs were created during the period, these were mostly poor quality, low-paying jobs. According to the NSO Labor Force Survey, from 2001 to 2006 the most number of jobs created were in agriculture, wholesale and retail trade, and private households with employed persons. These were among the lowest paying and most insecure jobs in the country.

Thus, majority of Filipinos did not enjoy the benefits of growth. And what growth there was did not result in an improvement in income inequality. According to the 2006 Family Income and Expenditures Survey (FIES), which is used to compute poverty, the richest 20% of families (accounting for some 3.5 million families) account for 52.8% of total family income. Further, the income of the richest 10% was nineteen times that of the poorest 10 percent.

Not surprising

It should not really be surprising that the numbers of poor Filipinos increased. Agriculture and manufacturing, which should experience growth in order to generate jobs and contribute to overall national development, continue to experience moribund growth. In fact, the number of new manufacturing jobs from 2001 to 2006 was just 153,000 and the sector even lost 18,000 jobs in 2006. Sectors driven by speculation and with uncertain contributions to real development, on the other hand, were the ones that drove the increased GDP growth.

What is surprising is how the Arroyo administration finally owned up to this growing problem. But then again, poverty in the Philippines has become so prevalent that it can no longer be hidden, only downplayed through the statistical manipulation that has become an Arroyo hallmark.

In typical fashion, Malacañang spokespersons brushed aside the poverty figures, simply saying that with the additional money from collections of the RVAT would be used as “payback” for the poor and that poverty would undoubtedly decrease again by 2009 when the next FIES would be conducted. But sans any resolute change in fundamental economic policies, the poverty problem in the Philippines can only get worse.