AS OFFICIAL POVERTY DATA SHOWS :‘28 QUARTERS OF ECONOMIC GROWTH’ DON’T BENEFIT FILIPINO MAJORITY

The trend of worsening poverty in the country noted by the FIES confirms how the majority of Filipinos in the country don’t benefit from economic growth. Independent think-tank IBON Foundation issued this statement in response to the paid advertisement published by Malacañang allies saying that the economy enjoyed 28 quarters of economic growth under the Arroyo administration.

According to IBON research head Sonny Africa, growth in gross domestic product (GDP) averaged 5.4% in the period 2003-2006, yet the number of poor Filipinos even increased by 3.8 million.

“In contrast to the government’s underestimated poverty levels, IBON notes that some 70%-80% of Filipinos try to live off around P100 or less every day,” said Africa.

The problem lies most of all in government neglect of the manufacturing and agricultural sectors, which are at their smallest shares of the economy since the 1950s, added Africa. This decline in the country’s economic foundations drove the unemployment rate to an average of 11.4% in the 2003-2006, which is the worst four-year period of unemployment in the country’s history. There were 11.6 million Filipinos jobless or otherwise underemployed and looking for additional income in 2006.

Backward industry and agriculture cannot create jobs and the labor force is being forced into low-paying, irregular and insecure jobs in the service sector.

For instance while the government hyped 2007 as seeing the fastest economic growth in three decades, the most jobs created last year were in the additional 142,000 working as domestic household help.

The trend of worsening poverty also exposes the folly of relying on overseas Filipino workers (OFWs) and remittances to support domestic household incomes. Poverty has increased despite ever-increasing number of OFWs going abroad and record remittances. By last year, nearly 3,000 Filipinos were going abroad to find work every day and the stock of some nine million overseas Filipinos remitted a record US$14.5 billion. Yet the government is continuing with this retrogressive cheap labor export policy.

The government also continues to promote economic activities that profit foreign corporations rather than benefit the domestic economy. It is promoting foreign investment-intensive call centers and business process outsourcing (BPO), mining, and manufacturing in export enclaves. Unfortunately these are sectors of weak job creation, little multiplier effect, no technological spillover, and poor contributions to the domestic capital stock. It is also pushing free trade policies such as the JPEPA and through ASEAN even if such trade and investment liberalization has been among the main factors that have undermined the domestic economy.

“Without fundamental changes in economic policies, the country’s joblessness and poverty situation can only get worse, and the so-called sustained growth will only benefit foreign and big local business,” said Africa.

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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.

GOV’T JOBS DATA EXCLUDES 1.4 MILLION JOBLESS FILIPINOS

Independent think-tank IBON Foundation disputes government data on employment, estimating that government statistical manipulation removed over a million Filipinos from the official unemployment count.

Government data showed that in 2007, there was an annual average of 2.7 million unemployed Filipinos, a steep drop from figures recorded in recent years. IBON research head Sonny Africa cited the recent IBON study that estimates at least 4.06 million jobless Filipinos and an unemployment rate of 10.8 percent. This was 1.4 more than the official count of 2.7 million, which placed the average unemployment rate for 2007 at just 7.3 percent.

Average unemployment rate of 11.3% over the 2001-2007 period shows the economy is still suffering record joblessness despite government’s attempts to obscure the figures.

Government reports lower joblessness only because it revised the definition of unemployment to exclude discouraged job hunters from the labor force count, not because the economy created more jobs, Africa said. The effect of this new methodology in 2007 was to dramatically reduce the labor force participation rate (the percentage of population 15 years and above who are in the labor force) to 64% from the 66.5% under the NSO’s traditional unemployment definition.

IBON had requested the NSO for employment figures based on the old methodology, but said that it no longer computed such labor force data, unlike in past years when it presented data using both methods. “This makes comparison of current employment data with previous years impossible as it paints a false picture of an improving jobs situation,” Africa said. IBON made its own estimates to roughly compare employment figures using both methods.

Africa added that the 601,000 net additional jobs created in 2007 is just a 1.8% increase from the year before which is the slowest rate of job creation since the start of the Arroyo administration. The most jobs were created in domestic household help with 142,000 additional such jobs created.

In contrast only 72,000 agriculture jobs and 4,000 manufacturing jobs were added. Employment and unemployment trends in 2007 then confirm the deep problems of the Philippine economy despite much hype about rapid economic growth and a “strengthening” peso, Africa said.

IBON Foundation, Inc. joins the Research Fair 2007, a showcase of

IBON Foundation, Inc. joins the Research Fair 2007, a showcase of research projects and development initiatives organized by the Philippine Institute for Development Studies.

This year’s theme is: “Enhancing Grassroots Development: A Framework for Local Governance”. The fair will run from 24 to 26 September 2007 at the Salas Hall, NEDA sa Makati Building, 106 Amorsolo Street, Makati
City

The Research Fair is FREE of admission. It will be open at 10 am-5 pm on
September 24 and 9 am-5 pm on September 25-26.

Please visit us Booth #13.

Participating Institutions:

AIM Policy Center
Ateneo Center for Economic Research and Development-Economic Policy
Reform and Advocacy Project
Ateneo School of Government- Center for Social Policy
DLSU- Angelo King Institute
DLSU Yuchengco Center
German Technical Cooperation
IBON Foundation, Inc.
Institute for Labor Studies
League of Cities of the Philippines
League of Municipalities of the Philippines
Local Government Development Foundation
National Economic and Development Authority
National Statistical Coordination Board
Philippine Institute for Development Studies
PIDS-Philippine APEC Study Center Network
Social Weather Stations
University of Asia and the Pacific
UP Center for Integrative and Development Studies
UP National College of Public Administration and Governance
UP Los Baños-Institute of Strategic Planning and Policy Studies, College
of Public Affairs
UP School of Economics- Economic Research Center
UST Social Research Center

ARROYO’S STATE OF THE NATION 2007: A LEGACY OF ECONOMIC DECAY

In the face of its glaring failures, the Arroyo government continues to pursue the very same bankrupt economic policies that caused these in the first place

By Sonny Africa

IBON Features– Undoubtedly, President Gloria Macapagal-Arroyo will use her State of the Nation Address (SONA) to hype her achievements. Arroyo would likely claim that her greatest achievement and her legacy is to set the Philippines well along the road to progress and prosperity. To buttress her claims she will certainly roll out the familiar rosy economic indicators that she has consistently used to try and silence her critics: the fastest quarterly growth rate in nearly two decades, stock market indices soaring to all time highs, record international reserves, the “strengthening” of the peso and steady increases in foreign investment.

However, these claims would not hold up to even the most cursory scrutiny. The scores of homeless people living on the streets and sidewalks of Manila testify to widespread poverty and joblessness despite Malacañang’s claims that poverty has decreased. The more than 3,000 Filipinos who leave the country every day to seek work abroad belie the government’s claim that it has generated more than 800,000 jobs a year since it came into office in 2001.

Yet, even in the face of its glaring failures, the Arroyo government continues to pursue the very same bankrupt economic policies that caused these in the first place. In fact, it promises to pursue these policies even more aggressively and apply them to more areas of the economy.

Behind ‘Economic Growth’

One of the key economic indicators that the Arroyo government undoubtedly will be hyping is the continuous economic growth it has experienced. According to Palace Secretary Ricardo Saludo, the country has enjoyed twenty-five consecutive quarters of Gross Domestic Product (GDP) growth, with GDP hitting 6.9% in the first quarter of 2007, supposedly the highest in seventeen years.

But the GDP merely tracks the continued erosion of the country’s productive sectors. The share of the manufacturing sector has been steadily falling, from 25.7% of total domestic output in 1980 to 23% last year. Over the same period, agriculture fell from 25% of GDP to 14 percent.

Even if the economic growth could be taken at face value, it remains meaningless to the millions of poor Filipinos for whom its benefits have not “trickled down”. IBON estimates that some 65 million Filipinos or around 80% of the total population struggle to survive on the equivalent of P96 or less per day. This is substantially larger than the Arroyo government’s official poverty incidence figure of 24 million Filipinos.

Increased growth has also not reduced the gross income inequalities that continue to haunt the country. In 2000, the poorest 30% of families (some 3.8 million) accounted for almost 8% of total family income, while the richest 10% (1.3 million families) accounted for 38.4 percent. By 2003, inequality had barely softened, with the poorest 30% (now nearly five million families) accounting for 8.5% while the richest 10% (1.6 million families) accounted for 36.3 percent.

Meanwhile, the richest Filipinos continued to get richer. The wealth of the country’s three richest individuals/families (Henry Sy, Lucio Tan and Jaime Zobel de Ayala and family) grew in real terms from P177.4 billion in 2001 to P261.5 billion last year.

Speculation

The Arroyo government also continues to hype the peso’s all time highs and the booming stock market. But when looked at in an overall regional context, the seven-year high of the peso and the all-time high of the stock exchange are not even particularly impressive. They merely reflect an overall trend of appreciating currencies and exuberant stock markets.

A look at the trend from 2001 shows that Asian currencies, in general, have been appreciating against the US dollar especially since the middle of 2006. The US economy is heavily weighed down by its historic budget and trade deficits as well as by the wars it is unable to win in Afghanistan and Iraq . It is also widely expected to experience an economic slowdown this year.

Asia has also been receiving markedly higher inflows of speculative investment, many of which are going to the region’s stock markets, with the trend again being especially marked since the middle of last year. During the first quarter of the year, some US$2.8 billion or 78% of gross foreign portfolio inflows into the country went to the Philippine Stock Exchange. These inflows were equivalent to nearly half of gross inflows in the whole of 2006 and two-thirds of gross inflows in 2005.

The Philippines is also one of Southeast Asia ’s laggards in terms of economi c p erformance. Philippine economic growth of 5.3% last year was the third worst in Southeast Asia and even less than the ASEAN average of 5.8 percent. The country has the worst unemployment and is the fifth poorest country in terms of GDP per capita and national poverty rates. Although comparisons of this sort are problematic because of differing methodologies and measures, it should at least serve as a wake-up call for the administration.

Fiscal Hype

Another achievement that would surely be hyped in the SONA is how Arroyo succeeded in arresting the country’s fiscal crisis through “reforms” such as the implementation of the reformed value-added tax (RVAT). But the country remains vulnerable to another financial crisis, which could explode at any time.

The budget deficit has indeed gone down from the historic high it reached it 2002 when it peaked at 5.4% of GDP. Last year it was at 1.1% of GDP. But the deficit was addressed not through improved revenues or dealing with runaway debt service payments; instead, government cut spending on vital social services such as education, heath, and housing, whose combined share in the national budget fell to 15.6% in 2007 to 19.7% in 2001.

Meanwhile, the Arroyo administration is making the most debt payments of any administration in the country’s history. Foreign and domestic debt ate up a historic 87.3% of revenues and 14% of GDP in 2006. Total debt service last year on foreign and domestic debt was a colossal P854.4 billion in 2006. And public debt continues to increase, hitting P3.9 trillion as of March 2007. National government debt was 65% of GDP in 2006.

Although the RVAT netted P76.9 billion in 2006 and P18.7 billion in the first quarter of 2007, it was not enough to make up for revenue losses from trade liberalization, corporate tax evasion and corruption. The government’s tariff reduction program has resulted in import duties as a share of total revenues falling to 19% in 2006 from 36% in 1993.

Meanwhile, corporate tax evasion may cost the government some P54 billion in lost revenues annually (according to a 1998-2002 survey by the National Tax Research Center ) and some P146 billion may have been lost to corruption in the 2007 national budget (based on the 13% estimate of the 2001 budget by the United Nations). This means that as much as P200 billion may be lost this year due to corruption and tax evasion.

In fact, government recently reported that its half-year deficit had already reached P41 billion or 65% of the year-end target of P63 billion.  Its only hope now of achieving its deficit target is the privatization of some of its remaining assets, such as its stakes in San Miguel Corp. and the Manila Electric Co. (Meralco), which could fetch as much as P105 billion. But this represents a one-time boost in revenues. Thus, higher taxes on the scale of the RVAT are likely inevitable despite government denials.

Unsound fundamentals

The Philippines ’ weak productive sectors are ultimately what underpin its financial vulnerability. Its declining agriculture and manufacturing sectors result in chronic trade deficits because the country is dependent on imported inputs and finished products, while having a limited capacity to export genuinely Philippine-made goods. This in turn increases the dependence on foreign sources of financing and capital. The local economy thus becomes unduly sensitive to the fluctuations of global markets.

The country’s problems are essentially due to liberalization policies enacted under an economic globalization framework. These policies have eroded incomes and destroyed livelihoods, undermined domestic productive sectors and created the conditions for financial crisis. Trade liberalization destroys local agriculture and manufacturing while reducing tariff revenues. Liberal investment regimes have given generous incentives to foreign corporations while reducing the benefits to the domestic economy to nothing.

Pres. Arroyo, a staunch believer in so-called free market economics and was instrumental in the country’s membership to the World Trade Organization, will likely continue her adherence to neoliberal policies, which will reinforce the country’s structural inequities and weaknesses.

For example, she will undoubtedly continue to pursue liberalization through the various WTO agreements and free-trade agreements such as the Japan-Philippine Economic Partnership Agreement (JPEPA) and liberalization of the mining sector and privatization of the power generation and transmission sector in order to further encourage foreign investment.  And then there is the removal of economic sovereignty provisions in the Constitution through Charter change.

With these policies, it is clear that Arroyo’s legacy will not be that of a prosperous Philippines but rather an economy that is ripe for another bout of financial and fiscal crisis.