Comments by Endika Aboitiz
Edited (and Greatly Improved) by Romeo Bernardo
P.S. Without the inputs and corrections of Romy, this paper would have been seriously incomplete.—EMA
The shock of the month—the devaluation of the CNY (Chinese Yuan).
It caught everyone by surprise—and as in all surprises, we should not have been caught by surprise.
When the Federal Reserve was printing money through QE (quantitative easing), the dollar was weak.
When the Japanese started in significant amounts, the yen weakened.
When the ECB (European Central Bank) accelerated their QE, the Euro weakened.
So when the Chinese followed suit, the devaluation had to come but since it was controlled, none of us were looking there.
They have done what they needed to do.
Do they intend to end up with a free float as part of a modern economy? Let’s hope so. This, however, is a good sign.
The Indonesian rupiah devalued from Rp8,500 to Rp14,000 in four years; the Philippine peso, by very little, and is now beginning to move.
One has a current account (CA) deficit, and the second CA surplus that is helping hold its own against a strengthening dollar—on the back of QE ending and interest rates about to rise.
IS THE CONCLUSION THAT THE SYSTEM IS WORKING CORRECT?
Are there mechanisms in place for greater global coordination in event of a crisis? Learnings from 2009 and past crises?
There will always be “black swans.” The smooth transition out of a world used to easy money and very low interest rates, nurturing growth even when there is more limited fiscal space post the 2008 crisis, present-day demographics and what is left of overleveraged consumers—challenges galore! And lots of financial volatility! However, one can argue that demographics have always been the same. It is just a question of when you stop working. If we changed the retirement age to 75 over the next five to 10 years, the demographic picture would change.
NOW LET’S LOOK AT OUR ECONOMY.
Over the decades, post-Marcos, we have liberalized almost every industry. We have privatized our national airline, we opened up the airline industry, our Manila water systems, our expressways and national power. Very importantly, we opened up our telecommunications industry.
We have removed the subsidies of national power.
We have expanded and increased the VAT (value-added tax).
We raised taxes on tobacco and alcohol products.
We have lowered tariffs, liberalized trade, freed up the currency controls, interest rates, strengthened the banks and developed our capital markets.
The result has been a growing economy, a primary fiscal surplus, low foreign debt and an $85 billion GIR (gross international reserve). Today we are a creditor nation to the world.
The Philippine economy was first driven by overseas Filipino workers’ (OFWs’) remittances. Then came along the ICT/BPO (information communication technology/business process outsourcing) industry success. The first two functioned because of liberalization, globalization, and accelerated technology, and cheap airfares and cheap communication for the OFWs and Internet, VOIP (voice over Internet protocol) et. Al. for the ICT/BPO industry.
Our next opportunity is Tourism. Now this needs infrastructure to facilitate our third pillar. The NAIA Expressway will facilitate the driving of the Bay Area gaming industry. It’s not enough. We need at least a Connector Road between NLEX and SLEX to create the opportunity to move traffic to Clark. In addition, a new modern Clark Terminal needs to be built and NAIA needs to be privatized. The new Mactan Terminal’s construction seems to have begun.
We need infrastructure to ease Manila traffic, help tourists move around Manila, to encourage FDI (foreign direct inflows), and to enhance productivity. The CALAX construction will help, as will the connector road and the lengthening of SLEX to Lucena.
This same infrastructure above will help drive manufacturing if we are to take advantage of exports going to PC 16 (Post-China 16). We are now in a position to participate more fully in the fruits of the ASEAN economic integration.
Ideally, we should stop land reform to enhance agriculture—I guess that is unlikely.
NFA (National Food Authority) needs to be scrapped and importations freed to lower the cost of rice to start with. It costs us twice what rice costs in the ASEAN, affecting national malnourishment and impoverishment. Allowing land markets to function post-land reform would help let loose agriculture and agribusiness.
Tax reform is due. We need taxation simplicity. Rationalizing incentives and shifting taxation to consumption through consumption taxes and a higher VAT—this will simplify collection and increase collection effectiveness.
We need to forge lasting peace in Mindanao through development.
We think that enough structural changes have prepared us for a bright future–so long as we do not regress with over-regulation, very delayed infrastructure improvement, and too much politics. We will have delayed infrastructure, but so long as we go forward without too much delay because of way too much politics, we can grow at six or more percent a year and, hopefully, double our economic size every decade. This will not be what we are capable of, but it will be a realistic move forward.
—EMA