Birdtalk Yearend 2013 Final

8/12/2019 Birdtalk Yearend 2013 Final

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January 15, 2014Balay Internasyonal,

UP Diliman, Quezon City

YEAREND 2013:

Deepening Crisisand Disillusionment

Economic andPolitical BriefingBirdtalk


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114 Timog AvenueQuezon City 1103 PhilippinesTel. Nos: +63 2 927-7060 to 61Fax: +63 2 929-2496www.ibon.org


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IBON Economic and Political Brieng 15 January 2014 3

The rst three years of the Aquino administration gave the perception of stability and economic progress.

A conuence of favorable factors made this possible: coming from political crises during the previous

Arroyo government, steady publicity about good governance and a popular president, cheap capital from

unprecedented loose monetary policy in developed countries, improving domestic macroeconomic indicators,

and business enthusiasm in some sectors of the economy. There was shallow optimism caused by a break from

the dark past.

Yet it was perhaps only a matter of time before the economys unsound fundamentals and unreformed politics

asserted themselves. Major issues emerged in 2013 to dissolve the illusion that profound social, economic

and political change was happening in the Philippines: mounting joblessness, growing poverty, rising prices,

human rights violations, continuing patronage and pork barrel politics, bureaucrat capitalism, and foreign policy

dened by United States (US) interests. These happened amid steadily increasing prots for big corporations

and accumulating wealth by the countrys richest families.

The dening feature of the Aquino presidency is turning out to be exclusionary growth and elite-biased

governance. This growth is moreover narrow and shallow as well as articial and unsustainable. The countryspro-market economic policies are failing to deliver development, there are scant political reforms and patronage

has even been defended, human rights are violated, and foreign policy is becoming more neocolonial. The

political leadership is facing mounting disillusionment which is fuelling increasing demands for political

change.

Growing rapidly

The economy has been growing more and more rapidly in the last three years. The administration, in its yearend

report, played up the stellar performance of the Philippine economy in 2013 headlined by some of the

highest growth numbers in Asia. Ofcial gures show ve consecutive quarters of at least 7% growth in gross

domestic product (GDP) including an average of 7.4% in the rst three quarters of 2013. (See Table 1)This

growth is above the Philippine annual average of 4.2% over the long period 1956-2012 and among the fastest inAsia and emerging markets worldwide.

Net foreign direct investment (FDI) also grew signicantly with inows rising 35.3% to US$3.4 billion in

the rst 10 months of 2013 from US$2.5 billion posted in the same period the year before. (See Table 2)

The National Statistical Coordination Board (NSCB) reported foreign investment approvals likewise growing

substantially and more than doubling (growing 114.8%) to Php126.5 billion in the rst nine months of 2013

from Php58.9 billion in the same period in 2012; local approved investments only grew 6.6 percent. Over half

(56.8%) of these total approved investments were in the power sector followed by almost one-fth (19.5%) in

real estate activities.

The World Banks Doing Business Report ranked the country 108th in 2013 or a jump of 30 notches from

2012. There was a similar improvement in the World Economic Forums Global Competitiveness Report withthe country going up to 87th in 2013/14 from 114th in 2010/11. The three major credit ratings agencies Fitch,

Standard & Poor and Moodys also each gave the Philippines its rst ever investment grade ratings last year.

The Philippine Stock Exchange Index (PSEi) reached its all-time high.

The Aquino administration played these up as signs of progress due to its good governance.


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4 IBON Economic and Political Brieng 15 January 2014

Table 1. National Accounts of the Philippines By Industry Group and By Type of Expenditure,

2010-2012 and 2013 1st-3rd Quarter (growth rates; at constant 2000 prices; in %)

Industry Group / Expenditure Share 2010 2011 20122013

1st-3rd Quarter

By Industry Group

1. Agriculture, Hunting, Forestry and Fishing (0.2) 2.7 2.7 1.1

a. Agriculture, Hunting, Forestry - 4.5 3.5 0.6

b. Fishing - (4.1) (0.7) 3.3

2. Industry Sector 11.6 2.3 6.5 9.8

a. Mining and Quarrying 11.4 7.0 (3.7) (2.0)

b. Manufacturing 11.2 4.7 5.4 9.8

c. Construction 14.3 (7.3) 14.4 16.3

d. Electricity, Gas and Water Supply 9.9 0.6 5.1 4.4

3. Service Sector 7.2 5.1 7.4 7.3

a. Transportation, Storage, and Communication 1.0 4.3 9.1 5.3

b. Trade and Repair of Motor Vehicles, Motorcycles, Personal andHousehold Goods

8.4 3.3 7.5 6.0

c. Financial Intermediation 10.1 5.2 7.8 13.3

d. Real Estate, Renting and Business Activities 7.5 9.3 7.9 9.3

e. Public Administrat ion and Defense: Compulsory Social Security 5.8 0.3 3.3 5.1

f. Other Services 8.4 6.6 7.2 5.7

By Expenditure Share

1. Household Final Consumption Expenditure 3.4 6.3 6.6 5.6

2. Government Final Consumption Expenditure 4.0 1.0 12.2 12.3

3. Capital Formation 31.6 8.1 (3.2) 24.4

a. Fixed Capital 19.1 0.2 10.4 14.0

i. Construction 17.5 (6.2) 15.1 15.9

ii. Durable Equipment 25.5 5.2 8.0 14.8

iii. Breeding Stock and Orchard Development 0.3 (0.3) 1.4 (0.5)iv. Intellectual Property Products 2.9 11.8 18.0 13.3

4. Exports of Goods and Services 21.0 (4.2) 8.9 (1.4)

a. Export of Goods 24.7 (6.0) 10.3 (2.2)

b. Export of Services 6.5 4.0 3.5 1.7

5. Less: Imports of Goods and Non-Factor Services 22.5 0.2 5.3 4.4

a. Import of Goods 23.4 0.4 (18.3) 3.7

b. Import of Services 18.9 (0.7) 15.9 7.1

Gross Domestic Product 7.6 3.9 6.6 7.4

Gross National Income 8.2 3.2 5.8 7.3

Source: National Statistical Coordination Board (NSCB) National Accounts of the Philippines


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The economic growth is reected in the growing corporate prots and personal wealth of a few. The total net

income of the countrys Top 1000 corporations almost doubled from Php599 billion in 2006 to Php1.08 trillion

in 2012 amid the growing poverty and unemployment over that time. The Php212.8 billion increase in their

net income in 2012 was 24.5% growth from the year before a rate that was three times faster than the

growth in nominal GDP. (See Table 3) The highest growth in net income was posted by information and

communication (115.5%), real estate (51.6% change from the year before) and construction (56.4%); in terms

of gross revenues though real estate and construction companies had the highest growth rates at 36.6% and

42.2%, respectively.

The cumulative net worth of the 40 richest Filipinos from the Sy, Tan, Razon, Gokongwei, Ayala,

Aboitiz,Consunji, Ty, Cojuangco, Zobel, Yuchengco, Lopez, Araneta and other families meanwhile grew

almost four-fold from US$16.4 billion in 2009 to US$64.2 billion in 2013. (See Table 3) These are also the

families who own and control the handful of conglomerates that cut across the major sectors of the economy

and are the dominant players in Philippine business. The US$16.8 billion increase in the net worth of 40

Filipinos in 2013 will likely be equivalent to over 70% of the incremental increase in nominal GDP for the year.

Growing inequitably

The growth however has been inequitable with conditions even worsening for the poor majority. Recent

economic growth has been useful for bolstering hype about progress, but those who need improvements in their

conditions the most are apparently gaining the least. The headline aggregate gures have been used to downplay

or even conceal the economys distortions and deep structural problems. There are well-founded criticisms that

the supposed economic gains are at the expense of national economic development and the welfare of most

Filipinos.

Table 3. Net Income of PSE-Listed Firms and Top 1,000 Firms in the Philippines and Net Worth of 40Richest Filipinos, 2009-2013 (net income in billion Php; net worth in billion US$)

Indicator 2009 2010 2011 2012 2013

Net income of PSE-listed rms (billion Php) 360.6 438.1 430.0 501.3 275.5

Net income of Top 1,000 rms (billion Php) 756.0 804.1 868.1 1,080.9 nda

Net worth of 40 richest Filipinos (billion US$) 16.4 27.8 34.0 47.4 64.2

PSE - Philippine Stock Exchangenda - no data availablea - data for January-June only

Sources:Philippine Stock Exchange website (www.pse.com.ph), Business World Top 1000 Corporations in the Philippines and Forbes website (www.forbes.com)

Table 2. Total Net Foreign Direct Investments and Net Portfolio Investments,

2010-2012 and 2012-2013 January-October (in million US$)

Indicator 2010 2011 20122012

Jan-Oct

2013

Jan-Oct

Total Net Foreign Direct Investments 1,298.0 1,852.0 2,033.0 2,485.0 3,361.5

Total Net Portfolio Investments 4,610.4 4,077.6 3,911.3 2,689.2 3,659.8

Source: Bangko Sentral ng Pilipinas (BSP)


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There is a severe disconnect between economic growth and foreign investment, on one hand, and job generation

on the other. While the latest data for 2013 showed GDP growing by 7.4%, FDI inows by 35.3% and FDI

approvals by 114%, employment in turn only increased by 317,000 or 0.8% in 2013 from the year before. (See

Table 4)

Job generation has been falling steeply in each of the last three years of the Aquino administration with 1.2

million jobs generated in 2011, down to 408,000 in 2012 and falling further to the 317,000 in 2013 accordingto the Labor Force Survey (LFS) of the National Statistics Ofce (NSO). Job generation in 2013 is the lowest

since 2000 during the Estrada administration. It is also less than half the annual average of 640,000 jobs created

over the long 37-year period 1976-2013 which spanned many severe external shocks and domestic economic

and political turmoil.

The number of unemployed Filipinos increased by 87,000 in 2013 to reach an all-time high of 4.5 million

Filipinos, using IBON estimates correcting for government underestimation; the conclusion is unchanged even

using the lower ofcial estimate of the unemployed at 2.9 million. (See Table 4) The 7.3 million underemployed

is a slight decrease from the year before but it still means that there were 11.8 million Filipinos either jobless

or looking for additional work in 2013. The Aquino administration is seeing the most unemployed and

underemployed Filipinos in the countrys history.

The real unemployment rate was 10.6% in 2013, again correcting for the change in unemployment denition

in 2005 that reduces the ofcial count, while the LFS ofcially reports 7.1 percent. By either measure though

the unemployment rate has been increasing since 2011, is the worst unemployment rate in Asia, and among the

worst in the world. Some of the latest ofcially reported quarterly gures from the region for instance are 0.7%

Table 4. Labor Force Population, 2010-2013 (levels in '000; rate in%)

IndicatorOfcially Reported IBON Estimates a

2010 2011 2012 2013 p 2010 2011 2012 2013

Population (in thousands)

Total 15 years old and over 60,717 61,882 62,985 63,847 60,717 61,882 62,985 63,847

Labor Force 38,893 40,006 40,426 40,813 40,440 41,555 42,003 42,412

Employed 36,035 37,192 37,600 37,917 36,035 37,192 37,600 37,917

Underemployed 6,762 7,163 7,514 7,325 6,762 7,163 7,514 7,325

Unemployed 2,859 2,814 2,826 2,896 4,385 4,374 4,404 4,491

Not in the Labor Force 21,824 21,876 22,559 23,034 20,277 20,326 20,982 21,435

Rates (in %)

Participation Rate 64.1 64.6 64.2 63.9 66.6 67.2 66.7 66.4Employment Rate 92.7 93.0 93.0 92.9 89.1 89.5 89.5 89.4

Underemployment Rate 18.8 19.3 20.0 19.3 18.8 19.3 20.0 19.3

Unemployment Rate 7.4 7.0 7.0 7.1 10.8 10.5 10.5 10.6

p- preliminarya- IBON computes estimates on the labor force according to the old LFS unemployment denition for the purposes of comparison. This

is done by computing substitute labor force participation rates (LFPR) where changes in ofcial reported annual average LFPR are

applied to the LFPR in 2007 that was still computed using the old labor force (and correspondingly unemployment) denition.

Source:National Statistics Ofce (NSO) Labor Force Survey


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(Thailand), 2.1% (Singapore), 2.8% (Korea), 3.1% (Malaysia), 3.6% (Vietnam), 4.0% (China), 4.2% (Taiwan),

and 6.3% (Indonesia).

Unemployment has a particularly youthful character with the LFS noting that almost half (48.5%) of

unemployed in 2013 are between 15-24 years old. The difculty of employment even among the educated

further highlights the poor jobs prospects in the country. One out of ve (20.3%) of the unemployed have a

college degree, two out of ve (39.1%) have graduated high school or post-secondary school, and almost one

out of ve (15.5%) have at least additional post-secondary/college education. This implies that well over seven

out of 10 (74.9%) unemployed cannot nd jobs despite having a reasonably high educational attainment.

The release of the latest poverty statistics in 2013 further conrmed the economys duality. The latest ofcial

estimates of poverty are 25.2% population poverty incidence with 23.7 million poor Filipinos and 19.7% family

poverty incidence with 4.2 million poor families in 2012. (See Table 5)

The economy grew by an average of 5% annually between 2006 and 2012 and expanded by 33.8% in real terms

over the entire period. Real GDP per capita in turn increased by 21.5% from Php54,226 in 2006 to Php65,904

in 2012. And yet despite these, the ofcial number of poor families increased by 10.6% or 405,638 families

between 2006 and 2012; the number of poor Filipinos increased by 4.9% or 1.1 million over the same period.

The poverty situation worsened despite economic growth and also even after Php76.1 billion was spent on

Pantawid Pamilyang Pilipino Program (4Ps) conditional cash transfers (CCT) between 2006 and 2012.

Table 5. Poverty Incidence and Magnitude of Poor, 1985-2012 (incidence in %; magnitude in million)

Indicator 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

Poverty incidence (in %)

Family

1992 Methodology 44.2 40.2 39.9 35.5 31.8 33.7

2003 Methodology 29.2 27.5 24.4 26.9 26.3

2011 Methodology (CPI, 2000=100) 28.3 20.0 21.1 20.9

2011 Methodology (CPI, 2006=100) 29.7 21.0 20.5 19.7

Population

1992 Methodology 49.2 45.4 45.2 40.6 36.9 39.5

2003 Methodology 34.1 33.0 30.0 32.9 32.6

2011 Methodology (CPI, 2000=100) 33.1 24.9 26.4 26.5

2011 Methodology (CPI, 2006=100) 34.4 26.6 26.3 25.2

Magnitude of poor (in million)

Family

1992 Methodology 4.4 4.2 4.8 4.5 4.5 5.1

2003 Methodology 4.1 4.0 4.7 4.9

2011 Methodology (CPI, 2000=100) 3.3 3.7 3.9

2011 Methodology (CPI, 2006=100) 3.6 3.8 4.0 4.2

Population

1992 Methodology 26.7 25.4 28.6 27.4 26.8 30.9

2003 Methodology 25.5 23.8 27.6 28.5

2011 Methodology (CPI, 2000=100) 19.8 22.2 23.1

2011 Methodology (CPI, 2006=100) 21.7 22.6 23.3 23.7

Source: National Statistical Coordination Board (NSCB)


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Ofcial poverty estimates use an extremely low poverty line of Php52 per person per day on average

nationwide. This is ofcially estimated as sufcient to meet all a persons basic food and non-food needs. IBON

on the other hand approximates around 56 million Filipinos or 60% of the population struggling to survive and

meet all their basic needs on some Php100 or much less daily; another 10 million have around Php125 daily.

Philippine poverty estimates started to be generated in 1987 and the methodology of counting the poor has

undergone three major changes since then in 1992, 2003 and 2010/11. These renements were said to be made

so as not to overestimate poverty, to be able to come up with provincial poverty statistics, and to improve

comparability across space and time. Each renement has consistently had the effect of reducing the numberof those counted as poor. The change in 1992 reduced the number counted as poor by 9.6 million, the change

in 2003 by 4.0 million, and the change in 2010 by 5.3 million more or at least some 19.0 million in total

removed from ofcial poverty estimates.

In any case and according to whatever methodology is used, the trend over the last decade including in the

last three years of the Aquino administration is for poverty incidence to be statistically unchanged while the

absolute number of poor is steadily increasing.

The inadequacy of ofcial national, regional and provincial poverty lines is also demonstrated by how

government estimates declare negligible poverty in the National Capital Region (NCR) ofcial estimates are

of only 2.6% poverty incidence among families (76,530 poor families) and 3.9% among population (460,831

poor people) in NCR. This is because a poverty threshold of just Php58 was used. Unemployment and povertyhas generally increased more outside NCR and its few neighboring provinces, adding to already serious

socioeconomic troubles in the countrys backward regions. The devastation from typhoons and the earthquake

in the Visayas could only have pushed more families into deeper poverty in 2013.

Narrow and shallow

The growth is exclusionary because it has been narrow and shallow. The main sources of growth are real

estate and construction which account for a relatively small percentage of employment and which are weakly

integrated to the rest of the economy. They have a limited multiplier effect whether sectorally, geographically or

across time. Their development impact is also very limited.

Economic growth in 2013 has been driven mainly by the real estate and construction boom with some spill-

over effects in a few related manufacturing subsectors. Manufacturing sectors associated with the boom include

chemicals and chemical products, basic steel, non-metallic mineral products, and furniture and xtures. Growth

in the chemicals subsector has been primarily due to demand for chemical-based products such as paint, wood

and cement additives, insulation and other similar items used in building homes, ofces and infrastructure.

Similarly, the basic steel subsector includes steel products used as structural materials in construction while the

non-metallic mineral products include concrete, cement, plaster, glass and other like materials.

The centrality of the boom to the Philippine growth story is exemplied in the growth gures for the rst three

quarters of 2013. (See Table 1) The fastest growing sectors were real estate, renting and business activities (9.3%

growth), construction (16.3%), manufacturing (9.8%), and nancial intermediation (13.3%). Nearly four-fths of

manufacturing sector growth in gross value-added however came from just the four real estate- and construction-

related subsectors: chemical and chemical products (growing 84.8%), basic metal industries (64.0%), furniture

and xtures (25.0%) and non-metallic mineral products (14.0%). This rapid growth offset negative growth orcontractions in 13 other manufacturing subsectors. These resulted in the biggest percentage point contributions to

growth in the rst nine months of 2013 being due to the real estate and construction boom.

There was much slower growth in agriculture, sheries and forestry (1.1% growth), electricity, gas and water

(4.4%), wholesale and retail trade (6.0%), transport, storage and communication (5.3%), public administration

and defense (5.1%), and other services (5.7%); the mining and quarrying sector actually contracted (negative

2.0%). (See Table 1)


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Those leading growth sectors constitute a signicant share of the economy which is also why their performance

has such an impact on the headline growth gures. According to NSCB data the real estate, renting and other

business activities which also includes business process outsourcing (BPO) accounted for 12.0% of GDP

in the rst three quarters of 2013, construction for 5.3%, and the four real estate- and construction-related

manufacturing subsectors for 4.4%, or a total of 21.7 percent.

The benets from rapid growth in these sectors are however limited by how they cumulatively account for just

some 8.0% of total employment. The real estate subsector only employs 172,000 which is just 0.5% of total

employment; construction employs much more at 2.4 million accounting for 6.2% of total employment. (SeeTable 6) Estimated using establishment data from the NSO rather than the household-based LFS, employment

in the relevant manufacturing subsectors sums to perhaps around 1.0-1.3% of total employment at best, for a

total of 8.0 percent for all the sectors at hand.

Table 6. Employed Persons By Industry Group, 2012-2013 (in '000)

Industry Group 2012 2013 p

Total Employed Persons 37,600 37,917

Agriculture 12,093 11,759

Agriculture, Hunting and Forestry 10,660 10,361

Fishing 1,432 1,398

Industry 5,743 5,917

Mining and Quarrying 250 251

Manufacturing 3,112 3,150

Electricity, Gas, Steam and Air Conditioning Supply 89 94

Water Supply; Sewerage, Waste Management and Remediation Activities 59 60

Construction 2,232 2,363

Services 19,765 20,241

Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 6,864 7,073

Transportation and Storage 2,617 2,721

Accommodation and Food Service Activities 1,571 1,598

Information and Communication 338 341Financial and Insurance Activities 437 447

Real Estate Activities 170 172

Professional, Scientic and Technical Activities 189 194

Administrative and Support Service Activities 937 1,013

Public Administration and Defense; Compulsory Social Security 1,958 1,950

Education 1,200 1,221

Human Health and Social Work Activities 438 464

Arts, Entertainment and Recreation 328 344

Other Service Activities 2,149 2,179

Activities of Households as Employers; Undifferentiated Goods and Services Producing

Activities of Households for Own Use 566 521

Activities of Extraterritorial Organizations and Bodies 2 3

p- preliminary

Source: National Statistics Ofce (NSO) Labor Force Survey


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Inclusiveness is also affected by how the job generation capacity of the booming sectors is apparently quite

weak and well below all of their respective rates of growth. (See Table 6) Employment in real estate only

increased by 2,000 (or 1.2% growth, which is probably statistically insignicant), in construction by 131,000

(5.9% growth) and in manufacturing as a whole by 38,000 (or 1.2%).

These sectors are moreover heavily concentrated in the NCR, Central Luzon and Calabarzon regions. The latest

available regional GDP data from the NSCB is for 2012 and shows that a huge 73.4% of the value of real estate,

renting and business activities in GDP and 48.3% of construction are found in just these three regions. The NCR

alone accounts for 53.5% of real estate, renting and business activities and 23.1% of construction.

The weak linkages of the growth sectors are very relevant. Among the economys major sectors, according

to the latest 2000 input-output accounts for the Philippines of the NSCB, the real estate and ownership of

dwellings sector has the lowest backward linkage and third lowest forward linkage while construction has the

second lowest forward linkage (and the third highest backward linkage). The backward linkage measures the

relative importance of the sector as a purchaser of raw material inputs from the system of production sectors

while the forward linkage indicates its importance as a supplier of raw materials.

These explain why the increase in the outputs of these sectors as has been happening in recent years and in

2013 has had a low degree of stimulative and cyclical effects on the entire system of industries. The real estate

sector is not much of a purchaser or supplier to the production process in the country so its expansion has the least

inducement to productive activities, whether in terms of inducing more raw material inputs or itself providinginputs to other industries outputs. Construction is similarly also not much of a supplier to the production process,

although as a purchaser it has stimulated activities in the short-term where it has obtained inputs.

The manufacturing sector as a whole has the highest backward and forward linkages and corresponding effects.

Although a more detailed disaggregation of its subsectors is not yet available, it can be presumed that the local

benets from the fastest-growing chemical and basic steel subsectors are also limited because these are both

very import-intensive.

There is likewise no disaggregation for the BPO sector but refuting its contributions to economic development

is straightforward. The sector employs some 426,401 (according to Philippine Economic Zone Authority

or PEZA data) to 777,000 (according to Information Technology and Business Process Association of the

Philippines or IBPAP) but it is by nature a low value-added operation that does not contribute to the domesticeconomy in terms of inducing production, developing local productive capacity, or increasing its capital stock.

By mainly generating salaries for its workers it is merely virtual cheap labor export similar to overseas work.

Recent growth has also been exclusionary because it has not translated into higher wages for the working

classes whose real earnings have been falling as a whole. Wages and salaries adjusted for ination continued

to stagnate or fall in 2013 especially upon policy statements by the president and economic planning secretary

against wage increases.

The NCR has the highest mandated minimum

wages in the country and stood at Php466 as of

November 2013 or Php10 higher than the year

before. (See Table 7) However an estimatedfamily living wage (FLW) of Php1,054 means

that the minimum wage falls short by Php588

and is not even half (44.2%) of the FLW. The

wage gap has remained wide under the Aquino

administration and the shortfall is even larger than

a decade ago in 2003 when the minimum wage

was exactly half (50%) of the FLW.

Table 7. Nominal Wage, Estimated Family

Living Wage and Wage Gap,

November 2012 and 2013 (in Php)

Indicator Nov 2012 Nov 2013

Nominal Wage 456 466

Estimated Family Living Wage 1,034 1,054

Wage Gap 578 588Sources: National Wages and Productivity Commission (NWPC)

and National Statistics Ofce (NSO)


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223.50

466.00

302.44362.36

-

100.00

200.00

300.00

400.00

500.00

Jan-00Jan-01Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Nominal

Wage

Real

Wage

Sources:National Wages and Productivity Commission (NWPC) and National StatisticsOffice (NSO)

Periodic hikes in the mandated minimum wage give the impression of rising wages. The real value of the wage

however has actually been at for the past decade and the Aquino administration continues a trend that started

during Pres. Arroyos term. The real value of the minimum wage increased slightly over the long period from

1986 to 2002 but it has been virtually at since then. (See Chart 1)

If the mandated minimum wage has remained at, the actual wage received has been falling. The average daily

basic pay nationwide of wage and salary workers in sectors accounting for 79% of employment agriculture,

manufacturing, trade, construction, nance, mining and quarrying, electricity, gas and water, and other

services was unchanged or even dropping between 2010 and April 2013. (See Tables 6 and 8) The direction

of declining real wages in the important productive sectors of agriculture and industry in particular does not

indicate that earnings prospects for workers in these sectors will improve as further growth takes place.

Artifcial and unsustainable

Apart from having limited development impact, the recent growth is articial and unsustainable. The real estate

and construction boom is debt-driven and underpinned by record low interest rates, which have made nancing

for production and for consumption articially cheap. This in turn is articially increasing economic activity

and demand. But this situation of cheap nancing is only momentary.

Interest rates are at an all-time low. This is a result of the global nancial and economic crisis that erupted in2007/08 and which keeps the world economy in a protracted depression. Global demand collapsed and the

advanced capitalist countries responded with unprecedented loose monetary policy to lower interest rates

in an effort to stimulate sluggish real economies. The policy of quantitative easing (QE) was implemented

particularly in the US, Europe and Japan and has injected at least US$3.5 trillion into banks, nancial

institutions and the global economy since 2008. If this amount were an economy, it would be equivalent to

the fourth largest in the world after the US, China and Japan and larger than Germany, France and the United

Kingdom.

Chart 1. NCR Daily Non-Agricultural Minimum Wage,

Jan 2000-Dec 2013 (in Php; 2006=100)


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Table 8. Average Daily Basic Pay, 2012 and April 2013 (in Php)

Industry Group

At current prices At 2006 prices

20122013

April

Change,

2012-

Apr

2013

20122013

April

Change,

2012-

Apr

2013

All Industries 333.82 346.27 12.45 256.59 260.75 4.16

Agricultural 166.74 167.76 1.02 128.16 126.33 (1.84)Agriculture, Hunting and Forestry 165.27 167.53 2.26 127.03 126.15 (0.88)

Fishing 191.68 172.20 (19.48) 147.33 129.67 (17.66)

Industry 328.46 326.83 (1.63) 252.47 246.11 (6.36)

Mining and Quarrying 317.21 259.94 (57.27) 243.82 195.74 (48.08)

Manufacturing 330.03 333.31 3.28 253.67 250.99 (2.69)

Electricity, Gas and Water Supply a 553.79 465.36 (88.43) 425.66 350.42 (75.24)

Construction 310.65 315.35 4.70 238.78 237.46 (1.32)

Services 383.48 399.96 16.48 294.76 301.17 6.42

Wholesale and Retail Trade, Repair of Motor Vehicles,Motorcycles and Personal and Household Goods b

282.05 291.48 9.43 216.79 219.49 2.69

Hotels and Restaurants c 280.86 303.59 22.73 215.88 228.61 12.73

Transport, Storage and Communications d 449.88 459.25 9.37 345.80 345.82 0.03

Financial Intermediation e 579.26 578.41 (0.85) 445.24 435.55 (9.69)

Real Estate, Renting and Business Activitiesf 522.50 539.53 17.03 401.62 406.28 4.66

Public Administration and Defense, Compulsory SocialSecurity

533.66 541.86 8.20 410.19 408.03 (2.17)

Education 677.62 704.13 26.51 520.85 530.22 9.37

Health and Social Work g 484.73 530.51 45.78 372.58 399.48 26.90

Other Community, Social and Personal Activitiesh 275.91 271.25 (4.66) 212.08 204.25 (7.82)

Private Households with Employe Persons i 114.41 118.57 4.16 87.94 89.28 1.34

Extra-Territorial Organizations and Bodiesj 1,185.61 404.95 (780.66) 911.31 304.93 (606.37)

Notes:1. Excludes those paid on commission basis, honorarium and boundary as in the case of jeepney/bus/tricycle drivers.2. Industry grouping is in accordance with the 1994 Philippine Standard Industria l Classication (PSIC) for 2001-2011 and 2009 PSIC for

2012 and 2013.a- Electricity, Gas and Water Supply = "Electricity, Gas, Steam and Air Conditioning Supply" and "Water Supply; Sewerage, Waste

Management and Remediation Activities"b- Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles and Personal and Household Goods = "Wholesale and Retail

Trade; Repair of Motor Vehicles and Motorcycles"c- Hotels and Restaurants = "Accommodation and Food Service Activities"d- Transport, Storage and Communications = "Transportation and Storage" and "Information and Communication"e- Financial Intermediation = "Financial and Insurance Activities"f - Real Estate, Renting and Business Activities = "Real Estate Activities", "Professional, Scientic and Technical Activities" and

"Administrative and Support Service Activities"g- Health and Social Work = "Human Health and Social Work Activities"h- Other Community, Social and Personal Activities = "Arts, Entertainment and Recreation" and "Other Service Activites"i - Private Households with Employed Persons = "Activities of Households as Employers; Undifferentiated Goods and Services-

producing Activities of Households for Own Use"j- Extra-Territorial Organizations and Bodies = "Activities of Extraterritorial Organizations and Bodies"

3. Annual data are averages of the four survey rounds of the Labor Force Survey.

Sources:National Statistics Ofce (NSO) Labor Force Survey as cited in Bureau of Labor and Employment Statistics (BLES) 2013 Year-book of Labor Statistics and December 2013 Current Labor Statistics


13/45


The QE stimulus efforts combined with the lack of effective demand caused global interest rates to fall

drastically. The key 3-month London Interbank Offer Rate (LIBOR) in US dollars for instance has fallen

steeply from the annual average of 5.2% over the period 1986-2006 and 5.3% in 2007 to just 0.27% in 2013;

this is far below the peak of 9.3% in 1989. Bangko Sentral ng Pilipinas (BSP) data show domestic interest rates

correspondingly dropping to all-time recorded lows. (See Chart 2) The bank average lending rate (8.7% in

2007), reverse repo rate or RRP (6.8%) and interbank call loan rate (6.9%) have fallen to 5.8%, 3.5% and 2.4%

respectively in 2013. These interest rates are far below their respective historical annual average rates of 12.9%,

10.1% and 10.2% over the period 1986-2013.

The unprecedented low interest rates drove the real estate and construction boom in two inter-related ways: on

the supply side, the low-cost nancing facilitated investment and production by real estate and construction

rms while, on the demand side, property became cheaper for buyers or leasers. These supply and demand

tendencies also mutually-reinforced each other in a virtuous cycle. The demand surge for real estate is

reported to be mainly coming from overseas Filipinos and BPO rms. Demand for real estate has also been

boosted further by how developers have reportedly innovated with very loose payment schemes for potential

homeowners.

The surge in construction in 2012 and 2013 has been driven, aside from the private sector component, by

increased government spending on national roads, bridges, ood control projects and other infrastructure.

Public construction accounts for about a quarter of gross value in construction and grew 32.4% in 2012 and

31.8% in the rst nine months of 2013 compared to private construction which grew slower at 13.7% and

11.5% over the same periods.

-

5.0

10.0

15.0

20.0

25.0

30.0

1986 1990 1995 2000 2005 2010 Nov

2013

Chart 2. Selected Domestic Interest Rates,

1986-November 2013

(in %)

Bank Average

Lending Rates

RRP Rates

(Overnight)

Interbank Call

Loan Rates

Year

RRP - reverse repurchase rate

Source:Bangko Sentral ng Pilipinas (BSP)

Chart 2. Selected Domestic Interest Rates,

1986-November 2013

(in%)


14/45


The expanding debt in the economy due to low interest rates is reected in how Philippine bank loans have been

rising rapidly since 2008 and through 2013. (See Chart 3) BSP data shows that total bank loans outstanding

grew by an annual average of 0.9% in 2002, of 6.0% in the period 2003-2007, of 10.6% in 2008-2012 and

accelerating further to 15.0% in the rst nine months of 2013 to reach Php3,922.5 billion in September 2013.

Growth in the total universal and commercial bank (UKB) loans, which is the biggest category of bank loans,

increased even more rapidly: from 2.4% in 2002, an annual average of 5.4% 2003-2007, of 13.5% in 2008-2012

and then by 13.8% in the rst 11 months of 2013 to reach Php3,856.3 billion in November.

The most dramatic increases in loan growth has been to real estate which accounts for the biggest share of loansoutstanding. The insignicant 0.2% growth in 2002 increased to an annual average of 1.5% in the period 2003-

2007 and then expanded exponentially to an annual average of 21.9% in 2008-2012, and growing still by 21.8%

in the rst 11 months of 2013 to Php665 billion in November. The rate of growth of debt has far outpaced

economic growth, government revenues and spending.

Consumption by more afuent consumers has also likely been boosted by negative real interest rates. The BSP

reports that domestic savings deposit rates dropped from 2.2% in 2007 to just 0.9% in 2013 which is much

lower than the ination rate meaning that money unspent and kept as saving are actually losing value due

to ination. Although such credit/debt-driven consumption is probably restricted to the minority middle- and

higher-income slice of the population with access to the formal nancial system. The majority of the population

of up to 70% with low or otherwise uncertain incomes are not likely to be involved despite increasingly loose

credit standards.

This low interest rate- and debt-driven growth in real estate and construction is however only a short-term

stimulus. Demand for new real property and infrastructure is cyclical because these are relatively big ticket

items for both consumers and producers. It is not likely that demand by overseas Filipinos or by BPOs will

continue to increase at the rates in past years nor that there will be new sources of property demand especially

once interest rates start to rise. Property buying in any case is concentrated in the small part of the population,

the middle- and high-income classes, with sufcient disposable income for this.

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Chart 3. Philippine Loans, 1986-2013* (in million Php)

Total Bank Loans Total UKB Loans Outstanding Of Which for Production Of Which to Real Estate

Year

* - 2013 data as of November, except for Total Bank Loans that are as of September

UKB - Universal and Commercial Bank

Source:Bangko Sentral ng Pilipinas (BSP)

Chart 3. Philippine Loans, 1986-2013* (in million)


15/45


The contribution to long-term production and productivity of the booming real estate and construction sectors is

weak not only because of their generally weak backward and forward linkages but also because of the nature of

their activities. Their growth has not contributed to developing the two mutually necessary elements for growth

to be sustained over the medium- to long-term: a wide base of stable domestic demand (such as through wide-

scale job generation) or the production capacity to meet this demand (such as developed agriculture or Filipino

industry).

The Philippines is strictly speaking not yet a bubble economy where this appears conclusively only whenit actually pops. Yet the economy is certainly heading in that direction in how record low interest rates and

cheap credit are articially driving consumption of real estate, autos and consumer goods as well as fuelling

enterprises particularly in real estate and construction. Non-performing loans still remain very low, but this

is understandable given low interest rates and do not necessarily indicate solid and sustainable repayment

capacity. The main concern is what will happen when interest rates eventually begin to rise and when more

consumer and producer debt becomes unpaid.

The Aquino administration and its economic policy choices and directions are generally supported by

international organizations and agencies that represent the interests of foreign transnational capital, and by

domestic big business. These are reected in the favorable assessments by international organizations and

agencies. Yet while the Philippines is currently popular in this way, it is useful to consider that the so-called

BRICS (i.e. Brazil, Russia, India, China and South Africa) were the same before their unsound fundamentals

reasserted themselves and started to limit the opportunities for foreign capital to prot.

Continued burdens

The economic hype has partially diverted from the increasing socioeconomic burdens on the people. Prices of

privatized and deregulated utilities, basic services and social security rose rapidly in 2013. Last year the effects

of privatization continued to be felt with expensive water and electricity rates. Although further increases in

rates were thwarted by public outcry, the absence of any real moves to reverse privatization, curb private sector

proteering, and build efcient public services could mean that these are only momentary.

Amid claims of attaining rice self-sufciency the price of rice has increased through 2013. According to the

Bureau of Agricultural Statistics (BAS) the price of regular milled rice in NCR increased from Php30 per

kilo at the end of 2012 to Php36 in December 2013, with prices in other regions increasing from a range of

Php30-36 to Php32-40 per kilo over the same period. The prices of ampalaya, cabbage, carrots, eggplant,

tomatoes, potatoes, other vegetables and cooking oil similarly also increased by anywhere from some 10-35%

in December from the year before.

Last year also saw more or bigger hikes, less or smaller rollbacks, and hence generally rising prices of

petroleum products. The biggest increase was in the price of liqueed petroleum gas (LPG) whose price rose

substantially from a range of Php670-814 per 11-kilogram tank in 2012 to Php842-965 in 2013 despite fewer

hikes and more rollbacks. Gasoline prices were hiked 26 times and rolled back 14 times, raising the price

from a range of Php39.50-42.45 per liter to Php49.15-55.30 in 2013. The price of diesel, which the inuential

militant transport sector is particularly sensitive to, fell slightly from a range of Php47.60-53.95 to Php41.35-

45.75.

The year ended with Meralco, the countrys largest power distributor and biggest corporation by gross revenue,

announcing in December the highest increase in billing in the countrys history. The Energy Regulatory

Commission (ERC)-approved hike of Php4.15-per-kilowatt-hour increase to be implemented in three monthly

tranches was reportedly to cover for higher generation charges due to momentarily tighter electricity supply

due to scheduled maintenance on the Malampaya natural gas platform, the single biggest source of energy in

Luzon, and high prices paid for power sourced from the Wholesale Electricity Spot Market (WESM).


16/45


The rate hike was immediately criticized as baseless and the result of collusion by the handful of power rms,

of prominent oligarchs and business families, monopolizing the industry. The controversy has drawn attention

to the impact of the Electricity Power Industry Reform Act (EPIRA) and the state policy of power privatization

on electricity costs, consumer welfare, industrial development and the overall economy and by extension

to the underlying contradiction between private prots and the public welfare. The Supreme Court issued a

temporary restraining order and scheduled oral arguments in the latter part of January.

The Aquino government also revived moves to implement the long-stalled scheme to increase Metro RailTransit (MRT) and Light Rail Transit (LRT) fares as part of its privatization plans. Amid public opposition, the

government is geared to hike the train systems fares in 2014. Metro Manila water consumers meanwhile are

still awaiting lower water rates after regulators of the Metropolitan Waterworks and Sewerage System (MWSS)

denied the water rms proposal for rates increase and instead adjusted these downwards. There is even a

possibility that the lower rates could be reversed with the ongoing arbitration. Last year, the two private water

concessionaires, Manila Water Corp and Maynilad, led separate notices of dispute before the International

Chamber of Commerces International Court of Arbitration.

Failed policies

Growth is becoming more exclusionary with every year of the Aquino administration. This is the result of the

market-based elite-biased socioeconomic policies implemented by consecutive administrations for decades and

continued by the current Aquino government. Implemented more aggressively since the 1980s, these are biased

against domestic production and make prices of basic goods and services unaffordable. There is a one-sided

emphasis on creating protable opportunities for foreign investors and domestic oligarchs even at the expense

of the national economy, incomes of workers, livelihoods of farmers, and opportunities for the poor majority.

The country is in essentially the same situation that had actually already happened under previous

administrations. The economy for instance grew above its long-term average annual rate at various points

during the Arroyo (in 2003-2008), Estrada (in 2000), Ramos (in 1994-1997) and even Corazon Aquino (in

1987-1989) administrations. There were also other supposedly positive economic indicators but also persistent

joblessness and poverty. Then as now the government appealed for patience from the public for benets that

never trickled down.

The boom is happening amid continued agricultural and industrial backwardness and unsound economic

fundamentals. The shares of manufacturing and agriculture in the economy have been falling steadily for at

least four decades. (See Chart 4) Agricultural production is low and chronically volatile unduly affected

by the weather while the largest part of the manufacturing sector has low value-added and is even foreign-

dominated. As it is, for instance, some two-thirds (65%) of gross revenue of the manufacturing rms in the top

1,000 corporations of the country is accounted for by transnational corporations.

More than having taken active measures to bring about growth, the Aquino administration has beneted from

a favorable conuence of factors: coming from political crises during the previous Arroyo government, steady

hype about good governance and a popular president, global liquidity with unprecedented loose monetary

policy in developed countries, improving domestic macroeconomic indicators, and business enthusiasm in some

sectors of the economy.

Among these the biggest contribution of the administration has been to avoid political controversy of the scale

during the previous Arroyo administration and, in doing so, contributed to a sense of stability that stimulated

Keynesian animal spirits and business condence. However, this is a contribution mainly by omission while

the more basic policy choices and conditions for national development and social progress remain absent. But

that conuence of factors is eeting and the economy remains vulnerable especially with the recent growth

period not creating the sound fundamentals for sustained and long-term growth.


17/45


-

10

20

30

40

50

60

19461950 1960 1970 1980 1990 2000 2010 -13

* - 2013 data based on 1st-3rd quarters only

Source: National Statistical Coordination Board (NSCB)National Accounts of the Philippines

Continuing failure

The Aquino governments policy directions in its nal three years are unreformed and compromise national

economic development.The administrations macroeconomic, scal, nancial, trade, investment and sectoral

policies are identical to those under the previous Arroyo government i.e. liberalization, privatization,

deregulation, scal tightening, ination-targeting, higher and more regressive taxes, encouraging hot money

inows, bias for foreign investors over small domestic capital, wage repression and so on. The administration

will announce an updated economic development plan and industrial roadmaps at the start of 2014. But thereare strong reasons to believe that these will not sustain growth, even in the short-term, nor result in long-term

socioeconomic development.

The updated Philippine Development Plan (PDP) acknowledges that growth has not reduced poverty. It is called

a roadmap to inclusivity, and presents target benets of job generation and poverty reduction in a more rened,

elaborated and systematic manner. The spatial and sectoral dimensions of exclusion and poverty in particular

are raised as requiring due attention.

The supposedly updated plan however still relies on the same failed policy thrusts of the past and their one-

sided emphasis on creating the conditions for prot-making and business while avoiding the more far-reaching

and developmental-inducing measures of income, wealth and asset redistribution. Although such redistribution

is given lip service, they are more frequently decried as disruptive to business and to growth and hence setaside. Yet these are necessary measures to create the conditions for the poor majority to be productive and

benet from the national economy.

The updated plans bias for foreign investors and local big business is evident in the declared strategy of

reducing regulatory burdens and policy consistency echoing capitals demands for removing regulations on

foreign investment, reducing state intervention in the public interest even in public utilities and social services,

and ensuring legal protections for prot and prot-seeking.

Chart 4. Gross Domestic Product By Industry Share, 1946-2013*

(at constant 2000 prices; in %)

IndustryShare(in%

)


18/45


The situation is the same with the proposed industrial roadmaps being packaged as a Comprehensive National

Industrial Strategy. These acknowledge the countrys industrial backwardness and present target benets of

industrial development in a more rened, elaborated and systematic manner. However they merely repackage

long-standing demands by foreign transnational corporations and their junior partners to expand their

opportunities for prot-making.

The roadmaps were generated through a perverse bottom-up process of starting from what individual

corporations and industries, including foreign businesses, desired to expand their production and increase theirprots. In particular they esh out the priority sectors of the economy that the Joint Foreign Chambers of the

Philippines (JFC) pushed as Seven Big Winners in 2009, again in 2010 and which in 2011 nally found its

way into the Aquino administrations original PDP 2011-2016. These are the [globally] competitive industries

and services of foreign tourism, cheap labor BPO, low value-added electronics for export, extractive mining,

export-oriented agribusiness and forestry, and foreign-dominated ship-building; only the seventh, so-called

creative industries, is absent.

Individual enterprises and to some degree even foreign investment can play an important role in national

development. But the more sensible approach is to start from and give greater priority to a strategic vision

of national industrial development. The roadmaps on the other hand start with the wrong notion that

national development can spontaneously emerge from individual prot-seeking which is a recycling of the

discredited invisible hand argument of neoliberalism and neoclassical economics. If implemented, they will

in effect amount to government support for foreign investors and their local partners rather than for national

development.

The updated PDP and industrial roadmaps will only reinforce the anti-development bias for foreign capital and

foreign markets. It is evident that foreign investment will operate to create the greatest prots for itself, with

only incidental benets for the domestic economy and the welfare of the people. Transnational Corporations

(TNCs) are intrinsically limited in their contributions to Philippine development by their overriding compulsion

for immediate and long-term prots. This results in the universal tendency to repress wages, to lower domestic

value-added or pay low prices for inputs because local segments of production are structured according

to global value chains, and to prevent the development of local science and technology and any Filipino

competitors to retain their monopolistic advantages.

Genuinely domestic or Filipino production in contrast means paying higher wages, steadily increasing the

use of local inputs and hires, improving local scientic and technological capacity, and reinvesting in local

enterprises. Industrial policy should be aimed at expanding Filipino production and increasing domestic value-

added over the long-term.

The leaders of the Senate and House of Representatives in December also declared their intent to push for

amendments to the economic provisions of the 1987 Constitution towards greater liberalization, effectively

removing the last and so far most intractable legal barriers to the prot-seeking operations of foreign investors

in the country. The president has publicly distanced himself from the charter change initiative although this has

been interpreted more as a calculated move to insulate him from controversy rather than actual resistance and

it is possible that Malacaang is reserving visible support until a minimum of political consensus is reached.

Averting development failure

Decades of free-market open-economy policies have burdened the Philippines and the majority of poor

Filipinos with an exclusionary, imbalanced and unstable pattern of growth. These have stied the development

of local agriculture and industry, caused record joblessness and increased poverty. Episodes of relatively rapid

growth including the current one are fundamentally unsustainable, unstable and dependent on eeting or

otherwise external sources of growth.


19/45


Continuing development failure can be averted. An inclusive, balanced and stable pattern of growth requires a

package of social and economic policies that interact and work together. Domestic demand needs to be boosted

through a more aggressive and decisive agrarian reform program and by real and substantial wage increases.

These will in addition immediately improve the welfare of the majority of Filipinos. Rural development in

particular remains hindered by a clunky agrarian reform program that does not give land to the peasantry nor

provide them with the means to make the land productive.

However increased domestic demand needs to stimulate domestic production for there to be a virtuous circle of

improved livelihoods, increased consumption, higher investment, better productivity, greater employment, and

improved wages and rural earnings.

Domestic production then needs to be expanded concurrently through greater and more responsible State

intervention, support and protection. Filipino rms and farms need government support in terms of nancing,

technology, training, marketing, tax breaks, procurement, infrastructure and protection against foreign

competition. Abuses and inefciency can be prevented by putting democratic controls in place.

Government economic policy needs to be biased for Filipino producers rather than, at present, for foreign-

dominated or -dependent economic activity in every major modern production sector of the economy. Filipino

producers need to be prioritized over foreign capital that merely locates in the Philippines to prot from the

countrys labor, natural resources and markets. The private sector and even foreign capital can continue to

operate but in ways that contribute to broad-based and sustainable national development, such as by the use of

performance requirements.

The greatest number of Filipinos needs to be given opportunities and a larger share of the national product in

the most far-reaching ways possible. The most immediately effective measures for this are the free distribution

of land to tens of millions of farmers and meaningful wage increases for millions of workers and employees.

The economy as a whole needs to be systematically geared towards improving the welfare of the people. Social

services such as education and health should be publicly-provided rather than turned into commodities sold for

private prot that are affordable only for a few while being unnecessarily expensive for the large majority of

poor in the country. Likewise with vital public utilities and services such as power, water and transportation.

Public resources can be generated for these through a more progressive tax system, while public capacity can

only improve or start to be developed upon more active state engagement in these utilities and services.

The countrys relations with other countries and integration into the world economy need to be made supportive

of national socioeconomic development. Unfortunately the government in 2013 pursued international trade

and investment agreements favouring the advanced capitalist countries at the expense of Philippine economic

development and the needs of Filipinos.

In December the administration supported the deal reached by the World Trade Organization (WTO) at the

conclusion of its 9th ministerial meeting in Bali, Indonesia. This included an agreement on Trade Facilitation

(TF) that simplies customs and other bureaucratic procedures to make imports from developed countries easier

while, in practice, not really creating export opportunities for the Philippines. This will worsen the countrys

rising merchandise trade decit and make it even more difcult to create the domestic conditions for local

agriculture and industry to develop.

The Aquino government also took steps towards more disadvantageous free trade deals. The Department of

Trade and Industry (DTI) actively pursued meetings with the European Union (EU) commissioner to start

negotiations on an EU-Philippines free trade agreement (FTA) and reportedly sent a delegation to Brussels in

November for technical discussions to prepare for this. The government also advanced in its efforts to join the

US-dominated Trans-Pacic Partnership (TPP) Agreement and scheduled the sending of a team to the US in

January 2014 for technical consultations on this.


20/45


The looming next stage in Association of Southeast Asian Nations (ASEAN) economic integration in

2015 meanwhile cannot be accepted as it is in merely aiming to make Southeast Asia more conveniently

integrated for the global value chains of big foreign transnational corporations. The onset of the ASEAN

Economic Community even threatens a rush of imports especially of agricultural products but also of low-tech

manufactured goods that will compete with local production and further undermine domestic livelihoods. The

beneciaries will be mainly US, Japanese and European capital and their junior partners in ASEAN.

Regional integration has potential benets but ASEAN integration needs to be reinvented on a more sovereign

basis as being attempted by many Latin American countries with such initiatives as the Bolivarian Alliance

for the Peoples of our America (ALBA), Union of South American Nations (UNASUR), and the Community

of Latin American and Caribbean States (CELAC). This however presumes progressive governments in the

countries of ASEAN.

There is actually a period of opportunity with the world economy uncertain, old imperialist powers grappling

with their crises, and alternative centers stirring. Reforming one-sided policies to support Filipino producers,

asserting national economic sovereignty, tackling social inequity and making public institutions more

democratic are necessary to improve the conditions of majority Filipinos.

Entering uncertainty: Economic crisis

The country is entering a period of uncertainty as the economy winds down from a lack of internal dynamismand as repressed political pressures slowly emerge in the run-up to the 2016 elections and transition from the

current Aquino administration to a new one. The economic risk is the winding down of the economy from a

combination of less favorable external conditions in the global economy amid unresolved internal problems of

low and inhibited domestic demand. The short-term real estate and construction stimulus has diverted from how

the economy still lacks sustainable domestic sources of growth.

The limits of the countrys most recent episode of high growth will become more apparent as the debt-driven

expansion winds down with easing demand for goods and services, including real estate, and more expensive

nancing for production. There are already indications that the extended period of historic low interest rates,

yields and borrowing costs is coming to an end particularly with the US Federal Reserve cutting back on its

nance-driven economic stimulus efforts. The investment in real estate, construction, malls and department

stores did not lay the foundations of domestic productive capacity which can only be found in robust localagriculture and Filipino industry.

Overseas remittances also appear to be reaching their limits in contributing to domestic demand. While

remittances are still increasing in absolute terms their growth is slowing. (See Chart 5) BSP data show

remittances growing 6.0% in the rst 10 months of 2013 from the year before, but which rate is slower than

the 6.3% growth in 2012, 7.2% in 2011 and 8.2% in 2010. The equivalent share of remittances to GDP is

also steadily dropping to 8.4% of GDP in the rst three quarters of 2013, steadily and markedly down from

the peak of 10.4% in 2005/2006. This means that remittances have already started to diminish as a source of

domestic demand relative to the size of the economy and the growing population.

National accounts data from the NSCB are also consistent with these trends where the compensation inow

component of net primary income from the rest of the world representing mainly the earnings of Filipinos

overseas slowed to 5.1% growth in the rst nine months of 2013 from 7.5% in the same period in 2012. This

is possibly because overseas Filipinos are starting to be paid less, and possibly because of slowing recorded

deployments.

Data from the Philippine Overseas Employment Agency (POEA) show that the average number of overseas

workers deployed daily has been increasing since the start of the current administration: 4,030 leaving the


21/45


country daily in 2010 (1.47 million deployed for the year), 4,624 in 2011 (1.69 million), and 4,924 in

2012 (1.80 million). However it is possible that deployments in 2013 will be lower than the year before

with deployments in January-September 2013 averaging just 4,295 daily compared to 5,194 over the same

period in 2012, or a marked 17.3% less. If so this would be the rst decline in deployments in a decade

where the last time this happened was in 2003 which saw a marginal 2.7% dip in deployments. But it is

also possible for the drop in recorded deployments to be offset by increasing number of undocumented

workers.

On the other hand, the continued backwardness of local agriculture and Filipino industry interacts with

persistently high unemployment and poverty to prevent sustained and growing domestic demand over themedium- to long-term.

Entering uncertainty: Poverty and pork

There are political issues against the Aquino administration from 2013 which will gain momentum in

the year to come. The administration has been able to sustain itself through the shallow but politically

effective stratagem of Pres. Aquino perceived as distinct from his traditional political allies and

opportunistic family members not yet being personally embroiled in any corruption scandals. However,

the year also saw the unraveling of Pres. Aquino as a supposed reformist. His defense of the pork barrel

system, a long-time symbol of the countrys rotten politics, has further exposed the hollowness of the

administrations anti-corruption rhetoric. Various surveys show a consistent trend of increasing public

dissatisfaction.

Various issues in 2014 will continue to put the Aquino presidencys reformist image and correspondingly

its political legitimacy under increasing stress.

The most important political failure of the Aquino administration is its consistent use of the vast powers

of the state to promote private prots of foreign corporations and domestic oligarchs while equally

Chart 5. Overseas Remittances Growth and Equivalent Share in

Gross Domestic Product, 1991-2013* (in %)

-

5

10

15

(20)(15)(10)

(5)-5

101520

2530354045

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 OverseasRemitt

ances

EquivalentShareinG

DP(in%)

OverseasRemitt

ances,

GrowthRate(in%)

Year

Overseas Remittances, Growth Rate (in %) Overseas Remittances Equivalent Share in GDP (in %)

* - 2013 data based on 1st-3rd quarters only

Source:Bangko Sentral ng Pilipinas


22/45


consistently avoiding the redistribution and reforms so vital to promote the public welfare especially of the poor

majority. This causes the unrelenting poverty and worsening condition of tens of millions of Filipinos.

Pres. Aquino and his economic policies are visibly supported by international nancial institutions, global

nancial players, foreign capital, large sections of the domestic oligarchy, and even the US and other big

power governments. There is corresponding support from the middle-classes and intellectuals which in turn

has inuenced a measure of wider popular support. Deep socioeconomic problems however have always been

volatile conditions for social unrest in the country.

The administration is aware of this and is undertaking a massive multi-year multi-billion cash transfer program

for the poor in an effort to pre-empt turmoil from below. The so-called social protection 4Ps program has grown

substantially over the course of the Aquino administration and increased six-fold from Php10 billion in 2010 to

Php62.6 billion in 2014, with the number of household beneciaries covered also growing from 1.0 million to

4.3 million. (See Table 9) The program is strategically implemented and targets the poorest of the poor in towns

and villages nationwide including, conspicuously, in areas of armed conict.

The 4Ps intervention is played up as pro-poor even as it takes place in the noticeable absence of more basic and

far-reaching pro-poor reforms. For instance administrative data on land distribution conceals how agrarian reform

is subverted by continuing landlord claims over millions of hectares of agricultural land and continuing landlord

control over millions of peasants and their produce due to resistance, reversals and land reconcentration. After

decades of agrarian reform programs, barely a tenth of supposed beneciaries have fully paid for land they till

that is being sold to them under the programs, and rural poverty remains widespread and far above the national

average. The government also continues to avoid meaningful wage hikes and, on the contrary, has shifted to a

two-tier wage scheme to lower the mandated minimum wage. Measures to make the labor force more exible

according to the priorities of employers and foreign investors are even being considered. Meanwhile, anomalies

continue to hound the program. Just recently, the Commission on Audit (COA) reported that 7,782 CCT

beneciaries who received Php50.15 million could not be located. Also, some Php18 billion disbursed under theprogram from 2008 to 2012 have remained undocumented. The Department of Social Welfare and Development

(DSWD) explained the issue as a simple technical glitch in their recording system.

The administrations unwillingness and inability to take the difcult steps for real reform is underscored by

how the majority is asked for patience and momentarily distracted with minimal, though steady, cash transfers

while the prots and wealth of a few immediately and signicantly rise. The government meanwhile remains

Table 9. Pantawid Pamilyang Pilipino Program

Annual Target Benefciaries and

Budget, 2007-2014 (amount in Php)

Year Household Budget Beneciaries (in Php)

2007 4,600 50.0 million

2008 320,411 299.0 million

2009 734,691 5.0 billion

2010 1.0 million 10.0 billion





Source:Department of Social Welfare and Development (DSWD)


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aggressive in seeking to create protable opportunities for foreign and domestic big business which are

packaged as indispensable for the countrys development. The priorities are distorted.

Last year for instance the government approved Php30 billion in the 2014 national budget as a Risk

Management Program to assure corporations of their prots when entering into Public-Private Partnership

(PPP) projects. The new contingency fund in the budget materializes the regulatory risk guarantee

promised by Pres. Aquino in his rst state of the nation address in 2010. The size of the fund depends on

the number and size of PPP projects and attendant assurances required by investors so the initial Php30-

billion fund will only become larger as more PPPs come on line. The PPP program is for now criticized

mainly for its slow progress with contracts awarded so far only to ve out of some 50 targeted. More than

this however the main issue as the water and power privatization controversies in 2013 showed is of

terms in the private prot-oriented PPP deals that are disadvantageous to the public interest. This will

become more evident as the negotiations, contracts and terms are subjected to greater public scrutiny.

After three years, the Aquino administration will also have to deal with being assessed on its declarations

of political reforms. The last year however gave strong indications of the persistence of traditional

practices of elite and undemocratic politics notwithstanding the sustained good governance publicity. The

administration coalitions seemingly decisive victory in the May 2013 midterm elections happened amid

questions surrounding the integrity of automated elections which were systematically downplayed and

remain unresolved. The same equipment, software and electoral infrastructure will be used in the 2016

elections.

The Php10 billion pork barrel scam that emerged mid-year has grown far beyond itself and brought the

practice of patronage politics and even the use of public powers for private gain to greater public attention.

The scam initially involved the Priority Development Assistance Fund (PDAF) of several members of

the Senate senators Juan Ponce Enrile, Jinggoy Estrada, Gregorio Honasan, Ferdinand Marcos, Jr. and

Bong Revilla and of the House of Representatives (HOR) and implicated mainly political opposition

including ranking ofcials believed to be running for high public ofce in 2016. A subsequent report by

the Commission on Audit (COA) pointed to 12 senators, 180 representatives, other national and local

government ofcials, and 10 government agencies.

The political opposition countered by exposing Pres. Aquinos alleged use of presidential pork barrel

specically a portion under its novel Disbursement Acceleration Program (DAP) in the campaign toimpeach and unseat former chief justice Renato Corona. It has been estimated that anywhere from Php3-

4.4 billion was given to senators and representatives towards getting a conviction in May 2012.

The Supreme Court (SC) declared the PDAF unconstitutional in November and this was formally removed

from the 2014 budget. However senators and congressmen, aside from a few who declined, in effect

still individually decided on the allocation of lump sum pork barrel funds by realigning these through

amendments in the 2014 budget to government agencies and even local government units of allied

ofcials. This highlights how the SC decision is a welcome though still very partial victory against the

pork barrel system.

The Makabayan coalition in particular drew attention to some Php1.1 trillion in presidential pork barrel

funds from a variety of sources of which the controversial PDAF is only a small part. (See Chart 6) Pres.Aquino has actively defended the DAP and by extension the wide range of presidential pork barrel

variously arguing that the DAP is a driver of the countrys economic boom, that he and his administration

can be trusted to spend discretionary funds wisely, and that these funds are used for the benet of the

people. In this context the SC abolition of PDAF also possibly creates the conditions for legislators to

become more compliant with the president to be able to access pork barrel funds.


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Public indignation against the pork barrel system drove a resurgent of protests including from among a wide

section of the middle classes. This outrage also underpins a potentially historic Peoples Initiative where,

instead of the usual legislative process, a law for the complete abolition of the pork barrel is enacted through

a signature campaign from 10% of all registered voters in the country including at least 3% in each legislative

district. The effort is most of all compelled by public distrust of the legislature and of the executive branch that

is so inuential on it. It is being pushed by an increasingly politically-aware public that is testing the possibility

of using the most directly democratic means of law-making in the country.

Rights violations and neocolonial relations

The countrys social and mass movements are the strongest force pushing for more democratic governance

in the country. Their struggles for economic, social and cultural rights are the most concrete and effective

counterforce against structural mechanisms of underdevelopment exemplied by the continuing assertions for

land by the organized peasants of Hacienda Luisita despite violent attacks on them, the trade union struggles for

higher wages and benets and against illegal dismissals, the urban poor community opposition to demolitions,

and many others across sectors and across the country.

The Aquino administration engages a signicant portion of civil society in various initiatives most prominentlyin such as the 4Ps cash transfer program and bottom-up-budgeting in a few local government units. This has

allowed it to bolster its participatory and good governance credentials as well as, perhaps not inadvertently,

neutralize possible criticism and opposition. At a broader level however the essential continuity in awed

economic and social policies, unreformed political practices, and poor socioeconomic outcomes raises questions

as to the effectiveness of this engagement and of who the government and the elite interests it protects or civil

society and the people they presumably uphold gains more from it.

Savings 280.8

SpecialPurpose Funds

294.0

Regularagency budgets

235.3

Unprogrammed funds139.9

MalampayaFund137.3

CHED Higher

Education Devt Fund

1.5Presidents Social

Fund/PAGCOR

2.0Presidents Charity

Fund/PCSO

8.1

Motor Vehicle Users

Charge

10.7

PriorityDevelopment

Assistance Fund25.2

Chart 6. Indicative Pork Barrel Estimates (in billion Php)

Sources: Makabayan House Resolution No. 298, Commission on Audit (COA) and Department of Budget and Management (DBM) Budget of Expenditures and Sources of Financing (BESF) 2014

National government budget items Off-budget items


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It is evident though that grassroots movements are being subjected to sustained repression which continues a

phenomenon that intensied under the previous Arroyo administration. The independent human rights group

Karapatan has continued to monitor civil and political rights violations particularly against organized forces

of the social and mass movements launching protest actions and waging local struggles. Grave violations

monitored last year as of August 2013 include 15 extrajudicial killings, 14 more frustrated attempts, four

enforced disappearances, four cases of torture and 89 cases of illegal arrest and detention, among others. These

have brought the total monitored such violations under the Aquino administration to 152 extrajudicial killings,

168 more frustrated attempts, 18 enforced disappearances, 80 cases of torture and 250 cases of illegal arrest and

detention. (See Table 10) There are tens of thousands more victims of military abuse of communities, forced

eviction, demolitions and other rights violations.

The Center for Trade Union and Human Rights (CTUHR) for its part monitored 8,139 violations of labor,housing rights and civil liberties of which 3,928 were of labor and civil liberties. The 41 incidents of civil and

political rights violations with 892 victims mainly attacks on picket lines and other dispersals of organized

workers actions in 2013 is an increase from the year before. Similarly, the 7,788 monitored victims of

economic, social and cultural rights is more than the 7,342 year from the year before; the biggest part of this

were violations of the right to freedom of association followed by demolitions of urban poor communities. (See

Table 11)

Table 10. Violation of Civil and Political Rights Under the Aquino Admnistration,

July 2010-August 2013

Violations No. of Victims

Extrajudicial Killing 152

Enforced Disappearance 18

Torture 80

Rape a 3

Frustrated Extrajudicial Killing 168

Illegal Arrest without Detention 250

Illegal Arrest and Detention 358

Illegal Search and Seizure 214

Physical Assault and Injury 238

Demolition 12,843

Violation of Domicile 397

Destruction of Property 11,711

Divestment of Property 282

Forced Evacuation 31,779

Threat/Harassment/Intimidation

b

34,901Indiscriminate Firing 7,015

Forced/Fake Surrender 54

Forced Labor/Involuntary Servitude 172

Use of Civilians in Police and/or Military Operations as Guides and/or Shield 297

Use of Schools, Medical, Religious and Other Public Places for Military Purpose 29,423

Restr iction or Violent Dispersal of Mass Actions, Public Assemblies and Gatherings 3,231

a- all victims are minorsb- mostly communities in militarized areas

Source: KARAPATAN Alliance for the Advancement for People's Rights


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Neocolonial relations with the US are visibly worsening under the Aquino administration with these ties

deepening last year in both political and economic terms. Politically, the much greater dependence on the USis most evident in the administrations reliance on US military might and diplomatic clout in its handling of the

territorial dispute with China in the West Philippine Sea/South China Sea. There is however also the US-driven

international offensive in multilateral organizations, by US agencies, among the business community, and

media to build up the Aquino government as a model of good governance and of reforming towards greater

market policies.

Table 11. Trade Union-Related Human Rights Violations, 2013

Case Title No. of Cases No. of Victims

Civil and Political Rights Violations 41 892

Extrajudicial Killing 2 2

Physical Assault/ Injury (includes mauling) 10 48

Arbitrary Arrest/ Detention 5 28

Fabrication of Criminal Charges due to political acts/belief or labor dispute 8 33

Assault on the Picket Line 2 129

Breaking up/ Violent Dispersals of workers' concerted actions 2 429

Economic, Social and Cultural Rights (ESCR) Violations a 65 7,788

Violation of the right to security of tenure

Illegal dismissal

Retrenchment / Closure 10 1,347

Dismissal due to labor dispute 6 242

Unsafe working condition

Death due to unsafe working condition 9 21

Violation of the right to receive fair/just wages

Underpayment of minimum wage 4 850Violation of the right to freedom of association (FOA) and collectively bargain

Union-busting 10 1,034

Harassment of unionists inside the workplace 4 470

Intervention on trade union affairs 2 938

Anti-union discrimination 3 133

Prohibition of the right to strike 2 629

Collective Bargaining Agreement (CBA) violations and issues

Non-implementation of CBA 1 64

Bargaining in bad faith / Refusal to bargain 6 1,680

Total ESCR-FOA Violations on Workers 57 3,912

Other ESCR Violations

Demolition of urban poor communities 8

Total Trade Union-Related Human Rights Violations (Labor and Civil Liberties) 86 3,928

Total Human Rights Violations (Labor, Housing Rights and Civil Liberties) 106 8,139

Note: Number of victims will not add up to total due to multiple reporting.a- labor and housing rights; victims are affected workers unless stated

Source: Center for Trade Union and Human Rights


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The governments compliance with the USs hegemonic agenda in the region meanwhile is expressed in the

increasing presence of US military forces in the country. The number of American soldiers participating in

so-called exercises has risen to record highs under the Aquino administration, at 7,000 in 2012 and then 8,000

in 2013 both during the Balikatan exercises; this is aside from the over 5,000 troops that came in the wake of

supertyphoon Yolanda. The number of reported ship visits by the US Navy to various ports and harbors has

likewise been growing substantially.

The Aquino administration is also negotiating a more formal and greater rotational presence of US troops inthe country which appears stalled less by the government disagreeing than by the government anxious about

the inevitable public backlash. Before the year ended foreign secretary Albert del Rosario even took the lead

in arguing for a larger and more permanent US military presence with a public statement that the US military

assistance in Yolanda-related relief efforts proves the need for their presence in the country.

The increasing role that the Philippines is playing in the USs hegemonic and imperialist agenda in the region

are dangerously creating the conditions for even greater US interference in domestic affairs and the US will

become even more involved to ensure that this role is not disrupted. Among others this means ensuring friendly

poli

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Birdtalk Yearend 2013 Final