The biggest question these days is this: What is happening to the Philippines and to its economy?
Among non-economists, President Duterte has proved to be the most perceptive. Back on June 22, 2018, the former prosecutor of nine years and mayor of 23 years declared that “the economy is in the doldrums, actually, now.” “Interest rates are picking up,” he reported. Metro Manila was a bit lucky because of mega projects, he said, “but in the provinces, it’s a doldrum thing.” A maritime term, doldrums refers to inactivity, stagnation or depression, per Wikipedia.
Three months after that speech, the president-mayor whose feet are firmly on the ground, has proved to be prophetic, with remarkable prescience. Actually, Duterte could have been harsh when he used the word doldrums. But his speech should have prodded the economic managers to go into full gear to attend to the most basic problem of the economy—a gnawing food shortage and revolting high prices of food items.
In the second quarter of 2018, economic growth, measured by the increase in the annual output of goods and services or Gross Domestic Product (GDP), was a disappointing 6 percent—the lowest in 12 quarters or three years. The best Duterte achieved was the 7.1 percent in the third quarter of 2016, when he was just president for three months
If the 6-percent GDP growth rate repeats itself in the third and fourth quarters, a strong likelihood, then overall 2018 growth, will only by 6.2 percent. That will be the lowest in three years since the 6.1 percent posted in 2015. The economy grew by 6.7 percent in 2016 and by 6.6 percent in 2018.
In April 2018, the Manila-based Asian Development Bank projected a GDP growth rate of 6.8 percent for the Philippines for the whole of 2018. That 6.8 looks to me now as overly optimistic.
The Philippines used to be the fastest-growing economy in Asia, after or even ahead of China. This year, per ADB forecast last April, five other countries will grow faster than us and that include four ASEAN neighbors—Vietnam 7.1 percent GDP growth rate; Cambodia 7.0 percent; Laos 6.8 percent, and Myanmar, 6.8 percent. China will grow 6.8 percent. These countries are supposed to be more corrupt than the Philippines, so our slow-growth mode this year is not a question of corruption.
Three factors are a burden on the economy: a 10-year record-high inflation of 6.4 percent in August 2018, with inflation likely to hit 7 percent this year before it averages to a little above 5 percent for the whole of 2018; two, a dampened consumer spending because of excessively high prices of basic goods like rice, corn, sugar, meat and vegetables (food is half of the consumer basket); and three, a delay in the much-vaunted Build, Build, Build (BBB) infra program of the government.
Only one of 75 BBB flagship projects has been completed and seven have been started. Of the 75 BBB projects costing P8 trillion, only three have the best potential to be completed during Duterte’s presidency—a nondescript bridge connecting Mandaluyong to Makati; a railway from Manila to Malolos, and a 100-km railway in Davao.
As if those factors were not enough to douse cold water on one’s enthusiasm, there is the sharp drop in the value of the peso against the dollar, by 8 percent, to P54 to $1, and an even sharper rise in the price of crude oil, by 33 percent to above $70 a barrel. The Philippines imports half of its energy needs. Yet, oil and the peso together are now 41 percent more expensive. Fuel and transportation are half of the cost of prices of rice, corn, sugar, meat and vegetables. The result is a spiral in prices of basic commodities never experienced by consumers in the last 10 years.
Then comes bad weather. Ompong alone is estimated to cause damage of at least P12 billion to Philippine agriculture, aside from killing at least 150 Filipinos in its aftermath.
Philippine agriculture has been growing at a paltry 0.2 percent average per year in the last 10 years, at a time when the population was growing by 1.7 percent or 1.8 million Filipinos per year. In the last ten years, the number of Filipinos increased by 20 million, while the amount of available food for the entire population of 106 million was stagnant.
The Philippines is not investing enough in agriculture. In fact, our tycoons invested more in casinos, $5 billion, in the last five years, than in irrigation, processing and warehousing facilities for rice during the same period. The country has devoted only 1.19 million hectares of land to grow rice and each hectare produces only 4.1 metric tons (6 to 9 metric tons in our ASEAN neighbors).
It costs our farmers P12.72 to produce a kilo of palay. Thailand produces a kilo of palay for only P8.86 and Vietnam P6.22.
The government will liberalize importation of rice but will slap a tariff of 30 percent, from zero at present (because the biggest importer is the government, it does not tax itself).
Add 30 percent tariff to Thai rice, you get P11.51 per kilo; add 30 percent to Vietnam rice, you get P8.06 per kilo. Says agriculture scientist William Dar: “Even with 30 percent tariff on rice from Thailand and Vietnam, most locally produced rice will still be expensive.”
Yet, our Filipino rice farmers get only 47 percent of the wholesale price of palay they produce. Most of the profits goes to traders and middlemen. In India, notes Dar, rice farmers get 62 percent; in China, 94 percent.
As a result, since they don’t even get half of the profits, our farmers, who are aging, don’t produce the rice.
Our farmers are in the doldrums. Agriculture is in the doldrums. Consumers are in the doldrums. Growth is in the doldrums. Our politicians will feel their own doldrums come election time in May 2019 when all these doldrums create a perfect storm worse than a tsunami.
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