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Yearend Briefng, January 13 and 14, 2011

UP Balay Internasyonal, UP Diliman

Quezon City

YEAREND 2010:

Real Change,

or More of the Same?

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2 IBON Economic and Political Brieng 13-14 January 2011

IBON Foundation

is an independent

development institution

established in 1978

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IBON Economic and Political Brieng 13-14 January 2011 3

2010 gave the country a new administration generally acknowledged as legitimate and hailedfor its popularity and large mandate. The rise to the presidency of Benigno Aquino III, as the

storyline goes, ushers in a new era of good governance, democracy and poverty alleviation. Over six

months into the new administration, how much change has there been or are we moving towards?

What change, if any, and for whom?

Filipinos want to be optimistic but the situation so far is not encouraging. Change will not come

spontaneously and the government has a key role, as do the people whose interests will be upheld

the more they can claim the government as their own. Yet it has been a very disappointing start

for the new Aquino administration which has not shown a real reform agenda beyond the repeated

anti-corruption pronouncements and recycling of old programs. Its declarations and actions are

more consistent with continuity of failed policies, merely supercial or cosmetic changes, and empty

slogans rather than the bold reforms the country needs. This raises the challenge for Filipinos toredouble efforts for change in the country.

Six months is long enough to get a sense of the governments priorities and directions. In particular, it

can be asked: what kind of political change has there been if the economic thrusts remain the same?

The Aquino administration is hobbled in many important ways. It visibly lacks even the most

basic starting point: a meaningful and sweeping vision for change that decisively attacks the roots

of the countrys long history of economic and political backwardness. It appears little inclined to

use whatever political capital it has with the general public to challenge elite interests. Even more

alarmingly, the rhetoric of good governance, democracy and poverty alleviation which resonate

with so many Filipinos who have long-suffered bad governance, marginalization and deep poverty

is being used to maintain policies and programs that have failed to benet the majority of Filipinos.

The past year underscored the countrys deep problems of high unemployment, poor quality of

jobs and low incomes amid rapid growth, rising corporate prots and growing private wealth.

Traditional politics of patronage and power struggles also remained very much in play before and

after the elections.

The Aquino administration for now still has relatively high popularity and a strong mandate.

But 2011 will be a dening year for it with the fading of post-Arroyo euphoria and of new

administration goodwill, as economic difculties mount and the global crisis drags on, as political

controversies increase, and as unreformed Philippine politics returns to its accustomed self-serving

in-ghting.

The powers-that-be would like the public to trust in the new administration and be lulled into

complacency and even vilies those who would continue struggling to uphold the peoples interest

and welfare. This is dangerous for the nation and the people. Filipinos have made substantial gains

over the last decades in building the foundations for democracy: the people are more politically

aware, more organized, and willing to take action. Complacency will reverse these gains. As ever,

the peoples efforts are the key to rapidly advancing the cause of real change in the country not just

in the remaining ve-and-a-half years of the Aquino administration but also beyond.

Yearend 2010:Real Change, or More of the Same?

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Economy Growing, But Underdeveloped

The preferred economic themes of the old Arroyo administration have been methodically repeated in therst six months of the new Aquino government: the Philippine economy is resilient and coping amidthe global crisis, has avoided recession, has solid foundations for growth and progress, and only needs to

be more business-friendly. What has been added is the one theme that the Arroyo government could not

credibly roll out: that economic development will come with good governance and transparency.

This amounts to a continuing denial of the real state of the Philippine economy, aside from a cynical

manipulation of public aversion to bad news and of the desperation for improvements in their lives from

wherever this might come. The reality is that the economy as a whole and the welfare of the people has

continued to deteriorate especially upon the failed neoliberal globalization policies of the last decades. Big

business has proted but the country faces old and on-going problems of agricultural decline, industrial

decay, scal crisis, growing joblessness, worsening poverty and inequality, and environmental destruction.

If anything, these have mounted in 2010 and more than ever demand a decisive response.

Yet while the problems are old, the administration offers no new solutions. Indeed, the looming Medium-

Term Philippine Development Plan (MTPDP) 2011-2016 afrms globalization policies with an outright

recycling of old programs for instance, conspicuously, decades-old privatization as public-private

partnerships (PPPs) and Arroyo-era conditional cash transfers (CCTs) which will directly or indirectly

only worsen the countrys problems. The government is implementing a corporate prot-seeking agenda

sugar-coated with palliatives that, ironically, the people themselves are paying for through a regressive tax

system and additional public debt.

There are strong reasons to believe that growth will slow in 2011 and that unemployment and poverty

will remain high. National government (NG) spending is being compressed this year and there are no

elections to momentarily boost spending. Global stimulus programs are wrapping up and a renewed

downturn cannot be ruled out, which exert downward pressures on exports and overseas remittances. It

is also clear that the administration will not even begin to start taking the difcult but necessary steps for

strategic economic development, such as real agrarian reform and building national industry, which further

diminishes prospects over the long-term.

Momentary growth, poor prospects

Despite serious limitations as an indicator for development, growth in the economy according to gross

domestic product (GDP) or gross national product (GNP) is still commonly used as a measure (out of

convenience more than appropriateness). In this regard the Aquino administration, like the one before

it, has played up ofcial reported growth rates as a sign of economic strength and implicitly of progress

and improvement in peoples lives. The reality however is that economic growth has been and continues

to be exclusionary fundamentally because economic activity and the distribution of its benets are

increasingly organized along market-based lines. Dominant players and the owners of the means of

production are given the greatest freedom to make their prots at the expense of the working people. In

any case, the second semester is already seeing the start of a downturn due to internal and external factors.

GDP grew 7.5% in the rst nine months of 2010 from the same period in the year before, which is

markedly faster than the corresponding 0.7% rate in 2009. (See Table 1) Overall, there is a base effect

with growth in 2010 being measured from the virtual stagnation upon the global crisis in 2009. Aside

from this, the gures are consistent with election-related and government-boosted spending in the rst

semester, post-Ondoy/Pepeng calamity reconstruction, and an uptick in electronics manufacturing in the

rst semester and its exports in the third quarter.

ECONOMY GROWING, BUT UNDERDEVELOPED

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Table 1. National Income Accounts, Growth Rates, 2007 - 1st-3rd Quarter 2010

(in %; at constant 1985 prices)

Indicator 2007 2008 2009

2009 2010 2010

1st Qtr-

3rd Qtr

1st Qtr-

3rd Qtr

1st

Qtr

2nd

Qtr

3rd

Qtr

By Industrial Origin

I. Agriculture, Fishery and Forestry 4.9 3.1 0.0 1.2 (2.8) (2.7) (3.2) (2.5)

II. Industrial Sector 6.8 4.9 (0.9) (2.7) 13.7 15.9 16.1 9.2

A. Mining and Quarrying 26.0 1.9 21.5 22.9 18.6 7.4 37.4 4.6

B. Manufacturing 3.3 4.2 (4.4) (7.7) 13.9 20.4 12.7 9.3

C. Construction 21.0 7.6 9.8 12.9 14.2 4.3 22.5 11.1

D. Electricity, Gas and Water 6.7 7.3 (2.9) (3.8) 8.3 8.2 8.6 8.1

III. Service Sector 8.1 3.1 2.8 2.7 7.1 7.1 6.7 7.7

A. Transportation, Communication and Storage 8.3 4.2 0.6 1.8 1.9 (1.1) 3.5 3.5

B. Trade 8.2 1.2 1.0 0.4 11.1 12.6 9.1 11.7

C. Finance 13.1 2.5 5.9 5.9 5.5 6.5 1.7 8.4

D. Owners Dwelling and Real Estate 5.9 5.8 (0.3) (1.4) 7.7 4.9 9.0 9.1

E. Private services 8.4 4.9 6.4 5.6 7.6 8.5 7.1 7.2

F. Government services 2.7 3.0 6.1 7.2 4.5 6.5 7.9 (1.3)

By Expenditure Shares

I. Personal Consumption Expenditures 5.8 4.7 4.1 3.7 4.7 5.4 4.6 4.2

II. Government Consumption 6.6 0.4 10.9 10.1 6.3 20.0 5.8 (6.1)

III. Capital Formation 12.4 2.3 (5.7) (9.1) 13.9 21.9 10.8 8.9

A. Fixed Capital Formation 10.9 2.7 (0.4) (2.6) 18.6 16.0 25.5 13.4

IV. Exports of Goods and Services 5.5 (2.0) (13.4) (15.2) 27.5 22.4 29.1 29.9

V. Less: Imports of Goods and Non- FactorServices

(4.1) 0.8 (1.9) (5.0) 20.1 22.4 20.4 18.2

Gross Domestic Product (GDP) 7.1 3.7 1.1 0.7 7.5 7.8 8.2 6.5

Net Factor Income from Abroad 12.4 34.5 28.0 31.6 10.3 14.1 3.9 13.7

Gross National Product (GNP) 7.5 6.4 4.0 4.0 7.9 8.6 7.6 7.5

Source: National Statistical Coordination Board

By industry, the fastest growing sectors over the rst nine months were mining (18.6% growth),

construction (14.2%), manufacturing (13.9%) and trade (11.1%). (See Table 1) However considering not

just sectoral growth rates but their respective shares in the economy, the biggest contributors to growth

were manufacturing and trade. The countrys backward agriculture chronically erratic from unduevulnerability to the weather and government neglect in turn contracted 2.8% over the rst nine months.

It can also be noted that although private services as a whole grew faster (7.6%), the business services

subsector where business process outsourcing (BPOs) are reected slowed to 9.4% growth from 11.8%

the year before underscoring the limited contribution of hyped BPOs to the economy. By expenditure,

exports (27.5% growth) and capital formation (13.9% growth) grew fastest although consumption which

accounts for over two-thirds of expenditure contributed more than its relatively slower 4.7% growth would

appear to.

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However, looking at quarterly year-on-year growth rates provides some indication of trends not evident

in the full 9-month gures. By industry, the third quarter 9.3% growth of manufacturing continues a

slowdown from the rapid 20.4% rate in the rst quarter and 12.7% in the second quarter (especially

in electrical machinery); the growth of trade was also slower in the third quarter from the rst quarter;

agriculture was contracting in every quarter. By expenditure, the third quarter 4.2% growth in personal

consumption was lower than earlier in the year and government consumption fell drastically to contract

by 6.1% from 20.0% growth in the rst quarter. The third quarter 8.9% growth in capital formation was

likewise lower than in the previous quarters particularly dragged down by a drastic contraction in public

construction.

While exports still grew by 29.9% growth in the third quarter driven particularly by exports of

semiconductors and other electronics this was not enough to offset the slowdown elsewhere and third

quarter GDP growth of 6.5% has been lower than in previous quarters.

Seasonally adjusted quarterly growth rates are also computed to allow comparison between consecutive

quarters that cannot be done with the quarterly year-on-year gures. By this measure, the economy has

been slowing since the start of 2010 from 3.7% growth in the rst quarter, 1.4% in the second quarter and

a 0.5% contraction in the third quarter. This is the sharpest slowdown in the economy since the 1997 Asian

crisis (with a 4.2 percentage point drop over the last two quarters compared to the 3.0 percentage point

drop in the third quarter of 1997 and 2.5 percentage points in the rst quarter of 1998).

Overseas remittances are conventionally seen as an important prop of the domestic economy so an

emerging and possibly adverse trend can be pointed out. According to the national income accounts,

growth in compensation inows mostly consisting of overseas Filipino incomes, drastically slowed to

5.7% in the rst nine months of 2010 from 30.7% growth in the same period the year before largely

explaining why the growth of net factor income from abroad (where compensation inows are recorded)

has correspondingly slowed to only 10.3% in 2010 compared to 31.6% growth in 2009. At the same time,

it can be observed that the share to GDP of actual remittances, using data from the Bangko Sentral ng

Pilipinas (BSP), has been generally at since 2005 even declining marginally from 10.8% of GDP in the

whole of 2009 to 10.3% in the rst nine months of 2010. (See Chart 1)

This could indicate that the country is reaching or has reached its limits in relying on remittances to propup the economy given the growing size of the domestic economy and the tightening of labor markets

abroad. This apparent plateau is also signicant considering how deployments continue to rise with the

Philippine Overseas Employment Administration (POEA) tallying 805,422 deployments of land- and

sea-based workers in the rst half of 2010 implying some 4,413 deployments a day which outpaces the

average 3,897 per day in 2009. Meanwhile, the Commission on Filipinos Overseas (CFO) reports 8.6

million overseas Filipinos by end-2009 (composed of 4.5 million temporary/irregular workers and 4.1

million permanent residents) which is some 392,000 more than the year before. It is likely that part of the

reason for the slowdown in remittances is that some 52% of Filipinos abroad is in crisis-stricken North

America, Europe and Japan.

The mining and quarrying subsector has been posting rapid growth for the last two years, at 18.6% in the

rst nine months of 2010 and an even faster 22.9% in the same period in 2009.

The sources and patterns of growth in 2010 point to difculties in 2011, even just from the growth

perspective. There will no longer be any election- or calamity-related spending (barring Ondoy/Pepeng-

scale disasters), the recently-passed 2011 NG budget is an austerity budget, and the global crisis is

dragging on at best and which could even take a turn for the worse.

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The United Nations (UN), in its latest report on the world economic situation and prospects for 2011,

acknowledges the fragility of supposed recovery in 2010 and expects weaker global growth in 2011

and 2012 with deceleration on a broad front. In spite of the seeming rapid recovery last year, the world

economy has still not overcome its general downward growth trend since the start of the 1970s. (See

Chart 2) The advanced capitalist economies which take up the largest part of the world economy are still

struggling to nd sources of growth after the end of the debt-, nance- and speculation-driven growth era.

Fiscal stimulus measures served to momentarily stabilize economies and boost corporate prots but cannot

be sustained in the face of high and rising public debt by 2009 already reaching some 80% in the major

advanced economies (See Chart 3) and revenues undermined by poor economic growth. The troubles

with sovereign nances, especially but not only in Europe, are a critical ashpoint especially amid overall

economic weakness.

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Drastically rising unemployment even in the major global powers drag recovery aside from being a further

source of great political and social stress. (See Chart 4) Global unemployment of some 250 million

is already the highest level on record, while still underestimating the true jobs crisis by not including

workers discouraged by months of fruitless job searching or those pushed into precarious informal or

poorly-earning employment. Persistent high unemployment is already also making wages and benets

stagnate or even decline. All these stresses increase the possibility of protectionist measures, retaliation

and counter-retaliation.

The underdeveloped countries particularly China, India, Brazil and other relatively large economies in

Asia and Latin America have been hailed as drivers of global recovery, apparently registering more rapid

growth rates than the advanced economies since the start of the crisis. However, this better performance

is in an important respect illusory and largely reects their economic backwardness and relatively less

direct dependence on ctitious capital to drive their consumption and production. In any case, as with

Unite

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ates

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Unite

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Germ

any

Spain Ita

ly

Irelan

d

Greece

Australia

Japa

n

Hong

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g

Russian

Fed

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n

Source: International Monetary Fund Historical Public Debt Database

2007 2009

Unite

dSt

ates

Cana

da

Unite

dKi

ngdo

m

Fran

ce

Germ

any

Spain Ita

ly

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Australia

Japa

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Hong

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g

Russian

Federatio

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2007 2009

Source: International Monetary Fund

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the Philippines, the most globalized sectors of these underdeveloped countries, are highly dependent on

developed countries and were adversely affected. This was certainly from weaker exports and remittances,

but possibly also through tighter capital ows and ofcial development nance. There are also pressures

from international nancial institutions (IFIs) such as the World Bank and International Monetary Fund

(IMF) to remove fuel and food subsidies, privatize health and education, and cut wages and benets.

In addition they are facing a recent problem of a surge in speculative capital ows seeking prot that

are appreciating their currencies. This makes their exports more expensive, reduces the local currency

equivalent of overseas remittances, and risks the ination of domestic asset bubbles. Speculation in

commodity markets also raises the hazard of volatile food and oil prices in the near future.

The problems in the global economy underscore the need to ensure a solid domestic economic base, even

as any opportunities in foreign trade and investment are taken. Globalization however has one-sidedly

played up supposed benets at the expense of domestic requisites resulting in the general decline of

manufacturing and agriculture. This is most evident in their falling as a share of GDP in the case of

manufacturing to as small as in the 1950s or over half a century ago, and in agriculture to its smallest in

the countrys history. (See Chart 5) This has had drastic repercussions including an economy that fails

to generate sufcient jobs for the population, food insecurity, low capital generation, poor technological

development, undue foreign dependence, and a general lack of dynamism.

Not only has manufacturings share in GDP and employment fallen but it has become increasingly

foreign-dominated and disconnected from the local economy with weak forward and backward linkages.

Developments in information, communication and transport technology amid the removal of tariff barriers

have facilitated reducing manufacturing enterprises into low value-added links in global productionchains. Manufacturing evidently remains an important source of production and for instance accounts for

47.7% of gross revenues of top 1,000 corporations in the country yet 71.1% of this is accounted for by

foreign transnational corporations (TNCs). Trends in 2010 do not overturn this and 84.1% of approved

manufacturing investment in Jan-Sep 2010 is foreign direct investment (FDI).

The decline of agriculture is particularly problematic because of its signicance for so much of the

population one-third of the employed are still in agriculture and two-thirds of the poor are in rural areas.

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The countrys food security has also been affected and increasing shares of food consumed is imported

such as rice (18.1% imported in 2009), garlic (82.9%), onion (35.2%), peanuts (35.1%), beef (21.3%),

chicken (5.1%), pork (4.9%) and tuna (5.4%). As a result agricultural trade decits have risen ten-fold in

2009 (US$2.9 billion) and thirteen-fold in 2008 (US$3.8 billion) from US$287.4 billion in 1994.

The recent economic growth is well-reected in the growing prots of leading big foreign and domestic

business groups in the country and in the rising wealth of the handful of richest Filipinos. The net income

of the countrys top 1,000 corporations has overall been rising since 2001 despite a momentary dip in

2008. As it is, their combined annual net income of Php756.0 billion in 2009 is six-and-a-half times the

Php116.4 billion in 2001, with a cumulative net income over the period 2001-2009 of Php3,788.9 billion.

(See Chart 6) Notably and in contrast, the average daily basic pay of wage and salary workers over the

same period has hardly risen (much less if ination is taken into account).

That trend of huge gains for a few continued last year. For instance, the Philippine Stock Exchange (PSE)

reported that the prots of the countrys 251 listed rms increased 20.1% in the rst semester of 2010 to

Php232.2 billion from Php193.4 billion in the same period the year before. Among the sectors with the

biggest growth in net earnings were mining and oil (275% increase), nance (27%), and property (25%).

The Bangko Sentral ng Pilipinas (BSP) meanwhile reported that the combined prots of universal and

commercial banks increased 30.3% in the rst nine months of 2010 to Php62 billion from Php47.6 billion

in the same period in 2009.

Continuing jobs crisis

The poor employment situation underscores how growth in the economy continues to be exclusionary and

unable to produce decent livelihoods for millions of Filipinos. The number of jobless Filipinos is still high

and 2001-2010 is the worst decade of recorded unemployment in the countrys history.

The supposedly rapid economic growth in the rst three quarters of 2010 did not translate into enough

new jobs to absorb labor force entrants and cut into the large stock of unemployed Filipinos: there was

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only a 2.8% increase in employment despite the 7.5% GDP growth in the rst nine months of the year. The

disconnect is further highlighted with how there was 11.1% unemployment in 2009 at a time of 0.7% GDP

growth (in the rst nine months), compared to 10.9% unemployment in 2010 with 7.5% GDP growth.

As an indicator of the jobs crisis, IBON estimates that there were 11.2 million Filipinos either jobless or

employed but still looking for additional work, equivalent to some 28% of the labor force (as estimated

by IBON see note in Table 2) or 4.4 million unemployed and 6.8 million underemployed Filipinos

in 2010. (See Table 2) Alternatively, there were 20.8 million Filipinos jobless or in insecure, low-paying

and even hazardous work, equivalent to around 52% of the labor force or 4.4 million unemployed, 4.2

million unpaid family workers and 12.3 million own account workers. (See Tables 2 and 3)

The estimated 10.9% unemployment in 2010 was slightly improved from 11.1% the year before but

still higher than in 2007 and still high enough to continue a historic decade of unprecedented high

unemployment with an annual average unemployment rate of 11.2 percent. It is also possible that labor

force conditions are even worse than the unemployment numbers suggest if trends in the number of

discouraged workers are also considered.

The 929,000 additional wage and salary jobs is welcome as is the 1.3 million additional full-time work,

especially after consecutive years of new jobs disproportionately going to own account and unpaid family

workers, or to part-time work. (See Table 3) Still, a large portion of the total 983,000 new jobs generated

in 2010 were in among the economys lowest-earning sectors manufacturing (137,000 jobs, with average

daily basic pay of around Php300/day), construction (121,000 jobs at Php277/day) and trade (305,000 jobs

at Php258/day). It is also uncertain how much of these jobs will still be there upon the expected downturn

in 2011. The loss of 72,000 agricultural jobs following the sectors contraction is worrying given the

Table 2. Key Employment Indicators, Annual Average 2007-2010 (in '000 except rates in %)

Indicator 2007

aIBON Estimates Ofcially Reported

2008 2009 2010 2008 b 2009 b 2010 b, p

Population 15 Years Old and Over 56,565 57,848 59,327 60,718 57,848 59,237 60,718

Labor Force 37,633 38,237 39,452 40,438 36,805 37,893 38,902

Employed 33,560 34,089 35,060 36,044 34,089 35,062 36,044

Underemployed 6,756 6,579 6,692 6,758 6,579 6,693 6,758

Unemployed 4,073 4,149 4,392 4,394 2,716 2,831 2,859

Not in the Labor Force 18,932 19,610 19,875 20,280 21,043 21,344 21,816

Labor Force Participation Rate 66.5 66.1 66.5 66.6 63.6 64.0 64.1

Employment rate 89.2 89.1 88.9 89.1 92.6 92.5 92.7

Underemployment rate 20.1 19.3 19.1 18.8 19.3 19.1 18.8Unemployment rate 10.8 10.9 11.1 10.9 7.4 7.5 7.3

p - preliminary; totals may not add up due to rounding.a - ofcial data based on old LFS denitions.b - based on new LFS denitions since April 2005 (ofcial data based on old denition unavailable).

Note: Since gures for 2008 and 2009 according to the old LFS denitions were unavailable even upon request to

NSO, IBON made rough estimates for labor force and correspondingly unemployment by assuming a labor force

participation rate (LFPR) of 66.1% in 2008, 66.5% in 2009 and 66.6% in 2010. These assumed LFPR gures were

derived by applying the changes in ofcial reported annual average LFPR in 2008, 2009 and 2010 to the LFPR in

2007 that was still computed using the old unemployment denition i.e., 0.4 percentage point reduction in 2008, 0.4

increase in 2009, 0.1 increase in 2010.

Source of basic data: National Statistics Ofce Labor Force Survey

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Table 3. Employed Persons and Gross Domestic Product Growth By Sector, 2009-2010 (in '000 except rates in %)

Indicator

Employed persons

(in '000)Change,

2009-2010

(in '000)

Employment

growth,

2009-2010

(in %)

GDP growth

by industry,

1st-3rd Qtr

2009-2010

(in %)2009 2010 p

Total Employed Persons 35,062 36,044 982 2.8 7.5

By Industry

Agriculture, Fishery and Forestry 12,044 11,972 (72) (0.6) (2.8)

Agriculture, Hunting and Forestry 10,582 10,503 (80) (0.8) nda

Fishing 1,462 1,470 7 0.5 0.8

Industry 5,093 5,392 299 5.9 13.7

Mining and Quarrying 166 199 33 19.6 18.6

Manufacturing 2,894 3,031 137 4.7 13.9

Electricity, Gas and Water 142 150 8 5.4 8.3

Construction 1,891 2,012 121 6.4 14.2

Services 17,925 18,681 756 4.2 7.1

Wholesale and Retail Trade 6,735 7,040 305 4.5 11.1

Hotels and Restaurants 1,010 1,062 52 5.2 7.2

Transport, Storage & Communications 2,680 2,720 40 1.5 1.9

Financial Intermediation 369 399 30 8.1 5.5

Real Estate, Renting & Bus. Activities 1,064 1,147 83 7.8 7.7

Public Administration & Defense, Compulsory Social Security 1,749 1,845 96 5.5 4.5

Education 1,138 1,176 38 3.3 0.3

Health and Social Work 421 450 29 6.9 3.9

Other Community, Social & Personal Service Activities 877 913 36 4.1 nda

Private Households w/ Employed Persons 1,880 1,926 46 2.5 nda

Extra-Territorial Organizations 2 2 (0) (6.4) nda

By Class of Worker

Wage and Salary Workers 18,682 19,611 929 5.0

Own Account 12,163 12,279 116 1.0

Self-employed Workers 10,725 10,885 160 1.5

Employers 1,438 1,394 (44) (3.1)

Unpaid Family Workers 4,218 4,155 (63) (1.5)

By Hours of Work

40 Hours and Over (Full-Time Employment) 21,546 22,890 1,344 6.2

Less than 40 Hours (Part-Time Employment) 12,946 12,680 (266) (2.1)

Did Not Work 571 475 (96) (16.8)

p - preliminary, totals may not add up due to rounding.nda - no data available

Note: For purposes of comparability, "Financial Intermediation" in the National Income Accounts (NIA, source of GDP data) is considered equiva-

lent to "Finance" in the Labor Force Survey (LFS, source of employment data), "Ownership of Dwellings & Real Estate" to "Real Estate, Renting

& Bus. Activities", "Public Administration & Defense, Compulsory Social Security" to "Government", and "Health and Social Work" to "Medical and

Health".

Source of basic data: National Statistics Ofce Labor Force Surveyand National Statistical Coordination Board

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already low earnings there and concentration of poor, indicating a serious worsening of rural poverty.

The prole of the unemployed is also unsettling with alarmingly high rates of jobless high school- and

college-educated Filipinos almost nine out of ten (86.4%) of reported unemployed; some two out

of ten are even college graduates. (See Table 4) This strongly suggests that it is not so much the lack

of education or perceived jobs-skill mismatch that are behind the inability to nd jobs but the lack of

employment opportunities to begin with. Over half (51.1%) of jobless Filipinos are young at between

15-24 years old.

Persistent poverty

The rebounding of growth in 2010 did little to relieve the majority of Filipinos burdened by joblessness,

low incomes, high prices and the resulting poverty. A string of calamities in December even furtherhighlighted the vulnerabilities of the countrys poor who are already in wretchedly difcult circumstances

to begin with.

The preliminary results of the 2009 Family Income and Expenditure Survey (FIES) were released and

conrm how the incomes of Filipinos have hardly improved. At Php113 per day in 2009, real average

personal income, taking ination into account, was virtually unchanged since 2003 despite six years

of supposedly continuous economic growth. (See Table 5) There were only marginal increases in the

Table 4. Summary Statistics on Unemployment, 2009-2010 (in '000 except share in %)

IndicatorNumber (in '000) Share to Total Unemployed (in %)

2008 2009 2010 p 2008 2009 2010 p

Total Unemployed Persons 2,716 2,831 2,859 100.0 100.0 100.0

By Sex

Male 1,714 1,770 1,808 63.1 62.5 63.2

Female 1,002 1,062 1,050 36.9 37.5 36.7

By Age Group

15-24 years old 1,389 1,437 1,460 51.1 50.8 51.1

25-54 years old 1,223 1,284 1,293 45.0 45.4 45.2

55 years old and over 104 109 106 3.8 3.9 3.7

By Highest Grade Completed

No Grade Completed 14 13 14 0.5 0.5 0.5

Elementary 379 377 375 14.0 13.3 13.1

Undergraduate 173 167 174 6.4 5.9 6.1

Graduate 207 210 201 7.6 7.4 7.0

High School 1,237 1,279 1,293 45.5 45.2 45.2

Undergraduate 338 344 363 12.4 12.1 12.7

Graduate 899 936 930 33.1 33.1 32.5College 1,085 1,162 1,178 40.0 41.1 41.2

Undergraduate 574 619 621 21.1 21.9 21.7

Graduate 512 544 557 18.8 19.2 19.5

p - preliminary

Note: Based on the new ofcial unemployment denition.

Source: National Statistics Ofce Labor Force Survey

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incomes of the poorest half of the population of just a peso or so a day with slight decreases in the

remaining higher deciles. The preliminary results can also be interpreted as implying that some 70% of

the population or 64.6 million Filipinos struggle to survive and meet all their basic food and other needs

on Php104 or much less per day on as little as Php22, Php35, Php45, Php55 and Php67 in the case of the

poorest half of the population.

The government ofcially reports poverty incidence of just 32.9% in 2006 according to a low poverty line

of just Php41 per person per day for minimum basic food and non-food needs. But even this low threshold

still resulted in 27.6 million Filipinos ofcially considered poor in 2006 which was 3.8 million more than

in 2003. The ofcial 2009 poverty gures could be released in the rst quarter of 2011 and it would besurprising if the number of poor and incidence of poverty did not drastically increase given such adverse

intervening developments as the global crisis, soaring food and oil prices, and serious natural calamities.

As it is, 2010 tragically closed with heavy rains and massive ooding in 23 provinces in eight regions

including four of the countrys poorest regions: Bicol, Eastern Visayas, Caraga and the Autonomous

Region in Muslim Mindanao (ARMM) since December. The National Disaster Risk Reduction and

Management Council (NDRRMC) estimated 235,867 families with some 1.23 million people affected by

oods and landslides some 602,000 people in Caraga, 275,000 in Eastern Visayas (Samar, Leyte), and

196,000 in Bicol (Albay, Sorsogon). Overwhelmingly farmers and small rural producers already suffering

squalor on a daily basis, they have been pushed into even more wretched conditions.

Inequality meanwhile is as bad as in the mid-1980s on the eve of the fall of the Marcos dictatorship andnotwithstanding supposedly two-and-a-half decades of democracy, economic growth, growing exports

and increased foreign investment. In 2009 the highest income 20% of the population accounted for over

half (51.9%) of total family income leaving the poorest 80% to divide the remaining 48.1% among them

which is little changed from the situation in 1985. (See Table 6) If anything, the poorest half and poorest

70% of the population have even seen their share fall even more.

Table 5. Estimated Daily Average Family and Personal Income by Decile,

2003, 2006 and 2009 (in Php)

DecileAt Current Prices At 2000 Prices (2000 = 100)

2003 2006 2009 2003 2006 2009

Philippines 81 95 113 71 69 71

First Decile 15 18 22 13 13 14

Second Decile 23 28 35 20 20 22

Third Decile 31 36 45 27 26 28

Fourth Decile 38 44 55 33 32 34

Fifth Decile 47 55 67 41 40 42

Sixth Decile 59 68 82 51 49 51

Seventh Decile 74 86 104 65 62 65

Eighth Decile 96 112 134 84 82 84

Ninth Decile 134 160 187 118 116 117

Tenth Decile 294 341 399 258 247 249

Note:These are rough estimates computed by dividing annual family income per decile by ve (5) family

members (average family size) and 365 days.

Source of basic data: National Statistics Ofce Family Income and Expenditure Survey

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Inequality in the country is also starkly reected comparing reports by Forbes Asia on the wealthiest

Filipinos with the results of the 2009 FIES. The net worth of just the 25 richest Filipinos of US$21.4

billion (Php1,021.1 billion at the prevailing exchange rate then) is equivalent to the combined annual

income of the countrys poorest 11.1 million families or some 55.4 million Filipinos (computed with an

average family size of ve) of Php1,029 billion in 2009. The net worth of the countrys 25 richest Filipinos

also signicantly increased from US$15.2 billion (Php836.2 billion) reported in 2006 by Forbes Asia.

Low wages are among the factors behind such low incomes for Filipinos. The ofcial minimum wagehas both substantive and symbolic signicance. It is directly substantive if received by workers in

establishments that should be covered by the minimum wage. But it is also symbolic, and no less

meaningfully for that, by sending a solid political signal from the government of the extent to which

it upholds the interests of wage-earners and other working people in the rest of the economy. By this

measure, the worsening lack of a pro-people bias is evident from wage trends over the years. Taking

ination into account, the daily minimum wage in the National Capital Region (NCR) for instance has

remained essentially at for a decade with a barely Php5 worth of increase in 2010 from 2001. (See

Chart 7)

As it is, inating the Php917 NCR family living wage from September 2008 the latest month for which

the National Wages and Productivity Council (NWPC) provides a gure by 2009 and 2010 ination

would bring this to around Php983 by end-2010. This implies that the NCR daily minimum wagecurrently at Php404 is less than half the family living wage (FLW) with a wage gap of Php513. The new

administration is fully in a position to rectify this situation if it were so inclined.

Struggles against poverty

Filipinos have not been passively accepting their plight and continued to wage economic and political

struggles against poverty and for decent livelihoods in 2010.

Table 6. Distribution of Total Family Income by Decile, 1985-2009 (in %)

Decile Group 1985 1988 1991 1994 1997 2000 2003 2006 2009

Philippines 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

First Decile 2.0 2.0 1.8 1.9 1.7 1.7 1.8 1.9 2 .0

Second 3.2 3.2 2.9 3.0 2.7 2.7 2.9 2.9 3.1

Third 4.1 4.1 3.8 3.9 3.5 3.5 3.8 3.8 3.9

Fourth 5.0 5.0 4.7 4.9 4.3 4.4 4.7 4.7 4.8

Fifth 6.0 6.0 5.7 6.0 5.4 5.5 5.8 5.8 5.9

Sixth 7.3 7.3 7.0 7.4 6.8 6.9 7.2 7.2 7.3

Seventh 8.9 9.0 8.8 9.1 8.7 8.8 9.1 9.0 9.2

Eighth 11.4 11.0 11.4 11.8 11.5 11.7 11.9 11.9 11.9

Ninth 15.7 16.0 16.1 16.4 16.2 16.3 16.6 16.9 16.6

Tenth 36.4 35.8 37.8 35.5 39.3 38.3 36.3 36.0 35.3

Memo items:

Bottom 50% 20.3 20.3 18.9 19.7 17.6 17.8 19.0 19.1 19.8

Bottom 70% 36.5 36.6 34.7 36.2 33.1 33.5 35.3 35.3 36.2

Bottom 80% 47.9 47.6 46.1 48.0 44.6 45.2 47.1 47.2 48.1

Top 20% 52.1 51.8 53.9 51.9 55.5 54.6 52.9 52.9 51.9

Source: National Statistics Ofce Family Income and Expenditure Survey

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Notwithstanding agricultural decline the sector still remains the single biggest source of livelihoods for the

country, directly and indirectly employing the largest number of Filipinos and providing subsistence for

the largest number of Filipino families. These make agrarian struggles particularly signicant.

There is conspicuous government inaction on the vital issue of agrarian reform causing traditional landed

and other rural elites persist in wide areas of the countryside. At the policy level, the problem lies in

the mere extension of the awed Comprehensive Agrarian Reform Program (CARP) through CARP

extension with reforms (CARPer) and with not even lip service to agrarian reform in important policy

speeches. While meaningful for being illustrative of landlord resistance is the presidents evasive stance

on the family-owned 6,453 hectare Hacienda Luisita where, on one hand, Pres. Aquino uses the excuseof having divested himself of his shareholdings in Hacienda Luisita, Inc. (HLI) even as, on the other

hand, family discussions on overall plans and tactics regarding HLI vis-a-vis the active peasant claims

on it continue. HLI farmworkers under United Luisita Workers Union (ULWU) and Alyansa ng mga

Manggagawang Bukid ng Asyenda Luisita (AMBALA) await a decision from the Supreme Court (SC)

on the nullication of the notorious stock distribution option (SDO) and August 2010 compromise deal.

The Aquino administrations handling of the Hacienda Luisita issues will send the strongest signal of its

interest, or lack of, in agrarian reform.

Other peasant struggles for land include for some 5,000 hectares in Negros Occidental (claimed by

Eduardo Cojuangco) 5,000 hectares in Batangas (Sobrepeas and Sy families), 430 hectares in Leyte

(Vicente Veloso), 400 hectares in Laguna (Yulo family and real estate developers), 348 hectares in Bulacan

(Luis Villafuerte), 311 hectares in Bulacan (Gregorio Araneta, III), 208 hectares in Pampanga (Pineda

family), and 11 hectares in Pangasinan (Humberto Solis). Organized farmworkers in Bukidnon are also

campaigning against high land rent and usury, as well as for higher farm wages, and farmgate prices.

Organizations under the national peasant federation Kilusang Magbubukid ng Pilipinas (KMP) are also

undertaking bungkalan (cultivation) campaigns afrming the political nature of the agrarian struggle and

the centrality of organized peasant action, aside from giving concrete economic benets for farmers and

their communities. These bungkalan efforts among others already covers 2,000 hectares of rice farms and

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hundreds more hectares planted to fruits and vegetables in Hacienda Luisita in Tarlac, and 1,381 hectares

also planted to rice, fruits and vegetables in Negros island by former sugarworkers.

Various urban-based sectors also waged struggles for their social and economic rights in 2010. The

Koalisyon ng Progresibong Manggagawa at Mamamayan (KPMM) a wide coalition of workers and

government employees with migrants, teachers, health workers, farm workers, urban poor and other

sectors was formed in November to demand meaningful wage hikes for private and public sector

workers. Meanwhile Defend Jobs-Philippines continued its campaign against retrenchment, union-busting,

contractualization and labor exibilization, and higher wages against Triumph International, Advan, media

giant ABS-CBN, ag carrier Philippine Airlines, Pepsi Cola, Comfoods, Philippine Ports and in export

processing zones. In December, kuliglig(hybrid transport vehicles) drivers and operators protested the

Manila City government ban on them and were violently dispersed an example of how the effort by a

mass of otherwise jobless to seek gainful employment was stied by local government without providing

alternatives. Thousands of residents of urban poor communities in Tondo, Navotas, Pasig, Quezon City,

Metro Baguio, Metro Cebu and Metro Davao also organized to resist demolition of their homes, often

facing violent dispersals.

Eroding government, rising debt

The 2011 NG budget goes far in revealing the development framework, thrusts and priorities of the Aquino

administration. It is an austerity budget to be able to keep repaying debt, yet at the same time is bloated by

patronage funds. The budget does not support long-term economic and social development and reects an

approach to socioeconomic governance where the government shies away from its vital responsibilities.

The 2011 budget continues the trend of eroding government capacity to uphold, protect and promote the

peoples welfare with adverse long-term consequences.

The Php1,645 billion budget as proposed for 2011 seems large but actually continues the long-run decline

of government spending relative to the economys size and its needs. At a projected 18.2% of GDP, it

is in effect smaller than the 2010 budget and far below the peak of 24% in 1990. (See Chart 8) It also

shrinks in real terms where non-debt spending, taking projected ination into account, contracts by 2.1%

in 2011 from 2010. This is inconsistent with the need to expand well-designed public expenditure on social

services, infrastructure, industrial support and agricultural development.

1986

1991

1996

2001

2006

2011

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Budget priorities remain distorted. Absolute priority is still given to foreign and domestic debt service with

Php357.1 billion in interest payments (aside from an off-budget Php466.2 billion in principal payments,

for a total of Php823 billion in debt payments) where the Php80.9 billion hike in interest payments

even takes up 78% of the Php104.4 billion increase from 2010. Military spending also increases to a high

Php105 billion even as there are cuts in social services. The health budget is reduced and includes cuts for

12 specialty hospitals in Metro Manila and 40 public hospitals nationwide and in subsidies for indigent

patients, among others. Insufcient priority is given to education and while there is an overall budget

increase mainly to raise teachers salaries, The budget for state universities and colleges (SUCs) was cut

prompting nationwide strikes from end-November involving tens of thousands of students and academic

workers. As it is, even the UN has raised concerns that the Philippines needs to spend much more on

education, health and basic services to meet its Millennium Development Goal (MDG) targets by 2015.

There is also a large drop in the budget for economic services which falls by 9.5% from Php398.9

billion in 2010 to Php361.1 billion in 2011. Cutbacks are particularly large in the areas of: agriculture

and agrarian reform (falling by Php23.1 billion or 26%); communication, roads and other transportation

(Php7.9 billion or 5.2%); water resources development and ood control (Php4 billion or 21.4%); and

power and energy (Php3.4 billion or 65.5%). These cuts also create the justication for the further

privatization of critical public infrastructure, even as diminishing direct government engagement in the

economy undermines its capacity to regulate. And while the government continues to push Filipinos

abroad for work, it is failing to ensure that they are adequately protected while overseas. The budget of the

Department of Foreign Affairs (DFA) has been reduced, with cuts also in legal and other assistance fundsfor overseas Filipino workers.

The 2011 budget moreover contains some Php245-billion in vague lump-sum funds, or some 15% of the

total budget. These funds, composed of big budget items for no properly identied purpose, at the very

least run contrary to the Aquino administrations declared thrust of transparency and accountability and

at worst can be used as corruption-prone patronage-driven pork barrel funds.

The lump-sum items include among others: Php66.91-billion unprogrammed funds and Php1-billion

contingent fund subject to essentially presidential discretion; Php29.29-billion fund for the greatly

expanded Pantawid Pamilyang Pilipino Program (4Ps) and National Household Targeting System; Php15-

billion fund divided equally among three ambiguous public-private partnership support funds under the

Department of Public Works and Highways (DPWH), Department of Transportation and Communication(DOTC) and Department of Agriculture; Php2.34-billion fund to the military for support to national

development; Php1.46 billion in intelligence funds, which is Php403 million more than in Arroyos

2010 budget; Php1.19 billion for major information and communication technology projects, which is

reminiscent of the failed NBN-ZTE deal; and the Php24.82 billion for the Priority Development Assistance

Fund (PDAF).

It now appears that the government may meet its full year 2010 target decit of Php325 billion with the

NG decit in the rst 11 months of 2010 at just Php269.8 billion which is even lower than in the same

period last year. (See Chart 9) This dees the earlier projections of many analysts including IBON. But

while the Aquino administration would like to be seen as succeeding in its efforts against tax evaders and

smugglers, the decit was contained not by overall revenue growth (which was slower than in the rst

semester) but by a drastic cut in expenditures which contracted 1.6% in July-November from the sameperiod the year before. (See Table 7)

The countrys revenue shortfall is due to widespread evasion and corruption, scal incentives and tax

breaks to corporations, drastic tariff cuts, and a regressive tax system that avoids taxing the wealthy so

there will be limits to how far the administration can raise revenue if it only means to do this through

supposedly better enforcement and a crackdown on corruption. The temptation is then ever-present to

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Table 7. National Government Cash Operations, 2009-November 2010

(in million Php except rates in %)

Indicator 2009Jan-Nov Jan-Jun Jul-Nov

% Change, 2009-

2010

2010 2009 2010 2009 2010 Jan-Jun Jul-Nov

Revenues 1,123,211 1,104,754 545,702 592,104 475,968 512,650 9 8

Tax Revenues 981,631 998,501 486,399 540,532 407,423 457,969 11 12

Bureau of InternalRevenue

750,287 753,325 375,612 403,469 306,301 349,856 7 14

Bureau of Customs 220,307 223,500 104,811 130,722 96,636 102,778 25 6

Other Ofces 11,307 11,676 5,976 6,341 4,486 5,335 6 19

Non-tax Revenues 141,389 105,880 59,221 51,207 68,539 54,673 (14) (20)

BTr Income 69,912 52,406 30,125 24,912 30,374 27,494 (17) (9)

Privatization 1,390 552 525 146 566 406 (72) (28)

Fees & Other

Charges19,253 21,144 - - - - -

-

Others 50,834 31,778 28,571 26,149 37,599 26,773 (8) (29)

Grants 191 373 82 365 6 8 345 33

Expenditures 1,421,743 1,374,574 699,115 788,833 595,078 585,741 13 (2)

Surplus/(Decit) (298,532) (269,820) (153,413) (196,729) (119,110) (73,091) 28 (39)

Source: Bureau of the Treasury

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keep the decit in check through further spending compression (such as privatization of health, education

and infrastructure, removal of subsidies and support on food, and cuts in other economic services). This

is aside from higher taxes (such as on alcohol, tobacco and petroleum products), and government fees and

charges.

Expenses are moreover bloated by chronic indebtedness and debt servicing. The NG paid Php660.4 billion

in debt service in the rst 11 months of 2010, continuing the trend of inexorably rising debt payments.

(Although there were two years of consecutive slight decline in 2007 and 2008 after the record Php854.4

billion paid in 2006.) As it is, outstanding NG debt stood at Php4,664.2 billion as of September 2010 or

some Php49,610 per Filipino and is projected to keep rising to reach Php5,185.7 billion by the end of

2011. Currently around 58% of the debt is domestic and 42% foreign.

Continuing failed globalization

The Aquino administrations policy actions in its rst six months and, by all indications, its upcoming

MTPDP 2011-2016 conrm the governments adherence to obsolete neoliberal free market globalization

policies and, worse, its intent to take the process even further. This is inappropriate for the countrys

development needs and hinders real progress that benets the majority of Filipinos. The absence of real

change in economic thrusts conrms the absence of meaningful change in the countrys underlying politics

where policy-making remains under the control of dominant economic elites.

The Aquino administrations economic thrust is straightforward. It aims for economic growth through

public infrastructure development, particularly through so-called PPPs, and by creating an overall

macroeconomic and policy environment attractive to foreign investors. In backhanded acknowledgment of

the failure of markets to deliver development, there will be social protection such as CCTs for the poor

and vulnerable. Having a transparent and accountable government is supposedly key to achieving these.

Peace and security must also be enhanced, mainly meaning putting an end to the countrys armed conicts.

This approach is awed on several counts. Most of all, it is oblivious to the severe impact of decades

of globalization policies on the Philippine economy and the Filipino peoples welfare which has been

afrmed by further adverse outcomes in 2010. Foreign-dependent economic growth has not created

productive employment opportunities or raised incomes. And, indeed, the armed conicts in the country

result from the poverty in the country to begin with and not the other way around. The administrationapproach is also heedless of the dramatic changes in the world economy upon the onset of the global crisis.

This includes the unambiguous end of the export- and foreign investment-dependent development model.

The failure to build the domestic economy is bad enough but insisting on more of the same in the face of

overwhelming counter-evidence borders on dogmatism.

The administrations market-based thrust also has wrong assumptions about the causes of poverty. It

simplistically views poverty as largely due to corruption, the lack of infrastructure and foreign investments

in the country, and insufcient entrepreneurial skills and capital (nancial and human) by poor individuals.

This view ignores deeper structural problems of land monopolies, wage suppression, regressive taxation,

enforced industrial backwardness, and foreign-dominated trade and investment. Conveniently, promoting

market-based policies gives the greatest benets for narrow foreign and elite interests while gains for

the working people immediately and over the longer-term are scant. There is at most social protectionsubject to being withheld or denied according to whether or not the government prioritizes resources

for this and deems the people qualifying for it. Critically there is no real income, asset and wealth

redistribution so that people can participate in the economy on their terms rather than merely being forced

to accept what landlords and capitalists offer.

The xation on FDI is unjustied. While there are potential benets from foreign investment, active

state intervention is needed for these to materialize and Philippine governments have unfortunately been

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unwilling to assert the countrys sovereign right to more strongly regulate FDI and ensure these benets.

There is also a defeatist attitude towards local industrial and agricultural producers who are denied

signicant, sustained and strategic protection and support.

The MTPDP 2011-2016 for instance presumes that foreign investment is the primary means to developing

the industrial and service sectors. It is consequently focused on attracting FDI at all costs even if this

includes foregoing any real long-term developmental gains. On one hand, the government will exert

extra effort to making the country more convenient and protable for foreign investors: macroeconomic

stability, cutting red tape, giving scal and other incentives, and providing the infrastructure and kind of

workforce they want. The MTPDP is replete with proposals on these. On the other hand, there is nothing

at all about dening their expected contribution to domestic development and building Filipino industrial

and production capacity, such as greater use of local inputs and genuine technology transfer, for fear of

discouraging FDI. Domestic producers such as medium, small and micro enterprises (MSMEs) meanwhile

are valued not as the starting elements of a strong local economy but as subordinate links in a foreign

TNC-dominated global supply chain.

Specically mentioned in the MTPDP 2011-2016 is how the government aims to promote investment and

PPPs in mining, mass housing, agri-business, tourism, BPOs, and electronics these declared priorities are

consistent with the Seven Big Winners identied by the Joint Foreign Chambers of the Philippines (JFC)

in their June 2009 policy paper (i.e., agri-business, BPOs, mining, tourism, manufacturing [especially

electronics] and logistics, creative industries and infrastructure). Foreign big business has also been vocalin seeking amendments to what it sees as restrictive economic provisions. While the Aquino administration

has said that charter change is not a priority, it is not inconceivable for it to subsequently back-track on this

ostensibly upon a public clamor that it itself manufactured or encouraged behind the scenes.

Yet the Philippine experience with rising FDI has little to show in terms of aggregate economic

development. FDI has over the last two decades been granted extraordinary privileges and incentives by

the Ramos, Estrada and Arroyo administrations. The cumulative stock of FDI has consequently increased

twenty-six-fold from US$914 million in 1980 to US$23.6 billion in 2009, increasing as a percentage

of GDP from 2.8% to 14.6% over that same period. Annual inward FDI ows, in turn, increased from

US$114 million in 1980 to US$1.95 billion in 2009. As a percentage of gross xed capital formation,

these ows rose from 1.3% in 1980 to a peak of 17.7% in 2006 before dropping to 8.3% in 2009. FDI

accounted for 39% of total approved investments in 2009, or Php121.8 billion in FDI out of total approvedinvestments worth Php314.4 billion. As it is, some 47.1% of approved investments over the decade 2000-

2009 were FDI and, in 2009, TNCs accounted for 44.3% of gross revenues of top 1,000 corporations in the

country.

Foreign investment has generated prots, increased exports and contributed to growth but the supposed

gains for the economy and the people in terms of jobs, poverty reduction, industrialization and an

advanced economy have not materialized. Rising FDI has been accompanied by growing unemployment,

increasing labor export, falling real wages, shrinking domestic manufacturing and more volatile growth.

There have also not been any real increases in domestic capital formation or in government revenues

which have increasingly relied on regressive taxes on personal consumption. While jobs in export

processing zones or special economic zones have been increasing, these have not been able to offset job

losses and stunted industrial development elsewhere in the domestic economy.

Public costs, private gain

The one-sided xation with foreign investment is exemplied by the PPP scheme. Though presented by

the Aquino government as a new solution, PPPs are enhancements of privatization policies started by

previous administrations. They seek to broaden the scope of privatization and to create the most favorable

conditions for investors even at the expense of long-term national development.

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PPPs are a central pillar of the administrations economic thrust. In his rst state of the nation address

in July, Pres. Aquino pitched PPPs as a magic bullet for the countrys infrastructure needs and the

governments scal problems. The national budget submitted a month later had multi-billion peso PPP

support funds aside from funding a PPP center in the national economic planning agency. In November,

the government organized a PPP conference attended by the highest ranking ofcials of government

agencies, public and private sector corporations, foreign and domestic banks and nancial groups, foreign

chambers of commerce, IFIs such as the World Bank, IMF, and ofcial donor agencies. And the MTPDP

2011-2016 due for release in early 2011 afrms PPPs aside from explicitly pursuing these in the health,education and housing sectors. PPPs in the social sectors are even being used as a way to draw into the

government fold so-called civil society groups with possible vested interests.

The main incentive being offered by the Aquino administration is guaranteeing foreign investors against

any regulatory risks to their prots such as regulatory bodies, courts or Congress deciding to stop

companies from collecting fees, imposing new environmental standards or performance requirements, and

others.

The benets of PPPs are played up. It is claimed that they allow government to implement important

projects with no or minimal public debt or spending because of the private nancing. Aside from capital,

the private sector also brings in assumed expertise and other capacity to the project that the government

does not have. Effectively sub-contracting to the private sector also frees up government attention and

resources for other matters.

The problems however are downplayed. Notwithstanding supposedly strict project viability and

procurement processes, contingent liabilities are actually difcult to estimate and could bloat signicantly

over the course of the projects life depending on various market conditions as well as contract terms

which will be shouldered by the Filipino public. The private sector is not even necessarily infallible or

efcient and problematic projects can have major cost overruns or result in poor delivery of services; the

worst cases of these may even involve bailouts. For those projects which the government can charge users

with the capacity to pay such as infrastructure for big corporations the government in effect loses any

revenues earned that partially or wholly instead go to the private rm. The government also does not build

its own capacity in infrastructure and services as much as if it had engaged in these projects on its own or,

in cases of joint ventures, as the clearly dominant partner. This keeps the state unduly dependent on the

private sector as well as undermines its capacity to regulate effectively over the long-term.

Finally, and most directly meaningful for consumers private sector participation means operating

for prot and user fees for what should be mainly or even solely publicly-provided social services and

utilities. At worst, state-sanctioned private monopolies are created that charge fees for delivering public

services such as water and highways. The danger of escalating and unaffordable pricing is particularly

hazardous in health, education and housing but is also there in infrastructure.

The experience with Manila water tariffs following privatization in 1997 is illustrative. Although rates

were substantially cut at the start and for a few years, rate hikes by both concessionaires eventually

started accelerating to eventually far outpace ination (or the general rise in prices). (See Chart 10) This

is consistent with a revenue-generating strategy that keeps prices low at the start to lessen opposition but

then makes up for this in later years when consumers no longer have a choice.

Through the PPP, Aquino intends to continue the ongoing power sector restructuring program under the

Electric Power Industry Reform Act (EPIRA) that will supposedly address high electricity cost and power

supply insecurity through privatization and deregulation. After 10 years of EPIRA, however, Philippine

power rates are the highest in Asia, surpassing even that of Japan, while average annual electricity rates

of distribution utilities such as Manila Electric Co. (Meralco) increased by 50 % for residential

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customers. On top of this, taxpayers have been paying for the debts used to implement these anti-people

power reforms.

The looming Light Rail Transit/Metro Rail Transit (LRT/MRT) train fare hikes and South Luzon

Expressway/North Luzon Expressway (SLEX/NLEX) highway toll fee increases similarly illustrate how

private revenue- and prot-seeking considerations can easily dominate over public interest concerns. Even

if the government in principle still retains the power to regulate towards meeting social needs, this is in

practice diluted by extraneous considerations of contracts, investor backlash, and corporate maneuvering

to ensure private returns.

Aside from the impending train fare and toll fee hikes, the start of 2011 was greeted by increases in prices

of food and petroleum products as well as impending hikes in bus and jeepney fares. These increases

are not unexpected and in fact supported by the Aquino administration that has vowed to protect private

investment through the PPP. Such trend of rising prices and rates is sure to build up under the PPP

initiative - targeting power and water utilities, hospitals, public transport system, agriculture infrastructure,

among others.

Politics of palliatives

The failure of globalization to deliver development is clear from the countrys experience which should be

reason enough to consider alternative policies and programs. Yet powerful interest groups proting from

these policies not just big foreign and domestic corporations but also corrupt government bureaucrats have a stake in maintaining them.

Poverty and inequality are however so severe that palliatives are needed to undercut opposition to

globalization. This is the political motivation behind the administrations greatly expanded so-called

social protection programs (especially the Arroyo-era CCTs) undertaken on a massive scale, they will

give the momentary illusion of development to justify pressing with the anti-developmental but protable

neoliberal agenda. Part of this is the selective implementation in the Philippine countryside as the

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psychological-warfare component of counter-insurgency programs seeking to undermine long-standing

and growing support for armed and revolutionary movements. The social reform aspects also conveniently

provide the framework for the more direct involvement and cooptation to the administration agenda of

erstwhile adversarial civil society groups.

The Aquino administrations social protection program has three components: conditional cash transfers

(CCTs, taking up the largest part of its Pantawid Pamilyang Pilipino Program, or 4Ps), basic infrastructure

and community social service projects (especially through the Kapitbisig Laban sa Kahirapan-

Comprehensive and Integrated Delivery of Social Services, or Kalahi-CIDSS), and livelihood projects

(such as through the Self-Employment Assistance-Kaunlaran, or SEA-K).

The CCT program is the biggest budgeted and the most signicant. Piloted in 2007, the Aquino

administration is dramatically expanding it and targets to reach 2.3 million households in 2011 (2.6 million

by other reports) and up to four million beneciaries by 2016. The 4Ps budget has been increased from

Php10 billion in 2010 to Php29.2 billion for 2011, of which Php21.2 billion is for the implementation of

CCTs. It is an administratively expensive program with related administration costs around Php1.9 billion

annually but reaching over Php4.0 billion if other costs such as trainings to implementers, parent-leaders

and communities are included.

A large part of the CCTs are even debt-funded. Depending on interest rate trends, initial IBON estimates

are that the countrys total loan service for its CCT loans from the World Bank and the ADB could reach at

least US$1.007 billion (Php44.3 billion at current exchange rates). This includes US$202 million (Php8.9

billion) in projected interest payments US$94.6 million to the World Bank and US$107.4 million to the

ADB. These already include a US$1,012,500 front-end fee (a percentage payable once usually at the loan

signing) to the World Bank, although more than US$1 million in commitment charges (annual percentage

fee usually paid quarterly) to the ADB are not yet covered.

The program has problems even on its own terms. Although it involves apparently huge and rising

amounts, these are still minor relative to the breadth and depth of poverty in the country. While poor

households get some temporary relief from the windfall CCT doleout this is still no real solution with

jobs, for instance, still scarce even for those with high school and college educations. It amounts to

institutionalized mendicancy beneciaries are dependent on the whims of their benefactor (and

budget availability); and what they receive is not the result of their productive labors but from apatronizing scheme where they are rewarded for good parenting behavior. The program is also prone

to implementation problems including faulty monitoring and non-poor beneciaries, leakages due to

corruption, and use for patronage purposes.

Yet while no solution to the countrys poverty, the CCT doleout is large enough to effectively serve

various anti-developmental purposes. They are being used to sugar-coat harsh globalization policies that

destroy jobs, undermine livelihoods and cut education and health services and to momentarily mask

the persistence of deeper structural problems in the economy. They are being used to effectively buy the

support of the poor and of implementing civil society groups and non-government organizations (NGOs)

for the Aquino administration. They are even going to be used for counterinsurgency as a key micro-

level intervention focusing on households and communities, according to a draft of the MTPDP 2011-

2016, coordinated under the PAMANA program in conict areas in effect functioning as a propagandacomponent of military operations to increase the legitimacy of the Aquino government.

Governance for prot

The distinctiveness of the Aquino administrations economic reforms, compared to those before it, is the

more aggressive effort to further transform the government into a supporter and facilitator of prot-seeking

big foreign corporations and their domestic partners. It aims to mobilize and direct state resources to give

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substantial prots to big foreign and domestic business groups rather than ensure wider public benets

and social gain. It shrinks further away from providing affordable, if not entirely free, vital social services

and public utilities for the largest number of Filipinos, and away from supporting Filipino producers more

rooted in the domestic economy. The countrys long-standing links between politics and big business has

also become even more overt in the Aquino Cabinet and its many appointees with strong business and

nancial afliations.

This is a misuse of the governments vast powers for narrow foreign and private gain. The decades of

experience with market-based policies up to the current global crisis of capitalism underscore the serious

hazards with assuming that giving big prot-seeking private sector interests free play will spontaneously

result in economy-wide development. There are limits to how far private sector dynamism can contribute

to development. Indeed, whatever gains are possible will even only materialize if the sector is consciously

supported, directed and regulated by a responsible state that has the national and peoples interest rather

than prots for a few as its primary objective.

It is also ironic that while the anti-corruption drive is played up, the economic reforms actually create the

conditions for this to ourish. Wide-scale privatization creates rent-seeking opportunities for government

ofcials and politicians in positions to inuence decisions and prots for big business groups entering into

deals. Private sector interest groups will be competing for the nite opportunities for prot through PPP-

legitimated private claims on public resources. These will occur away from public scrutiny with exposes

depending mainly on how political or corporate rivalries play out.

The presidents choice of Cabinet, especially relating to economic policies, goes far in establishing the

administrations economic policy priorities. The administrations pro-business rather than pro-people bias

is then expected given its ultra-conservative corporate-biased economic team, many of whom are Cabinet

returnees responsible for the poor and diminished state of the Philippine economy (from the Corazon

Aquino government to the previous Arroyo presidency).

Key economic team appointees with signicant corporate links include nance secretary Cesar Purisima

from SGV & Co./Ernst & Young, trade secretary Gregory Domingo from SM Investments Inc./Chase

Manhattan Bank/Chemical Bank, energy secretary Jose Rene Almendras from Manila Water Company/

Aboitiz & Co., public works secretary Rogelio Singson from Maynilad Water Service, transport and

communication secretary Jose de Jesus from Meralco, tourism secretary Alberto Lim from the MakatiBusiness Club, and planning secretary Cayetano Paderanga from business consultancies and Philippine

Stock Exchange.

These and other Cabinet appointments were unsurprisingly immediately hailed by big business groups

such as the Philippine Chamber of Commerce and Industry (PCCI), Employers Confederation of the

Philippines (ECOP), Management Association of the Philippines (MAP), Makati Business Club (MBC),

Philippine Exporters Confederation (Philexport) and foreign chambers of commerce, among whose

members were said to have been major funders of the Aquino presidential campaign.

The professional and ideological background of the economic team virtually assures that the countrys

economic policy will take its lead from IFIs, credit ratings agencies, foreign TNCs, and foreign powers

pushing their respective corporate interests. The disconnect between the supposed economic growth andthe peoples welfare will likely continue with the administration not undertaking measures to redistribute

income or wealth such as through a wage hike or progressive taxation, nor providing basic health and

education services, nor creating opportunities for work through real land reform or supporting small local

businesses.

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Pres. Aquinos rise to the presidency was dramatic and tinged with euphoria but is in many respects

also shallow. While it was a victory to remove the ambitious, plundering and brutal Arroyoadministration there has not been any real shift in the balance of political power in the country from elite

groups towards the greater majority. While large numbers of the public voted for Pres. Aquino, this was

largely spontaneous and, for many, merely sentimental support. While the proclaimed anti-corruption,

transparency and accountability campaign is important there is no sign of an offensive against politically

entrenched economic interests that corner the gains from economic growth and the resources of the

country. While the administration harps on its Kung walang corrupt, walang mahirap (If no one is

corrupt, no one will be poor) line, it is bereft of a meaningful alternative social and economic program for

long-term development.

Hence there is really little momentum to break the inertia of the countrys problems and bring about real

change. The last six months tend to conrm this aside from giving little reason to expect that things will

become much different in the year to come. 2011 will likely see Pres. Aquinos appeal begin to diminish,starting from the vast number of poor who will be unreached by the massive but still nite patronage

resources being mobilized to support the new incumbent.

Political transition

After the elation of the elections, the last six months of 2010 have been about the more mundane

transitioning into a new administration. The incoming Aquino watch has tried to sustain public optimism

about change and made symbolic but well-received gestures -- the wang-wangsiren ban, titillating

exposs of corruption and excess under the Arroyo administration, relatively lower-budget foreign trips

starting with to the United States, and others. Yet while somewhat distracting and helping shore up public

approval, they barely covered up the underlying reality: little has changed upon the election and little is

changing as the administration draws on.

In spite of the spectacle around the presidency, the elections were not a break from the past and had

a familiar outcome. Elected ofcials have come from the usual political families or otherwise had

similarly conservative economic and political backgrounds. The non-representative class character of the

government continued going far in ensuring reactionary policymaking and governance and the continued

inuence of big corporate and landed interests.

The new government spent the last months in the very traditional consolidation of rule and distribution

of spoils, made additionally difcult by the mixed bag of political interests around Pres. Aquino. Filling

up the Cabinet dragged on and while at rst justied as being discriminating was quickly revealed to be

due to the gridlock of competing interests -- the presidents multi-headed communications group being

a particularly visible early sign of discord. The two most prominent factions of the administration arereputedly the so-called Balay and Samar groups.

The Balay group supposedly supported the tandem of Aquino and former senator Manuel Roxas, II and

is associated with the Liberal Party (LP) led by Roxas (with Presidential Spokesman Edwin Lacierda and

Presidential Development and Strategic Planning Secretary Ricky Carandang). Closely identied with it

are budget secretary Butch Abad, nance secretary Cesar Purisima, and the other so-called Hyatt 10 of

resigned former Arroyo ofcials, interior secretary Jesse Robredo, internal revenue commissioner Kim

POLITICS DIFFERENT, BUT UNCHANGED

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Henares, customs commissioner Lito Alvarez, former defense secretary Avelino Cruz and the various LP

personalities holding ofce.

The Samar group in turn supposedly backed the Noy-Bi tandem of Aquino and Vice-president Jejomar

Binay (with Presidential Communications Operations Ofce Secretary Herminio Coloma). This is said

to count House speaker Feliciano Belmonte, Sen. Francis Escudero, defense secretary Voltaire Gazmin,

energy secretary Rene Almendras, interior undersecretary Rico Puno, and close Aquino and Cojuangco

relatives -- encapsulating the so-called Kabarkada, Inc. and Kamag-anak, Inc.

Political in-ghting could be among the rst cracks breaking the illusion of change under the Aquino

administration. It is likely that the lobbying, maneuvering and counter-maneuvering of contesting vested

interests -- for immediate gain but also with a view to the national elections including the presidency

in 2016 -- will become more visible as the administration progresses. The opposition from the ranks of

the traditional political parties has not yet been active and appears to still be biding its time while the

popularity of the Aquino administration remains.

Factionalization would only aggravate what is believed to be a weak presidency. The competence of

Aquino himself as well as of members his Cabinet and close advisers has already been questioned from

its mishandling of various emerging situations needing quick, correct and decisive actions. This started as

early as August with the hostage asco ending in the death of eight Hong Kong tourists. But there have

also been legal missteps particularly the questioning of its rst three executive orders: on the setting up of

a Truth Commission (Executive Order 1, or EO 1), on revoking Arroyo midnight appointments (EO 2),

and on giving career executive service ofcer rank to government lawyers (EO 3). These bring to mind the

questions raised during the campaign period about Pres. Aquinos leadership ability, lackluster political

performance, and lack of preparedness.

Also reecting the persistence of traditional politics is how the Aquino administration has not just kept but

increased the notorious pork barrel of senators and representatives of Congress. In 2011 each senator will

get Php300 million, each representative Php70 million (with favored House members apparently getting an

additional Php50 million). These are apart from the hundreds of billions of pesos in essentially presidential

pork mentioned above.

Civil society politics

Another point of continuity of the Aquino administration is the trend of slow but steady absorption into

government of so-called civil society, which started after the fall of the Marcos dictatorship. At one level

this seems like a steady trend toward greater democracy in the country, with increasing participation in

governance by the public through their organizations and by non-traditional political personalities.

The presumption is that an active Filipino civil society improves the quality of democracy by engaging

in policy making, performing a watchdog role, helping in actual service delivery, supporting electoral

process, and generally playing a part in the various aspects of governance. This is a view embraced by

major international agencies and bodies like the UN, World Bank, the ADB, and big power governments

like the United States of America (US).

At another level however it must also be recognized that its contribution to making the country genuinely

more democratic is modest at best. It is for instance striking that the markedly rising and prominent

engagement since the Corazon Aquino administration of seemingly formidable civil society groups --

the country being renowned internationally for these -- seems to have made little headway in improving

the conditions of Filipinos. Indeed, the period of increasing State-civil society interaction with the

rst Aquino, Ramos, Estrada and even Arroyo administrations coincides with the period of ever more

globalization policies.

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This raises the prospect that matters will not be very different under the Aquino administration and

the increased and more direct involvement of various civil society groups, including seemingly Leftist

progressives, who formed an alliance with Pres. Aquino and the traditional Liberal Party as early as the

campaign period. Ofcial language and messaging is likely to improve and be enriched with rhetoric of

social justice, human rights and development (as happened during all the post-Marcos administrations).

The real test however is whether the government has indeed been inuenced to make hard decisions and

tough actions against deep-rooted vested interests. Will land for instance be decisively distributed, wages

increased, the wealthy taxed, foreign capital regulated and the biggest plunderers prosecuted? There is

little sign of these whether in the rst six months of the administration or in the governments forthcoming

economic plan.

Peoples participation in the countrys political life is a vital aspect of democracy and must be advanced.

At the same time, there must be caution against gains made being short-term or, at worst, illusory. There is

a real danger that participation will benet government propaganda of legitimacy, good governance

and poverty alleviation and increasing its credibility more than delivering substantive change.

The presence of so many civil society personalities and organization certainly contributes to easing

the heavily pro-business character of the Cabinet and the administration (even if the integrity of some

supposed progressives has been questioned since the controversial PEACe Bonds scam). This could also

be seen

Documents

Btalk 2010 Yearend_20110113