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Duterte presents 10-point economic agendaPresident-elect Rodrigo Duterte presented a 10-point economic agenda, aimed at sustained economic growth and ensure that its impact is equitable to all Filipinos, before some 300 business leaders at a consultation workshop in Davao City on June 20-21.

The economic agenda seeks to at least duplicate, if not improve on, the average GDP growth of 6.2% annually achieved during the Aquino administration. It is anchored

on the incoming Duterte administration’s Filipino 2040 vision (AmBisyon Natin 2040) and should guide the preparation of the next medium-term development plan. The 2040 vision looks at tripling per capita income to $11,000 in 25 years, making the country a “high-income country” in 2040 by implementing “right policies” as well as efficiency and productivity improvements.

The 10-point economic agenda modifies the 8-point agenda announced by the Duterte transition team on May 12 (see Page 48, May 2016 Philippine Analyst), incorporating the need to carry out the Reproductive Health (RH) Law to help in poverty reduction and a focus on science, technology and the arts.

The 10-point agenda also stressed continuity, committing to keep the sound fiscal, monetary and trade policies put in place by previous administrations. The next government will “build upon Aquino’s [infrastructure development] reforms,” vowing to accelerate timelines for overdue projects and pushing for the completion of 39 public-private partnership (PPP) projects in the pipeline.

Review of the tax system is also part of the agenda, with the objectives of providing workers more disposable income and adjusting corporate taxes to be at par with the rest of the region. Some tax incentives will be abolished to allow for an updating (lowering) of corporate income tax rates. The tax base will be broadened to compensate for the lower rates.

The 10-point economic agenda is as follows:1. Continuing and maintaining the current macroeconomic

policies, including fiscal, monetary and trade policies;2. Instituting progressive tax reform and more effective tax

collection while indexing taxes to inflation, in line with the plan to submit to Congress a tax reform package by September;

3. Increasing competitiveness and the ease of doing business, drawing upon successful models used to attract business to local cities such as Davao, as well as pursuing the relaxation of the Constitutional restrictions on foreign ownership, except with regards to land ownership, in order to attract foreign direct investments;

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4. Accelerating annual infrastructure spending to account for 5% of the gross domestic product (GDP), with public-private partnership playing a key role;

5. Promoting rural and value chain development toward increasing agricultural and rural enterprise productivity and rural tourism;

6. Ensuring security of land tenure to encourage investments and address bottlenecks in land management and titling agencies;

7. Investing in human capital development, including health and education systems, as well as matching skills and training to meet the demands of business and the private sector;

8. Promoting science, technology and the creative arts to enhance innovation and create capacity towards self-sustaining and inclusive development;

9. Improving social protection programs, including the government’s conditional cash transfer program, in order to protect the poor against instability and economic shocks; and

10. Strengthening the implementation of the Responsible Parenthood and Reproductive Health Law to enable, especially poor couples to make informed choices on financial and family planning.During the consultation workshop dubbed as “Sulong Pilipinas:

Hakbang Tungo sa Kaunlaran” (Philippines Onwards: A Step Towards Progress), the participating businessmen also presented a list of issues that need to be urgently addressed by the incoming administration. A number of these concerns are already included in the 10-point agenda, such as a comprehensive tax reform package, infrastructure and CCT program review. The issues identified were:1. Adopt a comprehensive tax reform package;2. Implement a national I.D. system;3. Streamline the bureaucratic system and thereby reduce

corruption;

4. Improve internet and communication services to be competitive with the best in the region;

5. Improve services for farmers and fishermen;6. Implement a responsible mining policy where responsible

mining is supported, and illegal and irresponsible mining stopped;

7. Develop a national strategy to take advantage of areas where the Philippines has a competitive advantage both domestically and globally;

8. Improve infrastructure with faster action on projects nationwide;

9. Review the CCT program.;10. And remove the bottlenecks in the PPP programs and commit

to sanctity of contracts.In the business conference “AIM for Change” in Manila on June

22, prominent business leaders expressed support for the economic agenda. Manuel Pangilinan (MVP), chairman of the MVP Group of Companies, said “the business sector will definitely work with the new government and its 10-point agenda.” He added that “there’s a positive energy in working with the present administration”.

Doris Magsaysay-Ho, president and CEO of the Magsaysay Group of Companies, identified tourism, innovation and education as major areas of growth. She noted Davao’s success in growing its economy and creating employment to the lowest sectors under Duterte.

Asian Institute of Management (AIM) founder and a highly respected 94-year old accountant Washington Sycip echoed a similar observation, expressing hope of the success in Davao being replicated throughout the rest of the country. “What he [Duterte] has done for Davao is wonderful in terms of integrity and policies,” he said.

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Impact of Brexit on PH manageable

The United Kingdom (UK) vote on June 23 to break away from the European Union (EU), or Brexit, is expected to impact on Philippine exports, foreign direct investment (FDI) inflows, and overseas Filipino workers (OFW) remittances, but only mildly. It will also have a short-term effect on the country’s financial market.

Uncertainty over the status of duty-free access under the EU-sponsored Generalized System of Preferences Plus (GSP+), coupled with a weakening of the British economy as its products lose market access privileges with EU as a result of its exit from the bloc, will slow Philippine exports to the UK. Philippine exports to Britain, though, was just $478 million or hardly 1% of total exports in 2015, mostly food and agricultural products and automotive parts. The indirect effect, in case Brexit also hurts other countries in the EU with strong trade links with the UK, could be a more perceptible adverse impact as exports to the EU account for about 12% of total Philippine exports.

Also as a consequence of a possible weakening of the British economy, the appetite and capacity of British companies to invest overseas could wane. FDI from UK, however, is less than 2% of the total during the past 4 quarters, i.e., from 2Q15 to 1Q16.

The impact on OFW remittances is hard to determine at this point. It is estimated that there are at least 200,000 Filipino migrant and contract workers in Great Britain. Official data showed they sent around $1.4 billion to the Philippines, nearly 6% of all OFW remittance inflows, in 2015. The remittances could take a hit with the combined decline of the British Pound and the narrowing of job opportunities for migrant workers as the British economy suffers a tailspin.

There will also be volatility in the financial markets in the near-term, as markets react to the uncertainties caused by Brexit. The Philippine stock market lost 2% of its value from the UK referendum to the announcement of the voting results, although it subsequently recovered part of this loss. As demand shifted to “safe haven” currencies like the U.S. dollar and the Japanese yen, the peso also slid against these currencies. It was down to P47:$1 a week after the voting.

Nonetheless, the impact on the local market is seen to be temporary, as fundamentals remain strong. The Philippine economy can look forward to sustaining a high rate of growth based on domestic boosts alone especially rising disposable incomes and infrastructure spending.

Net optimism stays at record high in 1Q16 - SWS

Net optimism in the respondents’ quality of life in the next 12 months reached +40 in the 1st quarter of 2016, tying the all-time high recorded in the previous quarter. Those expecting their lives to improve (“optimists”) over the 12-month period accounted for 43% of the respondents, while those who believed it would get worse (“pessimists”) were 4%. Net optimism is the difference between the percentage of optimists and pessimists.

According to the Social Weather Station (SWS), which conducted its latest Social Weather Survey from March 30 to April 2, +40 can be classified as a “very high” score (+30 and up), SWS’s highest classification. It was attained in 16 out of 23 instances during the administration of former president Benigno Aquino III. It only occurred once each during the Arroyo and Corazon Aquino administrations, and twice during the term of Fidel Ramos. Net optimism never reached “very high” classification during the Estrada government.

Positive outlook ahead of the presidential election results was seen by many analysts as added boost in sustaining the record high net optimism score in 1Q16.

Among all of the socio-economic classes, the ABC group posted the highest score at +47, also a 2-year high for the group since +49 in 3Q13. The D class recorded +41, a new record high for the group, besting the previous high of +40 a quarter ago. Class E, or the poor, experienced a decline to +35 (albeit still a “very high” score) from +42 in December 2015.

In terms of geographical location, net optimism was highest in Metro Manila at +43, hardly changed from the previous quarter, although Balance (Rest of) Luzon at +42, a 5-year

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high, and Mindanao at +41, slightly up from the previous quarter, weren’t far behind. Visayas recorded the lowest albeit still “very high” +34, but nonetheless a new all-time high.

Net optimism about the economy reached +28 in 1Q16, which SWS considered as within the “very high” classification (+10 up for expectations on the economy), although a slight decline from +30 in 4Q15. The percentage of respondents who believed the economy would be better was 35%, while those who thought it would be worse was 7%.

Meanwhile, the SWS survey disclosed that those who felt that their lives improved (“gainers”) during the past 12 months reached 29%, while those who perceived it to have worsened (“losers”) accounted for 26%, for a net gain of +3. This was down from +5 in the December 2015 survey and the all-time high of +6 in 1Q15. Nonetheless, this still reflected the highest classification of “very high” (+10 up) for the net gain score and still belonged to just the 5 survey periods with a positive score.

The April 2016 Social Weather Survey had a sample of 1,500 adult (18 years old and above) respondents nationwide, 300 each in Metro Manila, Rest of Luzon, Visayas and Mindanao. Face-to-face interviews were conducted. The margin of error is +3% for the national percentages, and +6% for the geographic area percentages.

Interest corridor system launched

The Bangko Sentral ng Pilipinas (BSP) or central bank offered P305 billion worth of overnight reverse repurchase (RRP) facility on June 3, signaling the start of the interest rate corridor (IRC) system. The offer, which attracted tenders of P574 billion, was set at a rate of 3%, down from the previous rate for the RRP facility of 4%, and served as the policy rate for the IRC.

The IRC is now the BSP’s main tool to mop up excess liquidity and to temper volatility in short-term market rates, moving the market rates towards the policy rate. Subsequent weekly auctions (every Wednesday) of term deposit facility (TDF) siphon off liquidity from the financial system, with banks and trust companies allowed to bid for a minimum of P10 million and a maximum of 20% of the amount of term deposits to be auctioned. Rate bids can range between pre-set ceiling and floor or a corridor.

The overnight lending or RP rate defines the ceiling, at 3.5% most recently, while special deposit account (SDA) rate sets the floor, which was at 2.5%. The SDA placements, though, will be wound down and replaced with overnight placements.

The maiden issue of term deposits on June 8 attracted P194.7 billion worth of bids, well in excess of the TDF issue size of P30 billion. The 7-day term deposits got bids of P82.4 billion, 8 times more than BSP’s issue of P10 billion. The 28-day term deposits had offers totaling P112.3 billion, well above the P20 billion put up for auction. Consequently, the oversubscription drove the rates down to the 2.5% floor.

The 2nd weekly auction held on June 15 was again oversubscribed, with bids reaching P63.9 billion for the 7-day term deposits and P92.9 billion for the 28-day term deposits. The BSP’s offer was unchanged at P30 billion, P10 billion in 7-day TDF’s and P20 billion in 28-day TDF’s. Hence, the rates remained at 2.5%.

The excess of bids meant that there was still significant

excess liquidity in the system, according to analysts.The BSP intends to maintain the issue size to P30 billion, P10

billion in 7-day deposits and P20 billion in 28-day deposits, for the whole month of June. But it may scale up the amount eventually to enable convergence of the market interest rates to the BSP policy rate.

The TDF auctions use a web-based platform Monetary Operations System (MOS) operated by the central bank. The BSP again clarified that the IRC system simply provides guidance to short-term market interest rates but does not alter the BSP’s monetary policy.

Unemployment saw only a modest reduction in 2Q16

Net new job creation was 398,000 during the past 4 quarters, bringing employment to 39.92 million and reducing unemployment by 87,000 to 2.59 million (6.1% of the labor force) in April (2nd quarter) 2016. The improvement on the labor force picture was helped in part by the decline in the labor force participation rate (LFPR) to 63.6% in 1Q16 from 64.6% in April (2nd quarter) 2015. One assumes many didn’t participate because they’d given up. If the LFPR had steadied, unemployment would have been 3.26 million (7.6%).

Essentially, net job creation was relatively small at 398,000, but unemployment still dropped in both percentage and absolute terms as there was a significant decrease in the working age population who were actively seeking and were available for work. But many of those who were no longer actively seeking for work could be part of the unemployed, forced out of the labor market due to perceived lack of worthwhile jobs. Assuming that the LFPR had remained the same as last year, this would mean unemployment was reduced by only 20,000.

The underemployment rate, or the percentage of employed who are still seeking additional hours of work or work with better pay, remained high at 18.4% in April 2016, worse than 17.8% in April 2015.

In terms of sector, agriculture lost a large number of jobs, roughly 1.5 million, due in large part to El Niño, reducing its share to total employment to 25% in 2Q16 from 29.3% in 2Q15. The losses were largely absorbed in services, where 1.4 million were created, resulting in employment of 22.62 million (56.7% of total employment) in the sector in 2Q16. Industry (18.3% of employment) generated an additional 843,000 jobs.

In terms of class of workers, wage and salary workers were the largest at 24.79 million (62.1% of total employment) in 2Q16, also the top source of job creation at 2.16 million, from 21.22 million (57.8%) a year ago. The other major source of job growth was employer in own farm/business with increase in employment of 102,000. In contrast, workers without pay working on family farms or businesses declined to 3.21 million (8.1%) from 4.35 million (11.1%). The self-employed without paid employees reached 10.62 million (26.6%) in 2Q16, albeit down from 11.04 million (28.2%).

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Source: Philippine Statistics Authority’s (PSA) Labor Survey

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April 2016 JAnuAry 2016 April 2015

labor Force participation rate (%) 63.6 63.3 64.6Size of labor force (million) 42.49 41.46 41.86Employed (million) 39.92 39.06 39.16unemployed (million) 2.59 2.47 2.68unemployment rate 6.1 5.8 6.4underemployment rate 18.4 19.7 17.8

Employed by Class of Workers (% share)Wage and Salary Workers 62.1 63.2 57.8Self-Employed w/o paid employee 26.6 25.8 28.2Employer, family-owned farm or business 3.1 3.3 2.9Worked without pay in own family operated farm or business 8.1 7.1 11.1

Employed by Sector (% share)Agriculture 25.0 27.0 29.3industry 18.3 16.7 16.5Services 56.7 56.3 54.2

RESULTS OF THE LABOR FORCE SURVEY* (%)

*Excluding LeyteSource: PSA, Labor Force Survey