Uneven recovery in the Philippines
By Jennee Grace U Rubrico
MANILA - The buoyant Philippines' stock market, which has almost doubled in the
past nine months, might suggest a similarly lively economy, yet government
stimulus spending is failing to make a dent in the jobless rate, and economic
growth is barely showing.
The Philippine Stock Exchange PSEi Index has surged from below 1,800 in
mid-March to over 3,000. Yet 2.9 million Filipinos of working age were unemployed as
of July, with the unemployment rate rising to 7.6% that month from 7.4% a
year earlier, according to the National Statistics Office. Workforce
participation was at 64.6% against 64.3% for the same period last year.
The economy is expected barely to grow this year, possibly
between 0.8% and 1.8%, before recovering to between 2.6%-3% in 2010.
"What is recovering is the stock market, mainly the financial sector," said
Rene Ofreneo, a labor and industrial relations expert and executive director of
the multi-sectoral Fair Trade Alliance. "Right now, only the call centers are
hiring, but even that is not at the rate that was originally projected."
Call centers and the rest of the business process outsourcing industry has been
a growth point in recent years as overseas companies take advantage of low-paid
English-language and other workers in the Philippines.
Yet where the business process outsourcing industry had earlier been projected
to double employment every year, it is increasing at only 10%-15% annually,
Ofreneo said. With foreign direct investment barely trickling into the country,
Ofreneo and others recommend that the government accelerate fiscal pump
priming, including spending on grassroots infrastructure that bypasses big
contractors and emphasizes community-based ones that tend to take a more
labor-intensive approach to projects.
The Philippine government is proposing for congressional approval a 7% increase
in the national budget for 2010, to 1.5 trillion pesos (US$32.5 billion),
compared with last year, with more spending going to infrastructure. Business
Monitor International (BMI), a private consultancy, predicts that
government-supported activity in the power and transport sectors "should ensure
that the Philippines registers strong construction sector growth in 2010".
The BMI report predicted that the sector would grow 9.4% year on year in real
terms and stay in positive territory through 2014 given the country's low base
of infrastructure development. The jobs and economic activity created by
government-initiated infrastructure projects will provide an important cushion
against Filipinos who return home after losing employment abroad.
The labor force in the Philippines - like those in
Malaysia, South Korea and Vietnam - has not yet fully recovered from
unemployment shocks wrought by the 1997-98 Asian financial crisis, according
to International Labor Organization (ILO) data. Now labor markets around the world
are tightening under the present crisis, and exporting more workers to boost
remittances home may not be a sustainable policy.
Remittances sent by overseas Filipino workers contribute nearly
10% to gross domestic product (GDP) and represent a major contributor
to local consumption. Filipino workers in the Middle East are reported to be
accepting lower wages and fewer hours to avoid returning home to a soft economy where
there are few work options.
"So far, if you're talking of regional trend, there's no other place [for
Filipino workers] to go," said Philippine Labor Secretary Marianito Roque.
Others raise questions about the long-term economic benefit of exporting such a
large number of Filipino workers. "We are already exporting more than a million
Filipino workers a year under the Arroyo administration - an all-time high,"
said left-wing analyst and researcher Arnold Padilla. "But it is still not
enough to address the deteriorating joblessness."
The government's fiscal stimulus measures have raised concerns about the
country's rising fiscal deficit, which Philippine authorities have for years
struggled to keep in check. Consolidated public sector debt hit 5.5 trillion
pesos in the first quarter of 2009, representing 73.2% of national output. That
was 33% more than the 4.12 trillion pesos recorded over the same period last
year.
"One key concern is the country's fiscal deficit," said the BMI report.
"Although a recovery in global financial markets since the turmoil of late 2008
has meant that the Philippine government currently has no problems in funding
this deficit, a double-dip global recession could quickly change this
situation.
"A renewed downturn in the global economy would not only reduce the country's
fiscal revenues but also likely cause a fresh spike in global investor risk
aversion, potentially forcing the Philippine government to stop spending on
big-ticket infrastructure projects during 2010."
The budget deficit this year could reach 320 billion pesos, or around 4% of
GDP, if the government fails to sell sufficient assets through privatization
listings. The 250 billion pesos budget deficit ceiling imposed earlier for this
year was surpassed in October.
The Philippines had been working towards a balanced 2010 budget, but that
belt-tightening was loosened when it became clear the country required fiscal
stimulus to avoid recession in the wake of the global economic downturn. The
government has said it will again try to balance the budget beginning in 2012 -
presumably if economic recovery takes hold.
The ILO's "The World of Work Report 2009: Global Jobs Crisis and Beyond" said
that in emerging and developing countries employment levels are not expected to
pick up until 2010 and are not forecast to reach pre-crisis levels until 2011.
The ILO acknowledges that fiscal stimulus measures will widen budget gaps, but
adds that exiting stimulus measures too early would increase employment risks.
"Public debts have increased significantly - reflecting both the bail out of
the financial system and fiscal stimulus measures. So governments and social
partners face the twin challenge of addressing the jobs crisis while avoiding
an unsustainable aggravation of fiscal goals."
The ILO's report says that spending cuts now would hit many existing jobs which
were saved thanks to earlier stimulus measures but are still at risk. "Such an
early exit would also postpone employment recovery and would aggravate the risk
of long-term joblessness, labor market exclusion and employment informality."
One obstacle in the Philippines to immediate pump priming early next year is a
temporary ban on public construction imposed by law during election years.
Philippine laws prohibit the release, disbursement and expenditure of new
public funds for most kinds of public works 45 days before a regular election.
Projects initiated before the campaign period and ones under foreign agreement
are not covered by the law.
The country will be holding a national poll in May 2010, and spending related to
the elections is expected to give the local economy a boost. "We often observe
a temporary hike in economic activity during elections, as politicians and
political parties spend a lot of money for their campaign," said researcher
Padilla.
But such spending, he warns, "is highly temporary and does not replace true
pump priming and a long-term, sustainable job generation program."
Jennee Grace U Rubrico has been a journalist for over 10 years.
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