Explaining Duterte’s growth agenda

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“Against the Duterte economic team’s aggressive initiatives, allow us to set up points of reference against which changes might be analyzed.”

 

It needed no explaining. At least not when it obviously replaced an economic agenda that ballyhooed an empty gross domestic product (GDP) growth statistic that was far from inclusive and shellacked colossal corruption designed at the very top and involving less than a handful. The government’s combination of tax reforms and an aggressive infrastructure program should normally fill the void.

Not until global oil prices suddenly rose as a result of geopolitical tensions entirely uncontrollable at our end. While these impacted on recently increased excises on petroleum products, the rise in staple prices and sugar produced a toxic chemistry of uncontrollable factors while agricultural mismanagement worsened matters.

Add here the forced raising of key policy rates, the weakening of the peso and capital flight to shores where rates are more competitive. To understand what’s going on, allow us a wider perspective by employing an analytical tool in management accounting called variance analysis.

Against the Duterte economic team’s aggressive initiatives allow us to set up points of reference against which changes might be analyzed.

Assume that the preceding administration’s agenda were continued under a Roxas presidency with pretty much the same characters comprising a core cabinet cabal with the same budget secretary, the same trade secretary, the same finance secretary and most important, the same health secretary.

Let’s frame the precedent economy between the one former President Gloria Macapagal-Arroyo handed over and the one former President Benigno Aquino III left to Duterte.

A mediocre student of economics, Aquino failed to understand the downsides of blindly pursuing GDP growth and then taking the lazy and lethargic position of laying back with one’s mouth virtually gaping open, waiting for fruits to fall. The passive attitude of letting development slowly trickle down characterized Aquino’s economic management.

“Aquino’s GDP growth was hollow.”

Characteristically phlegmatic, Aquino was after all, very lucky. In the political arena, an unexpected death catapulted him ahead of a self-proclaimed standard-bearer who was consistently stuck as the electorate’s fifth choice regardless of who comprised first to fourth.

In the economic arena, Aquino was even luckier. Like his inheritance of wealth and undeserved reputation, Aquino benefitted from at least three economic feats he had totally nothing to do with – Arroyo’s taming of the fiscal deficit, her build up of foreign reserves and her transformation of the economy from a net debtor to a net creditor.

From a banker’s perspective these establish the necessary conditions that lead to a credit upgrade. Even on an abbreviated timeline where periods under consideration include a year under Aquino, Arroyo’s policies substantiated the ratings upgrade Aquino took credit for.

But apart from Arroyo’s inertia, Aquino also benefitted from the single-handed building frenzy of the private property sector unwilling to wait while a lazy bureaucracy was busy worsening matters through infrastructure underspending, totally bungling the transport sector, ignoring agricultural development and robbing the public blind in health services.
Simply quantify the opportunity losses of Aquino’s underspending, lost productivity from transportation inefficiency and low agricultural output and then add billions stolen to bankroll ambitions via the Health Department and his signature Disbursement Acceleration Program to realize why increased excises were needed.

Here we see the foundations of Duterte’s growth agenda.

Aquino’s GDP growth was hollow for most. The attendant braggadocio hid the plunder underneath. Had the Liberal Party perpetuated, these would have perpetuated as well.

Without Duterte’s tax reforms that added money to the pockets of minimum wage earners and sans jobs created by Duterte’s aggressive infrastructure development, the absence of both amid continuing high-level corruption, as we are now unearthing from the Aquino administration, the global oil price rise and the current capital outflows would have been fatal.