MALAYA: TRANSITION TO NORMAL GROWTH
MANILA, JANUARY 10, 2011 (MALAYA) BENJAMIN DIOKNO - 'But to say that the economy will grow by 7 to 8 percent this year has no strong empirical basis… Worse, the promise of a better year without taking the hard decisions may only mean another year of delay for real reforms.'
IS 2011 going to be a better year for the Philippines economy? Is it going to be a better year for all Filipinos? Is the economy going to grow at between 7 to 8 percent? Yes, No and No, respectively.
The Philippine economy will grow by around 5 percent, or at least two percentage points lower than in 2010. In this sense there will be an improvement. Nothing extraordinary, but there will be growth.
But because economic growth is expected to be uneven across sectors and income classes, a 5 percent GDP growth does not necessarily mean that the economic wellbeing of all Filipinos will improve at the same rate. It may be 100-percent growth for some big businessmen, flat for middle income earners, and negative for a great majority of Filipinos (say for the employed whose wages, after correcting for inflation, will be lower and for those who will remain unemployed or underemployed).
It could mean sharp improvement in the lives of people working in the growing industries (BPOs and real estate, though both are expected to have below normal growth this year) and slower expansion for those in others (telecommunications, manufacturing because of slower exports, and retail trade, for example).
But to say that the economy will grow by 7 to 8 percent this year has no strong empirical basis. And because it is unlikely, such statement unnecessarily creates false expectation and may only lead to higher frustration with government and lower credibility of official forecasts.
Worse, the promise of a better year without taking the hard decisions may only mean another year of delay for real reforms.
Public information as public good
It is the government's responsibility to provide its people timely and accurate information. In a sense, the provision of timely and accurate information is a public good.
Because the gathering of information is costly, consumers, firms, producers who have no access to them and don't have their own research units to rely on for accurate information, will have to form the basis for their decisions of government-provided information or policy statements.
But if information is filtered and public messages are contrived, consumers, firm owners and producers are likely to make decisions erroneously. The promise of a strong growth, when modest growth is in the horizon, may make people decide to spend more (save less). That's good for the overall economy but bad for individuals.
Ultimately, it is the credibility of -- and down the road, the public support for -- the government that is at stake. When, there is a gap between the official message and what is happening on the ground, the credibility of the government suffers.
Views from across the ocean
The report of US Federal Board Chairman Ben Bernanke to a Senate committee and the recently released US job market data for December 2010 -- both events happened last Friday -- suggest how relevant public information should be provided to the general public.
The briefing by the Fed Chairman Bernanke is regularly scheduled and is nationally televised. And he has to answer questions raised by senators. The questions are usually intelligent ones and well prepared and the answers are direct and informative.
Here are some of the views expressed by Bernanke. He expects the US recovery to be "moderately stronger" in 2011. He defended the Fed's $600 billion program to stimulate the economy by buying government bonds, and urged Congress to put a credible plan in place to reduce the federal deficit.
Bernanke noted that the jobs market has "improved only modestly at best." and that "It could take four to five more years for the job market to normalize fully."
Bernanke urged Congress to enhance the economy's long-run growth potential – "for example, by encouraging investment in physical and human capital, by promoting research and development, by providing necessary public infrastructure and by reducing disincentives to work and to save."
A few minutes before Bernanke's appearance before the Senate, the official jobs statistics for the month of December were released. The release was also scheduled. Most analysts were mildly disappointed, as only 103,000 new jobs were created; the official unemployment rate dipped to 9.4 percent, however.
While employment in the US continues to recover, the rebound is rather slow. An average of 130,000 new jobs a month was created over the last three months. But even if the number of jobs created were to increase to 200,000 jobs a month, it would take a decade before the unemployment rate falls below 6 percent.
The implications of these numbers on the rest of the world is significant. The US economy, the largest economy in the world, is not out of the woods yet. The recovery that we're seeing at the moment is not a normal recovery – it is a transition to one, perhaps slower one.
The Philippine economy is bound to be affected by the slow recovery of the US economy. The size of our direct and indirect exports to the US is still substantial. In addition, the economies of our other major trading partners – Japan, Europe and ASEAN – are also linked to the health of the US economy.
Some 3 to 4 million Filipinos in the US are affected by the high unemployment rate in the US and many continue to suffer. Moreover, quite a number have been impoverished by the collapse of the housing market.
Here are the important lessons for the Aquino administration on how the American public were informed from these two related events and how, perhaps, we should inform Filipinos, too, in the spirit of transparency and accountability.
First, executive officials should regularly report to Congressional authorities, the people's duly elected representatives of the people, on the state of the economy. Tweeting, texting or other forms of messaging may be useful for other purposes, but on such important matters as reporting on the state of the economy, they are poor substitutes to full report in a duly constituted congressional body.
The BSP governor and the NEDA director-general should appear before a separate or joint economic affairs committee hearing on a regularly scheduled monthly hearing. They should formally communicate the official views of BSP and the administration, respectively, and defend such views in an official public forum. Legislators, with or without the aid of their staffs, are expected to raise intelligent questions.
Second, the government should provide more timely and much more informative labor statistics. For a country whose major problem is joblessness, there is a strong justification for labor statistics to be provided on a monthly rather than quarterly, basis. The latest available job numbers were as of October 2010. In a fast changing world, that's history. We need official information on monthly payrolls and non-farm employment. We need more accurate, timely, and detailed information on overseas employment.
The general public deserves timely, accurate and well communicated public information. This starts with better statistics and the willingness on the part of the Executive Department to disclose regularly such information before duly constituted legislative committees.
Nothing beats having an oral defense every month before a congressional committee.
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Chief News Editor: Sol Jose Vanzi
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