2009: The Gathering Storm

IBON FoundationJuly 15, 2009

Outline

1. Update on global crisis2. Impact on the Philippines 3. Jobs crisis 4. “Economic Resiliency Plan” as

solution?5. Looming fiscal crisis6. Obsolete “globalization”

Update on global crisis

Global prospects (2009)

Global growth: -2.9% (WB), -1.4% (IMF) US (-3.5%), Europe (-3.7%), Japan (-7.1%) (UN) = 50% of Phil exports, 64% of remits, 67% of FDI

World per capita income growth: -3.7% (UN) World trade growth: -11% (UN), -9% (WTO)

Largest trade decline since 1930s

Global prospects (2009)

190 million jobless (ILO) Plus 50-100 million (UN)

3.1 billion poor (WB-WDI) Plus 105-145 million “will stay poor/become poor”

(UN-DESA) 1+ billion hungry (FAO)

Long-standing crisisWorld Real GDP Growth, 1970-2009e

(1.4)

3.2

5.2

6.9

(2.0)

(1.0)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Year

%

Finance- and speculation-Finance- and speculation-driven growth, more driven growth, more intense “globalization”intense “globalization”

Impact on the Philippines

Even before global crisis:Industrial & agricultural decay

Gross Domestic Product, by industrial share (% of GDP, 1946-2008)

18.1

32.723.1

49.2

0

10

20

30

40

50

60

1946

1951

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

Year

% o

f G

DP

AGRI, FISHERY & FORESTRY

INDUSTRY SECTOR

Manufacturing

SERVICE SECTOR

Manufacturing smaller than in

1950s

Agriculture smallest ever

Upon crisis:Drastic economic slowdown

Philippines Real GDP Growth, 1970-2009e

3.4

4.4

3.0

4.34.6

6.2

4.95.3

7.1

3.8

(1.0)(2.0)

(1.0)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

%

Upon crisis:Drastic economic slowdown

Falling first quarter 2009 (1Q-09) GDP (gross domestic product) growth 4Q-08/1Q-09: negative 2.3%

worst in 20 years 1Q-08 to 09: 0.4% worst for 1Q

in 19 years Falling consumption

4Q-08/1Q-09: negative 3.1% worst in 14 years

1Q-08 to 09: 0.8% worst for 1Q in 23 years

Note: Despite “job creation”, increasing deployments & rising remittances (more slowly)

Collapsing exportsExports of Goods and Services, 1999-2009e

(Balance of Payments definition, in US$ million)

59,278 58,396

41,111

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

r/

2008

p/

2009

e/

Year

US

$ m

illio

n

Collapsing exports

Jan-May-09 (NSO): Down 34.5% 8 months of consecutive decline so far * electronics (-37.5%), clothing (-23.6%)

1Q-09 (NIA): Down 18.2% worst for 1Q in at least 30 years * manufacturing (-7.3%) worst for 1Q in 24 years * Oct-08 to Apr-09: 154,966 workers displaced, of

w/c 58% “flexible work arrgts” (DOLE) 1Q-09 (BoP): Down 29.6%

Falling investmentsNet Foreign Direct Investment (FDI),

2000-2008 (in US$ million)

2,921 2,916

1,520

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 p/

Year

US

$ m

illio

ns

Falling investments

2007-08 (BoP, net FDI): Down 48% (to $1.5 B) Although 29% increase in Jan-Apr 2009 (to

$648 M) 1Q-09 (NIA, capital formation):

Down 17% Three consecutive quarters already

(e.g., factories, equipment, construction…)

Slowing remittancesMonthly Overseas Filipino Remittance Growth,

2007-April 2009 (in %)

0.1

4.93.1 2.2

0

5

10

15

20

25

30

35

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Month

%

2007

2008

2009

Slowing remittances 2008:

Deployments – 1.24 million Remittances – $16.4 billion

Jan-Apr 2007: $4.68 B (26.1% growth)Jan-Apr 2008: $5.36 B (14.5%)Jan-Apr 2009: $5.50 B (2.6%)

Fell in 10 out of Top 20 countries (= 96% of all remits): $459 M less

US (fell 10% or US$266M less), UK (fell 9%), Italy (25%), UAE (2%), Hongkong (22%), Taiwan (33%), Bahrain (10%), Kuwait (53%), South Korea (13%), Spain (10%)

Jobs crisis

Historic joblessness

2001-2008: Ave. 11.2% true unemployment rate: highest in country’s history

2008: 10.7 million looking for work= 4.1 million jobless + 6.6 million underemployed (+ 8-9 million Filipinos abroad)

April 2009: govt reports lower unemployment, but…

Poor quality of “jobs” & disguising unemployment

Apr-2009: 10.8 million looking for work= 4.2 million jobless + 6.6 million underemployed

Poorly earning, non-earning, insecure work1. Part-time work rose 2.4 M to 14.3 M (now two-fifths of

all work) … full-time work fell 925K2. 1.3 million out of 1.5 million “jobs” weak:

Domestic household help – 138,000 “Unpaid family work” – 392,000 “Self-employed” – 788,000

vs. 45K increase (‘07), 74K (’08), 87K (’06)

3. Crowding into shrinking sectors: agri, trade, trade, transpo & communication, real estate, education, health…

Government’s “solution”

1. Do not count unemployed change definitions (Apr-05) and

don’t count ~1.4 M jobless Filipinos

2. “Double-count” jobs for propaganda Report jobs from supposedly “economic

stimulus” or “crisis programs” Report jobs from “jobs fairs”

3. Peddle Filipinos abroad A.O. No. 247 (Dec-08)

“Economic Resiliency Plan” as solution?

P330B =1. P160 B increase in 2009 natl govt (NG) budget

Comprehensive Livelihood & Emergency Employment Program (CLEEP) – 460,000-825,000 jobs

Pantawid Pamilyang Pilipino Program (4Ps) – 700,000 HH Self-Employment Assistance Kaunlaran (SEA-K) – 14,105 HH Tindahan Natin – 1.2 million families Food for School – 448,043 children Microfinance Lending – 250,000 “end clients”

2. P40 B corporate/individual tax breaks3. P30 B additional benefits to GSIS/SSS/

PhilHealth members4. P100 B off-budget infrastructure

(GOCCs, GFI, private sector)

“Economic Resiliency Plan” (ERP)

ERP: Insignificant increase (1) P160 B increase not a “stimulus”

P1.4 trillion NG budget only 16% of GDP vs. 24% (1990)

Only 16% increase in non-debt spending (2009) vs. increases of: 20% (1985) 21% (2007) 22% (1997) 23% (1989) 24% (1994) 28% (1990)

Total national government expenditure, 1986-2009 (% of GDP)

24.0

16.1

15.9

0

5

10

15

20

25

30

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Year

%

ERP: Insignificant increase (2) P30 B additional benefits temporary, taken

from future benefits? to GSIS/SSS/PhilHealth members –

P100 B off-budget infrastructure uncertain, if ever 2010 onwards? GOCCs, GFI, private sector

ERP: Dishonest recycling (1) ERP reports pre-crisis govt activities

1. P160 B: Already included in NG budget (Aug-08) Explicitly (budget & beneficiaries)

4Ps (P5 B DSWD) SEA-K (P39 M) Tindahan Natin (P160 M) Food for School (P5.1 B DSWD/DOH)

Implicitly: Much of CLEEP “job creation”

+ Performance bloat? – ex. 4Ps original target 321K over 2008-2012

2. P40 B tax breaks not new corporate (c. RVAT 2005) individual (c. 2008)

ERP: Dishonest recycling (2) CLEEP cannot possibly be creating 460,000-

825,000 new jobs – no budget, no jobs DPWH, DOTC, DA, DepED Implicit wage bill (460K-825K):

6 months = P22-39 billion 12 months = P44-79 billion

If these are all infra, implies P73-263 billion worth of projects…

… yet only P25 B additional in approved budget P10 B “stimulus fund”

+ insertions

Looming fiscal crisis

Out of control deficit not due to any imaginary “stimulus”

National Government (NG) Deficit, 1999-2009e

(287.9)

(210.7)(3.8)

(5.4)(350)

(300)

(250)

(200)

(150)

(100)

(50)

0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Ph

P b

illio

n

(6.0)

(5.0)

(4.0)

(3.0)

(2.0)

(1.0)

0.0

PhP billion

% of GDP

Deficit target:P40 B (Oct-08)

P101 B (Jan-09)

P177 B (Mar-09)

P199 B (Apr-09)

P250 B (Jun-09)

On verge of renewed fiscal crisis…

Jan-May 2009 NG deficit: P123.2 billion 7 times deficit last year (P18.8 billion)

1Q-09 deficit: P120B = 6.9% of GDP note: 1Q-02 deficit, P61B = 6.8% of GDP

( whole year, P211B = 5.4% of GDP) Basic causes:

1. Revenue losses from graft & corruption, trade & investment liberalization

2. Spending bloated by massive debt service & unproductive military spending

Unresolved fiscal crisisNational Government (NG) Deficit Without Privatization

and Oil Price WIndfall, 1999-2009e

(350)

(300)

(250)

(200)

(150)

(100)

(50)

0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Ph

P b

illio

n

Additional deficit w/o oil price windfallAdditional deficit w/o privatization

(211.3)

(103.1)(119.4)

(297.9)

(12.4)? (68.1)?

… soaring debt service, social service cuts, new taxes

2002-06 fiscal crisis resulted in:1. P3.0 trillion in debt service2. Regressive RVAT (Nov-05)3. Falling budget shares, 2000-06:

Education – 17.1% 13.8% Health – 2.1% 1.5% Housing – 1.2% 0.6%

2009-?? fiscal crisis: “sin taxes” (P19-20 B), gasoline taxes + “rationalization” of tax incentives (P10 B) + “simplification” of net income tax (P6 B) New round of cutbacks in education & health

Obsolete “globalization”

“Globalization” always more rhetoric than real (1) Two-faced implementation by US, EU &

Japan… … destructive for Third World

Protection & support in most advanced capitalist countries…: US, UK, Germany, France, Sweden, Spain,

France… (ex. bailouts, subsidies, import controls)

… and others: India, Indonesia, Vietnam, Russia, Ukraine,

Argentina, Ecuador, Turkey, Mexico… (ex. tariffs, import controls)

“Globalization” always more rhetoric than real

Guard against renewed “globalization” offensive due to crisis and search for profits: “Rehabilitated” IMF-WB with expanded funds Restarted WTO, ASEAN and other Free Trade

Agreements Relevance and urgency of economic

nationalism: Agrarian reform, national industrialization Economic sovereignty in intl trade & investment

Main messages

1. The global crisis will be protracted2. We are already feeling its adverse effects3. The jobs crisis is worsening…

• … govt’s “solution”: don’t count unemployed, double-count jobs & peddle Filipinos abroad

4. Govt exaggerates its supposed crisis measures…• … to camouflage continued implementation of

destructive “globalization” policies

5. A renewed episode of fiscal crisis is looming…• … that promises greater debt burdens, cuts in

social service & pressure for even more taxes

6. “Globalization” is obsolete…• … Need for renewed economic nationalism

Salamat po