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Richard Javad Heydarian

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Philippines as the New ASEAN Growth Pole: Not Even Corruption Can Stop it

Posted: 08/13/2013 11:40 am

Halfway into his six-year term, President Benigno Aquino III is facing a spate of major corruption scandals, which could potentially undermine his "good governance " (Tuwid na Daan) initiative -- the policy that largely explains renewed global confidence in the Philippine economy in recent years.

Successfully dislodging high-level targets from the previous administration, namely Chief Justice Renato Corona and Ombudsman Mercedita Gutierrez, on charges of corruption, the Aquino government seems to have lost some momentum in terms of not only prosecuting former President Gloria Arroyo, who was recently reelected to the Philippine Congress, but also reining in mid-level corruption that continues to scare away foreign and local investors.

Recent months stood witness to an embarrassing revelation of how Philippine political institutions continue to be deeply mired in corrupt practices, allegedly involving dozens of legislators and potential presidential candidates in 2016.

The Philippine economy, however, has displayed its resilience to political shocks, as well as exogenous financial shocks stemming from monetary policy revisions among center-economies, with recent growth forecasts projecting a booming economy for years to come. Thus, it seems that economic expansion in the Philippines has more to do with consumption inertia, steady inflow of remittances, and a skilled and affordable pool of labor attracting the global Business Process Outsourcing (BPO) industry.

Business As Usual Corruption

On one hand, there is symbolic politics, an emotionally charged set of actions that leave deep impressions on the public and shake up the system, allowing democratic leaders to project an image of change and steer the country in a new direction. This was definitely how Aquino framed himself before and upon assuming power in 2010, vowing to end a decade of democratic reversals.

Then you have the business-as-usual politics, reflecting the contours of the broader network of power and almost impossible to overcome absent a radical systemic transformation. And this is where the recent 10 billion (USD 232 million) pork barrel scandal comes into the picture -- showing the limits of the Aquino administration battle against corruption.

For almost two years, many people were naively led to believe that the era of embarrassing, large-scale corruption is a thing of the past. Well, they were wrong. Thanks to -- well, who else? -- whistleblowers, the Philippine public was confronted with the so-called "mother of all scams," allegedly involving five senators and 23 congressmen. According to the testimony of the whistleblowers, in an affidavit submitted to the National Bureau of Investigation (NBI), up to 28 solons channeled their pork barrel, or Priority Development Assistance Fund (PDAF), through dummy NGOs for purported "ghost" projects -- the ones that only existed on the paper, while the allocated funds disappeared into thin air, or, more correctly, into the pockets of the legislators. The practice, allegedly, went on for almost a decade until it became too big to ignore.

Topping the list of alleged plunderers are opposition stalwarts, namely former Senate President Juan P. Enrile, and Senators Jingoy Estrada, Bong Revilla Jr., and "Bongbong" Marcos. The fact that Revilla, Estrada and Marcos harbor plans for presidency (or vice-presidency) has raised questions as to potential motives behind the recent revelations. Nevertheless, the whole drama has cast a dark shadow on the legislature, supposedly the bastion of check and balance against the executive. Lacking credibility for self-supervision, the legislature has asked the Department of Justice to take over the investigations -- making the executive, again, the pivot of anti-corruption efforts. The fact that the NGOs -- supposedly the engines of the civil society -- were implicated in the corruption allegations is also another source of concern, underlining the necessity for strengthening genuine and progressive civil society organizations.

Scandals-Proof Exuberance

Aquino's ability to retain relatively high approval ratings despite all the ups and downs of his foreign and domestic policy in recent years suggests that even a PHP 10 billion (USD 232 million) isn't going to significantly undermine his popularity. Aside from the fact that it is largely the opposition that is implicated in the corruption scandal, most people trust Aquino's good intentions, and know that battling a centuries-old disease such as corruption takes more than feel-good slogans and six years of good-will presidency.

In fact, Aquino is credited more for resisting negative things associated with public officials, i.e. corruption, megalomania, and arm-twisting shenanigans, than undertaking the decisive policies promised since his election in 2010.

So far, Philippine growth has been strong on numbers but weak on trickling down. Inclusive growth is still a slogan in need of concrete translation. Employment, poverty, and inequality rates have either stagnated and/or shockingly increased in recent years, while there is a necessity to revisit the scope -- deepening support for existing beneficiaries as opposed to expanding the list of beneficiaries -- of the current poverty-alleviating measures such as the Conditional Cash Transfer (CCT) scheme.

Yet, the Philippine economy is poised to cement its position as the Association of Southeast Asian Nations' (ASEAN) new growth pole, along Indonesia. In fact, the Philippines' seems to outflank Indonesia, which has suffered from untimely protectionism and deteriorating Balance of Payment (BOP), while the Philippines still enjoys solid Gross International Reserves (GIR), moderate inflation, a steady but booming real estate sector, and an increasingly outward looking investment climate -- factors that could probably convince the Moody's to grant the third major 'investment grade' status upgrade to the Philippines soon.

After an impressive first-quarter growth of 7.8 percent, a growing number of analysts and financial institutions believe that the Philippines is expected to maintain growth at around 6 percent in the coming years. Such impressive macroeconomic performance, notwithstanding the deepening concern over the diffusion of gains, is most likely going to undermine Aquino's simplistic narrative that corruption is the root of anemic growth. In fact, by any measure booming economies such as China, Russia, and Indonesia have been suffering from similar levels of corruption, but still emerging as major developing economies.

Why the Philippines Is Booming

Battling corruption has been the centerpiece of the Aquino administration's agenda. As the argument goes, the Philippines' poor state of economy is primarily due to unrestrained corruption, hollowing state institutions and undermining business confidence. Following this logic, the only thing that can explain the country's growth uptick in recent years is the government's aggressive crackdown on corruption.

Yet, a closer inspection reveals that not only has the battle against corruption been surface-level, since red tape is a constant headache for business and normal citizens, but also that the issue of corruption is much less central than previously assumed.

Much of the recent boom has been serendipitous: an auspicious mixture of favorable factors, coinciding with the Aquino administration's agenda of reform, which has undoubtedly injected a sense of optimism into the system.

A careful examination suggests that given the Philippines' long-repressed economic potentials and favorable demographics, all it needed to take-off was simply an element of stability. While a measure of economic stability was brought about by the Arroyo administration's -- under external pressure by the Bush administration in the aftermath of Oakwood Mutiny in 2003 and amid the search for reliable partners in relation to the Global War on Terror -- vigorously implemented fiscal streamlining measures, it was the Aquino administration that provided a semblance of political stability.

But there were also external factors in play, ranging from robust inflow of remittances (constituting up to 10 percent of the Philippine GDP), to the explosion of global liquidity -- thanks to the Federal Reserve's aggressive bond-buying measures to stimulate the U.S economy -- in search of new economic frontiers beyond the saturated BRICs and other traditional emerging markets.

Thus, with or without corruption the Philippines is expected to post encouraging growth rates, but by no means does this suggest inclusive growth, especially in absence of much-needed structural reforms to revive manufacturing and agriculture as well as decisive measures to narrow down the infrastructural deficit in the country. Still, the Philippines as the regional growth pole is the new normal.

 
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