Dutertenomics: Recipe for Inclusive Development or Deeper Inequality?

by Joseph Purugganan

When Rodrigo Duterte won the presidency in May 2016, he inherited an economy that was growing at an average rate of 6.2 percent annually. Investor confidence was on the upswing since the country got its first ever investment grade debt rating midway into President Benigno Aquino III’s term. The favorable investment climate translated into increased foreign direct investments, which amounted to around $7.9 billion in 2016.[1] Contrary to what many people think today, there was also quite strong public approval of Aquino’s Daang Matuwid program.  An SWS pre-election survey conducted in February 2016 found that around 60 percent of Filipinos would support a candidate that would continue the development vision of the Aquino administration.[2]

Daang Matuwid (straight path), the governance and development platform under Aquino, was itself not a totally new framework but a continuation of the same neoliberal, pro-corporate development path of Aquino’s predecessor Gloria Macapagal Arroyo, albeit underpinned by the promise of clean, corrupt-free, and better governance. “The Philippines is open for business under new management,” Aquino had declared before stockholders and investors in 2012.[3]  He said that the role of his government as far as economic governance was concerned would be as “management that is putting an end to backroom deals and suspect transactions, so that business, trade, and investment can flourish in an honest and level playing field.”

Behind the glare of high growth and credit ratings, however, there were some very crucial concerns and weaknesses in Aquino’s economic policies and governance.  Among the issues cited by economists were the failure to address the more “pervasive and structural problems facing the Philippine economy—unemployment and income inequality.”[4]  

While there were improvements in the poverty alleviation numbers under Aquino, with a significant decline in poverty incidence from 25.2 percent (23 million Filipinos) to 21.6 percent (21.8), translating to roughly around 1.2 million Filipinos lifted out of poverty in the last years under Aquino, inequality continued  to be a pervasive problem.  Income inequality remained high with a Gini coefficient of 0.43, the second highest in ASEAN (next only to Malaysia).[5] The degree of wealth disparity in the country was also one of the worst in the region, where the combined income of the wealthiest 10 percent of the population was more than twice that of the poorest 40 percent.[6]

There were questions on how the “confidence-led growth” could be sustained amidst concerns from the business community over weak government standards, poor and inadequate infrastructure, and political instability. There was also the increasing public perception that the growth had not been inclusive.[7]

The Duterte administration’s major challenge thus would be to balance competing interests and issues: continuing towards the path to high growth, sustaining investor confidence in the economy, addressing constraints such as inadequate infrastructure and high power costs on the one hand, and on the other, the publics demand for more secure and better paying jobs, agrarian reform implementation, better public services in health and transportation, and more transformative social protection. 


Globalization Backlash

Duterte ran and won on a platform promising change to a population increasingly dissatisfied with elite politics and governance, and with the majority (the so-called 99 percent) not benefitting from economic growth.  The backlash via popular support for Duterte was directed more towards the elite bureaucracy and an oligarchy that were both impervious to the needs of the poor, and not necessarily sentiments against the pro-market, pro-corporate policies that caused the inequalities. In other countries, particularly in the United Kingdom (as seen in Brexit) and the United States (Trump’s triumph), the backlash has been directed more pointedly at individuals and institutions that have pushed for globalization policies—free trade, investment liberalization, privatization of public services, and the deregulation of the economy.

The Duterte government’s economic agenda that has emerged still embraces and pushes for ‘globalization policies’ and is content with putting in place safeguards to “shield Filipinos from the market volatility spawned by this emerging pattern of resurgent protectionism across the globe,” as Dominguez himself said[8], rather than a reversal of such policies.

There was expectation that Duterte’s strongman style of governance would be translated into strong government intervention in the economy for more inclusive development. But at the outset, Duterte already disappointed with his pronouncement that he would take a “hands-off” approach to economic policies.  Speaking before business leaders in June 2016 in Davao, he said: “You know I’m a lawyer and I never pretended to be an economist. As a matter of fact, I could hardly pass the economics subject in college.” In typical Duterte jest, the business sector got their assurance that the members of the incoming Cabinet, particularly those in the economic cluster, were positioned to study and adopt their recommendations. Reassuring the business community was a message repeated constantly by Duterte and his cohorts over the course of his first year in office.


Economic Managers

Perhaps the strongest signal to the business community that the economy would be in safe hands under the new administration came with the appointment of known technocrats to handle the economic portfolios.  Duterte’s long time friend and province-mate Carlos “Sonny” Dominguez III was appointed Secretary of the Department of Finance, Benjamin Diokno got his old post back at the Budget and Management, Ernesto Pernia was tasked to head National Planning, and businessman/entrepreneur Ramon Lopez of Go Negosyo was given the Department of Trade and Industry. The economic managers all have impressive academic backgrounds in economics and business management; have had extensive experience in government as well as regional and global institutions like the World Bank, Asian Development Bank (ADB), and International Labor Organization (ILO), and most have direct experience as well in the corporate sector.


Evolution from Populist Rhetoric to Entrenched Neoliberalism

Two days after the election, Duterte’s transition team led by incoming Finance Chief Carlos “Sonny” Dominguez III, unveiled a more consolidated eight-point socio-economic agenda, with the message, especially to the business community, of continuity, predictability, and more decisive government action. 

The Duterte administration would continue to maintain the current macroeconomic policies centered on tax reforms, including improving income tax system; accelerated infrastructure spending; attracting foreign direct investments by addressing restrictive economic provisions in the Constitution and laws; enhancing economic competitiveness; pursuing a genuine agricultural development strategy, addressing the bottlenecks in land administration and management system; strengthening basic education system and providing scholarships for tertiary education, and; expanding the Conditional Cash Transfer (CCT) program. 

Dominguez also alluded to what he has called the ‘Davao City model’ of economic governance, where licenses for doing business are given in the shortest possible time and where government is actually helping business to establish in Davao. It also means reducing criminality to give sense of security to businesses.[9] The model would guarantee greater ease of doing business combined with law and order and increased investor security. 

It is clear that the major demands of the corporate sector—outlined in a proposal dubbed “Sulong Pilipinas: Hakbang Tungo sa Kaunlaran” have been adequately reflected in the broad plan. Some key issues from the electoral campaign like support for agriculture and farmers, overseas Filipino workers, and small businesses have been included in the plan but using a market-oriented lens.  The land issue is seen as a land management and administration problem that needs to be addressed to facilitate more investments, rather than an issue of social justice and redistributive reform. The CCT program, another important and popular demand, was incorporated with a promise to expand coverage.  

Conspicuously absent, which were in the campaign promises are ending illegal contractualization and engendering more secure and stronger labor market institutions, a living wage policy, implementation of labor standards, and protection of workers’ rights. According to one NEDA official, this is because many of these popular campaign issues have already been dealt with by the administration even before they can be incorporated in the plan. On the issue of ending “endo” or end of contract practice, the ‘swift response’ came in the form of Department Order 174 issued by the Department of Labor and Employment (DOLE), which amended labor code provisions contracting and sub-contracting. Progressive labor union SENTRO has lambasted Labor Secretary Silvestre Bello III and his DO 174 saying it “ensured the continued practice and prevalence (of contractualization) rather than putting an end to it.” SENTRO lamented that “workers now are worse off than ever before because DO 174 merely continues DOLE’s failed policies to regulate contracting out of labor.”[10] 


Philippine Development Plan (2017-2022)

The zero plus 10 agenda is further consolidated into the Philippine Development Plan (2017-2022). This medium-term plan hopes to establish the foundations for inclusive growth, resilient society, and a globally competitive knowledge economy. A few things stand out from this PDP. First is its reference to a long-term vision outlined in a document called AmBisyon Natin 2040. AmBisyon is a project initiated by NEDA towards the end of the Aquino regime but was formally adopted under Duterte.  In his foreword to the PDP, Duterte said that AmBisyon is the  manifestation of  “bold vision and effective development planning” based on a “forward-looking approach that goes beyond a single administration.”[11] AmBisyon is a major achievement of NEDA, one that sets our country into a 25-year growth and development trajectory anchored supposedly on articulated aspirations of the Filipino for a simple and comfortable life. 

Secondly, the new PDP espouses a National Spatial Strategy (NSS) that will set the direction of future growth. Development will be pursued in relation to a three-tiered network of settlements linking sub-regional and regional centers to larger metropolitan centers. The strategy recognizes the pivotal role played by cities “as engines of economic growth and venues of growth and poverty reduction, and infrastructure to provide efficient connective networks of sustainable urban and rural communities.”[12]

The NSS is not a new idea. It has been articulated in past plans as a strategy to equalize access to development opportunities across geographic areas, and by so doing decongest Metro Manila. The NSS however seems to have found greater resonance and meaning under Duterte with his tirades against Imperial Manila and rhetoric to spread the wealth by promoting investments to underdeveloped regions like Mindanao. The key question at this point however is whether the rhetoric can be matched with action.

First quarter 2017 data on investments show that Luzon is still the preferred investment area for both foreign and Filipino investors. Calabarzon and NCR combined account for almost 70 percent of total investments.  The whole of Mindanao only accounted for less than 10 percent of total investments.[13]

The plan has very lofty targets as well. It envisions the Philippines reaching upper middle-income status by 2022, which means a per capita income of between $4,036 and $12,475; lower poverty incidence from 21.6 percent in 2015 to 14.0 percent by 2022. The plan also hopes to achieve high level of human development and reduce unemployment from the current 5.5 percent to 3-5 percent in 2022.  There is also a target to slightly increase the contribution of industry to the economy by 8.1 to 9.1 percent by 2022. Likewise, a slight increase in the contribution of services by 7.9 percent is targeted in the plan.

Addressing inequality has been rightfully identified as a key concern, as the Duterte’s plan echoes Aquino’s call for more inclusive development. The plan dedicates a whole pillar dubbed “Pagbabago” or inequality-reducing transformation and defines broad strategies under this to expand and increase access to economic opportunities in all sectors (agriculture, fisheries and forestry, industry and services); accelerate human capital development; and reduce vulnerability of individuals. Strategic trade and fiscal policies will be implemented, macroeconomic stability will be maintained, and increased competition promoted.

Forty percent of the country’s total employment in 2015 came from the combined contribution of agriculture, fisheries and forestry, and manufacturing sectors.[14] The push for an increased contribution of agriculture (see Continuity or Change?: Unpacking Duterte’s Agenda for the Countryside on page 16) and industry, in particular the manufacturing sector, to the economy will be crucial in addressing inequality.  Despite recent growth in the manufacturing sector, the overall contribution of industry to GDP has stagnated over the years at around 30.8 percent of GDP.[15]

Manufacturing’s share in employment has been stagnant for the past decade, contributing only around eight percent. There has to be a clear plan towards resurgence in the manufacturing sector. Unfortunately, there is not even a mention of industrial policy nor a reference to the industry plans generated in previous years. What is there instead is bias towards more trade liberalization, foreign investments, and linking to global value chains. Essentially repeating the same mistakes committed in the past despite, what even neoliberal economists have noted, the inability of Philippine industry to adjust to a less protected economic environment.[16]

The emphasis in the strategies is still pretty much towards market-oriented reforms, such as investment liberalization that would include the planned removal of restrictions on foreign ownership in the Constitution, ease of doing business, free trade, among others. This is a cause of alarm since studies even by proponents of neoliberal policies like the International Monetary Fund (IMF) have shown that policies that push “globalization and market-oriented reforms have driven rising inequality in Asia through capital, skill, and spatial biases.”[17]

The coup de grâce, easily the most promoted and central component of Dutertenomics is massive, multi-trillion peso infrastructure program (see Stories Behind the Numbers: Dissecting Duterte’s Build, Build, Build Program on page 9) aimed at spurring and accelerating further economic growth in the next five years. A key concern here is whether the bravado will be matched with the technical and financial capacity to manage these projects.


Whither Neoliberalism?

In the book State of Fragmentation: The Philippines in Transition (2014), Focus wrote about the “emerging consensus that the future of the Philippine economy lies in reversing three decades of neoliberal self-destruction and whether there is political will to take the country in this direction.”[18]

A year on since Duterte assumed office, we have seen the continued push for neoliberal policies on trade and investment. The minimial role that government has taken on in economic affairs, and merely to preserve law and order, to enforce contracts, and to foster competitive markets, is consistent with the neoliberal prescription.   Two parameters put forward in the State of Fragmentation are worth examining in this regard; the balance of public investments versus debt servicing and the globalization of the Philippine economy.

On public investments, budget secretary Benjamin Diokno has described the 2017 national budget as an “expansionary budget,” pointing out that at 21 percent of GDP, “it is much higher than the average government spending at 17 percent of GDP over the last decade.”[19] To finance the budget, the government is planning to increase the deficit to three percent for the next three years (2017-2019). Aside from revenues, government expenditures will also be covered by borrowings estimated to be around $631.3 billion for 2017, 80 percent of which will be sourced from domestic sources. On a positive note, debt to GDP ratio continues its downward trend in the last five years, with national government debt now only at 41.6 percent of GDP. The government expects debt to decline further to 38.08 of GDP midway into Duterte’s term.

The amount for public debt transactions in the budget will decrease from 419.3 billion in 2016 to 351.6 billion in 2017. But compared to social spending, the debt payments continue to corner a larger amount of the budget.  The budget for primary education is lower by 149.7 billion. For conditional cash transfer, the allocation of 78.69 billion for 2017 is lower by 272 billion compared to the allocation for debt payments. 

Furthermore, there are recent reports indicating a surge in debt payments with the amount of debt paid by the government tripling to 78.387 billion in May 2017 as both amortization and interest payments rose. With the massive infrastructure projects in the works, the Bureau of Treasury expects that Philippine debt will hit 7 trillion by 2018. 

State of Fragmentation further outlined two aspects by which the Philippine economy has been globalized: the disarticulation or disintegration of the national economy, leading to a crisis in agriculture, industry, and services; and on the other hand the articulation or integration of key dimensions of the economy at the global level. 

There is no doubt that trade remains an important component of the Philippine economy. While trade to GDP ratio has declined in the first three years under Aquino from 71.4 percent in 2010 to 60.24 in 2013, the lowest in nearly three decades, trade’s contribution to the economy was on an upward trend after 2013, reaching 64.9 percent in 2016.[20]

Duterte’s economic plan is pushing for increased exports and an expansion of our engagement in free trade and investment agreements (FTAs). When the Duterte government says it will expand these engagements, it will confront a changed global policy environment. The so-called 21st century trade and investment regime emphasizes trade in tasks under transnational corporations (TNCs) dominated global value chains, ambitious new generation, and mega FTAs that will increase investor protection and higher standards on intellectual property rights, and both physical and institutional connectivity. 

The push for Chinese investments is another area that is worth examining closely not just because of the concerns over increasing  loans from China to finance the massive infrastructure projects, but also in terms of subsuming our own development goals to Chinese economic interests.

In the absence of a clear industrial policy, it is unclear whether the massive development projects being pursued by the administration could translate into overall economic development or would only be beneficial to the lenders who finance these projects and the contractors of the projects.

What is clear after one year is that the economic agenda of Duterte has been consolidated, with infrastructure investments at the front and center. Government is taking on the primary tasks of preserving law and order, enforcing contracts, and fostering competitive markets, which are straight out of the neoliberal economic rulebook. While it is trying to put in place a hybrid model or approach in project development and implementation, the overall agenda remains corporate-driven and market-oriented.  

----------------

1 Net Foreign Direct Investments. Bangko Sentral ng Pilipinas . Online: http://www.bsp.gov.ph/statistics/spei_new/tab9_fdi.htm

2 Social Weather Stations (SWS) February 2016 Pre-election Survey. Online: https://www.sws.org.ph/swsmain/artcldisppage/?artcsyscode=ART-2016031111...

3 PNoy’s speech at the PHL Stock Exchange’s 20th anniversary. GMA News Online. December 2012. Online: http://www.gmanetwork.com/news/money/personalfinance/284819/pnoy-s-speec...

4 Tupaz, E and Wagner, D. Aquino’s Legacy in the Philippines. July 2015. HuffingtonPost. Online: http://www.huffingtonpost.com/edsel-tupaz/aquinos-legacy-in-the-phi_b_79...

5 Income inequality, Gini coefficient data. UNDP Human Development Data (1990-2015). Online: http://hdr.undp.org/en/data#

6 United Nations Human Development Report 2016. Online: http://report.hdr.undp.org/

7 Lim, J. An Assessment of the Economic Performance of the Administration of Benigno S. Aquino III. Action for Economic Reforms (AER)-Industrial Policy Team Special Report. March 2016.

8 Department of Finance News and Views. Inclusive growth is Gov’t response to failures of globalization—Dominguez. November 2016. Online: http://www.dof.gov.ph/index.php/inclusive-growth-is-govt-response-to-fai...

9 Video of Incoming Finance Secretary Carlos Dominguez’s presentation efore media.  12 May 2016. http://www.rappler.com/nation/politics/elections/2016/132850-duterte-8-p...

10 SENTRO. Keeping ‘endo’ alive: DOLE’s Department Order No. 174. Rappler. Online: http://www.rappler.com/thought-leaders/164921-endo-contractualization-al...

11 President Duterte’s foreword to the Philippine Development Plan 2017-2022. National Economic Development Authority (NEDA). Online: http://pdp.neda.gov.ph/

12 Philippine Development Plan 2017-2022. National Economic Development Authority (NEDA). Online: http://pdp.neda.gov.ph/

13 Total approved foreign investments by region. Philippine Statistical Authority (PSA) 2017. Online: https://psa.gov.ph/foreign-investments-press-releases/tables14 Asian Development Bank (ADB). Key Indicators Asia and the Pacific 2016. Online: https://www.adb.org/publications/key-indicators-asia-and-pacific-201615 https://www.adb.org/publications/key-indicators-asia-and-pacific-201616 Balisacan, A., and H. Hill, eds. The Philippine Economy: Development, Policies, and Challenges. Quezon City: Ateneo de Manila University Press. 2003.

17 Jain-Chandra, S et al. Sharing the Growth Dividend: Analysis of Inequality in Asia. IMF Working Paper. International Monetary Fund. March 2016. Online: https://www.imf.org/external/pubs/ft/wp/2016/wp1648.pdf

18 Bello, Walden, et al State of Fragmentation: The Philippines in Transition. Focus on the Global South. 2014. Freidrich Ebert Stiftung Foundation. 

19 Diokno, B. Foreword to the 2017 Peoples Proposed Budget. Department of Budget and Management. September 2016.

20 Trade (% of GDP).World Bank data. Online: http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS?locations=PH

Special Feature: 
Focus on the Global South
Date of publication: 
Wed, 2017-09-06

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