Agenda for recovery and long-run growth

The author is a professor of economics at the University of the Philippines, Diliman

I. Recovery Efforts

A more aggressive but doable plan for recovery and for the long run
must be presented to the public. The Arroyo government must show it is
wiser and more competent to achieve the goal of reducing poverty and
raising the people’s well-being than previous administrations. Its
short-term and long-term plans must be more ambitious and at the same
time pragmatic and operational. It must have a definite focus and
effective strategies.

We need to identify sectors and activities that promise to produce
immediate increases in employment and income for the poor. Low-cost
housing, low-cost transport and tourism could be undertaken immediately
and with moderate budgetary demand. Immediate reforms to improve the
quality and enhance equity in education are also doable.

Housing development for the poor. Identify existing programs that can
be immediately implemented. Housing construction is labor-intensive and
employs blue-collar workers. Some of the programs are as follows:

  1. Distribute unutilized or foreclosed low-cost housing units.
  2. Hasten the releases of housing loans given by the social security system. This will add to construction activities.
  3. Improve the physical environment and utilities in slum areas (e.g., Payatas).

The housing program cannot be implemented all at once for budgetary and
other reasons. The target beneficiaries and timetable must be presented
to the urban poor for them to have realistic expectations.

Transport cost reduction program. Transportation to work, to school and
other purposes takes a very large proportion of the poor’s resources,
their time and income. The following measures can be implemented
immediately and effectively:

  1. Repair and expand the rolling stock of Philippine National
    Railway (PNR). This will service commuters from the Calabarzon,
    Bulacan, and the other provinces. It is anomalous that the PNR
    administration has focused its efforts on building shopping malls
    (Tutuban and Paco), instead of tackling its primary responsibility.
    Rail transport is cheaper and has low negative externality. Reviving
    the PNR will also reduce the transport cost of food products coming
    from the southern and northern provinces, which supply Metro Manila’s
    fish, fruits and vegetables.
  2. Reduce the commuting cost in the metropolis through effective
    traffic control. The lower-income workers and students will be greatly
    benefited since they spend time commuting. The cost of operating public
    transport (costs on labor gasoline, and depreciation) will fall when
    traffic is reduced.
  3. Rationalize the supply of public transport in Metro Manila. There
    appears to be an oversupply of public transport that adds to the bad
    traffic situation.

Pro-poor educational program. A pro-poor allocation of scholarship
could be immediately implemented. An aggressive strategy for getting
the bright poor into the better universities should be enforced. The
strategy will include dissemination of information about available
scholarship and qualification, remedial program for those coming from
poor-quality high school, adequate funding for tuition and living cost,
etc. The cooperation of both private and state universities will have
to be obtained.

The government should direct scholars to programs with high returns
such as computer science, nursing and maritime education. These are
relatively high-cost programs, which can only be pursued by the poor if
they are given scholarships.

The better-quality state universities and colleges (SUCS) admit mainly
students from non-poor families. Tuition at these SUCs must be raised
from their extremely low level. The increase in revenue should be spent
on scholarship for poor but bright students.

It is noteworthy that the Department of Education (DepEd) has improved
the distribution of textbooks and other learning materials to rural
public elementary and public schools. DepEd has announced that
textbooks are to be distributed directly to the schools by-passing
regional offices.

Tourism. We have built the facilities but not the environment for our
own well-being and for tourism. The basic conditions that make for a
good environment are cleanliness, gardens and parks, low criminality,
orderly traffic, transport and communications. No large investments are
required to improve on each of these. We as individuals care intensely
for cleanliness of body and home. In the provinces, people have habits
of cleaning their surroundings. It is only in big urban centers,
particularly Metro Manila, that the culture broke down.

Cleaning up the cities will need re-education and some police
monitoring. We also need to raise the standards of performance of the
government personnel assigned to these tasks.

II. Long-run Growth

The government’s medium-term plan is too timid in its growth target.
What prevents us from aiming for 7% growth rate? Which growth factor,
if any, drags us down? We need to analyze the growth factors or
elements and see if indeed they are fixed by culture or nature, or if
they are subject to policy manipulation.

On the positive side, a number of indicators – such as inflation rate,
current account balance, and debt service ratio – are within tolerable
levels. However, the saving rate is critically low.

The main tasks should include reducing the population growth rate,
having a stronger competitive financial system that offers more
attractive asset portfolios, building a competitive and efficient
social security system, and putting in place a convincing government
austerity program.

The administration must pay attention to prudent public spending.
Government saving can definitely be increased by reducing overstaffing
and administrative costs.

For example, the large administrative costs of the social security
system imply forgone benefits to members and low returns to their
investment. Further, moral hazard and direct political interventions
led to poor performance of government financial institutions (GFIs).
The high nonperforming loan ratios of GFIs imply bad investments. They
mean losses for the saving public. More importantly they discourage

And lest we forget, government must develop science and technology
(S&T) capability, and improve the quality of education at all
levels. The dismal state of S&T and education is indisputable. One
major step is to reallocate the national budget towards S&T
development and quality education.

The improvement of S&T capability and the quality of education has
many positive consequences – labor productivity, global
competitiveness, attraction of investments, and better governance.

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