Reconstruction

My colleague Manuel Buencamino calls it the biggest reconstruction project in the Philippines after World War II. President Noy Aquino (PNoy) calls it a “comprehensive rehabilitation program.”

Typhoon Yolanda has brought incalculable, terrible costs. Two weeks after the most powerful storm in more than a century ripped central Philippines, more than 5200 people have died, more than a thousand are still missing, and scores of thousands are recuperating from physical injury and emotional trauma.

The calculation of economic losses brought about by Typhoon Yolanda’s devastation varies widely. The International Business Times (UK edition) provides some information on the economic impact:

CEDIM Forensic Disaster, based in Germany estimates that losses will range between US$8 billion and US$19 billion.
Another group, Kinetic Analysis Corp. places the economic costs at between US12 billion and US15 billion.
Economic Planning Secretary Arsenio Balisacan estimates that the reconstruction costs can reach US$5.8 billion.

In short, the amount for rehabilitation is staggering. But as I will explain later, the resources can be mobilized without necessarily overburdening the economy. The important point is this: The rehabilitation program is an opportunity to lay the foundation for post-Yolanda all-round, sustainable development.

In this context of recovering from the devastation brought about by the super typhoon, we can apply loosely (even literally!) Joseph Schumpeter’s “gale of creative destruction.” Yolanda destroyed the old, and it is up to us as a people, not only the policymakers, to create a new one. We hope that what we rebuild, to quote Schumpeter again, will “revolutionize the economic structure” and bring in “the new methods of production or transportation, the new markets, the new forms of industrial organization.”

The PNoy administration has created a “task group” for the comprehensive rehabilitation program, composed of Cabinet members and coordinated by Energy Secretary Carlos Jericho Petilla. The priority programs consist of shelter and reconstruction, power restoration, livelihood and employment, resettlement and psychosocial care, environmental protection, and resource generation and allocation. In the same vein, the National Economic and Development Authority (NEDA) is tasked to prepare a unified plan, which will integrate the rehabilitation programs and projects of different agencies.

From the description above, we can observe that the “task group” is basically made up of the whole Cabinet. That is, the Aquino administration for the remainder of its term will focus its energy and attention on the post-disaster program.

The administration has correctly identified the core programs. Of course. they are general categories that are part of any template on recovery and rehabilitation. And any program cannot offer sure-fire solutions,

Allow me, nonetheless, to identify and emphasize some areas, which are essential for the success of the rehabilitation plan.

First, the plan is an opportunity not only to rehabilitate and rebuild the provinces that were hard hit by Typhoon Yolanda. The reconstruction plan must be a national one. To repeat, now is the moment to “revolutionize the economic structure.”

In addition, tens of thousands of victims have left their homes and have become internal refugees, evacuating to urban centers to start life all over again. This suggests that the scope of the plan cannot be limited to the damaged areas.

In another area, the restoration of power is not a quick fix. The power shortage extends to many parts of the archipelago. Further, we cannot discount a national energy crisis in the medium term. This entails hard decisions that will address the market failure in the energy sector.

Second, jobs have to be created. In the near term, giving cash to victims to do relief and rehabilitation work is a good step. The massive infrastructure rebuilding will also result in creating jobs, skilled and unskilled. But why stop there? After all, the administration is committed to inclusive growth, in which the creation of quality jobs is the cornerstone.

Third, employment generation—creating jobs of higher productivity and expanding the number of wage-workers—is linked to industrial and technology policy. The government through the Department of Trade and Industry has a program on expanding and diversifying manufacturing through new forms of industrial policy. This program, however, remains low key. It is high time we placed prominently on the national agenda industrial and technology policy, which is tied to job creation. In this regard, we welcome the technical assistance of multilateral organizations and donor countries,especially those in East Asia, towards doing industrial policy right.

Fourth, industrial and technology policy has new substance and forms. It is not just about picking winners; it is also about putting in place the disciplining mechanisms to prevent abuse of discretion. It is also about collaboration between government and the private sector to jointly diagnose problems, coordinate actions, and discover new ways of doing things.

Moreover, industrial and technology policy must adapt to an unfortunate reality in the Philippines—that we will continue facing horrible natural disasters. In this sense, developing local green technology to address disaster reduction and management and climate change can be the lynchpin of such policy. The advantages of indigenous green technology include its labor intensiveness and its dynamic comparative advantage (given that the technology is relatively new, even to advanced countries).

Last but not least, the rehabilitation plan will obviously entail huge resources. This can strain the government’s fiscal capacity, but this problem is not a binding one. The Department of Finance and the Bureau of Internal Revenue have performed well in steadily increasing the tax effort. The combination of Kim Henares’s tax administration reforms and the passage of the sin tax reforms symbolizes confidence in government’s revenue performance.

To be sure, more revenue measures have to be put in place, all the more made pronounced by the expenditure demand for rehabilitation. It is thus an imperative for Congress to pass the bill on reforming mineral taxation and another bill on rationalizing fiscal incentives. On top of this, depending on PNoy’s political capital, he may ask Congress to reform the specific tax on petroleum, which has been eroded through the years because of non-aadjustment to inflation.

Notwithstanding the increase in tax effort and the proposed tax reforms, government cannot avoid borrowing to finance the rehabilitation program. A word of caution though: It is better to borrow domestically than externally. A heavy inflow of foreign loans leads to a currency appreciation, which in turn weakens the real sector and thereby undermines the goal of inclusive growth.

We have heard it many times, but it has been recently articulated by Kim Henares, that slow development in the Philippines is attributed to our weak sense of nationhood. Typhoon Yolanda has moved the Filipinos, rich and poor, to act as one. Let us seize this moment to sustain national action. Let us turn disasters like Yolanda into a “gale of creative destruction.”

Sta. Ana is coordinator of Action for Economic Reforms (www.aer.ph).

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