“That’s the problem.”

It is in memory of Conrad de Quiros that I title this commentary on the current Philippine economy: “This is the problem”. The late Conrad does not need an elaborate introduction. Journalist Jo-Ann Maglipon said in her tribute that Conrad attracted a legion of fans with his “Here’s the Rub” column.

Conrad’s “Here’s the Deal” is an example of truthful, interrogative, critical, cutting, and frank opinion writing. It is with this in mind that “This is the problem” is the most appropriate expression to describe our current situation. Here I live specificallyFiespecially on our economic situation.

The economic outlook for 2024 is not bad at all. The government’s growth rate target for 2024 is between 6.5% and 7.5%. This is a downward revision of the initial rate from 6.5% to 8%. The independent Bangko Sentral ng Pilipinas (BSP) has a more realistic projection than that of the national government. The BSP forecasts a growth rate of 5.5% in the medium term.

International FiFinancial institutions as a whole also present estimates which, although cautious, reflect hope and optimism.

The International Monetary Fund (IMF) projects real GDP (gross domestic product) growth of 6% and 6.1% in 2024 and 2025, respectively. The Asian Development Bank (ADB) estimates GDP growth of 6.2% in 2024. The World Bank projects growth of 5.8% in 2024. Ndiame Diop, country director of the Bank, says that “the Philippines is stand out among the best performing countries” in the field. region, and “will continue to demonstrate strong performance over the coming years.” Nonetheless, multilateral institutions agree that risks to their outlook are “skewed to the downside,” due to a combination of global and domestic issues.

In a word, the Philippine economy is sailing along. And therein lies the problem. Despite the national government’s high growth target, we see that projections from other institutions, including the independent BSP, are lower than what the Ferdinand Marcos Jr. (FMJ) administration desires.

Regardless, even the lower end of the forecast range, the BSP’s 5.5% growth for 2024, is nothing to sneeze at.

But that’s the problem again. Because the economy can actually evolve without being pushed by the current administration. We must thank the series of transformative reforms undertaken by previous administrations.

Notable are the sin tax and fiscal management reforms during the tenure of the late Benigno Aquino III, as well as the more comprehensive tax reforms and pro-investment and pro-consumer reforms under the tenure of Rodrigo Duterte. All this paved the way for sustained and high growth, averaging above 6%, which was interrupted by the COVID-19 pandemic. But with the end of the COVID-19 emergency, the benefitFiThe benefits from past reform episodes translate not only into economic recovery, but also into accelerated growth.

I absorbed insight from former Finance Secretary Carlos Dominguez III. He has repeatedly said that a reformer in any administration must advance an agenda by building on the achievements of his predecessors. He compares the creation of reforms to the construction of an edFithis, an idea he learned from former President Diosdado Macapagal. A building is built stone by stone or block by block and is built over time. The reform follows a similar process. A good foundation or structural reforms created by a previous administration must be built upon and strengthened.

Again, that’s the problem. The economy is afloats, but performance is below expectations (even based on the government target). Undeniably, the current economy could have done better. And without the strong economic reforms implemented by previous administrations, we would be in trouble.

The Marcos Jr. administration thus benefits from the reforms undertaken by its predecessors. But he either failed to capitalize on these reforms or ignored the reform agenda to achieve much better results.

Worse still, the Marcos Jr. administration is backtracking on reforms. The latest example is his determination to change the law on Fiincentives at scale. The administration has ordered Congress to pass a bill that will emasculate incentive governance and erode revenues resulting from provisions to grant more wasteful tax incentives.

Additionally, special interests with strong political connections have embarked on a strategy to reverse excise tax rates on tobacco products. They are manipulating the smuggling issue to undermine the sin tax law.

Other reforms are not moving forward either. Two years into its mandate, the administration has yet to adopt a signiFicannot increase income. Following its 2023 consultations with the Philippines, the IMF Executive Board “recommended adopting additional fiscal measures over the medium term to create more revenue.” Fiscaling space for political priorities and social spending.

In the same spirit, the “administrators welcomed the authorities’ commitment to reforming the retirement system for military and uniformed personnel.” This pension system, too generous and entirely financed by the government, to quote Finance Secretary Benjamin Diokno, is “not sustainable”. Worse still, Diokno says: “If this continues, there will be a fiscal collapse.”

Unfortunately, the much-vaunted reform of the military and uniformed personnel retirement system appears dead in the water.

In this regard, I would like Finance Secretary Diokno to reiterate his past warnings that any administration must institute tough or bold reforms early in its term, when it enjoys enormous political capital and goodwill. Otherwise, say goodbye to reforms. Otherwise, in this case, the threat of a “Fiscalar collapse” becomes real.

The window of opportunity is closing. The factions of the ruling administration are now Fifighting, and politicians are now turning their attention to the upcoming midterm elections. It is polarization and uncertainty that dominate, not policy coherence and predictability.

In short, favorable economic forecasts can be misleading. They are hiding serious problems. And they can make the administration complacent. That’s the problem.

The growth we are experiencing is the result of solid reforms undertaken in the past. But the current administration is not building on these reforms. Worse still, he withdraws major reforms or threatens to return to them.

Remember what happened during the administration of Fidel Ramos (1992-1998). Almost everyone was delighted with the strong economic growth. But there was an underlying problem that the Ramos administration and technocrats ignored. In the context of high growth rates and low inflation, amid the triumph of liberalization and deregulation, the problem of an overvalued currency resulting from the liberalization of the capital account and manifesting itself in a reduction in the current accountFiIt was a vulnerability that turned boom into bust. In 1997, the Philippines was hit by a Fifinancial crisis. Before the end of the Ramos administration, the economy collapsed. The Marcos Jr. administration should heed the lessons. Never be complacent. Focus on binding constraints. Don’t fool yourself with cosmetic reforms.

Perhaps the Marcos Jr. administration will get lucky and escape a crisis. But without the continuation and consolidation of reforms, the economy will continue to underperform and investments will flow away from our country.

Assuming the underlying reasons for the underperformance aren’t resolved but Marcos Jr. is able to pull off a magic act, the worst could yet happen. The next administration will inherit the major problems. And we could experience a lost decade again.

But let’s not end this comment in despair. After all, it’s the new year.

Once again, in memory of Conrad de Quiros, I quote his column published by the Investigator on September 17, 2014, the same year he suffered a major stroke. The title and central message of the column (although the content and context of what he wrote at the time and my current commentary are entirely different): “Hope springs eternal.”

We hope that in 2024, President Marcos Jr. will surprise us by implementing the necessary reforms and propel the development of the Philippines to greater heights. May President Marcos Jr. heed what his fellow columnist Diwa Guinigundo wrote (“2024: Harnessing the Hope of Change”). Manila BulletinJanuary 4, 2024): “With hope, we should by all means create these doors of opportunity for change, progress and greatness. »

Filomeno S. Sta. Ana III coordinates Action for Economic Reforms.

www.aer.ph