The global inflation crisis that has seen pressures exerted on markets as diverse as China and The Philippines, Argentina and India, South Africa and Turkey (and many more) has led to the value of the Philippine Peso falling against the US Dollar in line with international trends that have hit all emerging markets. Such inflationary trends are all the more pronounced among net energy importers including The Philippines. Yet the danger of trying to correct such inflationary trends with rapid rate hikes at a time when international rather than domestic pressures are the main cause of inflation, risks bringing about the lose-lose phenomenon of stagflation. Stagflation comes about when negative growth rates are paired with continually rising consumer prices indexes.
For The Philippines whose monetary policy is predicated on openly planned inflation targets, Duterte’s administration has continued to prioritised growth and this strategy has paid off successfully. When it comes to the GDP per-capita in The Philippines, last year (Duterte’s first full calendar year in office) saw figures rise to $2891.36. This represents an all time high for The Philippines. This came as 2017 saw a 7.2% economic growth rate which makes The Philippines part of the elite 7%+ group of nations experiencing rapid growth. By contrast, the only Asian economy to break the 8% threshold is India while Ethiopia’s over 8% economic growth rate comes after significant political and economic reforms that are beginning a long process of Ethiopia lifting itself out of the extreme poverty that blighted the country for decades.
Duterte’s modernisation of taxation, workplace reforms, his infrastructural program “Build, Build, Build” and international cooperative efforts to bolster The Philippines’ image as an investor friendly nation have in fact led to US News and World Report naming The Philippines as the top global investment destination in the world. This are serious achievements that have been made in a comparatively short period of time.
Yet while these statistics that have been largely made possible through President Duterte’s reforms are clearly a good long term indicator, there remains a false dichotomy present where comparing The Philippines to other top economies experiencing a growth spurt. Of all the world’s top growing economies, The Philippines is the only one that has not legally, publicly and in terms of policy, fully embraced easy foreign direct investment (FDI) inroads.
Because of this, today’s Philippines should be looked at not through the prism of so-called ‘Asian tiger’ economies let alone the growing economies of south Asia and Africa, but instead should be seen as a country trapped in a legal state of purgatory somewhere between the Asian tigers that prioritise economic openness and a country like China in the 1970s (prior to the 1978 reforms) or perhaps more specifically to Malaysia prior to the first election victory of Mahathir Mohamad in 1981. The reason for this is that while Duterte has made internal reforms in terms of taxation and working practices which are good for both domestic businesses and foreign investors and while Duterte’s restoration of peace and security to society is clearly a point of attraction for serious investors, the fundamental opening up of the economy that requires an explicit encouragement of foreign direct investment and a preference for free trade over both explicit and implicit forms of protectionism has yet to be instigated in The Philippines.
To understand how the growth rates of a country can skyrocket in the aftermath of inviting copious amounts of FDI and embracing free trade, one needs to examine the statistics of the early years of Lee Kuan Yew’s independent Singapore. Between Singapore’s (forced) independence in 1965 and the world’s first modern energy crisis in 1973, Singapore’s growth rate averaged 12.7%. Even when the 1973 oil crisis put pressures on both developed and developing economies, Singapore still managed to maintain an illustrious 8.7% growth rate in the mid 1970s.
In Malaysia under Mahathir, an opening up to FDI saw an average growth rate of 8% between 1986 and 1996. Focusing on the early 1990s, specifically the period between 1991 and and 1995, China’s economic growth rate was 11.8% while Singapore held steady at an average of 8.6% while Malaysia was just .1 percentage point behind its island neighbour. And yet during this period when Cory Aquino was “supposed to” modernise the economy of The Philippines, economic growth was a mere 2.4%, just .4 percentage points higher than the 1st world American economy that itself was going through a recession for much of the early 1990s.
Although Duterte has achieved sustained economic growth that alluded many of his predecessors, it is important to remember that not long ago The Philippines impeached pro-FDI president Joseph Estrada while former President Gloria Macapagal-Arroyo’s economic openness drive was ultimately crushed under the weight of an entangled political system. As The Philippines was besot with the political stagnation of the 1990s and early 2000s, Malaysia, Singapore, China, Thailand, Indonesia and Vietnam continued to forge ahead both prior to and in the gradual aftermath of the 1997 Asian economic crisis.
The reasons for this are clear enough. While Singapore and later China, Malaysia and Vietnam opened up to ever more FDI, in 1987 The Philippines adopted a new constitution which specifically restricted foreign direct investors from having control over more than 40% of their investment (the so called 60/40 rule). By restricting foreign investors to minority ownership, The Philippines became automatically less attractive than its faster growing neighbours.
Making matters worse, when two post-Marcos Presidents did try and open up the economy along the lines of The Philippines’ closest ASEAN neighbours, a convoluted presidential/congressional political system conspired to stop such proposed reforms dead in their tracks. By contrast, the parliamentary democracies in Singapore and Malaysia allowed Lee Kuan Yew and Mahathir to respectively pass reforms for economic openness through a simple series of majority votes in a traditional parliamentary system that is directly related to the majority democratic consensus of the voting public.
While to Duterte’s great credit, he has managed to manoeuvre through the convoluted political system established by the 1987 constitution more ably than any of his more reform minded predecessors, this simply is not good enough. A country like The Philippines today should not be measured against Singapore and Malaysia’s growth rates decades after initial reforms were made but should instead be in a position to aspire to the kinds of mega-growth numbers of Singapore in the late 1960s and early 1970s as well as those of Malaysia in the first fifteen years of Mahathir’s time as Prime Minister.
The reason for this is that while growth tends to stabilise in economies that have matured into their new reformist realities, The Philippines has yet to make such reforms. In this sense, from a point of view of economic policy, The Philippines today is 53 years behind Malaysia, 40 years behind China and 37 years behind Malaysia.
Because of this, if a Philippine government managed by Duterte or someone sharing his policies and goals were to preside over a constitution with few restrictions on FDI and likewise if Duterte was leading his government from a unicameral parliament rather than a presidential administration at odds with two bodies of a legislature, the numbers that The Philippines could see today might well be closer to the double digits of growth that Singapore had after its reforms while it would almost certainly break the all important 8% threshold as Malaysia repeatedly did during the reformist drive of Mahathir.
This is why while it is impressive that The Philippines is even breaking the 6% threshold under an outdated and reactionary constitution – this is simply not good enough. President Duterte is doing all he can within the constraints of the 1987 constitution. If these shackles were lifted, there is no doubt that The Philippines would go from a country trying to catch up with itself to one that could replicate the economic miracles of Singapore and Malaysia within the framework of Filipino aspirations and cultural characteristics.