An Inclusive Growth Agenda For The Philippines – Analysis

By Jovito Jose P. Katigbak*

The Philippines, as the APEC 2015 host country, played a crucial role in highlighting the importance of achieving inclusive economic growth and incorporating a development dimension in the form of sustained poverty reduction, productive employment, enhanced health conditions, better education, and higher quality of life. But what is needed to achieve inclusive growth for the Philippines? With the Philippines emerging as a bright spot in Asia, so much is at stake in the coming national elections. Hence the question, what lies ahead for the Philippines with regard to actively promoting the current APEC growth strategy?

On 19 November 2015, 21 APEC Leaders concluded their annual summit by issuing the 23rd APEC Economic Leaders’ Declaration – Building Inclusive Economies, Building a Better World: A Vision for an Asia-Pacific Community – in Manila, Philippines. The outcome document is a manifestation of the forum’s decision to advance and realize inclusive growth.

Another significant outcome document is the 2015 APEC Strategy for Strengthening Quality Growth (or growth that is characterized as balanced, inclusive, sustainable, innovative, and secure) which serves as the five-year road map in operationalizing the inclusive growth agenda among member economies. It builds on the 2010 APEC Leaders’ Growth Strategy and the 2014 APEC Accord on Innovative Development, Economic Reform and Growth. A novel addition to the 2015 APEC Strategy are the key accountability areas (KAAs), specifically, institution-building, social cohesion, and environmental impact. The KAAs were introduced to mainstream the concept of quality growth into the policies and programs of member economies, as well as to align APEC initiatives with the Sustainable Development Goals (SDGs) launched during the United Nations Sustainable Development Summit in September 2015.

As part of his social contract with the Filipino people, former President Benigno Aquino III made inclusive growth the centerpiece of his six-year leadership. His administration scored notable success in catalyzing dynamic economic growth and attracting foreign investments, but sharing the gains remains a core challenge. The continued pursuit of inclusive growth in the country can bring favorable results on two levels – national and regional – as it contributes to domestic socio-economic development and attainment of region-wide KAAs. As an APEC member economy, the Philippines is expected to advance these KAAs and report their progress in a transparent manner.

Institution-building

The Aquino administration tallied major accomplishments in passing legislative measures that support and promote a rules-based, market-based economy. An example is the 2014 Republic Act No. 10641 or “An Act Allowing the Full Entry of Foreign Banks in the Philippines” which augments the country’s financial resources and expands more opportunities for MSMEs. Also significant are the enacted Philippine Competition Act and the Foreign Ships Co-Loading Act, both targeting to enhance the country’s competitiveness. Despite these efforts, foreign and local business groups are still urging the Philippine legislature to amend economic provisions of the 1987 Constitution to further open the country’s economy by decreasing foreign ownership limits on land ownership, natural resources, public utilities, media, and advertising.

Issues that must be similarly addressed are the reduction of regulatory burden and the improvement of regulatory quality. According to the World Economic Forum’s 2013-2014 burden of government regulation indicator, the Philippines ranked 11th out of 19 APEC economies. Better government regulation bears positive consequences as it sows trust in public institutions and processes, effectively manages risk, lessens unnecessary procedures, and raises business confidence and competitiveness. The Philippine Institute for Development Studies (PIDS) urged the establishment of a formal regulatory management system (RMS) which can be beneficial in mitigating these concerns and in upgrading capabilities of regulatory institutions. Under the RMS, the government can assign a central oversight body that will be responsible in working towards higher regulatory quality and monitoring regulatory policies, institutions, procedures, and tools.

Social cohesion

Substantial progress has also been made in mitigating marginalization and promoting social inclusion through the widened coverage of social safety nets and intensified support for MSMEs. According to World Bank’s The State of Social Safety Nets 2015, the country’s Pantawid Pamilyang Pilipino Program (4Ps), a conditional cash transfer (CCT) program, is the fourth largest in the world (first in APEC) covering 19 million beneficiaries, or 21 percent of the population. It further notes that the 4Ps is one of the best targeted programs allocating 46 percent of benefits to the poorest quintile. The report finds that the results were encouraging as primary and secondary enrolments among poor schools have increased and prenatal and postnatal care have shown improvements. In addition, fee waivers granted by the government was ranked as the third biggest globally (first in APEC) with its PhilHealth program benefiting 39 million Filipinos, or 40 percent of the population. Support for MSMEs was strengthened via pivotal programs such as the Access of Small Enterprises to Sound Lending Opportunities (ASENSO), Magna Carta for MSMEs, shared service facilities, SME roving academy, and Go Negosyo centers providing integrated business registration services to MSMEs.

Despite these achievements, a key barrier still exists in realizing a cohesive Philippine society. The attainment of social cohesion entails weaving political divides which have implications to the overall growth of the Philippine economy. For instance, the longstanding Mindanao conflict has brought tremendous loss of lives, stunted development, and a divided society, therefore hindering the country from maximizing its economic potential. Already accounting for 60 percent of the country’s agro-based exports and supplying 50 percent of major crops, Mindanao has drawn the interest of foreign investors. Thus, the resolution of the internal conflict can lead to an efficient fiscal policy, lower transaction costs, and a collective action toward inclusive, quality growth.

Environmental impact

APEC enjoins its member economies to build sustainable and disaster-resilient economies. Part of its commitment is to reduce tariffs on a list of environmental goods such as solar panels and wind turbines, and this presents an opportunity for the country as it seeks to generate almost 10,000 megawatts of renewable energy based capacity by 2030. While the government is encouraging investments in the renewable energy sector, the country’s power generation mix is still dominated by coal. Thus, renewable energy sources have to be increased as well as related infrastructure and industries.

Furthermore, APEC member economies agreed to minimize disaster losses and ensure that affected communities receive support for recovery and rehabilitation. The UNISDR 2015 Global Assessment Report on Disaster Risk Reduction cites the Philippines as the fifth most vulnerable country in terms of disaster risk implications to development capacity. The expected rise in weather-related disasters in the next decades necessitates a development plan that incorporates disaster risk reduction and management and fosters inter-agency coordination. Therefore, disaster-related risks cannot be ignored for these can undermine the country’s social and economic development. Investing in disaster risk reduction and climate change mitigation and adaptation can reduce the country’s potential losses over time, enabling the government to use public funds for other productive endeavors.

Looking ahead

The successful and fruitful hosting of APEC 2015 by the Philippines demonstrated the country’s willingness and readiness to integrate into the regional and global economies. More importantly, the annual event made APEC member economies and businesses interested in the Philippines as a viable destination for trade and investment. President Rodrigo Duterte takes over an economy that is robust and enjoys high investor confidence, but the coming administration will have to continue making strides and adapting to an ever-changing global environment. Two main points deserve to be included in the agenda of the Duterte with respect to APEC and the Philippine economy: 1) promoting the country’s economic interests in an increasingly interdependent world; and 2) building an inclusive economy through sustainable development.

*Jovito Jose P. Katigbak is a Foreign Affairs Research Specialist with the Center for International Relations and Strategic Studies of the Foreign Service Institute. Mr. Katigbak can be reached at [email protected]