Monday, August 07, 2006

Growth seen as ‘narrow, hollow, shallow’


NARROW, hollow and shallow.

Former Planning Secretary Cielito Habito yesterday said this describes the current economic growth being trumpeted by the Arroyo administration and, thus, it is too early to celebrate.

He said surging oil prices, Middle East uncertainties, La Niña, deteriorating prices, lack of jobs and lower income will continue to expose the weaknesses of the economy.

Last December, Habito warned the economy appeared more like headed for a meltdown than a take-off.

Eight months after giving that assessment in a Makati forum, Habito said indicators on prices, jobs and income – the three basic things that the common Filipino cares about – "have deteriorated, and don’t appear to be improving convincingly."

"Inflation may be tapering lately, but the outlook remains clouded by oil price uncertainties, so it’s too early to celebrate," he said in answer to e-mailed questions from Malaya.

Habito served in the Ramos Cabinet. He currently heads an Ateneo de Manila-based think tank. Habito said the inflation rate has risen twice as fast since 2002, from 3.1 percent to 7.2 percent.

He said while global oil prices contributed largely to the trend, a look at other countries in the region that are suffering from the same oil price hikes showed that their inflation rates did not soar as much.

He said this means that there are local factors that made the prices of goods rise faster, primarily the low growth in agriculture at 2 percent last year, a rate which is even lower than the 2.3 percent population growth.

He said the inflation rate eased slightly to about 6.9 percent in May and June but "the outlook for the rest of the year does not sound encouraging" because the surge in world oil prices, the uncertainties in the Middle East, and the renewed depreciation of the peso, are "not helping at all."

Habito said the jobs generation record of the Arroyo administration "leaves much to be desired" because the National Statistics Office reported the creation of only 803,000 new jobs last year.

He said quarterly labor statistics showed that yearly job creation had gone as low as 87,000 (January 2005), way below the one million needed to catch up with new entrants every year. "We had a much better record in annual job creation in the past, and had hit more than two million new jobs in early 2001 when Ms. Arroyo had just assumed power," he said.

"Unfortunately, things seem to have fallen off after that, and we have yet to regain momentum in creating more durable jobs than those of blue shirted street sweepers cum walking election posters. And I have not begun to speak of the quality of jobs being generated lately of which much more can be said," he added.

He said the 2005 GDP growth rate, which was revised in May, was lower than the one originally announced in January this year which barely reached 5 percent, the slowest in the region.

He said the fastest-growing sectors in the economy which drive the overall growth rate are mostly those that do not employ great numbers. He said finance and mining - the double-digit growers last year – only employed 116,000 and 337,000 workers, respectively.

Low-performing agriculture accounts for over 12 million workers or roughly 40 percent of the employed. Habito said the first quarter economic data is "a mixed picture."

He said the good news included easing inflation, slight improvement in employment, sustained uptrend of remittances, a budget deficit that was within the target, agricultural recovery, strengthening of the manufacturing sector, a pick-up in the construction sector, stronger growth in utilities, exports recovery, and the overtaking by the finance sector of telecommunications as the fastest growing services sub-sector.

On the other hand, he said the inflation outlook is clouded by oil price hikes and the La Niña, job creation continues to lag behind output growth and job quality is down, production growth falls below targets, mining growth stalls, services growth slows down, the transport sector falls, real investments continue to decline, imports are showing signs of a slowdown, hunger has reached a new record and self-rated poverty is high.

Habito said based on the Ateneo Macroeconomic and Forecasting Model (AMFM) which he helped develop, the gross domestic product for this year is forecast at 4.7 to 5.1 percent, which is lower than target of 5.5 percent to 5.7 percent.

Habito expressed concerns over the administration’s "excessive" attention to mega-projects and the "associated bias for big business" in identifying priority infrastructure projects.

He said he would rather see more efforts to identify and support projects that would address the needs of small and medium enterprises (SMEs), which are a "more prolific source of new jobs, and thus a more promising basis for a broad-based economic growth and development."

"Indeed, it has always been the big-business bias of our policy environment that has perpetuated and even intensified the oligarchic nature of our economy and society, and heightened the divisions between the rich and the poor of this country," he said.

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