The Sustainability of Recent Philippine Economic Growth

The Philippines has been tagged repeatedly as the “the sick man of Asia” for its lacklustre economic performance. In turn, this poor showing can be attributed to its long history of institutional failure which led to a pandemic system of corruption. Hence, the recent determined attempts at improving governance procedures and institutions as a means of reducing and eliminating corruption have caught the attention of Asia and the rest of the world.

The administration of President Benigno S. Aquino III was elected on the basis of weeding out corruption. Its slogan of Walang Corrupt, Walang Mahirap (No Corruption, No Poverty) has permeated all levels of the government and resulted in changes beyond those that were initially expected. Based on Transparency International’s Corruption Perceptions Index (CPI) for 2014, the Philippines has been perceived as becoming less corrupt over recent years. The Philippines was ranked 85th out of 175 countries by the Germany-based organization, higher than the rank of 94th in 2013, and 105th in 2012. Although the Philippines still scored below 50 in the index, its CPI score of 38 for 2014 is a “marked improvement” from its score of 34 in 2012 and 36 in 2013, according to Transparency International.¹

Tagged as Matuwid na Daan (the Straight Path), these reforms seemingly have translated into economic gains, with real gross domestic product (GDP) growth rates averaging 6.12 per cent for the past three-and-a-half years, capped by an unprecedented economic growth rate of 7.2 per cent at the end of 2013. Despite the slowing down in 2014 to 6.1 per cent due to debilitating typhoons resulting in a stagnant agricultural sector and limited government disbursements, the economy remains robust. While the current election period has attracted a diverse number of candidates, all of them, including the main opposition party, have vowed to continue the reforms of the Aquino administration.

Moreover, the various credit rating upgrades received by the country were measurable indications of its accomplishments in governance, especially in fiscal discipline and monetary management. Government revenue’s share to GDP was 13.3 per cent in 2013, up from 12.1 per cent in 2010.

With this development, can we say that the country is on the verge of joining the ranks of other Southeast Asian nations whose growth have preceded it? Unfortunately, the answer is negative. The country’s projected take off is by no means a foregone conclusion. Definitely, a concerted development effort is necessary in the next few years (after the tenure of the current administration ends), including a “big push” on investments in education, social security and infrastructure.

In order to sustain this process, the government should continue to strengthen its ability to generate revenues and its capacity for good governance. Such initiatives would help close an infrastructure–funding gap, enhance economic growth and gradually reduce poverty. However, the most important effect would be to show the world that the Philippines has finally pulled its act together, and that the country has permanently turned its back on its long history of economic inefficiency.

Institutional Reform as a Fundamental Cause of Economic Growth

The root causes of the Philippines’ current economic growth are hard to determine, but no one can question the institutional reforms that have taken place. It is the tragedy of Philippine economic history that the consequences of the past are long-lasting and painful, traumatic and crippling, not just to individuals but to the entire nation. Some consequences cannot be easily corrected and can hinder the effectiveness of succeeding reforms, hence requiring a series of changes spread out over a number of years to totally wipe out their negative effects.

The main problem has been the country’s macroeconomic condition. For many years the country has been on the verge of an economic collapse due to its weak fundamentals. This predicament started during the period 1971 to 1983 at the height of the authoritarian rule and martial law of President Ferdinand E. Marcos. The declaration of martial law in 1972 led initially to economic growth but this was precipitated by massive borrowings...