Dr. Llanto provides a brief on the country’s economy.
Dr. Llanto provides a brief on the country’s economy.

Dr. Gilberto Llanto, President of the Philippine Institute for Development Studies (PIDS), and Dr. Aries Arugay, Associate Professor at the University of the Philippines-Diliman (UP-Diliman), served as guest speakers at the Foreign Service Institute’s Mabini Dialogue Series on “Philippine Political and Economic Briefing 2017” held on 23 January 2017 at the Carlos P. Romulo Library, DFA.

The Philippines’ recent economic performance was “nothing but remarkable,” according to Dr. Llanto. For 2017, the International Monetary Fund (IMF) pegs the Philippines’ gross domestic product (GDP) growth rate at 6.8 percent. The Philippines has also transformed itself from being the “sick man of Asia” to becoming the “healthy man of Asia,” after registering continued increase in GDP growth since 1990s. From 2010 to 2015, the country’s GDP reached an average of 6.2 percent, making the Philippine economy the best performing among ASEAN-5 countries (i.e. Indonesia, Malaysia, Philippines, Singapore, and Thailand). However, the country is behind Myanmar, Lao PDR, Cambodia, and Vietnam in terms of growth rate for the period 2011 to 2015.

The services sector has been the top contributor to the country’s economic expansion as it holds 55 percent of the total labor force and produces 57 percent of the total output. Dr. Llanto emphasized that household consumption buoyed by remittances from overseas is a major driver of growth, and that exports are rising but in an erratic manner. Foreign direct investment (FDI), he said, is emerging as a critical source of growth, thus reflecting the changing structure of the economy.
Emerging markets and developing economies received positive projections for 2017 and 2018 even with the lackluster performance of the global economy in 2016. However, the effects of market uncertainties and other risks may bring about different outcomes. The ascendancy of the Trump administration poses a risk as it adds to the negative impacts of inward-looking and protectionist policies, tighter global financial conditions, heightened geopolitical tensions, and severe deceleration of the Chinese economy.

Despite the current risk landscape, the Philippines can explore two opportunities, according to Dr. Llanto. Firstly, the ongoing ASEAN Economic Community (AEC) integration offers tremendous gains for its members; but the regional bloc must remain resilient amidst global headwinds and be adequately prepared for the “fourth industrial revolution.” Secondly, ASEAN should also secure its position in the global manufacturing environment of the future which will be heavily dependent on low-cost labor and locations, highly-skilled workers, and constant technological and technical manufacturing-related innovation. To improve the economy’s competitiveness and productivity, the government is crafting the Philippines’ New Industrial Policy, which is grounded on a cluster-based industrial strategy and a global value chain (GVC)-oriented policy.

In the concluding part of his presentation, Dr. Llanto highlighted the need to address major growth barriers such as burdensome regulation, inadequate support for small and medium-sized enterprises (SMEs), lack of innovation, weak supply/value chain, and stagnant manufacturing. He also stressed the importance of strengthening connectivity within the Philippines through enhanced infrastructure. The proliferation of high-technology, next generation robotics in business operations prompts governments and firms to upgrade the skills of their workforce. Dr. Llanto suggests that the Philippines capitalize on the Mutual Recognition Arrangements (MRAs) existing within ASEAN to foster the exchange of best practices among countries, push for regional labor mobility which would benefit Filipino professionals, and open overseas opportunities for the young and educated labor force. High quality education, as well as better health care, will be vital components to the development of human capital of the country.

Dr. Arugay talks about change and continuity in Philippine politics.
Dr. Arugay talks about change and continuity in Philippine politics.

Dr. Aries Arugay discussed the current set-up and possible changes of the country’s political climate under the Duterte administration. He explained that the Philippines is undergoing a process of “democratic careening” where its young democracy has yet to mature towards democratic consolidation. In particular, the country is trapped between two axes, namely, of oligarchy and populism, and of democratic consolidation and authoritarian regression. Dr. Arugay cited the Freedom House International study which rated the country as “partly free” since 2006, hence demonstrating the lack of qualitative change in the country’s democratic standards. The report also shows that no Southeast Asian nation is considered “free”.

Dr. Arugay states that the results of the 2016 national elections reflect more of continuity rather than change. The election of President Duterte as the Philippines’ top executive is indeed a change given his stature as an outsider, but political dynasties at the local level persist. In President Duterte’s first six months in office, the thrust of change has been centered on governance and administration. The presence of a supermajority in Congress feeds into the fear of risk analysts, although the current legislative performance of both houses suggests otherwise. Dr. Arugay likewise clarified that what is in retreat is liberalism and not democracy per se, since the notion of liberalism has become enmeshed with the concept of democracy. In line with this, the country is also witnessing a current retreat of usual veto players such as the church, military, and civil society. Another aspect where continuity and change can be observed is the conduct of politics in the nation which is mainly transactional. Even though officially known as the President of the Republic of the Philippines, Dr. Arugay believes that President Duterte has yet to make the shift from being a mayor.

The war on drugs has been done by other countries such as Colombia, Mexico, and Thailand, and the consensus is that they all failed. Dr. Arugay highlighted that there must be a definite metric in evaluating the success of the Duterte administration’s war on drugs. The Philippines should also learn from the experience of Colombia after it failed to account for the transnational nature of the drug trade. Discussions on drug use as a public health issue must also be promoted in the country. Dr. Arugay claimed that President Duterte’s near obsession with illegal drugs is contagious. He also questioned the primacy of this issue in the hierarchy of other national concerns.

President Duterte is a “Wartime President” because of his decision to engage in a ‘war at all costs’ which generates a lot of uncertainty, according to Dr. Arugay. The support for this ‘war’ has been fueled by the existence of an “army of true believers” which is comparable to the Circulos Bolivarianos in Venezuela.  If the war on drugs is proven successful, Dr. Arugay thinks that the administration may tend to look for other enemies such as the oligarchs, corrupt officials, terrorists, and foreign powers. In terms of institutional (re)design embodied by the recent clamor for a constitutional change, the government must be cautious of the unintended consequences of such reform given President Duterte’s genuine belief for federalism and his tendency to override evidence with conviction. Dr. Arugay suggests focusing on electoral system and campaign finance reforms first before amending the 1987 Philippine Constitution, which is considered a bastion of liberal-elite democracy.

In conclusion, Dr. Arugay foresees the emergence of political polarization between the incumbent government and the opposition if both parties continue to aggressively attack each other. This scenario is also dependent on President Duterte’s exercise of his persistent “domineering tendencies” which is illustrated by the assault of dominant leaders on diluted liberal institutions. Dr. Arugay stated that the two strands of democracy, namely, majoritarian and liberal, should be maintained, ensured, and not polarized to attain good and stable politics.

The forum was attended by representatives from government agencies, academe, students as well as officials and staff of the DFA and the FSI.