GOVERNANCE INNOVATIONS INFLUENCE PHL’S NEW GROWTH MODEL Public optimism to be coupled with tangible investment results, says NEDA

SINGAPORE—The National Economic and Development Authority (NEDA) said that the Philippines has an evolving economic growth model that particularly involves political and administrative innovations related to good governance.

Speaking during the 1st Asian Regional Roundtable jointly conducted by the OECD Development Centre and the ASEAN+3 Macroeconomic Research Office (AMRO), Dir. Rosemarie G. Edillon of the NEDA-National Planning and Policy Staff said that this model, though not yet formally represented, also takes into account public trust in government institutions as a factor for spurring national development.

“We have an evolving model that still involves labor and capital.  Innovations play a huge role, but more importantly, political and administrative innovations.  Not only do the latter improve overall efficiency, we think that they exert a secular impact on both labor and capital.  That is why innovations call for immediate implementation.  Over the medium term, we need to bring in technological innovations,” said Edillon.

Edillon added that the perceived quality of institutions is partly determined by the outcomes of these innovations, such as strengthened fiscal discipline and strategic public investments.

“The emphasis on good governance addresses a lot of obstacles that previously constrained our growth path.  Since this administration focused on addressing these constraints, the country improved its global competitiveness and transparency rankings,” said Edillon.

The Global Competitiveness Report 2012-2013 of the World Economic Forum ranked the Philippines 65th among 144 countries in their 2012 survey, a significant jump from 75th place last year.  In 2011, Transparency International reported that the Philippines improved from 2010’s 134th place to 129th out of 183 most corrupt countries in their 2011 Corruption Perception Index.

“GDP grew 6.1 percent in the first half of this year while unemployment rate went down even with a growing labor force.  We think that these are the result of renewed confidence in our domestic and political situation.  However, we know that we should be able to show more tangible results to reinforce public optimism.  For this, we need private investments to achieve rapid and sustained growth,” the NEDA official said.

During the roundtable, Edillon also stated that the external condition of the economy is likewise vital in strengthening confidence in the domestic situation of the country.

“It is very important for us to find effective and sustainable solutions in the context of attaining a more stable global economy.  However, if public and private investments produce results domestically, then the external situation would not matter very much,” said Edillon.

The NEDA official identified sectors where investments should be focused, such as infrastructure.  She said that through public-private partnerships, a substantial amount of public funds are freed up that could add to other sectors in need of financial support.

“But we also need to think strategic infrastructure.  Over the short term, we think that tourism will be able to create jobs that could accommodate even the poor,” said Edillon.

She said that the Departments of Tourism (DOT) and Public Works and Highways (DPWH) have identified the types of infrastructure such as seaports, airports, roads that are needed most in tourism areas.

Other than infrastructure development, Edillon emphasized that sustained growth is needed in the manufacturing sector for the country to attain inclusive growth.

She noted that output in the manufacturing sector in 2009 contracted by 4.9 percent, but recovered in 2010 with an 11.2-percent growth before moderating to 4.7 percent in 2011.

“At present, the manufacturing sector is responsible for only about a third of output and absorbs only 15 percent of total employment. In the recent past, the sector suffered from much volatility.  Given a somewhat rigid labor situation, this means that the holders of capital are the ones who absorbed the negative consequences.  Going forward, we will strive to create an environment that facilitates factor mobility even as we recognize the need for policies that promote job security as well,” Edillon said.

M.R. No. 2012-078

11 November 2012