MALAYA: ADB says RP growth among most inequitable in region

March 7, 2008

THE Arroyo administration’s much-touted “highest economic growth” is “among the most inequitable” in the region, according to a new report of the Asian Development Bank which also said government corruption continues to hamper development in the country.

In an 83-page study “Philippines: Critical Development Constraints,” the ADB downplayed Malacañang’s declarations of an economic take-off, saying that “while growth has picked up in recent years, with the economy in 2007 posting its highest growth of 7.3 percent in the last three decades, both public and private investment remain sluggish and their share in gross domestic product has continued to decline, raising the question of whether the current economic momentum can be sustained.”

“In per capita terms, the growth was even less favorable,” said the ADB, pointing out from 1961-2006, “per capita gross GDP grew 1.4 percent annually compared with 3.6 percent in Indonesia, 3.9 percent in Malaysia, and 4.5 percent in Thailand.”

The low per capita GDP growth has resulted in a slow pace of poverty reduction and high income inequality.

The government yesterday reported that 26.9 percent of families in 2006 were below the official poverty threshold.

“In 2003, about 25 percent of Philippine families and 30 percent of the population were deemed poor and, in 2006, the Gini coefficient of per capita income – at slightly over 0.45 – was among the highest in Southeast Asia,” said the ADB.

The Gini coefficient measures inequality of income or wealth distribution.

The ADB study also said corruption and governance issues are among the biggest stumbling blocks to attaining long-term and equitable growth.

“Poor performance on key governance aspects, in particular, control of corruption and political stability, has eroded investor confidence,” the ADB said citing several international studies and surveys suggesting that “the Philippines’ ranking in the control of corruption and maintaining political stability has worsened.”

According to the ADB, “the Philippines has scored lowest among countries with similar per capita GDP levels on control of corruption and political stability since 1996, and on rule of law since 2002.”


The country has also “lost momentum in controlling corruption, and has allowed Vietnam and fairly soon, Indonesia, to pass it. In the case of political stability, the Philippines has slipped, particularly relative to the 1998 level,” the ADB added.

The ADB explained that political problems comparable to the 1980s, which caused a decline in foreign direct investments, have not disappeared “in sharp contrast to surges in Malaysia, Indonesia, and Thailand” that have cleaned up their governments and instituted reform measures.

The report said “instability was manifested in a number of political events in 2000, 2005-2006, and 2007 that sorely tested constitutional processes.”

“The perception of worsening corruption was found to partly explain the low investment rate in the Philippines. Poor governance was also found to translate into higher lending rates, reflective of premiums for worsening corruption, political instability, and internal conflict, acting as disincentives to private investment. A key reason for weak revenue generation – leakages in revenue collection – is rooted in persistent corruption and patronage problems,” said the report.

The report argues that governance concerns underline other critical constraints. For instance, corruption undermines tax collection and reduces resources for infrastructure development.

“Similarly, the political instability hinders investment and growth and reduces the tax base,” said the report.


The country’s fiscal situation also “remains tight despite the government making good progress to reduce deficits and aims to balance its budget in 2008.”

“It said that much of the reduction in fiscal deficit has been driven by deep cuts in spending on social and economic services and sale of government assets,” said the report.

The ADB also noted “declining public and private sector investments in infrastructure” which has led to “inadequate and poor infrastructure and bottlenecks” that raised the cost of doing business in the country and eroded the competitiveness and attractiveness to both foreign and local investors.

“Per capita paved road length for the Philippines is roughly one-sixth that of Thailand and one-fourth of Malaysia,” said the report.

Poor infrastructure and weak investor confidence have led to weak flows of foreign direct investment (FDI), the report said pointing out that the Philippines only got FDIs worth $1.1 billion in 2001-2006, compared with $6.1 billion for Thailand and $3.9 billion for Malaysia.

It said the country’s lower FDI “partly explains a smaller and narrower industrial base compared to its neighbors whose share of manufacturing in GDP is 34.8 percent in Thailand and 30.6 percent in Malaysia. The Philippines’ record is 23.5 percent.


In a statement, ADB chief economist Ifzal Ali said “targeting and removal of the most critical constraints will lead to the highest returns for the country. It will spur investment, which in turn will lead to sustained and high growth and create more productive employment opportunities.”

“This would ensure that the fruits of development are shared by all,” Ali added.

The United Opposition said government figures showing an increase in the number of poor Filipinos is the best argument for President Arroyo to resign.

“Her misplaced economic policies and the massive corruption have led us to this situation,” said UNO president and Makati Mayor Jejomar Binay.

He said Arroyo has consistently justified her stay in power by citing the supposed gains in the economy under her term.

“Now that government figures show that she has failed to improve the lot of million of Filipinos, and has in fact increased the number of poor Filipinos, it’s time for her to go,” he said.

The National Statistical Coordinating Board said Tuesday that poverty incidence in the Philippines worsened to 32.9 percent in 2006 from 30 percent in 2003.


Binay said the only ones benefiting are Arroyo cronies and business associates, and political allies “who make millions in kickbacks and juicy government contracts.”

Sen. Mar Roxas bewailed the rising incidence of poverty from 2003 to 2006 as reported by the NSCB.

He said this only shows government is busy covering up anomalies and neglecting its duty to provide relief for the public in the midst of rising prices of oil and other commodities.

The NCSB figures, he said, clearly showed a disconnect between the financial markets and the grassroots economy, and a widening gap between rich and poor. From 4 million poor families in 2003, this went up to 4.7 million in 2006.

The National Economic and Development Authority on Wednesday said poverty worsened because of increasing prices of commodities and the insufficient income of the citizenry, with “external factors” like high oil prices playing a role.