AGRICULTURE:

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Secular, Structural, Cyclical and Seasonal
Trends The Philippine political economy 2010
forward
A Presentation to the 4th National Tripartite
Conference for Cooperative Development Olongapo
City (Sep 24)
Governor Joey Salceda Presidential Economic
Adviser
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GREEN shoots, GREY roots
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Summary

• 2010 Scenario Fresh faces but same policies
• OFW story 20 of GDP by 2015
• Investments falling power rates, modest wages
  but infra lags
• Limited state capacity- rising tide of populism
• Arroyonomics stubborn poverty
• Strategic imperatives for next administration
  fresh mandate offers narrow window for new taxes
  and infra via BOT

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Political Outlook

• Personalities fresh, young, with more
  educational attainment
• Policy More of the same in 2010
• Parity products but uniformly pro-business
• No material differentiation in policy menu
• Process, not Outcome
• No less than four major candidates
• Minority president as in past three national
  elections
• Automation should mitigate uncertainties
• Domestic mood is more egalitarian (food) than
  libertarian (freedom)

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Comparative Age Profile of Presidential Candidates
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2010 Presidential Derby
Sources www.senate.gov.ph Wikipedia and
personal websites
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2010 Presidential Derby
Sources www.senate.gov.ph Wikipedia and
personal websites
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Presidential Elections
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2010 Presidential Elections
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Pulse Asia Survey
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SWS Survey
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SWS Special Survey
Source http//www.abs-cbnnews.com/nation/09/13/09
/50-prefer-noynoy-vote-rich-luzon-areas-sws-survey
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Youth Votes
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PHISIX Performance run-up to Elections
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PHISIX Performance
1992 elections
1998 elections
2004 elections
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PHISIX Performance after Elections
Fiscal reforms
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Market Gyrations during Elections

• Market gains in run-up to elections particularly
  6-9 months prior and deep corrections of the
  recent off-the-brink relief rallies will provide
  the window
• Uniformly higher one-year after elections mainly
  due to honeymoon period, i.e. fresh face offers
  fresh hopes
• Biggest post-election run-up triggered by reform
  mainly after Arroyo win and fiscal reforms were
  put in place in the first 9 months. The seasonal
  weakness in first 3 months of new admin should be
  used to increase bet if a reform plan is credibly
  articulated.

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Long Term Outlook

• OFW will be biggest driver of aggregate demand
  growth
• Could reach 20 of GDP by 2015
• RP best positioned to exploit impacts of
  demographic shock and healthcare reforms in the US

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Labor Force Forecast of Selected Asian Countries
Source Demographic Change and the Asian Economy,
JCER March 2007
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As against 46,633 teacher items created from
2005-2009

• Tertiary graduates grew by 6.5 pa
• Deregulated tertiary sector

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Nursing Examination Results
Deregulated Tertiary
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Average Results of National Achievement
Tests(SYs 2002-2003 to 2007-2008)
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Household Spending on Education

• Total national expenditure on education 3.9 of
  GDP
• fifth largest item in HH budget
• 9 p.a. in past nine years

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2007 deployment per skill and destination(new
hires, land-based),
Construction workers
KSA budget pegged at 50/barrel
Caregivers Domestic helpers
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Filipino workers who entered Japan with
significant numbers as of 2006
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Seafarers in Japanese Merchant Fleet, 2004 2005
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Foreign Investments

• FDIs were lower than regional peers but were the
  most durable
• Lower power rates and modest wage trends to lift
  competitiveness but infrastructure lags
• Investments likely to focus on offshoring,
  tourism, energy, infrastructure and export
  manufacturing

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FDIs and FPIs
Source BSP SEFI as of September 17, 2009
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Cumulative financial account flows into ASEAN
economies since Q1 1999
USD bn
Rising cumulative inflow
Durable investment flows Into the Philippines
during Global financial Crisis
Rising cumulative outflow
Source CEIC, Haver, UBS
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Levelized Purchased Power Adjustment
PPA, US Million Total
Levelized PPA, P/kWh
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Purchased Power Adjustment (November 2001
Estimate)
PPA, Php/kWh
PPA, US Million Total
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• In line with 5.6 average CPI
• GDP expansion provided space for modest wage
  adjustments

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BOI Investments
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BOI Foreign Investments
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Exports

• Exports
• Heavy dependence on cyclical electronics
• FDIs in export manufacturing could benefit from
  anticipated fall in power rates while wage
  increases have been modest relative to peers
• More diversified markets with JPEPA, AFTA CEPT

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Philippine Export Mix
Heavy dependence on electronics although falling
from 72 to 62 Rebalancing in progress
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Philippine Export Market
Greater China from 12to 25 while US from 24
to 16
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BPOs

• BPOs now contribute 6bn
• Employs 400T versus 600T for electronic export
  sector
• Secular trend remains intact as service jobs
  migrate enabled by technology
• Excess tertiary graduates provide ready supply
• Modest wage increases

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Basic Education Curriculum
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Cyberservices Workforce Forecast
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Cyberservices Revenue (USm)
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Tourism

• Tourism contributed 5bn in 2007 with 1m
  employment
• Rising tourism investments in new destinations
  should begin to encourage arrivals
• Expanding routes under open skies

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Tourist Arrivals
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Tourism Market
Open skies
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RP most exposed to non-Asean traffic
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GIR Quadruples in 9 years
GIR increased by 4.7bn in the midst of the crisis
Source BSP SEFI as of September 17, 2009
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Economy will have a lot of dollars!

• But, will the government have the pesos?

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State Capacity

• Tax revenues are modest at 14 of GDP
• Privatization reserves are low- crown jewels have
  been sold
• Efficiency could raise spending capacity by 0.78
  of GDP
• Debt ratios offer scope for deficit spending
• Infra sub-optimal at 2.6 of GDP
• With GOCC debt at only 7, BOT / PPP provide the
  best means to increase capital outlay
• Not a single BOT implemented under Arroyo

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Rising Tide of Populism

• Cut in wage taxes (P36bn) coinciding with cut in
  corporate taxes (P20bn) with no compensating
  revenue measures -0.67 of GDP
• Salary Standardization Law (SSL) P36bn p.a. for
  three years
• CARPeR P30bn pa
• Rice self-sufficiency (on top of food security)
  P15bn pa at NG plus P20bn pa at NFA
• PERA law with revenue loss of P2bn p.a.
• Cheap medicines act
• Rent control law moratorium cum lower ceiling
  of 7 rental reversion
• Luckily- 2010 stimulus is purely regurgitated
  items

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Fiscal Reforms Part II

• Fiscal consolidation is first challenge to
  incoming administration
• Improved collections historically do not
  deliver due to political economy
• New taxes is critical
• Carbon tax on fuel 10/barrel will raise P52bn
  or 0.67 of GDP
• Increase VAT from 12 to 14

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TAX LEAKAGE P233B in 2007
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NG DEBT
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NG FOREIGN DEBT
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DOMESTIC NG DEBT
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GOCC DEBT
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Total Public Sector Debt
From 118 in 2003 (due to NPC IPP), it has fallen
to 71
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ECONOMIC IMPACT OF FISCAL REFORM
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Fiscal space 2 of GDP
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FOREIGN DEBT
If we adjust for resident ROP holdings of
US18bn, foreign debt to GDP would be only 21
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NG Foreign Bonds 13x since 1995
Foreign bonds- 73 of incremental external
financing for public sector
Source Bureau of Treasury
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Interest Payments Debt Service to GDP
Debt service savings of 10.1bn
This translates to a net resource savings of
US4.1bn in 2008 to finance import content of
capex needed for growth!
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Financial Sector

• Strong and stable financial sector
• NPLs at 3.36 despite global financial crisis and
  is largely a result of cumulative impacts of SPAV
  Law
• Intrinsic conservatism and inward-looking

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Tensile Strength
NPLs
Total Loans to GDP Ratio
NPL to Total Loans Ratio
Loans to Deposit Ratio
Source BSP
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Monetary Policy- mostly countercyclical
Source BSP and NSCB
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Huge IRD
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ARROYONOMICS
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Basic Strategies

• Fiscal reforms
• P300bn incremental revenues from RVAT
• P210bn from power tariffs actually, fiscal
  reforms started with this
• Wealth creation
• Strategic targeting of BPOs (vs. electronics for
  Aquino-Ramos)
• Superregion-focused infrastructure
• Subic-Clark hub (vs. Calabarzon for Aquino-Ramos
  era)
• Tourism investments and promotion with arrivals
  rising from 1.8m in 2001 to 3.14m in 2008 with
  5bn in 2007
• Power sector reforms (EPIRA)
• Structural change yet to impact prices
• Aggressive international engagements (a.k.a.
  dinners)
• trade expansion JPEPA
• investment promotion IT
• OFW protection and market expansion

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Economic Performance

• 33 quarters of uninterrupted growth
• One of few to avoid negative growth during the
  crisis, even securing a credit upgrade
• Average growth higher than all past periods since
  1966
• Average inflation lower than all past periods
  since 1966
• GDP grew 2.23x since 2001 in peso terms
• GDP grew from 76bn to 168bn
• GDP / capita increased by 87
• GNP / capita from 967 to 2,051 or 121
• Peak growth of 8.3 in 2Q07, the highest in 30
  years, despite the drag / decrement impact of
  dysfunctional politics on investments

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Arroyo boom
Ramos boom
Aquino boom
Marcos boom
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Stimulus works
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GDP Expenditure Mix
Note Baseline GDP excludes Imports Statistical
discrepancy
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GDP AIS Mix
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INFLATION Sub-zero in Aug, 2.6 in 2010
Source National Statistics Office
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Employment
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Labor Force Survey
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Labor Mix
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Persistent poverty in the midst of plenty
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POVERTY INCIDENCE 27.6m is still a lot of poor
people
Source NSCB
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Poverty and Hunger

• Poverty incidence hardly improved from 27.5 in
  2000 to 26.9 in 2006
• No. of poor families rose by 670,000
• No. of poor people rose by 2.9m
• Self-rated poverty from 59 in 2000 to 47
• Hunger incidence rose 11.4 in 2000 to 20.3

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Labor Mix vs GDP Mix
74 of poor is rural
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Self-Rated Poverty
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• 17.5m more mouths to feed
• 1.4M of 2.6m births are unplanned
• 72 to women who did not finish elementary

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RICE Supply-Use Estimates Forecasts,Crop
years 2008-2009, Philippines, in 000 MT
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Hunger Incidence
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Global Outlook

• Economic
• Green shoots
• Green energy
• Biotech
• Healthcare
• New normals
• After initial spikes of recovery, lower band of
  growth and inflation

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Domestic Outlook

• Fresh mandate
• One-year honeymoon must be exploited
• For fiscal consolidation
• New taxes are inevitable
• Improve collections
• For big-ticket BOT projects

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Strategic Imperatives

• Education Big Push P110bn
• Increase basic education by P35bn elementary-
  P20bn, secondary- P10bn and subsidy to private
  schools P5bn
• Universal tertiary access thru additional P70bn
  HECS - P40bn, TESDA P10bn, SUCS modernization-
  P15bn, LUCS modernization- P5bn
• Scholarships for foreign higher studies- P5bn,
  particularly science and technology to produce
  more PhDs and MA/MS
• Corporate universities
• Targeted Infrastructure
• Point-to-point infra for Tourism NG
• Logistics hub PPP arrangements for airports and
  mass transport
• Urban decongestion BOT mass transit for
  comml/residential property development, eg.
  Dagupan Lucena corridor
• Countryside development NG rural access road
  network

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Strategic Imperatives

• Agricultural modernization
• Food security through irrigation, extension and
  technology
• Rice self-sufficiency
• Green Energy
• Wind
• Geothermal
• Hydro
• Mindanao Marshall Plan
• Education
• Infrastructure
• Agricultural modernization
• Energy development
• Rule of Law
• Judiciary budget
• PNP modernization

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THANK YOU
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You can download the presentation materials at
www.cooperativeunionofcavite.com