InterAksyon.com
The online news portal of TV5
The online news portal of TV5
S&P, as we now all know, raised its sovereign credit rating on the Philippines last week, affirming what Fitch Ratings was first to call, and signalling the inevitability of Moody’s concurrence in the days ahead. Moreover, S&P assigned a stable outlook on Manila, assuring that our highly prized credit score will hold for at least the next six months to a year.
Indonesia – that other Southeast Asian archipelago, that other erstwhile regional basketcase, that other "demo-crazy" in this neighborhood of proud, functional autocracies - had been working for the same investment grade rating. Alas, S&P merely affirmed its old rating for Jakarta, keeping it where we were before - a notch below investment grade. The outlook for Indonesia, meanwhile, actually went down, from positive to stable.
With a bull run in the markets, Philippine leaders are predicting a takeoff for the whole economy. In the most optimistic forecast yet by any of President Benigno Aquino III's economic managers, Trade Secretary Gregory L. Domingo said more foreign direct investments (FDI’s) should come our way no sooner than two months from now.
It really is a fantastic prospect.
Kawawa lang our Indonesian neighbors, no?
If there's any country who understands what's it's like to have been the Philippines this past quarter century, it's Indonesia. We both emerged from military-backed dictatorships to bet hard on democracy. Much like the Philippines, Indonesia's economy had been marked by fits and starts, hobbled and chained by chronic corruption, cronyism, and military adventurism, even as it carried the burden of proving the viability of lofty democratic ideals in this region - a region that values stability (however enforced) over belittled (or demonized) rights and freedoms.
The Philippines' achievement of investment grade, it must be said, was hard-won, and possibly sweet vindication for three decades of this temerity to stick to such ideals. Through coups and chronically fragmented politics, this economy muddled through to institutionalize systems and policy reform, and to gain a measure of global approval that ostensibly can bring us to a new level of normal.
The government says: Investment grade equals investments equals jobs! What Filipino wouldn't see this as good news? Not us. InterAksyon.com is onboard with the congrats. We give credit to government – to President Aquino and his predecessors, starting with President Ramos and by no small measure acknowledging President Arroyo – for building us up, slowly, crucially, clumsily, to this point.
But who wouldn't feel sorry for Indonesia?
Well, actually, not us again.
For while the Philippine government touts investment grade as the start (hopefully) of a new chapter in our growth as a nation, this has been Indonesia’s new normal for the past decade – junk status notwithstanding:
From nearly a quarter of its population in 1999, Jakarta halved poverty to 12 percent last year. That is less than half the Philippines' current poverty incidence of 28 percent. Indonesia’s unemployment climbed from 5.5 percent at the height of the Asian crisis to 6.6 percent last year, but it was still lower than the Philippines' seven percent.
True, human welfare in the Philippines, as measured by the United Nations' human development index (HDI) inched up from 0.61 in 2000 to 0.65 last year. But the pace was slower than the improvement in Indonesia, where the HDI rose from 0.54 to 0.62 over the same period, indicating that welfare issues in the Philippines have been more stubborn.
Inequality in the Philippines eased, with the Gini coefficient (a measure for wealth distribution and the inequities therein) dropping to 42.98 in 2009 (the latest available data) from 46 in 2000. But Philippine society remained more inequitable than Indonesia, which enjoyed a lower coefficient of 34 as of 2005.
To what does Indonesia owe its success? In great part, to its enviable position as a haven for FDIs. In a span of six years through 2011, Indonesia overtook Thailand and Malaysia to become Southeast Asia's second top drawer of foreign direct investments. It was second only to Singapore.
From under $5 billion, or 0.06 percent of total FDI flows to Southeast Asia in 2006, Indonesia's share grew more than threefold to at least $18 billion - or 15 percent of the total - in 2011. Over the same period, the Philippines' share fell from nearly $3 billion to a little over $1 billion.
The divergence in our fortunes couldn't be starker. Net inflows of FDI fell from three percent of Philippine GDP in 1998 to 0.83 percent in 2011. In contrast, Indonesia saw a net outflow of 0.2 percent at the height of the Asian crisis turn into a net inflow equivalent to 2.14 percent of GDP two years ago.
Indonesia has also done a better job of maximizing these same inflows, as can be seen from its high FDI Contribution Index, which is a measure of the economic dividends per unit of FDI. The dividends come in the form of jobs, wages, taxes, exports, etc. In Asia, Indonesia and China outperform their neighbors in getting more bang out of every FDI buck, so to speak.
In a survey of multinational companies conducted by the United Nations Conference on Trade and Development (UNCTAD) for this year's World Investment Report, Indonesia for the first time joined the world's top five choice investment destinations.
Before we get any further, and lest we lose track of our point: All of this has been taking place while Indonesia was (and still is being) held below investment grade.
This highlights the disconnect between the financial markets - which are prone to bouts of irrationality, after all - and the real economy. Indonesia proves that, no, investment grade is not the turnkey to attracting investors, nor to generating jobs. Even before any ratings upgrade, there has always been room and necessity – and urgency – to just do it: to improve infrastructure, to streamline the systems and improve the environment for doing business.
International investors, no doubt, are starting to read up on the Philippines again. Maybe even directing their staff to start planning a trip to Manila. First thing they’ll look up: Where’s the airport?
Ratings from Fitch, S&P, and Moody’s are good, important indicators of stability and our conduct. But there is no better measure of how brick-and-mortar investors regard an economy than how they score its performance in terms of ease of doing business. And according to the latest World Bank report, Indonesia improved its ranking in this regard - from 130 in 2011 to 128 last year. In contrast, the Philippines dropped from 136 to 138 over the same period. The Philippines has also been missing its own targets for infrastructure spending, and failing to get the overwhelming majority of its public-private partnership infrastructure projects – a pillar of the Aquino economic plan – to the starting block.
Poor Indonesia?
Jakarta no doubt would love to have our grade. In the meantime, however, our neighbors to the south will just have to make do with all those darned investments. InterAksyon.com
No comments:
Post a Comment