It’s still the economy, stupid

As political instability builds up in anticipation of elections in 2016, the all important factor of the state of the economy seems to have taken a backseat.

Impeachment complaints against the President, Senate investigations against the Vice President, and the prosecution of legislators for corruption in relation to their use of pork barrel funds have made the political environment in the Philippines less stable and harder to predict. Add to that the move for charter change to tweak the term limit of the president and you potentially have a volatile mixture.

All of this stems from the fact that we have presidential elections scheduled in 2016. A certain camp within the administration believes that if they can extend or lift the term limit of President Noynoy Aquino (PNoy), he will be a shoe-in for re-election in 2016. They neglect to consider one important factor – the robustness of our economy in the medium term.

Both external and internal factors may cause a slowdown in our economy and threaten the political narrative of the administration that good governance through its daang matuwid (straight path) leads to strong inclusive growth (kung walang corrupt, walang mahirap or if there’s no corruption, no one will be poor). Externally, the end of quantitative easing in the United States has meant that the period of easy money or cheap borrowing from abroad is ending. Internally, constraints in the capacity of our ports, roads, rail, energy, information and water infrastructure are already causing prices to go up.

Both these factors are causing the Bangko Sentral to take a more guarded approach. The era of benign inflation that we have experienced over the past few years may be coming to an end, as it begins to tighten monetary policy by raising interest rates. This will have a significant effect on the economic environment of 2015, a crucial year that precedes the elections in 2016.

The previous Ramos administration saw just how dire the situation can become when the economy turns sour. In 1997, as it approached the elections of 1998, the combined effect of a rice shortage coupled with the Asian financial crisis led to a cynical and even angry mood among voters. Prior to this, the administration was campaigning for charter change, claiming that the reforms and seemingly robust growth that was experienced under Mr Ramos would come to an end if he stepped down.

When their move to amend the Constitution failed, the administration sought to bring about continuity of policy by anointing its successor in the person of then Speaker Jose De Venecia (JDV). Despite its monopoly over congressional and executive pork barrel, the administration failed to win the 1998 elections due to the worsening economy. Instead, the landslide victory of the populist Vice President Joseph Estrada became unstoppable. This is the situation that the current ruling Liberal Party (LP) seeks to avoid.

For them to provide a credible alternative to the Vice President Jejomar Binay, who is the runaway frontrunner in all the latest public opinion polls to succeed PNoy, they will have to manage the capacity constraints that could cause our economy to overheat next year and bog down. Any one of several potential crises could emerge and conspire to bring down the credibility of this administration with voters. These are:

• The continuing ports and logistics crisis as the ability of our ports and road network to handle the increasing flow of cargo into our import dependent manufacturing base causes the prices of local goods to rise and erode the external cost competitiveness of our economy

• The public transport crisis as the metro rail system literally buckles under the weight of increased demand, which authorities had failed to plan and prepare for in time, and as the public transport system in the greater metropolitan area continues to muddle through. The impact on labor productivity and wage costs to business as a result of a poorly managed public transport system cannot be underestimated

• The emerging energy crisis which could reach “emergency” status next year according to the energy department. If this is not resolved, then expect rotating blackouts and higher energy costs as power barges using the more expensive diesel fuel as a source of energy will have to be brought in as a stop-gap measure

• The ongoing information and communications congestion. If Internet providers and mobile telephone companies continue to provide relatively more expensive and slower service in the region as studies have shown, this will hamper the ability of our small and medium enterprises to compete as the ASEAN integration approaches

• The expected water shortage. As the El Niño weather phenomenon takes place next year and with increased demand for water from all the property and commercial developments, expect a slowdown in agriculture and potentially even tourism. This could also lead to an increase in water charges

If PNoy’s government fails to adequately address these problems within the next 90 days through a plan of action and delivering a coordinated response, then 2015 could prove to be a diabolical year for them. PNoy’s popularity may continue to further nosedive. His mantra of good governance may fail to wash among voters. His LP party-mate and heir-apparent, Interior Secretary Mar Roxas may even be less popular in the days ahead.

If all these problems remain unresolved by next year, anyone anointed by the president to succeed him in 2016 might be given the kiss of death. This is where a lack of boldness and decisiveness by the administration could hamper the economy and with that, their political survival. Even if they shower local governments with development spending, which seems to be their game plan with Secretary Roxas as the point-man; in the end, he might just be playing the role of a JDV.

If the administration fails to heed the warning signs now and put in place a bold, long-term solution to address the capacity constraints that beset the economy, then anyone of these crisis situations could compound and lead to a slowdown in its rate of growth next year. If that happens, then the legitimacy of the government in the eyes of voters will be diminished. In the end, it’s still all about the economy. – Rappler.com

The author is an international development consultant in the Philippines currently on leave from the South Australian Government where he serves as a senior economic policy advisor in the Department of the Premier and Cabinet. He holds a Master of Science in Public Policy and Management from Carnegie Mellon University and a Master in Development Economics from the University of the Philippines. The views expressed here are his own and not of his employer.