DOF Economic Bulletin, 25 June 2018


Heydarian’s opinions went overboard describing the Philippine economy as suffering from a “fallout” and “economic managers as grappling with erratic and populist policies”. His generalizations are erroneous and not backed up by accurate statistics.

First, he says that “During the first half of 2017, there was a 90% drop in new investment pledges”. Actual gross domestic investment in the economy based on the National Income Accounts (and these are not just pledges) rose in real terms, by 9.5% in the whole of 2017 and 12.5% in the first quarter of 2018. The investment pledges being referred to by Heydarian are those that are applying for fiscal incentives which are a small proportion of total investments.

These investment data are backed by actual foreign direct investment inflows recorded by the Central Bank --- US$10.05 billion in 2017, up by 21.4% over the previous year and US$2.2 billion in the first quarter of 2018, up by 43.4% over the same period in 2017.

These investment data are also backed by bank-disbursed loans, almost 90% of which go to production, which rose by 17.9% in 2017 and 17.3% in the first quarter of 2018.

Second, he says that “the Philippine Central Bank xxx is also under criticism for its delayed adjustment of interest rates amid an upsurge in inflation as well as a historically weak peso.” Actually, the Bangko Sentral acted swiftly adjusting policy rates twice in May and June to correct elevated inflationary expectations. As of May 2018, the month-on-month inflation has dropped to zero, implying that prices were nailed to their average levels in April.

On his claims of a “historically weak peso”, Heydarian should look further back---the peso was at P55.57/US$1 in year-end 2013 and P56.27/US$1 in year-end 2004. Since inflation has risen since that period, the recent exchange rate adjustment is giving exporters and OFWs what is due them given that their foreign exchange earnings are now. being efficiently used through importation of equipment to beef up the country’s productive capacity.

Third, Heydarian quotes critics who say that “tax reform package xxx has raised the prices of basic goods and commodities”. Indeed, it raised prices, as tax reforms usually do, but the rise is only 0.4 percentage point which is below the 0.7 percentage point discussed in Congress during the tax reform hearings. Actually, the cut in individual income tax rate, which these critics conveniently forget, increased the disposable income of salaried workers by, an average of 15%, thus, the 4.1% average rise in prices from January to May was more than fully offset by this tax cut.

The “fallout” that Heydarian is imagining is debunked by the rapid growth of the economy---6.7% in 2017 and 6.8% in the first quarter of 2018. If Heydarian is looking for “erratic and populist policies”, his eyes are perhaps turned to the wrong country. The Philippine tax reform is certainly not “populist” and not “erratic” but it is necessary to fund that ambitious infrastructure program which is necessary to enhance the competitiveness of the economy.