The Economist

Commentary : 'It's the economy, stupid'

Rigoberto D. Tiglao
Inquirer News Service

A CLICHĒ that may seem to be. But other than the weaknesses of the charges against President Macapagal-Arroyo, it's one answer to the question why the Gloria-Ibagsak crowd-despite all the sophisticated and well-funded plots and propaganda it has made against her-can't prod a People Power revolt.

The economy is important in understanding our past two Edsas. Because of massive Marcos cronyism, the economy was in crisis by 1984, making almost inevitable the first Edsa in 1986. On the other hand, Erap's (Joseph Estrada's) drinking and mahjong sprees kept him away from decisively leading the economy out of the Asian-wide financial crisis that started in 1997. The political crises that broke out under Marcos and Estrada, because of entirely non-economic reasons-the Ninoy assassination in 1983 and Chavit Singson's exposé in 2000-only further weakened the troubled economies of each period. These, in turn, deepened the political crisis that confronted them, resulting in their ouster.

In contrast, despite the plots against the President since 2001, the economy in the past four years under her has become stronger.

Take a look at the figures: the rate of economic growth, measured by the growth of the Gross Domestic Product (GDP), and inflation rates, in percentages:

President Average GDP Growth Rate (%) Average Inflation Rate (%)

Aquino 3.8 10.4

Ramos 3.7 7.6

Estrada 2.8 6.0

Arroyo 4.0 5.2

The economy registered its highest growth under Arroyo's presidency compared to the preceding three administrations; inflation, the lowest. There is an unmistakable economic momentum. Growing only 1.3 percent in the first quarter of 2001 when she assumed office, the GDP growth rate has accelerated to 6.4 percent by the first and second quarters of 2004, slowed down this year only by the oil crisis.

Jobs generated annually, measured by year-on-year increases in the number of employed persons, have seen the biggest number under Arroyo:

President

(No. of years) Total during term (000) Average per year (000)

Aquino (6) 4,800 800

Ramos (6) 3,774 686

Estrada (2+) 405 162

Arroyo (3.5) 3,643 1,214

The economic growth under Ms Arroyo has helped the poorest. Poverty incidence has gone down, from 27.5 percent in 2000 to 24.7 percent in 2003. This means 1 million Filipinos getting out of the poverty quagmire in just three years. Wealth distribution has also improved, as shown in the percentage changes in the shares of the different economic groups in the national income. Under Arroyo's watch, the percentage share of the richest 10th decile has declined by 1.5 percent, with the nearly corresponding increases in the share of the poorest deciles.

But it's not that the rich are being terribly impoverished under Gloria's term. Take the case of our stock market's performance, compared to those of others in the region. We're the third best performer this year. In contrast, massive stock manipulations involving the SSS and other state funds occurred in 2000, triggering a near-meltdown of the bourse.

Country 2004 Price Index 2005 May Price Index Growth (%)

Indonesia 1,000 1,088 8.8

Korea 895 970 8.3

RP 1,822 1,929 5.8

Singapore 2,066 2,161 4.6

Malaysia 907 861 -5.1

HK 14,230 13,867 -2.6

The two economic values that react immediately to political disturbances-the exchange and interest rates-behaved quite differently during Erap's and now Gloria's troubled months.

During Erap's crisis that started mid-2000, the peso's exchange rate fell from P43 to the dollar to P51, a huge P8-loss in our currency's value, foreboding a chaotic period unless Estrada was ousted. That certainly convinced the elite to junk him ASAP. In contrast, since the current turmoil started in June, the peso's exchange rate has held steady at the P56-level. This, despite the fact that crude oil prices have zoomed up to their highest levels in 20 years, putting tremendous pressure on the peso's value.

Interest rates, represented by the 91-day Treasury bill rates, remained high at the 10-percent levels in the months before Estrada's fall. In contrast, this year, T-bill rates have even softened, from 7.7 percent at the start of the year to the latest 5.8 percent.

And the coming months?

Business firms are expecting that the political storm will be ending soon.

A Bangko Sentral poll of 839 firms-that's more than double the 300 respondents in Pulse Asia's surveys-showed that businessmen are forecasting a better business climate in the fourth quarter, with the outlook index for that period measured at 18.3 percent. This is a reversal of the negative (i.e., pessimistic) 10.4-percent index for the third quarter of the year. (This newspaper's Aug. 19 article on this poll got it all wrong, with its headline: "BSP survey shows bearish outlook.")

It's the economy under Gloria which is helping thwart all the Ibagsak plots.