Infrastructure program will produce huge trade deficits
The massive deficit in this country’s 2017 merchandise trade, which caused the current account of the balance of payments (BOP) to swing from a $600 million surplus in 2016 to a $100 million deficit last year, is very worrisome. But what is even more worrisome is the reaction of the nation’s external trade policymakers – the Department of Trade and Industry (DTI) and the National Economic and Development Authority (NEDA) – to that bad outcome.
The DTI-NEDA reaction has been an explanation of how the massive excess of imports over exports came to be. The appropriate reaction should have been a combination of explanation and strategy: an explanation for the huge merchandise trade deficit coupled with a strategy for correcting the imbalance and then going on to produce a surplus.
This is how NEDA Director General (and concurrent Secretary for Socio-Economic Planning) Ernesto Pernia has explained the massive 2017 merchandise trade deficit. “(A)s the Duterte administration embarks on its ambitious Build, Build, Build infrastructure program alongside expectations of sustained economic growth, demand for imports will remain robust in the near term …. The sustained wider (goods trade) deficit is not good but is transitory and manageable.” The transition period obviously includes 2018 because NEDA has stated that it expects the current-account deficit to rise to $700 million.
And what strategy does the Duterte administration – more specifically, DTI and NEDA – have for producing a successful transition from massive trade deficits to growing trade surpluses? Again, here is the NEDA chief. “We need to effectively respond to market trends and consumer preferences worldwide to drive more demand for Philippine-made products … by gathering timely and relevant information on emerging demands in potential markets (and) intensified market research and tighter linkages with businesses, malls and shopping centers abroad, (which) would help increase the visibility of Philippine export products.”
The Build, Build, Build train – “75 flagship, game-changing projects, with about half targeted to be completed within President Duterte’s term” – is gathering speed, sucking in billions of pesos’ worth of heavy equipment, machinery and raw materials, but the exports side of the equation is embarking on, or is still engaged in information-gathering, research, linkage-establishment and kindred activities that should have been done in the last few decades. This is truly a formula for trade, fiscal and monetary disasters.
Since the DTI and NEDA clearly have no realistic formula for restoring stability to Philippine external trade, the only recourse for a government that values economic stability is to slow down the inflow of imports. That will not be popular with President Duterte, who is fixated on his “golden age of infrastructure” program.
Under the circumstances, the people of this country will have to fasten their seat belts. They are in for a bumpy external-trade ride in the next few years. Last year’s massive deficit is likely to be the first in a series of such bad outturns.
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