The most recent news from the Philippine Statistics Authority about this country’s merchandise trade balance was very discouraging. PSA reported that Philippine merchandise trade incurred a deficit of $3.62 billion as a result of imports’ totaling $8.73 billion and exports’ totaling $5.11 billion.
Even more discouraging were the reactions of the nation’s economic managers. Typical of the reactions was that of the director-general of Neda (National Economic and Development Authority) and the governor of the BSP (Bangko Sentral ng Pilipinas). Dr. Ernesto Pernia, who is concurrently the secretary of Socio-Economic Planning said, “Much has to be done to create an environment that is necessary for exporters to thrive. The signing into law of the Ease of Doing Business Act of 2018 is a step in the right direction.” The governor of the BSP authorized the issuance of a statement saying, in part, that “the widening merchandise trade deficit (based on Philippine Statistics was brought about by the sustained rise in imports to support domestic economic expansion.”
It should be noted that the director-general and the governor dwell on the upsurge of imports in the merchandise trade debacle and offer no explanation as to (1) why this country’s merchandise trade failed so miserably in 2018’s first four months, (2) what the prospects are for a turnaround in the near term and (3) what needs to be done by the government and the export community in order that the turnaround will happen. They are virtually saying that the four-month trade balance—the $3.62 billion deficit compares with the $1.5 billion of the same 2017 period—is principally attributable to the Duterte administration’s “Build, Build, Build” program and that the country’s performance of this country’s exporters during the January-April 2018 had little to do with it. This, of course, is not the case.
What is happening is a bad-news-and-worse-news situation. The bad news is the very bad outcome of the first four months of this year; the worse news is that the trade deficits of increasing magnitude have become a part of this country’s economic way of life and will so remain until the government—especially DTI (the Department of Trade and Industry)—comes to grips with the reality that Filipinos are no longer as brawn and brain as they once were. Exports of brawn and brain have taken the place of merchandise exports in the government’s economic-priorities list. Accordingly, more stories appear in the media about DoLE (Department of Labor and Employment) than about DTI. In similar fashion, DTI appears to be more preoccupied with the ‘Industry’ in its name than with the ‘Trade.”
Lest I be misinterpreted, I hasten to pay tribute to the enormous contributions made to this country by our bagong bayani (the Overseas Filipino Workers) and the mas bagong bayani (call center agents), who together have infused so much foreign exchange and purchasing power into the Philippine economy. That intention is farthest from my mind. What I do want to do is ask why it has been that Philippine merchandise export trade has not moved forward as strongly and as consistently as this country’s admittedly highly successful trade in services. Why couldn’t the two export trades have moved forward in tandem?
A large part of the answer to this question is the waning that has taken place in government direction and support for Philippine merchandise export trade. The job cannot be done without strong government leadership; the private sector needs to be encouraged, assisted and pushed. Japan’s postwar export miracle has been attributed, and rightly, to MITI (the Ministry of International Trade and Industry), and Taiwan’s and Hong Kong’s own trade miracles were effectively led by their MITI-type institutions.
The Board of Investments that was established under the Investment Incentives Act of 1967 was envisioned by the government to be this country’s counterpart of MITI, identifying industries of high importance for the economy and encouraging businessmen to put up those with credit, data and government assistance. In 1968 BoI released its first IPP (Investment Priorities Plan), which was a list of high-priority industries that were essentially oriented toward the domestic market. Two years later, in an act that abundantly showed its concern for the Philippines’ external economic stability, BoI released its first EPP (Export Priorities Plan), which, as its name suggested, was intended to provide encouragement for investment in productive activities geared toward foreign markets. Because they embodied government leadership and preparedness to help, the annual appearances of the IPP and EPP were eagerly awaited by the domestic and foreign business communities.
How different the situation is today. Where the Export Department was once a powerful part of the BoI structure, today one hardly hears the phrases ‘export promotion’ and ‘export drive.’ The BoI has ceased to be export-oriented and there no longer is an eagerly-awaited EPP.
To the greatest extent possible a country’s imports should be paid for by its exports. For the ‘Build, Build, Build’ program this clearly is not going to be the case. The shortfalls will necessarily have to be financed by additions to this country’s hitherto-manageable external debt.
Which explains why I say that the Philippines likely will have a succession of large merchandise trade deficits for years to come.