PGMA’s first world dream

Cebu Daily News
Fernando Fajardo

In her State of the Nation Address last Monday, PGMA again mentioned her plan to make the Philippines ready for the first world in 20 years.

Without a concrete plan in her first three years from 2001 to 2003, PGMA managed to move up the economy by an average of 3.7 percent annually, that is, by 1.8 percent in 2001, 4.4 percent in 2002 and 4.9 percent in 2003. In her 2004-2010 Medium Term Philippine Development Plan, PGMA targeted the GDP to grow in real terms by 4.9-5.8 percent in 2004, 5.3-6.3 percent in 2005, 6.3-7.3 percent in 2006, 6.5-7.5 percent in 2007, 6.8-7.8 percent in 2008, and by 7.0-8.0 percent in 2009, and 2010. Why the target run of up to 7-8 percent annual GDP growth rate? Because based on the experience of our neighbors in Asia, it is at that rate only, if sustained for decades, that we expect the Philippines to reduce much of its poverty, achieve NIChood, or succeed in becoming part of the First World.

In the last five years that passed under the 2004-2010 Medium Term Plan, PGMA only met her target in two years, that is, in 2004 with 6.4 percent GDP growth and in 2007 with 7.1 percent. Overall, GDP growth averaged 4.8 percent annually from 2001 to 2008. But on account of the global recession, the government is forecasting only a GDP growth of 0.8 to 1.8 percent in 2009 and a little higher 2010, which means that the average in ten years could actually be lower than 4.8 percent. Yet, even at 4.8 percent, the Philippine economic growth rate is still very much below what many of our neighbors in Asia experienced when they succeeded in becoming NICs or part of the First World.

Centuries of living like a hermit during the colonial years did not make Japan rich. By allowing herself to be globalized when forcefully opened in 1854 by the US Navy and sending Japan’s best minds abroad to copy and absorb the most modern technology and information from the west, Japan succeeded in joining the First World in half a century. This it announced with a big bang by trouncing the Russians in the 1904-05 Russo-Japanese War. So strong was Japan economically and militarily then that in less than four decades later into the last century it was again ready to do battle with the US. Japan was defeated in that war which also came with almost complete destruction of its industrial base. Yet in just two decades later, through massive economic reconstruction and exports industrialization, it again rejoined the First World which she announced with a great fanfare by hosting the Tokyo Olympics in 1964.

What Japan did was successfully duplicated by South Korea in just two decades as proven by its ability to host the Seoul Olympics in 1984. In less than three decades after Mao’s death, China also hosted the Beijing Olympics after successfully opening itself to capitalism and globalization which allowed its GDP to grow by up to 10 percent annually and accumulate the biggest pool of foreign exchange reserves in the world from its massive exports. China’s per capita GDP is only a little higher than ours but its 1.2 billion in population means that its GDP is now the third, if not the second, biggest in the world, next only to the US.

By definition, becoming part of the First World or high income economies requires a Gross National Income per capita of US$10,726 or more in 2005. GNI is the same as Gross National Product except that in computing the GNI, indirect taxes net of subsidies is deducted. GNP, on the other hand, is GDP plus net factor income from abroad. GDP is arrived at by adding all our output from different sectors of the economy or adding all our expenditures in the form of personal consumption, government consumption, investments, and net exports. GNP and GDP are equal if NFIA is zero.

UNDP’s Human Development Report measured the Philippine per capita GDP at US$1,192 in 2005. That was higher than India’s 736 or North Vietnam’s 631 but lower than Indonesia’s, 1,302, China’s 1,713, Thailand’s 2,750, Malaysia’s 5,142 or South Korea’s 16,309, Hong Kong’s 25,592, and Singapore’s 26,893, not to mention Japan’s 38,484 or the US’s 41,890. For the Philippines to continue growing at 4.8 percent achieved by PGMA in the last 8 years and assuming our population to continue growing also at 1.8 percent annually, it will take us more than 28 years to reach where Thailand was in 2005. At the maximum rate of 8.0 percent in GDP growth and the same 1.8 percent population growth, our per capita GDP will grow by 6.2 percent annually. At this higher rate, we would reach where Thailand was in 2005 in 14 years or 25 years in the case of Malaysia but that would still not make us part of the First World.

For us to become part of the first world with a GNI of at least US$10,000, we need at least 36 years of sustained growth of up to 8 percent in GDP or 6.2 percent in per capita GDP growth after considering population growth, not 20 years as envisioned by PGMA.

That we can achieve only if we follow what China did in the last 3 decades, which is impossible to do now given that export industrialization as a developing country strategy may no longer work after what happened to the US and the rest of the developed world today. Now many Americans know that they cannot simply consume and import more than they can afford without going into massive borrowing that is now causing the global economy to go into a recession.

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