Finally, An Economic Czar?

“It is about the economy, stupid!” – Bill Clinton

Malacanang issued EO 49 creating the Office of the Special Assistant to the President for Investment and Economic Affairs (OSAPIEA) with Cabinet rank. The mandate of the new unit is as ambitious as its name is long, to spearhead the economy. The body will be headed by Frederick “Deck” Go, former CEO of Robinson’s Land, a Gokongwei company. Mr. Go comes with impressive credentials. He brings real life experience in running a successful business which is lacking in our technocrats. He follows in the wake of another seemingly good appointment, that of DA Sec. Tiu Laurel. Deck was previously Presidential Adviser on Economic Affairs so he has moved from advising to executing.

EO 49 is a reflection (a rebuke?) of the current economic team which is generally seen to have underperformed. The re-organization will hopefully tighten and focus our development efforts. Deck Go will become the de facto Economic Czar with NEDA, DOF, DTI and the economic agencies reporting to him. The NEDA and DoF Secretaries are co-chairs of OSAPIEA.

There was arguably no need for EO 49. Under Art. XII Sec. 9 of the Constitution the NEDA is tasked “to implement continuing integrated and coordinated programs for national development”. NEDA is chaired by the President with a Secretary of Socio Economic Planning as implementing head. Historically NEDA never assumed this role as lead economic agency. From the time of Cesar Virata who was both Prime Minister and Finance Secretary, the economy has de facto been headed by the Secretaries of Finance with the NEDA head as sidekick, the Robin to the DoF Batman, the Tonto to the Lone Ranger. This is largely a function of the power of the purse holder as well as the force of personalities. NEDA was relegated to perfunctorily signing off on project approvals and foreign grants and such. 

All the President had to do was restore and expand NEDA’s constitutional mandate to its rightful role and appoint Mr. Go as NEDA Secretary overseeing all Government economic agencies. This would avoid any legal challenges to OSAPIEA, having to re-invent the wheel and double staffing and office space. Deck could hit the ground running.

The restructuring follows a slowing of the economy in the early part of the year with a recovery in Q3 driven not by consumption and investment, the catalysts one wants to see which were flat; but by a surge in Government spending that is not sustainable given our limited fiscal head room. Foreign direct investments have continued to decline for over a year now despite all the presidential trips that were supposedly to flood the country with external funds and laws like the Public Services Act that loosened the restrictions on foreign investors. Our stock market is at historic lows.

When assuming office in July 2022 the President proudly announced his “Economic Dream Team”of Diokno, Barisacan, Pascual and BSP Gov. Medalla. Eighteen months later this group has not delivered on the “dream” part of its credentials (Medalla has since departed ousted, it is said, by his former mentor). Ask the exporters, aviation fuel suppliers, military pensioners, private hospitals, frontliners, contractors and teachers who after 4 years are still to be paid what is owed them. Ask the unemployed. Ask the parents whose kids are unenrolled or dropped out. Ask those with no AYUDA or proper health care. Ask the Filipino, 48% of whom believe themselves to be poor. 

The organizational changes come at a time when the popularity of the President is dropping precipitously. His trust rating in a Sept. survey fell from 80% to 65% and has further dropped in a Publicus Asia poll Nov. 25-Dec. 4 to 48%, below the key half way metric. VP Sara’s number also fell to 53%, Speaker Romualdez to 25%. These are not the numbers Malacanang wants to see going into the crucial 2025 midterm elections. The Administration will still likely keep a  majority in the House, perhaps less so in the Senate, but there could be a mass exodus thereafter if its popularity continues its decline going into the 2028 elections. 

 Sec. Go has his work cut out for him. His biggest challenge in the immediate is to re-store the private sector trust in this Government. The latest BSP survey shows the Business Confidence Index dropped from 53.8% to 38.2% for Q1 next year and to 54% from 60% for the full year; from lower consumer demand and high borrowing costs. The same report saw the Consumer Confidence Index slip from 7.8% to 5.6% for Q1 2024 and to 15% from 19% for the full year from inflation and unemployment. The political uncertainties, the cost and lengthy process of doing business, collecting what is due from Government, inflation, jobs, conflicting monetary and fiscal policies and, of course corruption; are taking a toll on the country. 

The OSIAPEA is in charge of policy and monitoring but our problems are not about policy but about execution. For example the last Government lowered corporate taxes, passed CREATE and the PSA to promote investments with little to show for it. 

Mr. Go has the responsibility but not the authority to do what he has to do. As he knows well from his corporate experience a CEO’s effectivity is only as good as his unilateral power to hire and fire and that, as ex-Exec. Secretary Vic Rodriguez quickly discovered, is not among the powers of Mr. Go. He cannot do everything on his own and will be undermined not only by those he has subverted but also by those whose territory he threatens. He could whine to the President about the political interference but notwithstanding his closeness to BBM he can never rival the influence from sleeping nightly in the President’s bed or being connected by blood.

To be successful Mr. Go has to have people he can hand pick, professionals who will follow his orders, who are loyal and accountable to him alone. He does not have that in his position however formidable on paper. The implementation of policy lies with the regulatory heads many of whom are beholden for their appointments to the First Lady and/or the Speaker. The key agencies are sprinkled with LAM’s law partners, friends, relatives and relations thereof; and the Speaker’s Upsilonian brothers. The word is if you want something done, do not talk to the Cabinet Secretaries but to the President’s immediate and extended family. Such a system is common practice in previous Administrations with the difference arguably being in the scale in this one.

 There exists in our nation a Deep State, a Government within a Government, with its own protocols, chain of command and omertà. It is not accountable to the institutional and constitutional safeguards nor to the public. It responds only to heads who are unelected or not elected to do what they are doing. I estimate this underground empire has revenues, annually, of some one trillion pesos or 5% of our GDP from its various controversial activities which is shared by the shadow players, “the boys” and the political chiefs who make it all possible. Anybody however competent or personally connected to the President who moves into their lane is bound to be challenged.

Mr. Go’s personal relationship to the President is nonetheless important, an advantage not enjoyed by the current technocrats. He must bring to the table not only management skills but a political acumen to navigate the Palace cross fires. He must be ready to grow old quickly. I am certain Mr. Go knows what he signed up for and has been assured of the “unconditional” support of the President but that support could itself wear thin. Given the challenges of pivoting a complex, debt laden, bureaucratic and leaking ship of state without your own team, Deck will in my opinion be hard-pressed to produce the deliverables expected of him in the pre-election period of 2024 and 2027; and that will be mined by those with the long knives. The natives are restless.

I wish Deck the best of luck and the nation’s appreciation for taking on what is an important if thankless job. Sir, we shall be rooting for you.

2023: The Year That Was … Or Was Not

2023, I am afraid, was not a year for celebration.

The year was dominated by politics while the economy was essentially unattended. Politically there is an obsession bordering on paranoia about Oplan Destroy Sara (ODS), and the leadership succession going into 2028. BBM is President and Martin Romualdez is Speaker so on the face of it there should be a clear path to a Marcos-Romualdez extension. The problem with this scenario is two fold: One, VP Sara is just one breath away from the Presidency in the event of an Act of God or political event that could unseat the President. Two, Team MR does not have a 2028 candidate that can match the popularity of the Dutertes.

To solve problem one, the idea is to impeach Sara over her Confidential Funds but that initiative has no legs certainly not in the Senate where 16 of 24 votes are needed. (Only 100 votes in the House are needed to trigger the proceedings). The President can designate her replacement.

VP Sara is vulnerable given the record of the Education Department a lot of it admittedly inherited. The Philippines came in 77/81 in the latest Program for International Student Assessment (PISA) for math, science and reading. Filipino 15 years old have a competency of 2 on a scale of 6. Our 10 year olds cannot adequately read. In 2022 five million children did not or could not enroll. An estimated 50% of our students drop out of school for various reasons including economic hardship and insufficient classrooms and teachers. This abject failure will cascade into our higher education (garbage in, garbage out). So much for the Philippines as a knowledge economy.

The second ODS initiative is to hold PPRD hostage to ICC proceedings. The speculation is Leila de Lima was “allowed” to be released on bail in exchange for leading such an initiative against her arch enemy who jailed her in 2017. 

The presidential plans of Team MR could be derailed by a weak economy. GDP is the sum of Consumption, Investment and Government spending. After three quarters of falling growth, our GDP rebounded by 5.9% in Q3 to much Government heralding but this number is misleading. Consumption which accounts for a majority of the economy was flat as was private sector investment. Foreign direct investments declined 16% and the stock market is at a historic low. (In contrast the U.S. markets are at a historic high). More disturbing, foreign institutional net purchase of PH bonds most of which are sovereign debt; reportedly fell at a time when we need to refinance P1.8 trillion of maturities in 2024. These numbers contrast with the “trillions of pesos” that DoF Sec. Diokno promised are forthcoming from the numerous international trips of the President.  A run on our sovereign debt could be a systemic risk to local banks who are big holders of PH dollar bonds.

A major port operator is reporting fewer incoming shipments which confirms our economic slowdown.

The Q3 numbers were saved by a surge in Government spending after months of under spending. This is unsustainable given our growing fiscal deficits. To preserve its cash Government has stopped servicing its payables to exporters and key suppliers. All the foreign chambers have decried the Government’s refusal to refund their VAT which is prompting them to move elsewhere and spread the word that the Philippines does not pay its bills. Suppliers of aviation fuel for international flights are threatening to stop servicing our airlines because they cannot recover their excise taxes (such aviation fuel is not subject to excise taxes). This will impact the aviation industry which is the foundation of our tourism industry. 

The DOH reported it can only fully pay frontliners by 2026. Philhealth has still to settle billions of claims of private hospitals who have threatened to stop accepting Philhealth patients.

In the meantime P75 billion of development money was diverted into the Maharlika Fund which has no value added other than pad the pockets of its management and the cronies and politicians that will feed of it.

Team MR is playing good cop (BBM) and bad cop (BBM’s immediate and extended family) with Sara. This strategy is designed to confuse the public if not Sara herself who is seemingly going along with the “zarzuela” for reasons that are not publicly understood. This could reflect her political naïveté or personal liking for the President. For one her supporters ask why Sara has still not resigned as DepEd Sec. to release her from accountability of a Department that she is obviously unqualified for. Her father sees right through it and is doing his best to protect his daughter from the slaughter. He can be unpredictable particularly when faced with an existential threat to his family.

Sara has started to push back with two statements, one opposing the President’s peace initiatives with the Islamic forces and the second against the House’s detention of two SMNI journalists, Badoy and Celis, who refused to divulge their sources for their expose of the supposed P1.8 billion confidential funds of Speaker Romualdez. (The two have since been released after a public clamor.) AFP Chief Brawner has weighed in in support of Sara’s first statement which has triggered speculation the ground could be shifting. Earlier Brawner and PNP Chief Acorda hinted their people are restless. Malacanang may tighten its hold on the military leadership but this could only polarize our security apparatus with visions of a Gen. Fabian Ver. The U.S. is watching these developments closely as it wants to geopolitically preserve the status quo. The Dutertes are viewed as pro-China. The Administration might use this U.S. backstop to continue its merry ways.

The jury is still out on a Sara presidency, whether she is ready for the big time. She has, frustratingly, still to exercise leadership, define a vision beyond security matters, and build an organization. She is seen as narrow and seemingly uninterested in expanding her world but that could be a matter of time and confidence.

In shades of the Plaza Miranda bombing the recent Marawi bombing and the timing thereof could be a harbinger of things to come. It could be stirrings of the Islamic State. It could be anti-Administration forces at work. It could be our security apparatus rattling the cage. It could be the Government itself needing a distraction like the so called Communist threat which ushered martial law. Whatever, it is spooking investors especially if the action is exported to the big cities. Malacanang is seemingly unperturbed.

As I wrote some weeks back, Team MR is now considering charter change many say to allow the incumbents to continue in office indefinitely. It will be disguised as an “economic” change to attract foreign investments even if most of the economic amendments the country needs have already been legislated like the Public Services Act which loosened the restrictions for foreign investors. Charter change is a worn playbook that previous Presidents have toyed with to remain in power. Polls show Filipinos are consistently against it. The Administration will have to sweep the Senate and Congress in 2025 for any chance of success. The mid-terms will be a referendum on this Administration.

The resiliency and patience of the Filipino will be tested in 2024 as the politicians prepare for the mid-terms. The economy will continue to meander with no leadership, no vision, no sense of urgency and a Government increasingly fiscally constrained.

Absent a political black swan we will be stuck in no-man’s land even as the vultures continue to gnaw at the carcass of our economy. It will be Government by feel-good messaging. We will be told all is fine with inflation, unemployment, corruption, over PH 14 trillion in debt and widening fiscal deficits.

The belief in its omnipotence, that the Filipino is dumb and dumber; and that this country can be bought with its own money; could tempt the Administration to over reach. That as they say could be a slippery slope.