Socioeconomic Planning Secretary and
NEDA Director-General

“The Philippines’ successes and challenges in implementing structural reform”
2 February 2015, 10:00 AM
Widus Hotel, Clark, Pampanga, Philippines


Colleagues in APEC, good morning.

I would like to thank you for this opportunity to share with you the Philippines’ successes and challenges in implementing structural reform.

Let me start by saying that the Philippines has been implementing structural reform since the late 80s.  And the Aquino administration has followed through, staying true to its basic principle that good governance plus good economics equals good-quality growth. 

The experience has generated some good lessons, which I will share with you later on.  It has also yielded for us quite good results.  Needless to say, the task is far from complete, especially since we know that the overall goad is really to improve people’s well-being.

Going forward, we should embark on deeper and more extensive structural reform. For us, international cooperation can facilitate the process of deepening structural reform.

Going back some three decades ago, perhaps you are aware that despite the country’s vast potentials, economic growth has been constrained by decades of bad policies and bad governance. Until recently, we have always gone through boom-and-bust cycles. Low income growth and unequal access to employment and development opportunities barely made a dent on poverty.

With the restoration of democracy in the late 1980s, structural reform in the country began:

  • Monopolies in selected industries, including telecommunications, airline, water and power utilities, were broken up.
  • The oil industry was deregulated.
  • An independent monetary authority was established.
  • The banking sector was liberalized.
  • Tariffs were brought down and continue to be brought down. Imports were likewise liberalized.

The current administration, under President Benigno Aquino III, has essentially followed through with the reform agenda.  However, its focus is on addressing key constraints to growth and its weak translation to people’s wellbeing through the following:

–          Massive investment in infrastructure and human capital development to address backlogs brought about by periods of financial and economic crises

–          Improving effectiveness of the regulatory systems and building regulatory capacities

–          Ensuring peace and human security, especially in Mindanao; and

–          Given the country’s high vulnerability to disasters due to natural hazards as well as man-made extreme events, improve disaster preparedness and management as well as social protection

At the core of the Aquino government’s agenda is building credible institutions and practicing good governance.

Recognizing the key constraints, we crafted development strategies and they all align with the five pillars of the APEC New Strategy for Structural Reforms:

  • More open, well-functioning, transparent and competitive markets
  • Better functioning and effectively regulated financial markets
  • Labor market opportunities, training and education
  • Sustained SME development and enhanced opportunities for women and for vulnerable populations; and
  • Effective and sustainable social safety net programs

These are operationalized in the Philippine Development Plan 2011-2016, which has been updated, with the goal of achieving rapid, sustained and inclusive growth that creates jobs and reduces poverty.

The reforms undertaken thus far have yielded quite good results.

The present administration’s strong governance and anti-corruption agenda has restored people’s confidence, including business and consumers.

The implementation of the game plan for competitiveness has led to the country’s rise in Global Competitiveness and Ease of Doing Business rankings. The country’s investment grade ratings also rose.

Further liberalization of the banking sector has paved the way for inclusive finance.  The pocket open skies policy and the improvements in air travel security and safety regulations that earned civil aviation upgrade, have promoted growth in tourism and services sectors.

Sound fiscal management resulted in more than enough fiscal space that has allowed the government to undertake massive investments in human capital, as well as in critical infrastructure. Together with partnerships with the private sector owing to restored investor confidence, we have been reducing, in a significant way, the backlogs in classrooms, health facilities, roads, among others.  Massive resources were also poured into education and training, health and poverty reduction and social protection programs such as the conditional cash transfer.

Thus, while in the past, the Philippines was labeled the “sick man” of Asia, we see that the country’s economic growth has outperformed most of its neighbors in Asia during the period 2010-2013.

This is because the Philippine economy is now traversing a higher growth trajectory…

…And this has come alongside structural transformation where services has expanded while the share of agriculture and industry sectors in GDP decline.

The Philippine economy has always been driven by the services sector marked by its high share to total output as can be observed in the graph. During the 80s, the services sector accounted for 43 percent of the Philippines’ GDP.  The share has increased over time reaching 56 percent this current decade. This is composed mainly of trade, other services, and real estate, renting and business activities.

Consequently, the share of services to employment has been increasing: from 34 percent in 1980-1984 to 52 percent in 2010-2013.  In contrast, employment share in Agriculture has been decreasing substantially, from 52 percent to 32 percent over the same period.

Meanwhile, Employment in Industry as share to total employment is hardly changed, at 14 percent in 1980-1984 to 15 percent in 2010-2013.

So, what have we learned from close to three decades of implementing structural reform?

First, sustaining growth and making it inclusive requires good governance and sound economic policies and strategies.  This part is self-explanatory.

But the task is far from complete. Inclusivity of growth remains a work in progress.

We say that the task is far from complete because the employment and poverty picture still leave a lot to be desired.  Let me clarify, however, that growth has improved the country’s employment and poverty situation. 

Recent economic growth has created more jobs, though unemployment and underemployment remain high. There are still 2.4 million people who are jobless and 7.3 million who want better jobs or more hours of work.

Likewise, the proportion of the poor has been reduced significantly, by 3 percentage points in just one year.  However, the incidence is still quite high at 24.9 percent in 2013.

A second important lesson is that a piece-meal approach won’t work.

There has to be a comprehensive package given the complexity of issues. Structural reform can be a win for some and, simultaneously, a loss for others. 

First on the agenda should be to ensure that there will be a lot more winners.  This requires offering a level playing field (ensuring transparency of regulations and credibility of institutions), investing in human capital and ensuring mobility to equalize opportunities.

Secondly, acknowledging that there will always be losers resulting from the implementation of reform, we need to put in place a very effective social protection mechanism. 

A third important lesson is that we need to build a constituency for structural reform and this requires a strong and credible leadership. 

Good governance and sound economic policymaking and management feed into each other.

Structural reform also entails a long term horizon.  Long term vision and planning must be put in place by a coalition of reform champions, with support from the global community.

As I earlier stated, the task is far from over.  We need to generate more quality employment; quite a significant number of Filipinos needs to be taken out of poverty.  And we want the gains sustained.

Going forward, we know that we need to deepen and broaden structural reform. APEC provides a forum for us to interact and learn from other economies, forge cooperative partnerships based on mutually beneficial goals, and in the process accelerate structural reform.

Potential gains from competition and opening up of the economy are massive, from being able to take advantage of value-for-money goods and services, to being able to access a bigger market. And so, we support the move to further open markets, including reducing behind-the border barriers.  In particular, SMEs need to be brought into the global value chain to make growth inclusive.  The Services industry also needs to be encouraged to move up the value chain. 

APEC can also provide the platform for deeper regulatory reforms.  As our reform agenda in the 80s have shown, these things take time and even longer to demonstrate positive results.  Therefore, it is quite difficult to muster political support for reform. The APEC, however, can encourage this, perhaps through a program of regulatory cooperation or by providing technical assistance to improve the efficiency and effectiveness of regulations.  Let us all work together to build inclusive economies, and subsequently, build a better world.

Thank you.