Replacement investment

Sun.Star Cebu <> Saturday, August 30, 2008

BY NANCY R. CUDIS, Sun.Star Staff Reporter

WHILE the number of investments in the country has increased recently, these merely replaced what had been lost.

Professor Ernesto Pernia of the University of the Philippines School of Economics made the observation while warning government against being complacent.

“There is a recent investment pick-up from the private sector, which is good.

But looking at it more closely, it’s more of a replacement investment that is making up for the depreciated investments in the past. It is not a net additional improvement in the economy,” said Pernia, during a talk last Wednesday at the University of San Carlos on the economy, and the food and fuel crises.

He said that since there are fewer investments, there are not enough jobs for about 1.2 million students nationwide who graduate every year.

Data at the National Statistics Office show that there were 2.9 million unemployed Filipinos in April 2008, or eight percent of the country’s population. The country’s unemployment rate as of April 2008 is higher than the 7.4 percent recorded in the same period last year.

Poverty

Pernia said that with low investment growth and higher unemployment, poverty incidence has gone up to 33 percent in 2006 from 30 percent in 2003, which indicate that two years ago, about four million Filipinos lived below the poverty line.

This makes the country’s economy more vulnerable to the global food and fuel crises, he said. Government’s lack of capacity to help boost private investment can be blamed for this vulnerability, he noted.

The National Statistics and Coordinating Board reported Thursday that the country’s economic growth in the second quarter of this year slowed to its lowest rate in three years as higher inflation hurt consumption and mining output contracted.

Gross domestic product (GDP) in the April-June quarter grew 4.6 percent from the same quarter a year ago. Growth in the first quarter was revised to 4.7 percent from an earlier 5.2 percent.

GDP growth—referring to the increase in the value of goods and services produced within the country—in the second quarter of 2007 was a much stronger 8.3 percent.

Slowest growth

Described as “uninspiring,” overall economic growth was considered the slowest since 4.4 percent in the first quarter of 2005.

“Achieving the full year target will be a tough challenge as we continue to face high food and oil prices,” Socio-economic Planning Secretary Ralph Recto told the AFP earlier.

Government has set a growth target of 5.5 percent this year, but Recto said that to achieve this, the economy has to grow by 6.4 percent in the second half of the year.

Pernia also warned against the ill effects of economic growth that is driven by consumption by those who receive remittances from overseas Filipino workers.

He said that too much dependence on overseas remittances can cause moral hazard problems like reduced work effort at the household level, government complacency regarding urgent policy reforms, brain and skill drain, and psycho-social costs.

“Dependency on remittances is neither good nor sustainable in the long run,” he said.

While presenting income of households that get OFW remittances from 2000 to 2006, Pernia pointed out that overseas remittances have “insignificant” impact on poverty; and even further widens the gap between the poor and the rich, compared to domestic remittances—money earned from local jobs—that manifest an “equalizing” effect among the poor and the rich.

This is why, he said, the government and the public should actively promote domestic employment and internal migration rather than overseas employment.

Filed under: Business , Professor Ernesto Pernia of the University of the Phili