Platform 101: Ideas for Better Economic Governance

Makati from roof of some buildingWhile the process for developing a platform is relatively easy, it does require several careful steps. Recently, in response to several challenges to provide an example of a proper platform and in the hope of providing some issues for public discussion, I applied the Roadmapping 101 Framework to the issues that I personally felt were important in the upcoming election and produced my own platform. I will of course stress over and over again that these ideas are mine alone, and that any agreement or other similarity they have with anyone else’s is a largely coincidental result of great minds thinking alike. In reviewing my methodology, I quickly realised that none of the men who at present has an apparently legitimate shot at the presidency has displayed anything that even remotely resembles an acceptable thought process in taking the vague positions they have deigned to share with the public. So as an introduction to the first of what will be several detailed discussions of the various ills of the Philippines and how to fix them, an explanation of what the candidates should be doing – as opposed to making hand gestures and saying words like “integrity” and “character” over and over again – is in order.

The three uppermost ‘layers’ of the Roadmapping 101 framework are a form of Cause Mapping, which is in essence simply an organised way in which to repeatedly ask the question “Why?” until the root cause of the aspect of the subject is reached. In our example topic here, the Economy, we can describe its aspect in a very general way: “Needs Improvement”. The natural follow-up question is, “Why does the Economy need improvement?” The answer is the situation, or set of conditions that manifest the aspect of the Economy, which naturally leads to the next question, “Why do these situations exist?” The issues that cause the specific situations are the root causes of the overall aspect of the Economy. These issues in all likelihood have sub-causes, which then become the targets of the positions to be taken with regard to the overall topic of the Economy.

For a presidential candidate, the process has two aims: First and most importantly, it is a process to determine the best course of action to take when or if the candidate reaches office, and so it must be approached with serious realism. On the other hand, there is a second consideration, and that is to anticipate and hopefully present a better alternative to the position the opposing candidate will take. In that light, every candidate is then presented with at least three options for every position: maintaining the status quo, an option that will represent the candidate’s position, and the option which is likely to or at least might represent his opponent’s position. The latter two options will require specific actions, while the first does not:

R101

Once the specific actions have been determined, there is the matter of presentation: express the problem or issue in clear terms, state the proposed solution or objective, and explain the rationale for that choice. The first part of the platform addresses the Economy, and is divided into a number of smaller subject areas, beginning with Economic Policy, which includes three different positions or objectives:

PROBLEM #1: A weak and fluctuating Peso is a disadvantage to the country, causing price pressures and presenting the obstacle of uncertainty to the country’s import and export sectors, which ultimately has a negative effect on all Filipinos.

SOLUTION: Change the functional peg of the Peso from the US Dollar alone to a basket of appropriate currencies, most likely the US Dollar, the Euro, and the Japanese Yen.

RATIONALE: Although the Philippines adopted a floating exchange rate regime in the mid-1960’s, the management of the currency has become, without an official change in policy, a managed float against the US Dollar. Although a traditional peg against the Dollar has occasionally been proposed, studies by the IMF have shown that the basket peg provides greater currency stability, particularly for emerging and developing economies. Because of the Philippines’ disadvantage in trade, a trade-weighted basket peg is not optimal, but a small basket wherein the exogenous cross-exchange-rates can be monitored and managed is, provided the BSP takes a more pro-active approach to reviewing and announcing adjustments and intervention conditions. (Daniels, Toumanoff, & von der Rohr, 2001) A more stable currency with less frequent and less significant shifts in value will help stabilise prices, make debt servicing less costly and easier to forecast, and reduce the exchange disadvantages that are currently affecting the country’s export sector.

PROBLEM #2: Servicing the national debt is too costly, taking money that is badly-needed from other programs.

SOLUTION: Renegotiate the terms of debt repayment with creditor nations.

RATIONALE: It does not take a financial wizard to recognise the current ration of the Philippines’ debt-to-GDP of 56.5% is a major obstacle to growth and development, and with the ADB projecting potential increases in this percentage of between 3% and 15% in the next six years, the situation may only grow worse. Even a moderate reduction in the amount of the budget the government must dedicate to paying the nation’s debts is a functional increase in GDP, which improves the country’s credit position and overall productivity, making further debt reduction possible. Sound fiscal management policies, such as the stabilisation of the currency already mentioned and other measures in this platform, will give the government a more credible position from which to negotiate better terms from sovereign creditors, a position it does not have now.

PROBLEM #3: Over-reliance on foreign sources of capital creates an unacceptable cash-flow risk for the country: it may affect the country’s credit rating, and places too much control over the inflow of funds into foreign hands, making those sources susceptible to problems over which the Philippines has no control.

SOLUTION: This problem involves several different areas of concern, but one of those which can be addressed in a straightforward way is to prohibit the issuance of so-called “samurai bonds.”

RATIONALE: A “samurai bond” is a bond issued by one country in another country, in this case by the Philippines in Japan, hence the name. The bond issue is subject to the regulations of the country in which it is sold, and is denominated in the local currency. The BSP is proposing to make a samurai bond issue in the 4th quarter of this year, the first since 2000, in order to reduce the unexpected budget deficit brought on by the worldwide financial crisis.

While a samurai bond issue does have a short-term benefit, it has unacceptable risks and costs. The bond issue will be partly or wholly guaranteed by the Bank of Japan, which charges a percentage apart from the interest on the bond that the RP will have to pay. While it is not likely to happen, withdrawal of the guarantee is a Japanese prerogative, which would virtually destroy the Philippines’ credit. In addition, other exogenous factors that cause a drop in value of the bonds can be destabilising to the Japanese financial sector, with very bad long-term consequences for the relationship between the two countries. (Litan, et al., 2002) It is a far better proposition to improve fiscal management within the Philippines, and avoid the unnecessary risks and extra costs of small, short-term gains.

 

These proposals are just the beginning of the solutions for the country, but they are important, fundamental ideas. They will provide a firm, stable foundation for the national economy well beyond the end of the next presidential term, and allow many other much-needed improvements to be made. Their greatest significance to our continuing discussion of platforms and plans is that they are a clear example of just how easy it is to develop solutions. The Philippines has many problems, but not many complex or insoluble ones. Time, effort, and a little thought goes a long way toward developing the means to correct them; if the electorate cannot expect anything else from their candidates, they ought to be able to expect those three things.

References

Daniels, Joseph P., Toumanoff, Peter G., and von der Ruhr, Marc. (2001) “Optimal Currency Basket Pegs for Developing and Emerging Economies”. Journal of Economic Integration, 16(1): 128-145.

Litan, R. E., Pomerleano, M., Sundararajan, V., World Bank, and the International Monetary Fund. (2002)  Financial Sector Governance. Washington, D.C.:  Brookings Institution Press. 

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About bkritz

I'm a writer, and I do things my own way. That might sound cool to you, unless you're one of the people who actually knows me, in which case you're probably shaking your head in exasperation at the depth of that understatement.
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18 Responses to Platform 101: Ideas for Better Economic Governance

  1. i will tweet this. this is the stuff our politicians should be doing instead of acting out their childhood fantasies through their stupid infomercials.

  2. Hyden Toro says:

    The Presidential Aspirants dont even know what a platform is. They think Election is an extravaganza,
    like a yearly fiesta. Where you bring Showbiz Celebreties to entertain the Voters. Give out your “out of this
    world Speeches”. Pitch your promises, that you can think of. Anyway, you will not fulfill them after
    you are elected.

  3. GabbyD says:

    the philippines right now has inflation targetting. there is empirical success with inflation targetting, although the evidence is not uncontested.

    what you are proposing would be great if the countries we would be pegging with have monetary policy/economic cycles aligned with ours. there are some groups of countries, philippines included, that might fit that bill.

    • BenK says:

      I would say that the Philippines’ track record empirically contests the evidence of the effectiveness of inflation targeting, particularly since rate management alone cannot compensate for all the inputs that affect inflation in an import-dependent economy. Note that the BSP habitually misses the target, one direction or the other, usually a bit low. Inflation targeting is a reactive policy; they will constantly be playing catch-up. There is evidence that inflation targeting does work, certainly, but it does not work nearly as well as a basket peg for this kind of economy.

  4. uncle pinoy says:

    For as long as an impoverished nation is overwhelmed by having to pay the salaries of hundreds of thousands of government employees (from the President to the lowest civil clerk working in Tawi-tawi), there will no economic relief, much less economic development.

    It’s a vicious cycle: we don’t have the budget to pay decent government salaries and run all those useless departments and bureaus because we don’t have a broad tax base. We don’t have a broad tax base because many are unemployed or underemployed (20% or more). There is massive unemployment or underemployment because no new businesses wantsto invest in this country. Investors (foreign or domestic) do not want to invest here because of the high cost of doing business (high income tax, minimum wages, out of control labor unions). And our income and corporate taxes are high because we need to raise money to pay hundreds of thousands of government employees (from the President to the lowest civil clerk working in Tawi-tawi),

    Until we have an administration that will have the cajones to cut government expenses dramatically (which means slashing gov’t jobs and departments), we will never get out of this rut.

    • BenK says:

      That’s a very good (and very obvious) observation. Reducing the size of government is a key part of the entire platform.

      • uncle pinoy says:

        Unfortunately no candidate (or party) would dare adopt this platform. The population has been conditioned to depend on government for everything, including jobs. Reduction of government as a platform (which necessitates reduction of services, even if it promises lower taxes) for a candidate is political suicide. While I believe that this is key to getting our economic house in order, it will be a cold day in hell before it happens.

      • benign0 says:

        This is just the economic aspect of a platform. You will note in the matrix that there are six other aspects aside from the economy that a platform, in my opinion, should cover.

        Note that there is an aspect called “Culture” and I am hoping there will be initiatives formulated under this to address such cultural issues you cited (like the population being “conditioned” to be dependent on government).

      • BenK says:

        Right, this is just a part of a part of the entire platform. You may read the entire outline on my blog if you haven’t already. I’ll be taking up other parts of it in the manner I’ve done here in the coming weeks.

        To counter your particular concern, I don’t believe that increasing efficient delivery of services by cutting away the bloat in government need necessarily equal a reduction in services offered. It undoubtedly will on the face of things, but when those cuts are examined, I believe they will be found to be mostly superfluous activities that have little practical benefit anyway — except, of course, to the unproductively-employed desk-warmers that fill those jobs that will be excised. They’ll have reason to complain…and that’s just too damn bad for them.

        Some of the notions that Benign0 has expressed are things that are beyond the original scope of the platform, but I think they are good ideas. However, my background and personal point of view towards where the boundary between government and personal behaviour should lie does not put me in a good position to make suggestions as to how to legislate personality and comportment. When I reach the point where it is time to talk about ‘Culture’, hopefully Benign0 will be able to present his amendment to that platform as well. That’s the thing about platforms — even the best of them have to be written in pencil, with a little space between the lines, because any good candidate will be consulting with his voters, with experts in various fields, and as time passes more is learned and perhaps circumstances change. Platforms should be firm, but not frozen.

  5. GabbyD says:

    i dunno about ur characterization of a functional peg. i think its a managed float vs the dollar but with a focus on using monetary policy primarily for maintaining domestic price stability (as opposed to preserving the nominal exchange rate). i looked at the numbers, and i think that the average inflationrate falls within the target, but there was a big jump in 2007… i’ll try to look at it again…

    about number 2) i think we should acknowledge this is harder than that. the best case for loan renogotiation would be loans that are made by illegitimate governments. for recent debt, thats not a good excuse. i agree that tax efficiency is a the fiscal job number 1 fiscal.

    if we are worried about stabiility of profits for exporters and importers, i wonder why we cant use futures contracts/options.

    about #3…

    i dont think you have good arguments about samurai bonds perse, but bond finance (foreign debt) in general. frankly, untill tax collection goes up OR goverment spending falls, debt is inevitable.

    • BenK says:

      I’d consider a managed float a functional peg. Anything that is not actually free-floating is a peg of some sort.

      Once of the things I’ve always said about a platform is that it should have at least one legitimate opponent viewpoint, so…what are your alternative suggestions to these ideas?

      • GabbyD says:

        haha… my ideas? geez, theres so much i still dont understand about political economy, finance, and macroecon to have solid ideas beyond generalties like increasing tax efficiency…

        but my work has exposed me to one reform which can help improve governance:

        i have one humble suggestion for the budget…

        currently, the philippine budget is based on/built on spending for personel, capital expenditure, equipment, etc…

        there is a need (and this is something practitioners know about) to turn this into project based budgeting (i.e. how much is used to teach math, to provide immunization) at the local government level.

        this data is currently NOT available. i suggest that the next admin makes this a priority.

        information like this can help the govt plan for the future, in terms of service delivery (as opposed to salaries, etc…)…

      • BenK says:

        That’s a very good point, and just plainly sensible to my way of thinking. Re-examining the functions and output of government agencies and doing away with those which are redundant or superfluous is a major theme running through my program, and a project-based outlook is a necessity to be able to accomplish that. But kudoes to you for pointing out the importance of the methodology, which I didn’t articulate — this is a platform, after all, not a spending bill.

  6. uncle pinoy says:

    BenK,

    Personality and comportment cannot be legislated because social engineering is not a governmental function – so you are right in not trying to find solutions there. I took a quick read of your blog and kudos to you and others (like benign0) who take the time to find solutions to what ails our country.

    • BenK says:

      Lee Kuan Yew might disagree with you, and I personally know a few people (besides myself) who see a lot of value in much of his outlook, because it has borne tangible, productive results. I think it is a sad state of affairs for a society when leadership actually has to consider teaching the population basic manners like not urinating wherever they like, or dropping their trash out the car window, or blasting music at nerve-shattering levels from giant speakers in front of their stores for no apparent reason, etc., etc. But these are merely symptomatic of an unhealthy shared mindset among the people that must be changed.

      As a hypothetical candidate, I can confidently say that I recognise the problem, but I am also obliged to admit that I do not know how to solve it myself. Social engineering should not have to be a government function, but government functions should promote social quality. That being the case, I would enlist the assistance of others with a greater understanding of the issues to find ways to encourage improvements of the Filipino “attitude problem” without intruding on personal freedoms or involving the government in unproductive nit-picking.

      • uncle pinoy says:

        Thank you for your always insightful reply, BenK. To be sure there are things to improve in our collective mindsets.

        However, consider the typical Filipino when he goes to the US. He doesn’t pee in public or jaywalk because he knows Americans enforce their laws. Also, he knows that there are clean public toilets readily available and safe pedestrian crossings. Yet when he returns to Manila he’s back to his old ways. Is peeing in public and not following traffic laws culturally ingrained in the Filipino psyche? I don’t think it’s anything that dramatic. It’s merely enforcement of the law or at least the perception of enforcement. If you have enforcement and an alternative, the Filipino will follow.

        I think what Lee Kuan Yew did for Singapore is admirable. But to my mind I don’t think he engaged in social engineering. He introduced and trained his people in Western manners to make Singapore business friendly to the West. The Singaporean is still culturally Chinese to the core but behaves like a Westerner. I’m not a sociologist so I admit I’m not 100% sure of my terminologies here. Maybe Mr. Lee did engage in social engineering. I guess my point is that Filipinos are not inherently corrupt or feeble-minded that there has to be some legislation to correct this. Again, if he has enough money in his pocket he begins to be a little more honest and starts thinking a little more intelligently. Remember the movie “Trading places” with Dan Akroyd and Eddie Murphy? I think man’s attitude to any given stimulus is universal.

        Just my 3 cents (adjusted for inflation).

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