TAMPOK

The New President as Economist

Gerardo Sicat*

Editor's Note: This is an abridged version of Discussion Paper No. 0101 of the School of Economics entitled "The Next President Could Be an Economist: or Gloria Macapagal as an Economist" and written on January 2, 2001 before the events of January 16 to 20, 2001 which led to the ouster of President Joseph Estrada and the succession of Gloria Macapagal as 14th President of the Republic of the Philippines. The original text refers to Gloria Macapagal-Arroyo as Vice President, Forum made the necessary adjustment. The complete text is at the UP School of Economics Library and will soon be posted at the UPSE website.

President Gloria Macapagal Arroyo's rise as a politician is one of the fastest in Philippine history. There is no doubt that her pedigree helped her a lot, as the daughter of a former President whose name is still revered despite the distant years. But who is she, aside from the political persona?

Toward the Ph.D - It is not as widely known that she is Dr. Gloria Macapagal Arroyo, by virtue of a Doctor of Philosophy Degree in Economics that she received from the University of the Philippines in 1985. In her submission to the School, she downplayed her maiden surname to an "M." However, she connected with that surname by dedicating her thesis "to my parents, former President of the Philippines and Mrs. Diosdado Macapagal."

Her academic preparation makes her one of the best-prepared politicians in the country from the standpoint of educational attainment. Her knowledge of economics should be helpful to a leader when presented with complex economic policy options. It would therefore be useful to appreciate this point and discuss its implications.

That Gloria Macapagal took further intensive graduate study is a tribute to her own search for self-improvement. She initially studied graduate economics at the Ateneo University where she also took a job as a faculty member in its Economics Department Later, she sought a faculty award from the Ateneo faculty development program to enable her to enroll at the U.P. School of Economics.

It helps to be connected with a research project that provides a job as well as stimulus for the intellectual effort. This was what Gloria Macapagal had at the U.P. School of Economics. At the stage when she was about to write a doctoral thesis, she also became a teaching fellow at the School. She also got recruited into a long-term research project. This was the multi-year Economic and Social Impact Analysis Project that had for its objectives the evaluation of the impact of development projects in the government.

This project involved a large team of economists at the School of Economics that was then headed by the late renowned Dean Jose Encarnacion, Jr. Her involvement in this project helped to crystallize her research thesis related to government expenditure on tourism for the doctorate, which was to analyze the impact of tourism expenditures on the economy. Her Ph.D. thesis acknowledges this point.

Gloria Macapagal did manage to finish her Ph.D. course. She took undergraduate studies at Georgetown University, the Jesuit University in Washington D.C. This period of her studies appeared to have coincided with the years when Bill Clinton was also a co-student. She finished her undergraduate education in Assumption College. But her having finished a Ph.D. in Economics at U.P. should be her crowning achievement as a student.

In 1968, she got married to a scion of the Tuason family clan and settled in La Vista in Diliman, Quezon City, a community flanked by the campuses of UP and Ateneo and Maryknoll (now Miriam). She was married and with children when she began her graduate studies. Here was how she justified getting a job outside and studying further: "…When I got married, I lived with my in-laws. I lived with my husband's family, so I didn't really have my own home to run. So in that kind of environment, it's really conducive …to look for something to do outside.(1)" She wanted to become a teacher. She wanted to become a professional, and finally a technocrat in government. In her application for the Ph.D. course at the UP School of Economics, she said that she wanted to take up a doctorate in economics because she wanted to be a technocrat.

The doctoral thesis - The doctoral thesis that Gloria Macapagal submitted to the School of Economics provides a clue to her competence as an economist. The study was entitled, "An Investigation of the Real Effects of Government Expenditures with an Application to Tourism Expenditures." It dealt with issues in public finance and macroeconomics that were current in the profession at the time. In turn, those issues - the real effects of public expenditures on the economy, in particular on the private sector - are at the center of current doctrinal controversy in macroeconomics. This doctrinal controversy flared in the field of Economics as a result of the challenge waged against the dominant theory of aggregate demand embodied under Keynesian economics.

At the heart of the issue is whether fiscal deficits lead to income expansion or provide a competition with private sector activities. The doctrinal issue critical to her question was to investigate how government expenditure affects output. In particular, is government expenditure likely to lead to an expansion of output, and if so, by what mechanism, if any? This was the topic of lively debate in recent years, a debate in which the major tenets of mainstream Keynesian economics came under attack in doctrinal terms.

Dr. Macapagal's study took a part of this tradition and used it to pose questions about public expenditure policy in the Philippines. Using national income and government spending data, she then explored alternative hypotheses with her own econometric investigations. The effort meant estimating equations that served as alternative hypotheses for the behavior of private consumption in relation to different streams of output and other forms of expenditure. Her propositions examined consumption expenditure as being dependent on a number of factors including output (GNP), tax revenues, real transfers, the public debt as proxy for wealth, and corporate retained earnings.

The more important finding in her study confirmed that there was strong evidence of crowding out of private expenditure when government expenditure was introduced. Her findings on this score were robust. These findings, as discussed above, formed the article that she published in the Philippine Review of Economics and Business in 1987.

But the doctoral thesis covered more ground. The work was extended to two other aspects of the problem that were treated separately in two more chapters. The latter part of the thesis was devoted in particular to public expenditures for the development of tourism.

The chapter that focused on the expenditures on tourism examined the magnitudes the public expenditures on tourism and analyzed their impact on output. The period under study covered the 1970s and early 1980s. She found that tourism expenditure (remember the Folk Arts Theatre, the Miss Universe contest and the Ali-Frazier fight, among others?) had some multiplier effect on output. But she examined such positive findings against the alternative of employing the same amount of expenditure on social services. She concluded that the net difference in economic impact would have been higher if the resources were spent on social services rather than on tourism.

The last part of her study was far removed from the empirical investigations described above. Here, she followed a different research tradition, using input-output analysis. She undertook to verify the direct and indirect inter-industrial impact of expenditures on tourism on the rest of the economy and compared the same with similar expenditures on social services. Using the 1978 input-output model of the Philippine economy, she applied a given final demand projection on the input-output structure. She came out with strong conclusions that social expenditures had a much stronger impact on the economy than the same volume of expenditure on tourism.

The doctoral thesis showed Gloria Macapagal as an accomplished economist, with a good command of the current debates in economic theory. She also knew how to employ up-to-date empirical methods used in economic analysis. She was at home in different modes of economic analysis.

If she decided to become a researcher rather than a public official and a politician, she would have been properly equipped to contribute to the profession more than adequately.

The post-Erap scenario - Now that Gloria Macapagal Arroyo is president, what economic issues of performance await her? (2)

The removal of Erap does not guarantee better growth and development. The economy stands a much better chance of improving than under Erap, given his failure to attend to the work of the presidency to which he was elected during almost three years in office (3). The easy part is the pulling off from the nation's back the negative Erap factor. In its place, it would be possible to put in place a new start and a restoration of business and investment confidence. The negative Erap factor is mainly a perception arising from poor management, erratic style, and lack of credibility of the leadership. That perception discourages any favorable decisions that are beneficial to growth and development from being made. It is a factor that adds to the gloomy forecast of future events and makes decision-makers postpone their decisions. When the Erap factor is taken off, a leap in confidence by business and investors would be easier to realize until a new leadership proves its worth through hard work and wise decisions.

Based on the way the economy immediately responded to the accusations of corruption against the President, together with the other reasons that became apparent as he continued in office, the negative Erap factor could at least be around 20 percent of current indicators (4). The impeachment trial of Estrada in the Senate took away part of the volatility of that negative factor. It helped to produce a temporary, but relative calm in expectations.

Gloria Macapagal's transition into the post-Erap period is less filled with the problems that Mrs. Aquino had in her time. Although in political terms, it is as sensational because of the impeachment process and the public disemboweling of the accused, the post-Erap succession does not provide the dramatic backdrop on the state of the economy compared to that of the post-Marcos succession. Up to the present, the economy is still holding up. The main problem today is how not to get the economy to deteriorate any further, and to restore the momentum that was available to the leadership when political power was transferred from Ramos to Estrada. The Asian crisis provided a new dimension to the economic issues facing the Estrada presidency, but there were enormous opportunities available that he failed to take advantage of. Provided that the trial is relatively quick and the Constitutional succession does not consume a long time, it would be possible to restore the economy back to relative health. The longer the succession takes place (or if he digs in and decides to continue if an acquittal in the Senate took place), the prospects of an economic tailspin and crisis of grave costs to the nation would be almost certain.

The major political issue that Macapagal faces is how to bring about a cohesion among disparate groups that had helped to remove Erap from government because of its corruption and inefficiency. Assurance and appeasement of the main constituency of Erap - the poor - will require a major effort in public information campaign on the reasons for his removal from office. This is essential because, despite the widespread publicity of the trial on television, some attitude surveys appear to indicate that Erap's hold on mass opinion continues to hold sway. The problem is how to reassure them that their conditions will improve with a change in focus of the leadership.

For the short-term, the problem of Gloria is how to reverse Erap's erratic management of the economy and to replace it with an economically focused leadership. Estrada's legacy is a compounding of the country's economic problems. Some of the missteps of Erap have caused damage to the future of the economy because of the mixed signals that they gave (5). Such thoughtless changes in policy were short of catastrophic, but they were certainly in a ruinous direction. Erap simply missed good opportunities and he has aggravated problems where there ought to be none. The problem of Macapagal is how to get a stalling engine to perform towards a smoother run.

This can only be done effectively by a push on the demand front - raising investments, both domestic and foreign. Most economists understand that the reason why other Asian countries have progressed far ahead of us is that their policies had the effect of expanding the demand for labor faster than the supply. The objectives of their over-all development policy had the result of increasing the growth of investments and of industries that were efficient and competitive, growing on the market demand that they were able to command and not on the basis of the state subsidies that they received. Structural reforms that Erap inherited in the industrial and trade sectors through the major economic liberalization of policies led to an increase in foreign investments and exports. As these reforms took root, the country began to reap the harvest of rising industrial exports throughout the 1990s, especially in the second half of that decade.

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