P-NOY WAS reportedly elated by twin pieces of good economic news that came our way last week. One was the government’s oversubscribed international peso bond float. Translation: The government went out to borrow money from banks abroad, and was being offered 13 times more money than it actually wanted to borrow. And for the first time, this foreign borrowing was actually denominated in pesos. That’s good news indeed, as it shows that foreign lenders are confident enough to bet on a loan to the Philippine government. That means they believe the new government to be capable of managing the economy well enough to repay its loans. More than that, they believe that the peso will not lose value in the years ahead.

But before we congratulate ourselves too much, a dose of reality: All this has much to do with the depressed state of Western economies, driving money out to look for safer places to park abroad. And the reason they feel safe with the peso is that as continuing troubles in the American and European economies weaken the dollar and euro, so will the peso and emerging market currencies correspondingly strengthen. In short, we’re not just seeing a pull factor toward our economy; there is also the push out of the troubled big economies.

But this article is about the other good news that made the President happy. This is the report that the Philippines rose two notches in the latest country rankings for the World Competitiveness Index (WCI) of the Davos, Switzerland-based World Economic Forum (WEF), from 87th last year to 85th, on a list of 139 countries. While an improvement in the survey-based rankings is indeed good news, the situation isn’t exactly something to be euphoric about just yet—and it doesn’t promise to be so for some time to come. First, our ranking still puts us well down the lower half of countries rated, in fact almost in the bottom one-third. Second, we miserably trail behind our closest neighbors with whom we ought to be benchmarking ourselves: Singapore is 3rd, Malaysia is 26th, Thailand is 38th, Indonesia is 44th, and Vietnam is 59th. Third, we are embarrassingly grouped among Stage 1 (factor-driven) countries, in the company of mostly African countries, including Uganda, Zambia and Zimbabwe. Our neighbors are either in Stage 2 (efficiency-driven) or Stage 3 (innovation-driven), already in a different league from us.

There is, indeed, still a lot of homework for us to do. To understand where we need to push, it is enlightening to examine what the WCI exactly measures. There are 12 “pillars of competitiveness” that the index measures: (1) Institutions, (2) Infrastructure, (3) Macroeconomic environment, (4) Health and primary education, (5) Higher education and training, (6) Goods market efficiency, (7) Labor market efficiency, (8) Financial market development, (9) Technological readiness, (10) Market size, (11) Business sophistication, and (12) Innovation. It doesn’t take much to guess which pillars we rank well in, and where we fall behind.

Not surprisingly, our worst pillar is Institutions, at 125th. Here, there are 21 further detailed indicators, and we are near the bottom in four: “Diversion of Public Funds” (135th), “Public Trust of Politicians” (134th), “Ethical Behavior of Firms” (129th), and “Irregular Payments and Bribes” (128th). It is interesting to note that not all indicators are a direct reflection on government, but on our private sector as well. Rating so badly in ethical behavior of firms, the homework we need to do clearly doesn’t fall on government alone; our private sector has a lot of shaping up to do as well.

It’s not only in institutions that we rate poorly. We are in the bottom one-fourth in innovation, labor market efficiency, and infrastructure. The first is a reflection of our weak science and technology (S&T) and research and development (R&D) base, including the relatively low budgets devoted by both government and the private sector to such. The second reflects rigidities in our labor market, especially in our capability to help workers adjust to changing market demands. And the third needs little elaboration. We have fallen behind in both quantity and quality of infrastructure facilities relative to our neighbors, so there is no escaping the need to undertake a vigorous catch-up program for infrastructure in the years ahead.

Respondents were separately asked to list the most problematic concerns for each country rated. The top five problems in the Philippines, in order of ranking, are corruption (what else is new?), inefficient government bureaucracy, inadequate supply of infrastructure, policy instability, and tax regulations. Good governance, then, must indeed be President Aquino’s overriding priority, and he now faces the challenge of proving that the various trips and falls of his government’s first 75 days in office are just part of the usual learning curve.

Where are we good at? According to the WCI, among our strongest points are low HIV/AIDS incidence (where we’re number one!), soundness of banks (thanks to our competent and independent Bangko Sentral ng Pilipinas), professional management, customer orientation, domestic market size (thanks to our large population), and extent of staff training. In short, our best asset is our people. No wonder Filipinos are so much in demand overseas, from household domestic workers all the way up to top managers. And given the shortcomings in our education system, we haven’t even given this our best shot yet. Think of how much farther we could go if we did.

No Free Lunch
By Cielito Habito
Philippine Daily Inquirer
First Posted 04:48:00 09/14/2010

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E-mail: cielito [dot] habito [at] gmail [dot] com