Table of Contents
- Infrastructure Gaps in the Philippines
- Build Build Build Program: The Duterte Administration's Response to Infrastructure Gaps
- The Possible Benefits of the Build Build Build Program
- Funding the Build Build Build Program
- The Build Build Build Program's Impact on the Economy
- The Build Build Build Program's Impact on Money and Inflation Rate
- The Build Build Build Program's Impact on the Philippines' Employment
- The Build Build Build Program's Impact on Philippine Trade
Infrastructure Gaps in the Philippines
It is no secret that the Philippines has a lot of gaps to fill when it comes to infrastructure. On the issue of congestion alone, Japan Cooperation Agency reported that the country suffered a loss of about Php 2.4 billion back in 2012 (Mawis, 2018). To resolve the issue of unemployment and poverty, brought upon by the weak infrastructure present in the country, President Duterte believes that the infrastructure project dubbed as the Build Build Build program is “the solid backbone for growth” that will serve as an instrument to improve the unemployment and poverty rates of the country (Bases Conversion and Development Authority, 2018). It serves as the government’s response to the infrastructure gaps in the Philippines which, when addressed, would help boost the country’s economic growth.
Build Build Build Program: The Duterte Administration’s Response to Infrastructure Gaps
Introduced in 2017, with 75 planned projects, the program aims to improve the sectors of transportation and mobility, power, water, information and communications technology, and urban development and renewal. An effort towards achieving the administration’s medium-term goal to increase the GDP of the Philippines to 7.3 percent by 2022, the government would be spending around Php 8 trillion (Lamentillo, 2018). One positive aspect to this government project is that, compared to previous efforts made, the Build Build Build program would be addressing infrastructure gaps not only in the National Capital Region or in Luzon, but also the infrastructure gaps in Visayas and Mindanao. The Build Build Build program would help improve the connectivity among the various islands in the Philippine archipelago which aims to facilitate the flow of capital, goods, and people. Observably, the primary focus of the program revolves around the transportation and mobility sector
The Possible Benefits of the Build Build Build Program
In theory, addressing these infrastructure gaps could do so much more than simply resolving the issues stated above. Through a macroeconomics lens, a boost in government spending could pull up the country’s GDP and the implementation of these projects could provide many job and business opportunities to the people. Looking at the Gross Value Added in Construction in the Philippines by Region data for the years 2013-2018 and the Gross Regional Domestic Product of the Philippines data for the years 2013-2018 and comparing both data, it can be observed that the regions with the biggest spending on construction are the same regions that can be considered as the “wealthiest” in terms of GDP. However, as with other projects and policies, the problem now is the feasibility of the projects and the handling of the budget.
Funding the Build Build Build Program
Funding such projects is a complicated task. Merely relying on the currently available government funds is not ideal for a couple of reasons. First, it is simply not enough. Other government projects and initiatives would have to be implemented too. Next, the government might have to resort to increasing taxes on various goods which would result to higher prices. A reasonable increase in taxes is justifiable. Though with the amount needed to cover the expenses of the Build Build Build program, if the government were to rely solely on taxes, that would result to drastic price hikes which is not ideal nor necessary.
The government could resort to taking loans through the Official Development Assistance (ODA) (Ide, 2018). However, the Philippine government should be careful when taking this route. The Philippines is no stranger to the effects of taking loans from other countries. During Marcos’ time, the Philippines had experienced a short-lived shoot up in the Gross Domestic Product. Shortly after, the Philippine economy had suffered significantly because the succeeding administrations had to deal with the massive debt left behind by the Marcos administration. Not that taking loans should not be considered, but the government must carefully analyze its future effects and the government must have a solid plan on how to repay their debt.
Another course of action that the government could take is funding through the Private-Public Partnerships. The issue with this is that partnering with private entities is not exactly a “no string attached” agreement. As explained by the Undersecretary of the Department of Finance, Karen Singson, “unwarranted obligations” can be imposed on the government as a part of the agreement brought about by the PPP (de Vera, 2019). Such obligations could protect and benefit the interest of capitalists instead of the larger population. Therefore, similar to that of the ODA, careful and thorough consideration of such agreements is necessary to protect the interest of the majority.
Instead of resorting to one funding solution, the Duterte administration has decided to use different funding solutions on different projects. According to NEDA’s status report last July, it reveals that 21 projects (worth P187.6 billion) from the 75 projects is expected to be finished by 2022. As for the other 54 project, implementation could begin during Pres. Duterte’s term. In fact, by mid-2019 46 projects were undergoing various stages of implementation. According to reports, 52 projects are to be financed through Official Development Assistance (ODA) loans, 14 through the General Appropriations Act, 8 through Private-Public Partnerships, and 1 will be funded by a certain private sector (de Vera, 2019). Currently, the number of target projects has increased to 100. Still, most of these projects are focused at addressing concerns from the transportation and mobility sector (de Guzman, 2019).
The Build Build Build Program’s Impact on the Economy
By implementing an expansionary fiscal policy through increased government spending which is brought about by the Build Build Build program, the Duterte administration is subjecting the Philippine economy to growth. When government spending increases, it will result to more money circulating and more jobs. When less people are unemployed, firms’ bargaining power on wages goes down. It will result to higher wages which in turn, will result in an increase in consumption. When people’s consumption increases, in the short-run, prices would increase since firms do not change their level output right away. As in basic law of supply and demand, when demand is high and supply is low, prices are bound to increase. The higher prices would then incentivize firms to produce more. All of these effects would then push for economic growth.
Putting theory into context, the various on-going infrastructure projects has given jobs to architects, engineers, and construction workers. In addition to this, the Build Build Build program has injected capital into construction firms, hardwares, and others which then goes to the wages of their workers and to investments on construction equipment. Those wages would then circulate as those workers and employees increase their consumption since they now have more money to spend. Eventually, prices would increase due to the increase in demand for various consumer goods. This will push firms to expand production.
The Build Build Build Program’s Impact on Money and Inflation Rate
On inflation, the Philippines might experience inflation. As explained earlier, along with the increase and jobs and wages, consumption might increase along with it. Increased aggregate consumption could drive up prices in a phenomena known as demand-pull inflation (Mill, 2016). Nonetheless, the government can put up policies to ensure that this would not happen. Since inflation can be countered by reducing income or by encouraging people to save (Pettinger, 2019). When bonds appear more appealing to hold than cash, people are encouraged to save their money in the form of bonds. When people purchase bonds, the money supply circulating is then reduced. Therefore, to combat the possible inflation brought about by the increase in aggregate demand, the government can implement a contractionary monetary policy.
High inflation rates in the Philippines could decrease the value of the Philippine Peso. Then again, if the Philippine government were to implement a contractionary monetary policy after their implementation of the expansionary fiscal policy, they could counter the depreciation of the Philippine peso. Furthermore, when interest rates are high, lenders are provided with higher returns. As a result, it attracts foreign capital which gives rise to the exchange rates (Twin, 2019). Still, the government must closely monitor inflation rates as it can easily offset the advantages that is to be gained from having high interest rates.
The Build Build Build Program’s Impact on the Philippines’ Employment
The Build Build Build Program aims to improve existing infrastructure in the Philippines and likewise create more infrastructure. Because of the different developments and building being done, a larger number of manpower is required to finish these projects on time and properly. The Build Build Build Program opens up more job opportunities for the Filipino people since the program prioritizes its local skilled workers rather than foreigners. The job opportunities may give way for different unemployed engineers, contractors and construction workers to have jobs. For example, due to the congestion caused by the construction of the Skyway extension, the government is required to hire more workers in order to finish the project on or before the given date announced to the public.
It is said that the Build Build Build Program has been able to generate a total of 4,199,228 jobs for the Filipino people since the program started in 2016 (Unite, 2019). Along with the Build Build Build Program, the Duterte administration also launched online site Jobs, Jobs, Jobs which aims to consolidate all available jobs under the given program. Due to the higher employment rate caused by the implementation of this program, this entails that unemployment rate decreases which may indicate a growth in the economy as a whole through an increase in GDP because of higher tax collection which may increase government expenditure towards different programs like the Build Build Build.
The Build Build Build Program’s Impact on Philippine Trade
Since the Build Build Build Program aims to improve public infrastructure by building and expanding roads and highways, the government cannot source all the materials locally, therefore they must source their materials from countries outside the Philippines which increases the imports of the country. Due to this increase in imports, the program is said to have caused a wider trade deficit for the country. It is said that there has been a decrease in exports of goods such as coconut oil, machinery and transport equipment, and electronic equipment (Vera, 2018). Along with the decrease of this is the increase in imports caused by the construction of infrastructure for the project.
Due to the widening of trade deficit wherein imports are greater than the amount of goods exported by country, this would cause the country to loan money from other countries or the International Monetary Fund (IMF) in order to pay for the deficit. Together with the trade deficit comes the devaluation of the Philippine Peso. When the Peso loses its value, this entails cheaper exports that make it more appealing to the global market and will cause an increase in its demand, imports will likewise be more expensive and reduce the demand for these. With this comes an increase in Aggregate Demand (AD) as well as an increase in inflation rate as time passes due to an increase in costs.
The implementation of the Build Build Build Program foresees a brighter future for the Philipine Economy. Through the development of different public infrastructures, the program finds solutions to lessen traffic and promote connectivity within the three main islands of the Philippines. By increasing the connectivity between provinces and the country’s capital this may likewise reduce the overpopulation in the capital and focus on the growth of different cities and provinces as well. By looking at the effects of the Build Build Build Program on the different sectors and factors of the economy, mainly inflation rates, employment and trade, it could be determined how this would all affect us now and for the foreseeable future.
Despite there being negative implications for the economy in the short-run like increased traffic that leads to lower productivity as well as trade deficit. It could be said that these negative implications are just a little sacrifice for the long-term effects of this program since these long-term effects may outweigh the trouble the Filipinos will experience in their day-to-day lives. Given that this project is to have the right funding and management of funds, this will be beneficial for the long-run. Through the development of infrastructures, this will ease traffic congestion that will increase productivity since workers are not stuck in their vehicles for hours on end. This will likewise give producers an easier way to transport their goods within the country which could lead to faster economic growth for the country.
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