Corruption, poor governance in RP turn away capital — WB

The top World Bank official in the country said yesterday the investment climate under the Arroyo administration remained weak due to poor governance, pervasive corruption, and lack of policy reforms.

World Bank country director Bert Hofman said foreign investors continue to shy away from the Philippines due to unsound business policies and the government’s apparent lack of political will to stamp out corruption in the bureaucracy.

“Governance continues to be mentioned by domestic and international investors as being a critical factor in their investment decisions. It is not just the economic opportunities that count for investors but also the reasonable assurance that the benefits of investments will be there and not be taken away by suddent changes of regulatons or eaten up by corruption,” Hofman said in his keynote speech at the 13th annual Prospects for the Philippines conference hosted by the Foreign Correspondents Association of the Philippines (Focap).

While the country enjoys a reasonable quality of civil service and regulation, Hofman noted that anti-corruption and policy consistency “seems to fall short of the standards that mobile investors expect nowadays of a lower middle-income country” like the Philippines.

He said, conversely, consistency in government policies and their implementation and enforcement would shore up investments in the Philippines.

He said while the country now enjoys a savings rate that well exceeds investment, and the country’s human resources are in high demand around the world, “the bottleneck for the Philippines seems to be in the creation of opportunities for deploying these financial and human resources at home,” Hofman said.

“While improvements in these areas are hard to achieve and will take a long time to solidify, credible commitment of the government to better governance should be high up the agenda for any government that come in, and actions that reinforce such commitment would be much welcomed by the business community,” he said.

To attract more investors, Hofman underscored the need to professionalize the civil service, limit the number of political appointees in the government, increase transparency in the budget process, and increase access to information.

He also said it is necessary to “have an open and better separation” of private and public interests for those holding public office “to signal a stronger commitment to better governance.”

Better resources for the oversight agencies and law enforcement agencies “would also be a clear signal that the Philippines is ready to take on the governance challenges of the country,” Hofman said.

Hofman stressed that all of these measures can not succeed without a firm fiscal basis.

“Fiscal consolidation has been the cornerstone for a growing macroeconomic stability and frankly for more rapid growth in the last decade. But the impact of the crisis, and the erosion of the tax base by ad hoc policy changes in recent years, as many observers agreed are undermining their success,” he said.

He also noted investment in infrastructure and education, better law enforcement, stronger oversight agencies, require additional resources to improve the investment climate while major revamp of the country’s tax structure to make it more efficient and more equitable is likely needed.

“It’s always difficult in any country to revamp the tax structure but the technical side can be separated from political side by appointing a high level technical committee to sort out the options for the policy-makers to decide,” he said, adding that a number of measures would have to be taken to increase government revenues in the short term.

Hofman said the Philippines could consider reversing some of the revenue-eroding measures during the peak of the crisis.

“They may no longer be needed once we have recovered from the crisis. It may also consider adjusting excise taxes for inflation like most countries in the world are doing. I don’t call that new taxes. I will call that adjusting taxes for inflation and possibly expanding the coverage of goods coverage of the value-added tax (VAT). I don’t call that new taxes. I will call that expanding the tax base,” Hofman said.

Hofman also urged the government to modernize the Bureau of Internal Revenue (BIR) “so that revenue officials are allowed to do their duty without interference from those who don’t want to avoid taxes and those who want to use revenues for their own purposes.”

Hofman, meanwhile, lamented that inequality has increased and poverty has risen in the last decade.

“More needs to be done to address poverty. Safety nets need to be rolled out nationally and the inefficient spending and safety nets that do not work would need to be cut,” he said.

While the government has made strides in education reforms, Hofman said there is a great need for it to be expanded as he urged the next administration to devote more spending on education.

“Spending on education is in the order of 2.5 percent of gross domestic product (GDP), well short of what comparative countries in East Asia and elsewhere spend, and insufficient to provide investors with the confidence that a sufficiently large and well educated labor force will be available in the future,” Hofman said.

Labor regulations, on the other hand, “are too extensive for the current levels of productivity of particularly the poor,” Hofman said. –Michaela P. del Callar, Daily Tribune