The coming Philippines boom

First of two parts

Respected economist Bernardo Villegas got the nickname “Prophet of Boom” for his bullish predictions on the Philippine economy from as far back as the 1970s. For many business people and other seasoned observers of the country may have found many unfulfilled projections and promise, especially after the optimism after the 1986 People Power Revolution. Today, a new government has again fanned hopes of sparkling growth, with headlines about President Benigno Aquino 3rd bringing home American aid and investment pledges totaling $2.8 billion, almost as much in real terms as the $2 billion that his predecessor garnered during her own first US visit in 2001.

So is the Philippines set for a boom at last? Yes, if we play our cards right, especially on the policy and business strategy front.

First, the policies. The Aquino government is wise to continue the past administration’s efforts to rein in the budget deficit and boost revenues. After nearly balancing the budget in 2008, the state had to go into heavy deficit spending this year and last, to keep the economy growing amid the global recession and to address disaster relief and recovery needs after devastating floods hit most of Luzon, where three-quarters of GDP is generated, causing over P200 billion in damage and losses.

In addition to the fiscal program, the other boost to confidence is the political stability following the most credible and relatively hitch-free elections ever and the smooth transition to a new administration, President Gloria Arroyo’s final legacy. It is no wonder then that the stock market is setting records, the property market is surging and the financial markets are giving the thumbs up to the peso and government bond issues, including the first peso-denominated treasury bill sold abroad.

To ensure that these twin foundations of confidence—fiscal and political stability—are maintained, politicians must desist from two ways of the past. They must avoid enacting imprudent spending measures and tax breaks, as they did most recently in 2009, scrapping P100 billion a year in revenues. And administration opponents should keep to constitutional and electoral processes in seeking power. Let us learn from the failed destabilization and coup attempts of the past decade that our people now prefer the ballot box in changing leaders.

If fiscal reforms and adherence to the Constitution are lessons from the Arroyo decade, the Aquino administration is banking on public-private partnerships, reduced corruption and expanded social services as its main development drivers. There is no question that less graft and more money for education and poverty alleviation would boost economic and human development. The bigger issue is how?

Malacañang has given top priority to investigating and prosecuting corruption allegations in the past administration. But it was quick to deny without any probe the recent jueteng bribery accusations against its own people. It even abolished a Palace office tasked with investigating presidential appointees. But what is really needed to spur investment and growth are sustained reform in the procedures, structure and culture of the bureaucracy, including local governments and especially corruption-prone agencies. There are anti-graft measures in the 2011 proposed budget (see September 6 column), but many others need to be instituted, such as the enhancement of anti-red tape programs, to systematically address corruption (see columns on August 2, 4 and 6).

On learning, 12 years of basic education is a good start, adding one more year to the current 11 from pre-school to high school. In their ride from Malacañang to Rizal Park on June 30, President Arroyo had urged her successor to prioritize education reforms, including those proposed by the Presidential Task Force on Education Reform under Ateneo de Manila University President Fr. Bienvenido Nebres. In the 21st century global economy, knowledge is the leading creator of wealth and economic opportunity.

This week former President Arroyo also expressed appreciation for the expansion of the conditional cash transfer (CCT) program which begun under her watch. The monthly stipends are given as an incentive for poor families to attend to their health and education. Besides CCT, the other successful Arroyo program that should be continued is microfinance, which won the Philippines praise as having the best microcredit program among more than 100 nations.

Despite some concerns about implementation, however, the avowed PNoy priorities of anti-corruption, education and social programs are sound and should be supported and sustained. They can eliminate graft holding back private enterprise and mobilize more and more of our people, especially the poor, for economic production and the knowhow-intensive jobs and enterprises of the 21st century. In this way, we turn our burgeoning population from a growing burden on public services to an expanding engine of economic growth and prosperity.

Turning to public-private partnerships, the rationale for PPP is well-known and widely repeated: the government is cash-short, and the private sector is more efficient. But not always acknowledged and accepted is the third principle of PPP: business must make money. To be sure, illicit profits must be blocked and consumers protected from gouging. But we must note begrudge honest gains from exploiting legitimate business opportunities. There is no better lure for investment than a profitable investor.

Yet too often, populist politicians lambast legitimate profits and hold down fares and rates, discouraging future investment in much needed infrastructure and facilities. Still others sabotage sound projects by making unfounded allegations of corruption, which the media play up even without solid facts. Meanwhile, artificially low rates spur unsustainable consumption habits, instead of promoting efficiency and conservation. And key sectors like power are starved of investment, leading to shortages.

The Aquino administration has rightly expended political capital in moving to raise expressway tolls and, possibly, commuter train charges. But the real test will be electricity rates. If they are too low to attract investors, then we will see more and longer brownouts in coming years, even in Metro Manila maybe as early as next year. Then we will learn the hard way that the most expensive power is no power at all, exacting huge tolls in factories idled, wages cut, and basic necessities scarce and pricey.

With his lofty trust rating, President Aquino can argue with much credibility that Filipinos must be willing to offer profitable prices to attract the investment needed for development and a better life. Then PPP can work and business will become an eager and strong partner for development, lifting the economy’s growth and living standards without sinking the nation in debt.

The second part of this article will appear on Monday. –Ricardo Saludo, Manila Times

Ricardo Saludo heads the Center for Strategy, Enterprise & Intelligence  ( ric.saludo@censeisolutions.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it ), providing expertise in strategy and management, enterprise development, intelligence, Internet and media.