Economy under PNoy: Highs and lows

MANILA, Philippines – Investors laud President Aquino’s anti-corruption and good governance campaigns to plug the holes in the tax system and cut waste in the national budget.

But while these have generated gains and savings for government — as evidenced by the improved fiscal situation — the same are blamed in part for the slowdown in the economy and reluctance of foreign businesses to invest in the country.

In his first State of the Nation Address (SONA), Aquino raised at least 6 economic issues, which included among others, the budget deficit and public infrastructure.

On the first issue, he made significant progress. He was able to trim the deficit to just P9.54 billion in the first five months from P162.11 billion in the same period last year, before he assumed office.

He did this by putting caps on pay and perks of government companies, adopting a zero-based budgeting scheme, improving tax administration. His administration was able to reduce spending after squeezing corruption out of public contracts and through austerity measures.

The lower deficit has prompted credit ratings agencies to upgrade the Philippines’ debt rating, which Aquino’s economic team says is the “best grade” he got for his performance.

Finance Secretary Cesar Purisima said the upgrades will lead to lower borrowing costs for government and more money that can be used to provide social services to the poor.

“When we first came in, the interest expense per year was over P300 billion. But we were able to bring that down. That’s why it’s important that we fix our fiscal situation.”

However, others say lower spending — which largely helped trim the deficit — has resulted in the slowdown in economic growth to 4.9% this year from the record-setting 8.4% a year ago.

Meanwhile, the anti-corruption drive has made government “overcautious” that even clean contracts are held up.

“They’re being too careful. You have anti-corruption goal, which is good. However, I think [you should not] overdo it,” Former NEDA planning director Dennis Arroyo said.

Public-Private Partnerships

Aquino earlier ordered the scrapping of an P18-billion Belgina lake dredging project, and renegotiation of the North Rail and Roll-On Roll-Off projects. He said these have no clear benefits to the public.

Some business groups have raised concern that the flip-flopping on contracts may turn off investors, including those who may be interested in Public-Private Partnerships (PPPs), the centerpiece of Aquino’s economic program.

“The investor needs at least 20 years security, and today I am afraid they don’t see that. They see that we are more talking about a 5-year term, so one government after another government after another government. And then the contract maybe questioned,” said European Chamber of Commerce President Hubert D’Aboville.

The Aquino government earlier listed 10 contracts under PPP to be bidded out this year, but none has been bid out so far.

Bank of the Philippine Islands (BPI) President Aurelio Montinola said the PPP is the most promising about the economy, but also the most challenging.

The PPP aims to get private capital for infrastructure and free up government finances for more social spending.

Montinola said its success is key to boosting foreign direct investments (FDIs).

“In the end, if we can pull it together, we’re going to get infra, which is going to be very helpful for the country. And it will also solve the credibility issue which is a big stumbling block with regards to FDIs,” he said.

“The perks of the Philippines haven’t changed yet. We see the efforts of our Filipino partners in the public and private sectors to change things. But I don’t see foreign investors except in some sectors like BPO coming in fast as we would like them. We’re disappearing, the rest of the world is catching up,” noted John Forbes, senior adviser of American Chamber of Commerce of the Philippines.

But again, the government said the PPP program is slower than expected because it’s making sure contracts are transparent and will benefit the country.

One analyst said that’s understandable, and even commendable.

“It’s encouraging that the administration is resisting the kind of short-term political pressure to just press ahead with projects even if the money may not necessarily be spent as effectively as it could be. I think it’s encouraging that there is an emphasis on the efficiency and the effectiveness of projects,” said Andrew Colquhoun, head of Fitch Asia-Pacific sovereign ratings. – With Coco Alcuaz, ANC