NEDA chief thinks we are moving

Believe it or not, P-Noy’s chief economist thinks the economy is moving satisfactorily. Dr. Cayetano Paderanga Jr., who got his PhD in Economics from Stanford and is taking his second turn at NEDA, talked to Global Source, a New York-based think tank. There are rumors that he is planning to quit soon but he nevertheless exuded confidence that the P-Noy administration has done its homework and better things are now in store for us.

Dr. Paderanga acknowledged that governance reviews of procedures did cause some initial delays in project implementation and had an impact in GDP numbers, but the reviews and the delays were expected. “What we didn’t foresee was how it affected everybody. Engineering districts across the country simultaneously implemented the new procedures. The impact was that if the program of work took three months to prepare, there was an immediate retreat of about three months in terms of expenditure. Not only those, the documentation and approval of requirements for new projects coming into pipeline are stricter, so people became more careful.”

Dr. Paderanga, however, reassured that the initial delay had not been in vain. “This reform led to two things. One, there has been real savings, which constitute an absence of spending and therefore measured as underspending. Two, governance reforms have led to a temporary slowdown in the process. These two added up. But there are actual benefits, and one that I quote often is something that the public works secretary (Rogelio Singson) shared with me.

“This particular project had an approved agency estimate of P32 billion, but it turned out to be only P29.5 billion under this new process. When it finally went through the bidding process, it ended up at even lower at P26.5 billion. So according to the estimates, the new process saved us about P5.5 billion. And that is happening really across the country. We knew about this (the deceleration in public works spending) by the last month of the second quarter. We thought that our catch-up spending would show in third quarter numbers, and we were hoping things would be on track by the fourth quarter.”

So Global Source asked the government chief economist how the economic managers propose to strike a balance between cleaning house and encouraging growth? Dr. Paderanga thinks “the tradeoffs may not be that big given what we’ve already done. First, pursuing governance reforms and removing corruption add to resources that are available by cutting down leakage on the revenue side, as well as on the expenditure side. Second, the reforms have already been done and what we’re working on will start to take effect. We actually think that the governance reforms are going to have a good impact on investments. The very big part is the reduction in the cost of doing business.

“Over the medium-term, the impact of the reforms could build up really fast. For one thing, the initial hesitation is now over and projects are starting to get back on the line. Actually, we were able to approve something like six projects in the past year. So the pipeline is already starting to build up again on all the three different channels… which will really bear fruit starting the first or second quarter. By middle of the year, I think you will really see this. The impact on the private sector, I think, will also be very beneficial. We will get some resonance from there.”

Hmmm… I wonder if Dr. Paderanga also has Mar Roxas’s DOTC projects in mind. We haven’t heard much from that side for quite a bit of time now. Mar’s failure to implement projects like the upgrade in air traffic control systems at NAIA is now causing serious economic damage. Mar also doesn’t seem too hot about PPP and has actually announced preference for ODA. So Global Source asked Dr. Paderanga if government is going to accept unsolicited proposals?

The reply is yes, because Dr. Paderanga observed, the law allows it. “It’s our duty to appraise… PPP is attractive to us clearly beyond the financial aspects… People thought that the PPP was a way around budget issues. But it’s more than that. Now, we’re finding out that we may not have any real budget constraint at least in the next year or two. Our constraint is how we can spend the available budget in the way that we want to do it, and in the way the President wants it to be spent.

“What is the use of PPP? It will bring in the advantages from private sector initiative. There are many ways that the public and private sector can be blended together, and many of the public services can actually be done through private provision of public goods…  PPP projects will pick up in 2012, during which additional projects will be bid out formally.”

Global Source was however, skeptical. They asked the Secretary, “But even if you get the feasibility studies done this year, there won’t be a real economic impact until 2013.”

Dr. Paderanga’s response: “If the businessmen are already sure that the Puerto Princesa airport will be done by early 2013, for example, by the middle of this year they’ll already start investing. It is how precise the plans are and your track record… The business sector will react almost immediately and people will start buying the land because they want to stake out the choice slots. That will immediately have an impact on the local economy. So it’s not as visible as some people may think, but it will start having an impact immediately, as long as it’s a credible program.”

I guess that’s the key ingredient right there… as long as there is a credible program. For now, it is really just the Puerto Princesa airport. Dr. Paderanga failed to get into the gory details of low hanging fruits that are rotting in the branches. The Secretary says, availability of money is no longer a problem in government today. So the only real problem that stands between progress and staying in place are the administration officials like Sec. Mar Roxas, who is afraid to act he brought four lawyers with him as Usecs in an agency that requires serious technical knowledge in infrastructure. I am almost sure that the next four years will come and go quickly enough and we will still be not far from where we are right now. –Boo Chanco (The Philippine Star)