Bernardo M. Villegas
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Reassuring Views from Independent Observers

          Despite some understandable criticisms from human rights advocates from the U.S. and Europe, it is reassuring that perceptions about the Philippine economy are still generally positive from outside independent observers.  It is especially encouraging that two multilateral lenders—the Asian Development Bank (ADB) and the International Monetary Fund (IMF)— have raised their 2016 growth forecasts for the Philippines on the back of solid economic fundamentals, i.e. continuing increase in consumer spending, low rates of inflation and interest, low fiscal deficit and government debt, and increase in manufacturing output.  Last September 26, the IMF said that the “outlook for the Philippine economy remains favorable despite external headwinds, prompting the international bank to raise to 6.4 percent from 6 percent previously its growth projection for 2016.  The ADB also raised its growth forecast of the Philippines to 6.4 percent from 6 percent previously.  According to Richard Bolt, ADB country director for the Philippines, what is particularly encouraging about the Philippines was its very solid ten-point socio-economic agenda aimed at slashing poverty to 17 percent by 2022 from 26 percent at present.

          I have been especially impressed with the September 2016 Special Report of one of Hong Kong’s leading think tank, CLSA Limited.  Let me quote from its Philippine report entitled “Duterte cracks the whip”:  “President Duterte has been fortunate in taking over a strong economy with a sound fiscal position.  The Duterte administration took office at the end of June with 2Q16 real GDP growth at 7% YoY and substantial fiscal space following deficit containment below 1% of GDP in 2014-2015.  The investment upswing will be going into its sixth year in 1Q/2017 reinforced by Mr. Duterte’s planned infrastructure spending push.  We forecast accelerating real GDP growth from our 6.8 estimate for 2016 to 7% in 2017, with this pace sustained in 2018.”  In CSLA’s overall assessment of growth prospects in the whole of Asia, the Philippines ranks next only to India that is expected to grow at 8% or more in the next two years. 

          To the naysayers who are overreacting to the unorthodox ways of Duterte, CSLA has the following very practical advice:  “Investors attracted by the strong growth prospects in the Philippines will have to accept the risks arising from Mr. Duterte’s unsavory policies (such as the extra-judicial killing of suspected drug dealers).  Duterte’s decisiveness is a welcome change after tardy progress by his predecessor, Mr. Aquino.  However, the test will be to alter the perception that the Philippines lacks the capacity for efficient implementation, without undermining civil institutions.  Follow-through on Duterte’s commitment to lift the foreign investment limit will be another key test, especially given increased risk stemming from a twin deficit in 2017.  Mr. Duterte has broader visions of raising living standards for the poor which, if he succeeds, will be an accomplishment that has eluded previous administrations in the Philippines.”

          As I have written in several columns in this newspaper, focus of investors doing business in the Philippines should be the continuing increase of dollar remittances from the more than 10 million OFWS.  These remittances are now being converted at P48 or more pesos to a dollar, stimulating the consumption-led growth that is also bolstered by the almost identical dollar earnings from the more than one million workers in BPO-IT sector that continues to grow at a hefty 15% annually.  These two engines of growth are fueling domestic consumption, the most notable of which is in the 40 million middle-income Filipinos who are the first tourists in their own country.  Another multiplier effect of these revenues is the booming housing sector and the building of office spaces for the BPO workers, both of which are increasingly moving towards second-tier cities outside the National Capital Region.  The expansion to the regions is leading to the multiplication of retailing outlets in some of the more remote areas in the countryside.

          Add to these consumption-driven sectors the highly probable investment boom in infrastructures as the Duterte Administration shows greater decisiveness in increasing its budget for public works to 5% and even 7% of GDP and more importantly, actually spending the budgeted amount, which was not the case in the last Administration.  There are already very clear signs that the much awaited Public Private Partnership (PPP) projects are finally taking off in larger numbers.  As many as 17 of these projects are due for implementation in 2017.  More open to unsolicited proposals and the Swiss challenge, the Duterte Administration is also encouraging the more enlightened and proactive governors and mayors to take advantage of provisions of the Local Government Code of 1991 to undertake their own PPP initiatives.  If these LGU units partner with private companies in joint ventures in which the private party has majority ownership, they can implement these projects without getting any clearance of the National Economic Development Authority (NEDA), a bureaucratic step that has slowed down actual spending in the past.

     As one of the examples I have cited in this column, Batangas province has in the works a railway connecting Calamba, Laguna to Batangas City; the conversion of the Fernando Base in Lipa City into a secondary airport to Manila; expansion of the Batangas City seaport to decongest the Manila port; and more modern highways to improve access to the numerous tourist spots of the province.  The example of Batangas can encourage other LGU heads to promote their own PPPs in partnership with both local investors (such as Metro Pacific, ICST, San Miguel Corporation, the Ayala Corporation, Megawide, etc.) as well as foreign investors coming from Japan, South Korea, Taiwan, and China who are less sensitive to the so-called human rights issues than the Americans and the Europeans.  The bullish mood of our Northeast Asian neighbors will be further enhanced if Speaker Pantaleon Alvarez and Senate President Koko Pimentel can focus on amending the restrictive provisions of the Philippine Constitution that have discouraged Foreign Direct Investments in the past.  They should follow the example of the Vietnamese Government that recently liberalized even more its laws concerning FDIs.  Vietnam is attracting three times the level of FDIs of the Philippines.

          Like every other decent human being, I would like to persuade President Duterte to change his uncouth language and penchant for off-the-cuff remarks with significant policy implications which he has not completely thought through.  I would also want to see the force of law being used to prosecute policemen or vigilantes who have been involved in illegal killings, whether or not related to the campaign against the drug epidemic.  If these changes do not happen overnight, however, I would enjoin those who want to promote the common good of Filipinos to do whatever they can to still take advantage of the numerous opportunities still available in the country to   generate much needed jobs for millions of unemployed and underemployed, taking the President’s undesirable behavior as an unavoidable business risk.  For comments, my email address is bernardo.villegas@uap.asia.