Ratings, the impetus for changeBy Peter Wallace
Philippine Daily Inquirer
The investment-grade rating given by Fitch (I expect S&P and Moody’s will follow soon) is of great credit to President Aquino’s administration and Finance Secretary Cesar Purisima. I believe a key ingredient here that was missing in the last administration is the trust that the people have in Mr. Aquino. There were many factors taken into account, such as “a persistent current account surplus, underpinned by remittance inflows” and a resilient economy, 6.6-percent growth in 2012, “amid a weak global economic backdrop.” But one that can’t be measured yet as a key factor is trust. Credit rating agencies can also trust that the country will now be stable. Fitch believes Mr. Aquino when he says he wants corruption to end, and he has achieved some admirable high-level prosecutions. What is needed now is a court system that functions so they can be put in jail where they belong.
But the critical part of “investment-grade rating” is “investment.” That, quite simply, is not coming in no matter how much the government might pretend that it is. Government officials would do far, far better to accept reality so there’d be pressure on them to do something.
Am I being unfair? No. The numbers say it all.
Over the past 30 years the Philippines attracted $36 billion in foreign direct investments (FDI). This is dwarfed by Vietnam’s $73 billion, Indonesia’s $104 billion, Malaysia’s $122 billion, Thailand’s $126 billion and Singapore’s $475 billion.
You can pretend it’s because of the crises in the United States and Europe, but FDI went up more in other Asian countries.
You can pretend… oh, all sorts of things. But what you should do is face reality, which is that the Philippines is not attracting FDI. And an investment-grade rating, as important and commendable as it is, won’t of itself do it. It is but one factor; the others have been enumerated endlessly. Business has clamored incessantly for the changes and actions needed. And the government has promised equally endlessly to do them.
The reality, though, is far from the promises. There’s been little, if any, significant change. And investors know it. My sympathies go to the administration leaders because they all (well, except one or two) recognize what is needed, and want the changes, but they’ve got a bureaucratic system and a litigious society so entrenched that getting change is well nigh impossible. A massive, truly massive, shakeup of the bureaucracy is needed.
The PPP (public-private partnerships) program is a classic example—a well-developed program, capably led, but hamstrung by a collection of public servants who are too few, too poorly paid, too weakly motivated and too entrenched in their systems to be capable of change. It takes four to six years to put a project together instead of the few months it should.
I suggest you read Ciel Habito’s column on the credit rating upgrade (Inquirer, 4/2/13); it’s an excellent analysis. More importantly, I suggest very strongly that the President and his Cabinet do so. The issues Habito raises are something the economic community has long been arguing for. Fiddling at the edges, as is happening now, just won’t do. The President is acting massively on corruption; now he needs to do it on reform for the business sector.
As a start, he must discard his opposition to constitutional change. A paltry $2 billion of foreign investments last year won’t create the 10.1 million jobs Filipinos need. If Filipino businessmen want the economy opened up (and they do), it’s because they see opportunities, not threats, in having foreign capital. So, too, should their elected leader. His bosses, the people, want jobs. Jobs need investors. Foreigners can add to the creation of those jobs. Amending the Constitution on this matter will send a message that the Philippines truly wants foreigners to participate in a dramatic way no other change can.
But everything else has to be done, too. It won’t be done through (endless) promises. It will be done through results, but not if we stick to the old systems. Dramatic change must be done. If President Aquino wants to leave a true legacy, then he should make a second (to the one he’s doing on corruption) major reform. Discard the bidding process. Former President Fidel Ramos did it, and got us full power in just 17 months. While here we are, 32 months into this administration, and only 2 PPP projects have commenced construction. We need to bypass the system.
I trust this President. I trust the public works and transportation secretaries and the head of the PPP program. They’ll make fair, correct decisions on the choice of contractors in a fraction of the time if they can just negotiate. Ramos was given emergency powers by Congress to solve the power crisis. The same must be accorded President Aquino so he can expedite the implementation of PPP projects.
Then there’s the bureaucracy. There’s no simple solution to this one. Well, there is: Double government salaries, halve the workforce, set short deadlines, and base keeping the job on performance according to those deadlines.
On my annual tax declaration I had to sign six copies; so did my treasurer. Why? What’s wrong with two? Why are we using paper, anyway? If the President truly wants to effect change, he should fully computerize all government services in an integrated, holistic manner within the next three years. Hire outside management experts to study all government processes toward recommending vastly simplified systems. If it can be done in business, it can be done in the government.
The investment-grade rating can act as a great impetus to the start of deep reform in the government and its systems. The President has the people’s support and does not have to worry about reelection, so he should go for it.
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