Hong Kong is in turmoil. Its political independence is under threat, and may well be lost, despite the heroic efforts of a courageous citizenry. It will be lost anyway in 2047, when Hong Kong loses its “one country, two systems” status.
What’s certain is that this revolt over allowing corrupted Chinese courts to rule on Hong Kong offenses destroys the independence and impartiality of the highly regarded Hong Kong justice system. It puts into question the independence and impartiality of what made Hong Kong a financial center in Asia. If China now steps in with force, Hong Kong as an international financial hub will be finished. The world’s financial system is not going to put its life in the hands of the Chinese government.
The openness and ease with which funds can be transferred will be at risk — for an industry that abhors risk-taking. The stability the financial sector must have will be gone.
An alternative is needed. Not Singapore. It already is a successful hub, and has enough to chew on. Somewhere else — and enterprising finance ministers/secretaries will be fighting for that alternative to be their country.
Manila could be the choice, but it will need some massive changes if it is to be.
It has a sound domestic financial system that’s well-established and safe, albeit small. It has a central bank recognized as one of Asia’s best. Its fiscal and monetary house is in order.
What needs to be changed? Obviously, our judicial system. Hong Kong is failing because the Chinese judicial system can’t be trusted for impartiality. Neither, I’m sad to say, can the Philippine judicial system. So the first thing that must be done is to establish a clean, impartial judicial system. Without it, we can forget being the next financial hub. The responsibility lies with the chief justice, not the Philippine president. That chief justice will be new in October. Let’s hope he or she will be someone with the guts and ability to effect true reform toward an honest and impartial court system.
Licenses and permits must be readily available — at official rates only. The ease of doing business can address the weaknesses in the financial sector.
A tax regime that is minimal is needed. An exact copy of Hong Kong’s makes best sense. In fact, copying Hong Kong in all facets of doing business in the financial sector would be an obvious way to go. A bank can then just relocate lock, stock and barrel with hardly a sweat. Just change the letterhead address.
To be a financial hub, ease of movement is needed. People must be able to get in and out of the country easily and not get stuck in traffic once they’re here. The “Build, build, build” program will go a long way toward addressing that. Mind you, that’s many years from now, but it’s good that some projects are currently being implemented.
Apart from improvements in corporate governance, the stock market needs to undergo policy reforms that will attract more public listings and expand its market capitalization. The long-term goal: to have a framework that will attract the listing of more foreign companies or their subsidiaries, and a broader and more diversified investor base in the Philippine Stock Exchange.
Foreign currency transfers and interchangeability need to be unlimited, but monitored for money laundering and illegal activities. But nothing else. The Bank Secrecy Act needs to be amended to match international standards. Criminals have to be caught, not protected. So Congress should pass the amendments, and remove suspicions as to why they haven’t.
A fully paperless banking system is also needed. While the initiative for adopting technology-driven business models comes from the banks themselves, authorities need to be an effective catalyzer for that change. The central bank’s financial inclusion strategy and fintech reforms have to move forward at a faster pace. The country’s internet infrastructure must also improve toward the same performance and cost as Hong Kong’s.
What I’m suggesting is a herculean task and, unless there’s a revolution in governance, can’t be achieved. What could be achieved is to create a true free port in Subic with laws similar to Hong Kong’s. A special court to handle just international finance-related cases could be created, with foreign lawyers allowed to practice. That is achievable — if the will is there. It would fit in with Clark as the nation’s new capital.
Email: wallace_likeitis@wbf.ph