Aquino can do it

(First of two parts)

Over Christmas the Inquirer published a five-part special report that I had written for my clients. To those who have questioned me, in an accusatory manner, yes, some of the cases are of my clients. My clients are over 100 of the Philippines’ leading companies. They all get the same information and advice. I was not paid by any of them to write that report. I did so because I want the Philippines to succeed. And treating businesses like this is not the way to succeed.

I was hoping the government—essentially, in this hierarchical society, the President—would thank me and correct these errors. Instead, sadly, an attempt was made to defend the government’s actions, not with specific explanations, but generalities that no one who reads this newspaper would believe. For example: “Be that as it may, the Aquino administration has endeavored to address all of the issues raised in the report in a fair and equitable manner.” Really? I don’t think so, not even in one case. Addressing the issues is why I wrote the report; addressing them is not what the government has done.

There was specific rebuttal by an entity called Joe America, but I won’t respond to someone so gutless as to hide behind a pseudonym. Publicly identify who he/she/it is, and I will. But I’ll say one thing to him/her/it: Yes, I am probusiness, very decidedly so, because it is business and only business that creates the jobs and grows the wealth of the economy that we all need. The government is only an enabler, or should be. It should not be, as the report highlights, deterring businessmen from investing. It should not be putting cash revenues to the government ahead of treating investors decently and correctly. When investors are not treated decently, the losses to the economy are far greater than any cash advantage.

If this administration had spent the past five years encouraging businessmen to invest instead of gouging every cent out of them, hundreds of thousands of jobs would have been created. They weren’t. There were 2.8 million unemployed and 7.37 million underemployed in 2010. The numbers in 2015 were some 2.4 million and 7.05 million—no real improvement. And those were government numbers. I could well expect the reality to be worse.

The report I wrote on sanctity of contracts was done after much discussion and research to highlight a very disturbing situation: The Aquino administration has changed contracts and is unacceptably slow in paying its promised obligations. I stand by these statements; we researched them carefully. And to say, as the administration did in response, that it can’t be blamed in some cases because the cases are in court, misses the obvious point that these were in court because the executive branch put these there. The companies were left with no recourse but to go to court because the executive branch wouldn’t listen.

“Most of the points raised in the Wallace report involve actions of courts and arbitral bodies that are not part of the executive branch that is headed by the President as Chief Executive.” Acknowledging that the President is the Chief Executive reinforces what I say later: As Chief Executive, he can order the reversal of these government-initiated actions. It’s like China saying it’s the Philippines’ fault for going to arbitration, not acknowledging that it was China’s actions that forced the Philippine government to do so.

To emphasize this point, let me look again at just one case: water. The original contract between the MWSS and Maynilad and Manila Water said: “The rates for water and sewerage services provided by the Concessionaire shall be set at a level that will permit the Concessionaire to recover over the 25-year term of the Concession (net of any grants from third parties and any possible Expiration Payment) operating, capital maintenance and investment expenditures efficiently and prudently incurred, Philippine business taxes and payments corresponding to debt service on the MWSS Loans and Concessionaires Loans incurred to finance such expenditures, and to earn a rate of return (referred to herein as the ‘Appropriate Discount Rate’) on these expenditures for the remaining term of the Concession in line with the rates of return being allowed from time to time to operators of long-term infrastructure concession arrangements in other countries having a credit standing similar to that of the Philippines.” That should be clear even to a fifth-grader. But no, 16 years later the MWSS management reinterpreted it to say that tax is not an allowable expenditure and has not agreed to the tariff increases needed to make a reasonable rate of return—as the contract mandates. This should not be a court case, but an administrative case that the administration can correct.

I’ve been in business for 57 years—50 in executive positions, 40 as a CEO—and I deal with executives every day of the week, so I just may know a little about how they think. I can assure this administration that actions like that deter investment. Its actions, like the many I highlighted, are among the principal reasons the Philippines garners the least foreign direct investments. And don’t be fooled by the much touted $6.2 billion in 2014 (even that was the lowest among the major Asian countries) as 54 percent of it, or $3.35 billion, was made up of loans to existing local subsidiaries. A miserable $209 million was in new factories—where real, new jobs can occur.

The Philippines continues to get the lowest FDI among the major Asian countries. From 2010 to 2014, it drew a total of $16 billion in FDI, dwarfed by Singapore’s $292 billion, Indonesia’s $107 billion, Malaysia’s $57 billion, and Thailand’s $50 billion. Even Vietnam, which used to trail its Asean peers on most macroeconomic indicators, attracted FDI about 2.5 times larger than that of the Philippines, at $42 billion. Surely that should be cause for concern.

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E-mail: [email protected]. Read my previous columns: www.wallacebusinessforum.com.