Infrastructure and Transportation

Spend More, Talk Less

With the release of third quarter GDP figures upsetting all but the most ardent economic apologists for this administration, the time has come for it to re-think its priorities.

image from wallpapers-diq.net

The situation is nearing a critical level. As the whole of Europe is placed on credit watch and as recovery in the US struggles for momentum, the vibrancy in the domestic economy is being sucked out by government’s poor infrastructure spending rate just at a time when it is needed. Cabinet officials throughout the year have been promising a more rapid deployment, but this has so far not materialized.

The incorrigible ‘prophet of boom’ from the Ateneo Graduate School of Business Cielito Habito despite his best efforts at painting a rosy picture for the government has himself acknowledged the third quarter results to be disappointing. Here is how this professor of ‘Aquinomics’ concludes his most recent column for the Inquirer entitled, Is confidence dissipating?

(W)hat worries me most is the possible dissipation of the initial confidence surge that greeted the new administration and led to brisk private domestic investment growth over the past year. With these private domestic investment numbers now apparently slowing down while price increases have been speeding up, the President and his men on top of the economy should keep a close eye on the ball—or risk losing steam altogether (emphasis added).

That’s it—the penny has finally dropped. Only a delusional person would keep insisting that the government is headed in the right direction when it comes to managing the economy. Will this lead to a teachable moment, or will the administration remain antagonized by criticism seeing sinister plots behind them, spooked by shadows and haunted by the spectre of its immediate predecessor?

Throughout the year, the government has continued to fall back on its good poll figures to demonstrate that it has been performing to the satisfaction of the people. Poll figures however may not be a good barometer of the government’s competence in economic affairs given the ‘halo effect’ that has made the administration appear more creditable than it should.

Market analysts have already pointed out and the Bangko Sentral agrees that stimulating greater demand to address the slowdown in growth lies not in the hands of monetary authorities at this point but with fiscal managers. What this means is that the government has to spend more and talk less. Or in the words of Jerry Maguire, it has to “show me the money!

All talk, no action

The government talks profusely about the need to ramp up infrastructure spending in its Philippine Development Plan released early this year (see page 17). “An inefficient transport network and unreliable power supply”  is what has created a poor investment climate according to the Plan. Solving this meant greater spending, but when it comes to actually delivering on this, the government fell short of its rhetoric. Next year’s appropriations will hit a mere 2.5%, when the benchmark for a middle income country such as ours is 5% of GDP.

P-Noy in his first SONA said that the infrastructure build-up would be achieved through public-private partnerships, but nearly eighteen months on and counting, the fulfillment of the now diminished scope of this program remains to be seen. The confidence of the business community will eventually wear thin as Habito suggests if delays persist.

When the president addressed a meeting of the Makati Business Club, a community highly supportive of his candidacy, there was some disappointment over his over-emphasis on the case against former president Gloria Arroyo and his squabble with the Supreme Court. As these businessmen suggest, the risk is for P-Noy to get so focused on prosecuting Mrs Arroyo that he fails to keep his ‘eye on the ball’.

And it requires some doing. To ramp up spending by 2.5% of GDP will require as much concentration as he can muster. In a ten trillion peso economy, this will mean doubling the present effort of 250 billion pesos a year. This will dwarf  the growth of the CCT or conditional cash transfers which cost about thirty billion.

Because the president closed off the avenue of raising revenues through new taxes, he found himself left with no other option but to fund his development plan through private financing. That has proven tricky as well, which is why he now needs to consider a third option.

That third option which I had first written about late last year which then got echoed by no less than the BSP Governor a few months back is for the government to issue infrastructure bonds to the BSP which is at present earning negative returns on its foreign currency reserves.

Better returns

By offering the Bank a better yield, the government would be doing it a favour. Raul Fabella a former dean of the UP School of Economics has lent this proposal his seal of approval. He believes the risk from runaway inflation to be negligible under the proven monetary stewardship of the BSP.

The continued growth of foreign remittances from OFWs makes this option feasible, but if the government needed further convincing, then the following points should help build the case for it:

  1. Infrastructure spending is needed as we face a slowdown of demand from Western economies for our goods and services.
  2. It is the best vehicle for avoiding the ‘Dutch disease’ that afflicts countries experiencing windfall profits from resource booms (in our case, this stems from human not natural resources).
  3. Unlike increased social entitlement spending during a boom which becomes painful to retract at the end of the cycle, infrastructure spending leaves a tangible legacy and productivity dividend.
  4. It will help our exporters remain competitive because the increased spending will lead to a modest rise in inflation which will stem the appreciation of the peso against the greenback.
  5. It will unlock complementary investments by the private sector which is being deterred by poor public infrastructure.
  6. Government failure will be minimized as most transport and power projects can be turned over to the private sector under a PPP arrangement once completed. Revenue earned from transport and power projects would settle the interest and debt owed to the BSP.
  7. It will help prop up employment and growth which will spur increased tax collection.
  8. It will reduce the cost of doing business for most firms, not just exporters.
  9. It will help achieve the government’s growth target of 5-7% in the medium term.
  10. It will fulfill the government’s own development plan and set us on a higher growth plane.

Greater public infrastructure spending not by new taxes, nor by increased external or internal borrowing (as per Mrs Arroyo’s stimulus program in 2008/09), but by tapping our excess foreign currency reserves is not only appropriate, it would be the most effective and innovative way for this government to sustain economic growth through the turbulence in the global economy and beyond.

But we have to get real now. When faced with a possible course of action that is within the feasible set as defined by technocrats, what often prevents governments from acting is not the lack of rational arguments but the incentive problem. What led to this whole debacle in the first place was the administration’s fear of spending that would benefit internal patron-client networks left behind by its predecessor. In other words, politics rather than economics has been driving its decisions.

Making daang matuwid work

In the past we have seen how corruption and rent-seeking have reduced the amount of money available for developmental spending, but now we see how the opposite has reduced that amount even more. In the words of Samuel Huntington, “In terms of economic growth, the only thing worse than a society with a rigid overcentralized, dishonest bureaucracy is one with a rigid, overcentralized honest bureaucracy.”

The challenge for P-Noy is to make his mantra of daang matuwid work for the country rather than against it. Through the discipline and hard work of Filipinos working overseas, the country has a rather unique opportunity to make up for the shortfall in taxes generated internally. The current situation reminds me of the parable of the talents where the honest, but slothful servant dug a hole in the ground to store the talent that was entrusted to him by his master for safekeeping.

The Aquino government is like that servant. It was entrusted with a small but buoyant economy at the beginning of its term. So far, it has managed to keep it afloat, running while standing still, growing on aggregate but shrinking in real per capita terms. At the end of the story, the master reprimands the servant by saying, “To everyone who has will be given, and he will have abundance, but from him who doesn’t have, even that which he has will be taken away.”

That sound a lot like where the economy is heading under the president’s watch. The little that the Philippines had at the start could be taken away from it, while the plenty that our ASEAN neighbours have keeps on growing. It is time this government put its money where its fiscal mouth has been and start showing us the money. From another biblical parable comes the saying, “to whom much is given, much is required.” P-Noy was given a huge electoral mandate back in 2010. It is time he used it.

Towards a Strategic Development Road Map (Update)

The following is a matrix of the Strategies contained in the government’s Philippine Development Plan 2011-16  plotted against the five key results areas under the Cabinet Cluster system of the Aquino Cabinet.

The five themes include: 1) Good Governance and Anti-Corruption, 2) Human Development and Poverty Reduction, 3) Economic Development, 4) Security, Justice and Peace, and 5) Climate Change, Adaptation and Mitigation. This was contained in Executive Order 43: Pursuing our Social Contract with the Filipino People Through the Reorganization of the Cabinet Clusters.

The strategies under each theme were taken from the Philippine Development Plan 2011-16. In some cases, the actual targets were contained in it or some other announcement such as the renewable energy target. Some targets we are actually proposing here based on the intent of the PDP and other statements by the government. Some targets remain ambiguous or require quantification, but at least a measurement indicator is identified here.

This should form the basis for a periodic review of the government’s progress in meeting its official development plan and agenda. In the future, we will be revisiting these targets to hold this government to account. Comments on the construction of the matrix are quite welcome. Feel free to point out things that are missing or need to be revised.

Scorecard of Social Contract and Philippine Development Plan 2011-16 Targets

UPDATE:

Good governance targets

I chose to go with the World Bank’s Good Governance indicators because the government has adopted its whole philosophy of economic development from the Washington Consensus. It is only but fitting that it should benchmark itself against the indicators set by this Washington-based institution.

In setting the targets for the nation, I had to benchmark our rating with our East Asian neighbors. For instance under control of corruption, the Philippines and Indonesia were at 27.1 and 28.1 respectively, China and Vietnam were at 36.2 and 36.7, Thailand was at 51, and Malaysia was at 58.1 back in 2009. Hong Kong and Singapore were in the 90s.

It is only but fitting that we try to break into the range of Thailand and Malaysia. So I said we need to be achieving above 50%. I used a similar approach with the other indicators in this area.

Human Development and Poverty Reduction

Most of the targets found here were lifted from the government’s plan. The only target which I had to set on my own was the HDI target. To do this I simply projected the current trend from 2005 to 2010.  The target of reaching a 0.65 value for HDI means we would catch up to where Thailand and Sri Lanka were back in 2010.

All the other targets dealing with poverty reduction, literacy, land reform and distribution, Pantawid Pamilya recipients, housing and reaching the MDG targets were all based on official published documents by the government.

Economic Development

Most of the targets came from official published documents by the government. The only targets where I took the liberty of setting were the fiscal spending targets, but even there I took the policy pronouncements contained in the PDP into account.

For example, the PDP stated that its Medium Term Expenditure goal was to “substantially increase productive expenditures and catch up with the accumulated deficits in these areas.” It also noted that in 2007, the average expenditure on education among our Asian neighbors was 3.9% of GDP. To “catch-up” and make up for our accumulated deficits, we would need to at least match that spending, which is reflected in the target.

Aside from education, the PDP also made mention of our infrastructure spending which is woefully inadequate when compared with that of China, Vietnam, and Thailand which spent upwards of 7, 8 and 14% of GDP over the last decade. The 5% target was based on the World Bank’s recommended level for a middle income country such as ours. In other words, it was a modest but reasonable target in light of our regional peers’ spending.

The targets for achieving higher rankings in the World Economic Forum’s Global Competitiveness and World Bank’s Ease of Doing Business reports are self-explanatory. You can see by reading their most recent editions the countries in whose proximity we would be landing if we achieved the targets.

The consumer welfare and agricultural productivity targets are yet undefined and merit further discussion.

Security, Justice and Peace

The target for achieving political stability was arrived at similar to the other good governance targets already discussed above. The defense modernization target assumes that the government has a revised plan for this and will be working towards achieving 100% of it by the end of its term. Finally, the press freedom strategy and target, I had to personally add given the silence of the PDP on it. I based this on PNoy’s policy pronouncements at an AFP conference call. I further believe the Human Rights Commission should seek to publish official statistics in the area so that we can aim to bring that figure down.

Climate Change, Adaptation and Mitigation

The targets for reducing environmental damage and casualties are yet undefined but flow directly from the strategies outlined in the PDP. The rest of the targets contained here are from official published statements by the government, including the renewable energy target.

Why the Need for a Scorecard?

It has been nearly three months since the cabinet reorganization was announced, and yet it seems no further developments were made towards fleshing out the social contract in terms of major strategies and targets, which the EO that created it envisioned.

That is the reason why we have taken this bold step towards developing this strategic development road map. Of course, nothing would please us more than to see the government announce something similar. When it does, we will be sure to revise the document to reflect it.

The Propinoy Project began as an attempt to hold the government to account for its electoral promises. Now that the government has officially laid down its official policies and plan for its term, it is but fitting that we assess its future performance against its own targets with objective baselines and independent and reliable sources.

This matrix as detailed as it is cannot capture the complexities at the implementation or operational level. We leave that to the community service organizations who are partnered with various agencies to monitor. At least at the strategic level we can look at this scorecard to assess whether the government is doing the right things (and doing them right!) at the operational level to achieve its strategic goals.

Imagining True Independence

What would a truly independent Philippines look like?

In the week that the nation was celebrating the 113th anniversarry of its original declaration of independence from Spain, it was fending off rumors of impending incursions into its territory in the Spratlys by China. Having an up and coming naval power in the region press the boundaries of our sovereignty made us call upon our former Commonwealth partner in the US to come to our rescue with assurances of support.

To some, the fact that we had to seek foreign assistance to protect our domestic resources means that we are not truly free. This leads me to imagine what a truly independent Philippines would look like. I use the word ‘imagine’ in the Andersonian sense. Benedict Anderson, author of Imagined Communities would say that all post-colonial societies are mere fiction, inventions of their former colonial masters.

According to one definition of it, “independence is a condition of a nation, country, or state in which its residents and population, or some portion thereof, exercise self-government, and usually sovereignty, over its territory.” The concept of a sovereign state usually incorporates two things: an effective and independent government on the one hand and a defined territory on the other. Nations or states which are unable to fulfill these two requirements are generally recognized as failed states.

Based on these definitions, can the Philippines be seen as truly independent?

Aside from acquiring formal independence in the political sense, what other indicators would signal our independence in a de facto sense. It sounds like a sophomore’s essay writing assignment, but the president himself during his Independence Day addresses was ruminating out loud as to what this would mean for us today. He seemed to be offering up a few suggestions, to wit:

  • One was freedom from corruption. It was present and running rampant in 1898. In Cacique Democracy, Anderson described how the abuses of local bosses prevented the revolutionary taxes from reaching the central government of Aguinaldo. In 2010 a hundred and thirteen years later, one of the decendants of the original revolutionary leaders in the person of PNoy declared that the Philippines had become graft free. Strange imaginings, perhaps, but corruption does prevent the state from governing in the interests of its people.
  • Another ingredient for true independence dreamt up by PNoy was freedom from hunger and unemployment. In his speeches during the week, he spoke of the freedom from privation when he said that the problem facing his countrymen was what type of food to put on the table, rather than having something to eat or not. He also mentioned that overseas workers now had an option to come home to the Philippines because the booming call center industry permitted them to earn decent wages. Again, strange imaginings, it would seem, but deprivation of economic freedom does weaken a nation’s sovereignty.
  • Related to the second ingredient is energy independence or freedom from the high cost of foreign oil. During the week, PNoy announced the fifty percent renewable energy by 2030 target. Indeed the high cost of transportation and electricity along with food are the main causes of misery among much of the populace, which is probably the reason for his declining popularity. However, in the same week that he made this announcement, the palace also released a statement regarding the postponement if not outright cancellation of some port and rail projects just as the previous administration cancelled an airport contract for much the same reason.

Indeed each administration would like to draw a line in the sand to mark the end of the old era and the start of a new one. But what each administration finds out, whether it be the Aquino administration and the mothballing of Marcos’s nuclear plant, or Erap and Ramos’s indepenent power producers, or GMA and Ramos’s NAIA-3, or PNoy and GMA’s pet projects, cancellation of old contracts come at a price. This price is eventually borne by the taxpayers.

A fiscal strategy missing

The deeper question has to do with why the nation has to depend on overseas development assistance or ODA’s in the first place. These projects which often require us to purchase equipment from the donor country are little more than industrial policy disguised as foreign assistance. Indeed with the WTO restricting member countries from exercising independent industrial, trade or monetary policies, public sector procurement provides one of the remaining avenues for a nation to foster domestic import replacing industries.

The model I would put up is that of Marikina City under Bayani Fernando. The city’s engineering department under Mayor BF did not contract out its public works projects but produced everything in house, including its quaint looking portalets, traffic signs and street lights. While the city was not one of the richest, it raised revenues through property taxes which were justified by the city’s improvement of roadworks and schools. Fiscal independence was integral to its development.

Unfortunately, calls for a fiscal adjustment plan that would lead to greater fiscal independence seem to be falling on deaf ears as the administration continues to believe in its ability to attract private investors to supply public infrastructure. The idea is that a user pays principle trumps the socializing of public investment. The problem with that is that along with user pays, PPP’s also introduce the notion of a fair market return for the private investor.

It would be possible, under an alternative situation, for the government to fund the construction of public infrastructure projects and recover its investment by charging users without resorting to a private operator model. Under such a set-up, users would not have to pay as much, as the government would not require a fair market rate of return.

The social contract

The modern imagining of the concept of sovereignty comes from reflections on the relationship between individuals and their government. This led to an “intellectual device” known as the social contract. According to one definition, the “(s)ocial contract arguments assert that individuals unite into political societies by a process of mutual consent, agreeing to abide by common rules and accept corresponding duties to protect themselves and one another from violence and other kinds of harm.”

For the nation to maintain its territorial integrity, and protect its off-shore assets in the South China Sea from invasion, it will have to increase its military budget. Australia has already announced that it will increase its deployment of defence assets off its northern and western shores to secure its oil and gas reserves. The move comes while it also contemplates increased US military presence on its own bases. This is in anticipation of the rising influence of resource hungry China in the region.

For the government to provide security and basic social services to the people in a way that enables them to be productive citizens, it will have to become more efficient and competent in acquiting its resources. One of the things hindering the present government from doing what it intends appears to be its fear, some would say paranoia, that a lot of its spending goes to line the pockets of corrupt officials.

This distrust has created bottlenecks in the expenditure program which has hampered development spending of late. If as PNoy stated the Philippines has become graft free, it would be partly because his government in its first year has withheld spending from most of its line agencies with only the military and police agencies being spared.

Finally, and perhaps as a parting shot, let me say that if the nation is to be more mature, one would imagine there to be no need for petty partisan politics during national celebrations such as June the 12th. The use of folksy street parlance to settle personal political gripes denigrates the solemnity of the occasion. For me, the day when we as a people can mark such important dates in our history without our leaders resorting to snide remarks and bickering of this sort will be the day that our nation truly becomes free.

The Austerity of Hope

Has PNoy’s righteous path unintentionally led to more misery?

In 1973, a book co-authored by public policy guru Aaron Wildavsky was published. It had a very verbose title that read: Implementation: How Great Expectations in Washington are Dashed in Oakland; Or Why It’s Amazing that Federal Programs Work At All; This Being a Saga of the Economic Development Administration by Two Sympathetic Observers Who Seek to Build Morals on a Foundation of Ruined Hopes.

The book examined the EDA, an agency that still exists today and is located within the US Department of Commerce to show how policies conceived with the best of intentions at the top, get corrupted and bungled on the way to implementation. It is a cautionary tale on the limits of idealism and noble intentions, a vivid exposition of that oft repeated phrase that the road to hell is paved with good intentions.

There can be no more apt way to depict the manner the PNoy presidency has conducted itself during its first year in office. The Filipino equivalent, which goes, maraming namamatay sa maling akala (or many perish because of false assumptions), also rings true. The president to be sure entered the Palace with nothing but the best of intentions propelled by the highest hopes of the people with a vision for

a re-awakened sense of right and wrong, through the living examples of our highest leaders…a collective belief that doing the right thing does not only make sense morally, but translates into economic value as well (from the Liberal Party’s Social Contract).

The movement that had pushed him to enter the derby wanted a person whose reputation would contrast with the existing field. The election was to be framed as a contest between Good and Evil, Light and Darkness, anchored on the moral superiority of their cause.

When he announced his candidacy, Benigno “Noynoy” Aquino used the words of an admirer to capture the moment, in that “we can finally dare to have hope once more.” He was declared the Philippine equivalent of Barrack Obama, whose book The Audacity of Hope inspired the 2008 presidential campaign slogan, Change We Can Believe In.

At his inaugural, the Benign One pledged that

(t)hrough good governance in the coming years, we will lessen our problems. The destiny of the Filipino will return to its rightful place, and as each year passes, the Filipino’s problems will continue to lessen with the assurance of progress in their lives.

During his first formal address to Congress, the president stated that the nation faced a fork in the road. On the one hand was the quick and easy path that led to destruction, while on the other was the long and arduous one that led to deliverance. He pledged to take the nation straight down the Righteous Path or Daang Matuwid.

In his first budget statement, he fulfilled a campaign pledge to institute a zero-based budgeting approach to weed out anomalous projects and programs. Only those considered necessary and above board would receive funding. On balance it was a frugal budget, less than 2% above the previous year’s before accounting for inflation, which meant that he had effectively shrank the government. This was meant to give himself a fighting chance to fulfill his “no new taxes” pledge to businessmen at the big end of town.

All of this was in keeping with the vision for a country with a new set of morals that would translate into economic value.

At the halfway mark of his first year in December last year, a number of positive trends seemed to indicate a very auspicious start to the president’s term. The growth momentum experienced in the first half of the year seemed to have carried through in the latter half.

Fast forward two quarters to today and all of the indicators seem to be pointing downwards. Not only has investor confidence been a bit more sanguine and consumer confidence turned sour, but poverty and hunger seem to be on the rise along with unemployment. Some of these headwinds are caused by external events like the uprisings in the Middle East and natural disasters in New Zealand and Japan, but could they also be self-inflicted handicaps?

What’s going on?

Well it seems that in their bid to control government waste and corruption, the administration has unintentionally created a situation where much of its programmed spending was held back (up to 20% in the first quarter alone). The massive withholding of spending amounting to close to 70 billion pesos in the first four months of the year (which when we factor in negative multiplier effects is really around 100-150 billion pesos or 1-1.5% of GDP) appears to have had an adverse impact as contractors stopped hiring and in fact layed off more workers.

This occurs at a time of rising cost of living presssures and as a fresh batch of new graduates are about to join the labor market. Despite spending more on conditional cash grants to alleviate the plight of the poor, the actions of the palace seems to have made life much worse for many of them. The government in effect seems to be giving with one hand while taking away with the other.

It seems that in seeking to treat the symptoms of moral degradation and heal the body politic, PNoy forgot the first maxim of the Hyppocratic Oath, which is to do no harm. Indeed as it nears the end of its first year in office, the government of the Benign One appears to have very little to show for its posturing on institution building and bringing about greater economic benefits of a cleaner, moral government: perhaps a case of great expectations dashed once more.

The Surplus Fetish

Both the economics and the politics of current fiscal policy seem flawed.

Yesterday the Department of Finance trumpeted the news that the government in April posted the largest fiscal surplus in 25 years. The PDI reports today that

The Aquino administration posted a budget surplus of P26.26 billion in April… more than 10 times the P2.6-billion surplus a year ago, Finance Secretary Cesar V. Purisima announced Monday.

The fiscal performance for the month of April brought the record for the first four months to a surplus of P61 million, documents from the Bureau of the Treasury showed.

Good news, right? To use a popular phrase, the government seems to be “living within its means.” This is certainly the impression DoF wants to create. After last year’s poor fiscal performance led to a 6.3% of GDP blowout, Finance officials seem fixated on reining in the budget once again this year. So this should come as a bit of a respite from the constant talk about deficits for them.

Unfortunately when one digs deeper into the figures, a very unappealing picture emerges. Let us start off with the January to March figures for 2011. According to the department’s official website, expenditures for the first quarter declined by 12.7% compared to the same period in 2010 (Php349 B in 2011 v Php400 B in 2010).

You might argue that this Php 50 billion “underspend” was due to the elections last year and so you might be excused for thinking that costs would recede to normal levels in a non-election year. So what were the programmed expenditures for the first quarter of 2011? The answer is Php431 billion. That means that the real underspend amounts to Php82 billion!

Now why should that be shocking, you might ask. Well, consider it from the point of view of program recipients not receiving their promised benefits or public infrastructure projects that did not get funded in the first quarter. Budget experts will tell you that the non-rainy months in the first semester are critical for infrastructure projects. This is especially true this year with the early rains coming in May.

If a government is unable to spend its budget in a timely manner, it speaks unfavorably of its abilities in fiscal management. This government credited itself with getting its first budget approved by Congress early prior to the start of the year. It had plenty of room to get its ducks lined up to see spending out the door. One would expect a new administration to be quite anxious to see this happen to differentiate itself from the previous one.

Unfortunately, that didn’t happen.

From reform budget to deformed budget

The government got itself “back in the black” by contracting expenditures (experiencing “strong yet below-target revenues”). The government under-spent 18.8% of its programmed budget and incurred a much smaller deficit in the first quarter amounting to a mere Php26.2 billion down from the expected Php112 billion (note: that is why it’s January to April surplus was 61 million after posting a surplus of 26.26 billion during the fourth month).

Was this to paint a rosy picture for:

  • the bond market?
  • credit rating agencies?
  • the public at large?
  • all of the above?

One wonders at this point, what has happened to the “reform” budget? Has it turned into the “de-formed” budget? This lies at the heart of its “credible commitment” problem.

Indeed for the so-called economic managers in charge of steering the course not only of the budget but the economy at large, does this approach seem rational? Or have they been overtaken by their passions, influenced by the fetish for surpluses?

This not only makes for bad policy, it consists of poor politics as well. Not only will the government not contribute to the economic and social infrastructure needed for a thriving economy, if it seeks to pass new revenue measures next year, it will be undermined by the false impression created that these new measures are not urgently needed.

The public once accustomed to hearing that the government is in surplus will find it hard to accept the need for new taxes. Indeed, it wouldn’t make sense to the ordinary man on the street reading these news reports.

Once again, the story the government intends to weave will somehow get it entangled down the track because it does not portray the true picture. This is not what you might call “strategic communication”. If it wants the public to become apprised of the real situation concerning the structural deficit in our budget, it needs to allow spending to commence as it should.

By accepting poor policy and misreading the politics, the benign one’s fetish with surpluses could prove detrimental to the country in the end.

Air and Infra Policy: The Big Disconnect

 

Looking at the list of Public-Private Partnership (PPP) projects that were announced yesterday, I find a big disconnect between the airline policies that the government has or intends to have on the one hand and the infrastructure it seeks to procure on the other.

As the PAL union filed their notice of strike on the same day, it is worth noting the irony. Last year the president announced that if the parties concerned at the national carrier failed to come to an agreement over their terms of employment, he would readily declare an ‘open skies’ policy over Metro Manila, if not the entire archipelago.

This was followed by a hasty retreat, as the Palace later backtracked from this bold statement of declaring open skies over the entire country to one of having ‘pocket’ open skies over select cities outside Metro Manila, and later to a position of merely having ‘pocket’ open skies over select cities for destinations with reciprocal access granted to our airlines. All of these caveats of course seriously undermine and make a mockery of the meaning of the words ‘open skies’ to begin with.

To make matters worse, lawmakers and their lobbyists point to the fact that even if we granted open access to foreign carriers to our nation’s airports, they are not equipped with the necessary safety equipment and infrastructure required by today’s aviation industry. The downgrading of NAIA’s facilities by the US Federal Aviation Administration (FAA) has crippled the expansion of PAL into lucrative routes in the US; it has also prevented European carriers from considering routes to Manila.

Given this government’s intention to rely on private investment to fund public infrastructure, the need to consider capital spending to upgrade our main gateway into the country should have been given prime importance. The announced NAIA expressway does not quite do that. One only has to look at the blueprint proposed by the Joint Chambers of Commerce in the Philippines for airports and seaports to realize how woefully inadequate this is.

With the draft Philippine Medium Term Development Plan (MTDP) up for release, one wonders whether what the country needs instead is some strategic thinking that focuses on the infrastructure requirements of the country up to mid-century from which a medium term plan and PPP wish list can then be based.  The Infrastructure chapter of the proposed MTDP makes repeated mention of the need to draft strategic plans for transport, water and energy (so in fact the MTDP is a plan to develop a plan!).

Third World actually means paying your way through the nose for sub-standard facilities or service.

Whenever I come home to the Philippines, I am often struck by how much has changed since my last visit. What I always find disappointing, however, is how little improvements have occurred within our main air terminal over the years. I always find it insufferable whenever I travel around the country to wait in line just to pay a ‘terminal fee’ of 20 pesos or thereabouts to go from one island to another. Departing from Manila I have to prepare close to one hundred dollars (!) on my way to the gate with my family for the same reason.

It bothers me especially when I consider how much I have to pay at the magnificent Singapore Changi Airport or the Kuala Lumpur International Airport en route to Manila: exactly $0! And what do I get for paying my airport terminal fee in Manila? I can’t really tell. At KLIA my wife was able to face time with her friends and family back in Australia for free. At NAIA you had to pay to use a lounge to gain access to WiFi.

If we needed a reminder of what a third world country is like: this is it. I actually try to avoid using the term third world at all. It is hardly in use in these “the world is flat” days, but in this particular context, the label is so apt. Third World actually means paying your way through the nose for sub-standard facilities or service.

Unfortunately, the MTDP did not contain timelines for when the Strategic Development Plan to cover our infrastructure would come out or who would be responsible for drafting it. Gauging from the amount of time it took them to draft the MTDP, we might be in for a long haul (pun intended). It took nine months or so for them to release the medium term development plan that covers six years. At that rate, it might take nearly five years to develop a plan for 40 years. Let us hope it does not take that long.

The Quest for an Elusive Development Framework

After unveiling his strategy for unblocking investments in public infrastructure, the policy statement of PNoy was drawing flak from all sides. The statement concerned his proposed method for mitigating regulatory risk which was to compensate private investors for any losses caused by legal or congressional action preventing them from charging fees in accordance with their agreements with the government.

This was the statement of Rep Edcel Lagman leader of the opposition in the house:

Government contracts are not inordinately sacrosanct so as to be immune from judicial review by the Supreme Court and police power legislation by the Congress. It is beyond presidential prerogative to shield contracts from final court judgments and valid legislative enactments.

Recalling perhaps the power purchase adjustments that gave power generators the right to charge unmet demand to power users after the Asian Financial Crisis, party-list member Rafael Mariano issued this statement:

It’s hogwash … just a tweak [of the] past administration’s marketing sell-out strategy at the expense of the Filipino people.

The problem with the president’s policy statement goes even beyond these issues alone. Most of these projects have a life of between 15 to 30 years. His administration will only last for the next five and a half. Given the amount of time devoted to the pre-feasibility phase all the way to construction, most of these might still be in the pipeline when PNoy steps down. So even assuming that it is able to defy the two other branches of government, how can it guarantee protection for private investors for the remainder of these projects’ lives?

Second, since the public projects being listed for private participation is based on the principle of user pay per use, they are entirely dependent on the ability to charge an appropriate fee. The fact that many projects such as the Metro Light Rail Transit and Southern Expressway have not been able to do so puts into question the business case that justifies the investment in the first place. In other words, the market for such goods cannot clear at the prices desired by the buyers and sellers.

This puts into question the project feasibility assessment process. All sorts of regulatory and administrative risk factors have to be priced into the project cost. If the government cannot justify them in this manner then it should not put it up for investment to begin with.

On the other hand, if the government sees the need to subsidize these projects in the long run based on some notion of public benefit, then it ought to build projections of its future obligations in forward multi-year budget estimates so that they can be subjected to congressional scrutiny. Such transparency is still missing.

Third, the 10 or so projects in roads, rail, and airports being characterized as “shovel ready” to be bid out next year are in metropolitan centers. The jobs to be generated during their construction are going to be centered there. If the PPP’s are meant to be the engine for development, then it appears to be development highly skewed in favor of city residents.

The problem of joblessness in the countryside won’t be addressed, not in the immediate future at least, not with the initial list of projects. If ever, it will lead to greater migration flows from the rural places to the cities. Somehow, what gets lost in all of this is a development framework wherein the needs of public investment are prioritized based on some holistic model of sustainability.

Despite all this, investor appetite seems to be there. One cannot discount the legitimacy issue that hounded the Arroyo regime which has now been effectively dealt with by a smooth transfer of power. PNoy is right to strike when the iron is hot. Conditions in the global village do support his thrust in leveraging private investment for public use.

Perhaps instead of searching for some quixotic fix to deal with all the bottle necks to our development, we need to take a long hard look at the system as a whole. I am not advocating a shift to a parliamentary system, although that would deal with the problem of congressional oversight since the executive and legislative branches would speak as one. What I am advocating is a roots to branch rethink of our assessment process.

A framework is still lacking in the PPP program. It needs to be more clearly articulated to the public. Beyond that, a strategy for bringing more equitable public and private investments in areas where they are sorely needed, such as in innovation, regional and rural development and natural and environmental conservation, remains elusive.

DPWH launches online presence

I was reading the newspaper earlier and a DPWH ad caught my eye. The Department of Public Works and Highways has launched a campaign for the public to track the department’s accountability and transparency. Through its website, DPWH will regularly publish monthly status of infrastructure projects. I tried accessing the website but it’s down (they should work on that particular infrastructure) but if you want to check it yourself, here’s how:

  1. Go to http://www.dpwh.gov.ph
  2. Click on the “INFRASTRUCTURE” button and access the desired project information per region

Parallel to this, the agency set up its presence in social media.

Facebook – DPWH Central Office

Twitter – @dpwhco

SMS – Text them at 2920

There’s also the more traditional Hotline number (536-3477 and 302-9196).

I applaud DPWH’s efforts in ridding its image of being a hotpot of graft and corruption. Maybe by this transparency campaign it will remain in PNoy’s “Daang Matuwid.”

Aquino all set for international ‘debut’

Aquino all set for international ‘debut’
BY REGINA BENGCO
Malaya

PRESIDENT Aquino will make his international debut on Friday in New York at the US-Asean Leaders’ Meeting and the UN General Assembly.

The US-Asean Leaders’ Meeting is expected to result in the creation of an Asean-US Eminent Persons Group that will recommend the forging of a strategic partnership between Asean and the United States in the fields of political security, and economic and socio-cultural cooperation.

On Thursday (Manila time), Aquino received the Saint Elizabeth Ann Seton Medal, the highest honor conferred by the College of Mount Saint Vincent, the alma mater of his late mother, former president Corazon Aquino.

The award is named after the native New Yorker, saint and founder of the Sisters of Charity, Elizabeth Ann Seton, and is given to those with outstanding achievements, generosity of spirit and extraordinary self-sacrifice. President Corazon Aquino received the same award.

Aquino said he is a “living testimony to People Power: the redemptive power of prayer” that “toppled the dictatorship, frustrated those who would try to revive its ways, sustained democracy and now, serves as the bones and sinews of our great mandate for reform.”

He said Filipinos are now “working mightily to free themselves from slavery and poverty.” He said he is praying that Filipinos will remain free and prosperous long after his term.

At the US-Asean Leaders’ Meeting, one issue expected to be discussed is Asean’s dispute with China on some islands in the South China Sea. China has opposed the US’ intervention in the Spratlys dispute.

The Spratly islands are being claimed wholly or in part by China, the Philippines, Vietnam, Taiwan, and Malaysia.

US President Barack Obama, President Aquino and Vietnamese President Nguyen Minh Triet are expected to hold a press conference after the meeting.

Vietnam chairs the Asean for this year while the Philippines is the coordinator of the US-Asean Leaders Meeting.

Aquino will also meet UN Secretary General Ban Ki-Moon and address the United Nations General Assembly.

At the UNGA, Aquino is expected to call for international cooperation in addressing global issues. He will also discuss the Philippines’ commitment to fulfilling the Millennium Development Goals and reiterate the Philippines’ support for UN peacekeeping mission.

Aquino on Thursday (Manila time) met with officials of the Synergos Institute and key civil society leaders from around the world to exchange ideas on active citizenship and participatory governance, as well as the possibility of pursuing a tripartite partnership with government.

He also met with officials of the AES Corp. to discuss the possible expansion of the Masinloc power plant in Zambales.

He received World Bank president Robert Zoellick and discussed how the WB could help develop crucial sectors of the economy and Mindanao.

Aquino also talked business and trade opportunities with the RP-US Business Council during a dinner at the Benihana restaurant in New York City.

Aquino also had a separate meeting with former US Secretary of State Henry Kissinger in New York (Wednesday in Manila) to get some insights on foreign relations.

Aquino said Kissinger’s expertise in foreign relations is something that he cannot ignore. Kissinger is a political scientist who advised US Presidents Dwight Eisenhower, John F.Kennedy and Lyndon Johnson.

He said Kissinger, a Harvard professor of government and foreign policy adviser for the Nixon and Ford administrations, could help guide his fledgling administration in its international relations.

Finance Secretary Cesar Purisima, meanwhile, justified the governments hiring of a PR firm to “sell” the country. He said the firm Creab Gavin Anderson was paid $15,000 to help project a favorable image for the country in the foreign business media.