daang matuwid

Winner’s curse: How the opposition intimidated Team PNoy to take the low road to win in 2013 while leaving daang matuwid with no clear agenda or heir-apparent


In the Japanese martial art of Jujitsu one gains victory not by superior strength, but by using the force of one’s opponent against him. This is what the leader of the “friendly” opposition Vice President Jojo Binay did to the administration in the 2013 senatorial elections.

Having defeated President Aquino’s heir apparent Secretary Mar Roxas in the 2010 vice presidential derby, Binay’s unrivalled popularity while in office and his links to two of the most revered names in Philippine politics (Senate President Juan Ponce Enrile and ex-president Joseph Estrada) made “winnability” foremost in Team PNoy’s mind in considering candidates for its 2013 senate slate.

Having experienced the “tyranny of numbers” in the lead up to the impeachment trial of Supreme Court Chief Justice Renato Corona and in the subsequent push to have a number of its reform measures passed, the administration was not going to risk losing a majority of senate seats this time around. This caused the administration to take a “win at all costs” approach.

Its first move was to mend fences with its former rivals in the 2010 election. The entry of the Nacionalista Party’s standard bearers into the tent of Team PNoy spelled an about face for both parties. Senator Alan Peter Cayetano had started the TOPAK meme which maligned the president’s mental capacities. Senator Loren Legarda had called on him to undergo a psychiatric evaluation during the campaign. All that was swept under the rug as far as the administration was concerned.

After framing the contest between Messrs Aquino and Villar back in 2010 as one of “light v darkness”, the Villar’s were all of a sudden admitted among the “chosen ones” who would travel down the “Righteous Path” alongside the president. Not to worry, the administration said, since such a coalition was based on platforms, not personalities. Except that they avoided at every turn to define what that platform was.

When asked to identify the top 5 legislative proposals Team PNoy would push for if elected, its spokesman, Rep Miro Quimbo could only identify 4. “Let me get back to you on that” was his candid response. Unfortunately even the priorities he outlined didn’t figure in any formal policy document or in most of the endorsed candidates’ platforms.

When asked why there was no shared policy platform across Team PNoy, the undersecretary for strategy and communications, Manolo Quezon replied that midterms weren’t about policies but a referendum on the president. You either believe in him and his “chosen ones” or you don’t. So there you have it. The election was framed as a clash of personalities and their proxies, not as a contest of ideas, policies and visions for the country. Here’s what he said…

Consequently, the voters simply did what they have always done when faced with no real alternatives but the same old dynasties and incumbents: they went with those that connected with them on a deep emotional level, those with whom they felt a sense of shared destiny.

Due to the economic make-up of our electorate, that meant electing Nancy Binay even if she had no prior experience working in an official capacity in government. It also meant catapulting Grace Poe to pole position based on the memory of her deceased father and the playful use of her surname as an expression of respect.

Both these candidates scored high on our “trapo scale” dubbed the “pander-o-meter” based on an analysis of their personal platforms. Of course their policies were never scrutinised by the media. Neither did the intelligentsia perform its role in critically assessing the promises of each candidate (the absence of party-wide platforms made this task a lot more difficult than it should have been).

Health care reform, a key plank in Ms Binay’s platform was not given the kind of treatment it needed. She was never challenged on the feasibility of her proposals to provide free nutrition and medicine particularly to nursing mothers. In the case of Grace Poe, nobody noticed that her campaign was anchored on a coulda shoulda woulda basis committing her to nothing specific and nothing firm.

The candidates were allowed to promise the sun, moon and stars all the while pandering to the emotional pleasure zones of the electorate without the voice of reason being given an honest hearing. Social media was co-opted to suit the candidates’ purposes. There was no one calling them out on the false hopes and expectations that they were building.

Finally, in assessing the aftermath of Election 2013, what we will find is that although Team PNoy garnered a clear majority of seats that were up for grabs, it comes out the weaker party.

Sure, it now can boast of having a majority in both chambers of congress, but the political calculus facing its adherents will be daunting. Will they really pursue the tough and unpopular reforms that are needed to bring the country forward, especially now that the electoral bankability of the BInay dynasty remains utterly unassailable?

Secondly, the president does not have a clear, viable heir-apparent to challenge the Jojo Binay-Jinggoy Estrada machinery and name recall in 2016. Secretary Mar Roxas has not accepted his party’s draft to run perhaps due to his failure to define a narrative for his candidacy.

Only one of the Liberal Party’s three senatorial candidates is likely to win in this election, in large part due to the fact that he shares the same name as the president. Bam Aquino will be too young to contest the presidential elections in 2016 being a year shy of the minimum age requirement, repeating the fate of his late-uncle.

So that leaves the administration with a mere three years to cement its legacy before handing over the reins to its successor who is likely to come from the opposition. For failing to define its agenda and properly vet its allies prior to the elections, the administration now suffers the problem of having no clear mandate to implement whatever reforms it outlines afterwards.

The same thing happened following the 1986 people power uprising. Rather than develop a new breed of politicos based on principles and a common reform agenda, the revolutionary government of Cory Aquino accommodated and resuscitated the clans who ruled the country in the pre-Martial Law era allowing the children of its revolution to die in the ditches defending their cause.

Joseph Estrada once said that her government’s biggest mistake was letting guys like him back in (clever guy he truly is!). Only those like Jejomar Binay who were willing to “play by the rules” of the jungle survived.

Instead of taking the hard, difficult path of building a constituency for reform through principled, policy-driven politics and developing a new breed of politicians from inside its base, the second Aquino administration opted to go down the quick and easy path to success, just like the first.

For those that thought 2010 marked the beginning of an era of new politics, think again. The years 2010-16 might simply be an interlude, a case of trapo interrupted, where the country enjoyed a momentary respite from the worst forms of populist, predatory politics at the top, before old habits kicked in once again.

Image: courtesy of Rappler.com

Long overdue: Bureau of Customs abolition

So, this morning’s banner story in the Philippine Daily Inquirer reads: Bureau of Customs abolition planned.

Who’s planning it? Malacañang. Who is proposing it? Embattled Customs Commissioner Ruffy Biazon. That’s right, the head of the agency itself who has been under the pump for failing to curb the rampant smuggling activities that are allegedly continuing despite the president’s mantra of Daang Matuwid.

In a face-to-face conference with editors of the PDI, Biazon offered up the possibility of overhauling the agency from the top-down, by replacing it with a new professionally led one. He says resistance to his reform measures from the frontline staff at the bureau has led him to take this view. In public policy parlance, we call this phenomenon the tail wagging the dog or “street-level bureaucrats” distorting the policy decisions made at the top. Here is a quote from the report:

Biazon cited the example of Peru, which, to defeat corruption and smuggling, abolished its custom department, put up a new one, adopted strict qualifications for hiring, and paid higher salaries to the new officers and employees running the new agency. In the case of the Philippines, Biazon said, corruption is deeply entrenched in the customs bureau’s culture and system so firing a few people or catching some smugglers will not solve the problem. [emphasis mine]

Well, well, well, I am happy to see that something I had recommended back in July 2011 in a piece called, the National Development Project, is finally being given some serious consideration although my proposal included not just the Bureau of Customs, but the Bureau of Internal Revenue and all other revenue generating agencies. Despite their best intentions, it has taken the palace nearly two years to catch-up to the policy conclusion I had already made regarding its anti-corruption campaign in the bureau.

Pursuing good governance doesn’t come cheap. I recognised this fact. But the administration of PNoy felt that it needed to wage a moral crusade first to separate “light from darkness”. My proposals at least acknowledge that if we are to address the cost impact of Daang Matuwid, we have to raise additional revenues. And to do that we need to ensure that our revenue generating agencies are professionally run. With respect to the proposal itself, here is a brief quote from my previous post:

Corporatization is the way by which the government has been able to pay its agents salaries commensurate to, if not exceeding that of, their private counterparts. Singapore achieved this for its entire bureaucracy, but it is the sole Confucian state to do so. The others achieved it through a combination of salaries, allowances and benefits.

The newly minted GOCC (Government Owned or Controlled Corporations) law now provides greater safeguards against abuse done by non-performing companies. It will govern the corporatization of the BIR and BoC. In exchange for the higher compensation, transition into the new agencies must be based on merit and not guaranteed for old bureau officials.

The boards of the new revenue agencies should be allowed to appoint people from among the ‘best and brightest’. Tougher qualifying exams, educational attainments, and past performance should all be part of the selection process. Where posts cannot be filled with existing staff, recruiting externally should be the resort.

Biazon supports the idea of the new corporate entity to takeover the Bureau of Customs to retain 3 per cent of the total revenue it produces to allow it to pay its staff according to their performance. This again was something I had broached before with regard to prosecutors of corruption cases.

It was my view that these state prosecutors were not paid well enough to exert best efforts in retrieving ill gotten wealth, and as a result, certain cases have been left languishing for decades, or worse, settled for a pittance through plea bargain arrangements. Here is what I said on the matter:

The Ombudsman and the Office of the Solicitor General (essential generals in the fight) which are given the task of prosecuting graft cases before the Sandiganbayan and Supreme Court respectively need to have more than a kind of altruistic motivation for performing their duties. They need to have protection and financial security.

Paying them higher salaries alone might not be enough to motivate them to exert maximum effort even in very winnable cases. Some sort of sharing in the spoils which would go both to their office and to chief prosecutors and their staff needs to be put on the table.

I know that some will argue that this is the people’s money and that any recovered ill-gotten or plundered wealth needs to be returned 100% to the coffers to fund social programs. This assumes that we are working with incorruptible Confucian super bureaucrats. That is not the case here. We need to live in the real world, not in some ideal fantasy land.

Apart from these two suggestions, I also proposed outsourcing the main functions of the Commission on Audit to private accounting firms, which is the practice in Australia. If we are to truly tread the good governance path, the government has to start taking seriously these recommendations. At least with respect to customs collection, they may finally be doing so.

Reformists and Populists

The debate over policies needed to make permanent progress achieved under President Aquino’s rubric of Daang Matuwid (the Righteous Path) has not happened yet and perhaps never will.

Reformist measures are best kept close to one’s chest, not announced until they are actually implemented. That is because these measures often involve some pain to be borne by some section of the community, which essentially leads to votes being lost rather than won. In contrast populist measures are worth shouting from the rooftops since they appeal to voters but don’t necessarily make for good policies once in office. That is the quandary facing the administration as it campaigns for its senators for the coming election.

Just cast your gaze on the Team Patay (Death) slogan foisted by the clergymen against the administration’s ticket in protest over the passage of the reproductive health bill which the government facilitated over the church’s objections. Team PNoy candidates act surprised although they could’ve seen it coming. One way for them to take the heat away from this issue however would be to focus on their plans to introduce reforms to expand insurance coverage and make health care more affordable using the taxes to be raised from the sin tax law which was another major landmark piece of legislation the government achieved.

But they have for the most part refrained from outlining a vision for the health care system, allowing other players in the UNA coalition to establish their own credentials in the area. By ceding control over the health debate, the administration is underplaying the tremendous hand it holds–it alone can credibly put forward a detailed, costed program of health reform that would lead to millions more Filipinos enjoying better benefits from its health spending.

This is particularly disadvantageous to candidates like Risa Hontiveros who is outside the winner’s circle, given her stand on the reproductive health issue. Her candidacy could be given a significant boost if she were to be identified as the future architect of health reform in the senate. Ms Hontiveros should be given the role of explaining the planned reforms to come in this area and be given a policy team to help scope out what those reforms should be. Instead, due to the lack of such assistance, her policy pronouncements in health have necessarily been vague and non-committal.

Secondly, consider the conditional cash transfers program, which the present administration considers its “cornerstone” in its fight against poverty. The World Bank recently released a report on the first stage of the program. Its findings were for the most part positive-places that were targeted by the program were found to have significantly higher levels of school participation and better health outcomes compared to similar areas that were not targeted. In fact, in areas where the program was not so successful, e.g. maintaining retention among older age groups of children, the study suggested extending the program beyond the current five years.

This would provide a solid basis for the administration to claim credit and to bat for a continued ramping up of the program, but there hasn’t been a party-wide celebration of the findings, or a vigorous endorsement of it. Instead, the stage has been vacated to departmental technocrats to extol its virtues against its critics in the UNA coalition who have maintained the old tired line that it has been nothing but a dole out.

One candidate cunningly sought to depict the government’s prioritising of the conditional cash transfers program as misplaced,  saying it could have instead spent the money on free college education and skills training–quite a clever way to wedge college student voters against the disenfranchised indigent households across the country.

Thirdly, in making the anti-corruption and transparency measures adopted by the administration more durable, the government has failed to articulate a program of action towards this end. This is partly due to the fact that its path towards greater openness has itself suffered setbacks. Its Open Budget Index score in the latest report of the International Budget Partnership fell by seven points, meaning Filipinos have been denied full access to budget information. Despite overtaking Vietnam, Bangladesh and Indonesia in Transparency International’s corruption perception rankings, it has slipped two notches in the World Bank’s Cost of Doing Business report.

The government should be arguing from a position of strength in this area given the president’s reputation as an honest leader in contrast to the scandals involving the use and abuse of pork and privilege by those opposite. Team PNoy ought to be taking a suite of reforms to the electorate, including such measures as the Freedom of Information, Whistle Blower Protection, strengthening the powers of the ombudsman, fiscal incentives rationalisation, budget sustainability and transparency reforms. Instead, its campaign has failed to create any daylight between it and the UNA coalition with regard to these issues.

Again, this is in part due to the fact that enacting such reforms runs counter to the populist mode of campaigning it is forced to undertake. Championing the cause of fiscal transparency, openness and sustainability would run counter to the many proposed pieces of legislation that candidates under the administration are espousing at the moment.

I could go on. The plans for generating employment following the release of the latest jobs figures which show fewer people finding work compared to last year ought to spur a debate around the best way to promote inclusiveness in a nation that continues to post robust GDP growth figures. Instead the debate is confined to small minded livelihood programs (despite revelations of pork going to dubious organisations connected to legislators). There really isn’t a debate over how to transform the industrial mix of the nation or on how to direct foreign remittances to productive employment generating activity.

The people within the campaign probably feel that the need to elevate the debate is unnecessary given that its candidates seem to be improving in the polls. The UNA coalition seems to have suffered a few setbacks of its own given the negative press surrounding some of its principals, the ones which I have alluded to above. Yet, recent headlines involving Sabah and the president’s handling of it might cause some damage to its ticket.

To provide its candidates with a greater edge, the administration needs to arm them with solid, well-thought out programs that would demonstrate its seriousness in cementing its reform agenda. Rather than running a race based on populist rhetoric, its candidates need to be equipped with enough detailed policy advice to articulate what these reforms mean and how they would work once enacted. Rather than the airy-fairy platitudes and motherhood statements that they currently mouth, the campaign needs to bring the exalted righteous path down to earth.

If it does this, then voters might not feel the need to hedge their bets with the opposing side; they will provide the government with the majority it needs in the upper house. After all, if the nation were truly convinced that daang matuwid works, there would be no point in undertaking it with half-measures (no pun intended). The only way to pursue it would be to go all in.

Taking Short-cuts on the Righteous Path

Has jailing the former president Gloria Arroyo led to better governance?

As the 2013 congressional and local election approaches, the opposing camps led by incumbent president Benigno “Noynoy”Aquino and his vice president Jejomar “Jojo” Binay will be vying to gain control of as many seats as they can. Both opposed the policies and legitimacy of Mrs Gloria Arroyo when she was president. Both have sought to have her arrested and prosecuted for her “misdeeds” in the highest office.

Both claim to be fighting for better transparency and accountability in government. Now that the ailing Mrs Arroyo has been placed under hospital arrest for the second time, her party scattered to the winds, and her defenders in the Supreme Court neutralised, both can claim victory in the ground war against the vestiges of her regime.

However, it is worth posing the question, exactly what has changed, particularly over the past three years, apart from winning the anti-Arroyo battle?

I am not asking what has been achieved in terms of the usual things governments do, like building roads and bridges, hiring teachers and nurses, and maintaining the peace. When it comes to these measures, any government regardless of its occupants can claim some achievement. In fact Mrs Arroyo often touted her flagship infrastructure projects as signposts of her government’s diligence in serving the people.

In fact Mr Aquino’s priorities have often been similar to that of his predecessor, including the expansion of the conditional cash transfers program, running after tax cheats, strengthening the industries of business process outsourcing, tourism and agribusiness by expanding the country’s infrastructure. Where he has differed has been in promoting greater transparency and accountability in the way government did these things.

Atmospherics vs reality

Most analysts put the different “atmospherics” created by having Mr Aquino at the helm behind the growing optimism in outlook of the Philippine’s economic prospects. This is a good thing. But the problem with simply relying on a “mood change” is that if it is not backed by substance, such moods can often swing the other way. That’s why as the country faces an election in May next year, it is worth considering the best way forward.

Take for instance business confidence in the Philippines. As Roel Landingin wrote for the Financial Times blog Beyond BRICs, although the country leaped 10 places in the World Economic Forum’s Global Competitiveness rankings, it dropped two notches in the World Bank’s Doing Business Report.

While the WEF reflects the sentiment of big business regarding the clean-up drive of President Aquino, the WB focuses its study on the nuts and bolts, the procedures and red tape that affect mostly small and medium sized enterprises throughout their life cycle. Landingin notes

The Philippines’ dismal record on the business climate for local, mostly small enterprises underscores the limitations of Aquino’s anti-corruption drive in promoting government efficiency. While going after suspected wrongdoers of the past administration has begun to change investors’ perceptions, it does little to cut red tape or inertia in regulatory offices and courts across the country.

As the UN Council on Trade and Development report for the first half of the year showed, in a region that attracted $52 billion worth of foreign direct investments, the Philippines attracted only $900 million or about two per cent. Singapore drew $27.4 billion, Indonesia $8.2 billion, Thailand $5.6 billion, and Malaysia $4.4 billion. Despite bucking the regional trend by growing 12.5 per cent from a year earlier, the Philippines remains miles behind its ASEAN rivals.

It seems that incremental not transformative change is happening. If President Aquino leaves these structural rigidities behind after leaving office, you can imagine that confidence of investors who are buoyant at the moment because of his honest leadership could just as easily take a dim view if things go back to the way they were under a different president.

Legislative report card

If we take stock of legislative accomplishments, what significant policies have changed under Mr Aquino’s first three years? Let us examine the status of a few high profile pieces of legislation below:

Reproductive health – not passed, needs to be put to a vote

Freedom of information – not passed, still being debated

K-12 – not passed

Fiscal incentives rationalisation – not passed, still being debated

Fiscal responsibility – not passed, still being debated

Sin taxes – not passed, nearing a vote but greatly diluted

Mining investment and tax policy – still being drafted

Cyber-crime – passed and signed but under Judicial Review

Witness and Whistle-blower protection – under consideration

The list goes on. In fact, judging the administration solely on its legislative record, it would hardly deserve a pass.

Managing international obligations and treaties? The Senate President and an ally of the president so readily aired our dirty linen in front of the gallery right in the aftermath of an international territorial dispute that could have escalated into a military or economic conflict.

The country narrowly escaped being blacklisted by the Financial Action Task Force, but only just, and the measure that was hurriedly passed to avoid this still wasn’t deemed adequate to get us off the hook completely.

Lasting peace in Mindanao? Perhaps, but the blanks still need to be filled in.
Good economic management? The reason for this year’s better than expected performance is that last year’s was worse than expected.

So the question remains, what major piece of reform can the two wings of the anti-Gloria coalition claim to have put in place while she and her forces are immobilised? What lasting institutional, transformational change have they enacted? Why do they think they deserve to be re-elected or endorsed at the coming May elections?

If not completely wrecking and discrediting our system of government is the watered down criteria, then yes, the Senate and the House narrowly escaped sending the country to hell in a hand basket by their clumsy actions during the impeachment trial, but they seem to have been wanting everywhere else.

The long hard slog

One reason we could say progress on reform measures is dragging in congress is due to the fact that our legislators represent a class of people who benefit from the way things are.

Some incumbents want to hand over to their relatives their posts in the senate or be joined by them. Sharing the same surname, having been groomed since childhood to succeed them, the choice seems so natural. We ought to elect them because they are honest, or well-meaning or qualified or worse: winnable.

Sure, but the question remains, how has the nation been served by their lot so far? We keep hearing the same old excuses like, It’s just too hard to pass these reform bills. There’s always tomorrow. Mañana, manana. Que sera sera. Bahala na si batman and all that jazz.

This week, in his trip to New Zealand, the president took a dig at his predecessor’s honour, insinuating that she feigned illness to escape the full force of the law. Three years nearly into his presidency and it is still all about her. There is apparently no second act.

While it is easy convincing overseas Filipinos that things are improving back home, it is not that easy convincing those that live in the country that things have in fact changed, unless of course real, tangible, and meaningful changes do get hammered out and carried out. This is the long hard road to real recovery and deliverance that we must trod, not the soft, easy route that we are currently being offered.

There’s too much fun in the Philippines

A certain pizza place we shall now disguise behind the name Norwich Pizza had been acquired by a large food conglomerate we shall call Bumblebee Food Corporation for purposes of discussion. BFC sought to turn Norwich from a simple mom and pop type of operation into a highly profitable nationwide franchise.

It set about doing this by hiring a very prominent ad agency to deliver a strong and appealing message to the public. The firm wisely picked a celebrity, a certain Ms Nonita Flowers, to be in their commercials.

Within months of the launch of the media campaign, sales rose rather well in line with projections made by the company’s bean counters. Unfortunately, after a quarter of stellar performance, revenues started to head south quite dramatically. This puzzled the head honchos at BFC. Everything had been proceeding according to plan until very recently. What had happened?

To investigate and remedy the situation, one of BFC’s vice presidents who successfully steered another major acquisition, the Chun King Express, was brought in. The vice president proceeded to inspect the premises of Norwich. Within a month or two, he had not only arrested the decline in sales, but restored it to its previous trajectory.

So how did he do it?

Well, having cut his teeth in the fast and furious world of Chinese takeaway, the vice president of Chun King knew the importance of maintaining good customer service. This could only be achieved if the stores were equipped with proper equipment particularly in the kitchen. Within the first few weeks of his assignment, the new manager had placed orders for new ovens to replace or augment the standard kit that had been originally installed in Norwich stores, which he deemed highly inadequate.

The capital investment paid off and Bumblebee proceeded to earn a positive return on its acquisition of Norwich, albeit at a lower rate in the first year than previously expected due to the unforeseen expenditures. The vice president was given a fat bonus for his efforts in rescuing the venture. Money well spent from the point of view of BFC’s board and stockholders.

This case study demonstrates the importance of coupling good marketing with good operations. Without a quality product, no amount of spending on ad campaigns could restore or improve the brand’s sinking reputation. In the fast food business, it doesn’t matter how tasty the food might be, if customers have to wait too long, they won’t be coming back.

The same can be said of tourism and travel. The Department of Tourism under Sec Jimenez is looking to increase the flow of visitors into the country with a catchy slogan, “It’s more fun in the Philippines” and the usual slick marketing campaign. It is in talks with Singapore to co-brand the two nations as the “sunshine belt”.

These ideas are brilliant, but the problem is that the Ninoy Aquino International Airport is already operating above its normal capacity with visible signs of wear and tear all too evident. Even with the renovation of Terminal 1 and the recent conclusion of the decade’s long case involving Terminal 3 paving the way for the full use of it for international flights, these developments will not unclog the bottlenecks due to the limited number of runways. No amount of renovations will fix that as there is no more room for expansion. As arrivals are slated to rise from 3.9 million in 2011 to 4.2 million this year, how will the airport cope?

This problem is compounded by the growth in domestic flights. During my recent visit to the Philippines, I spent an hour waiting at the departure lounge of the domestic terminal in Manila for a flight to Kalibo. The reason given for the delay was “heavy congestion”. After boarding the plane, we were grounded for close to another hour waiting to be cleared for take-off. As the plane finally taxied onto the runway, I stared at my watch, then at the frustrated businessman seated next to me.

Only two hours delayed, not bad,” I jokingly uttered. He laughed. That was all we could do to cope with the situation.

The same thing occurred on the way back. As the voice boomed in the speaker stating that our flight was behind schedule, a power outage stopped it in mid-sentence. It was nearing nightfall and the blackout was quite a shock to the passengers.

“It’s more fun in the Philippines!” I heard a man snicker in the darkness.

Meanwhile on a separate road trip up to Northern Luzon, our convoy experienced a very weary trek. Each town we passed through, every ten kilometres or so, caused us to slowdown as their town hall plazas, central markets, public schools and cemeteries were all located along the main artery causing both vehicular and pedestrian traffic.

The road widening still unfinished due to the slow spending rate of public works projects in 2011 delayed our trip in certain sections. We were told that an extension of the Subic-Clark-Tarlac Expressway would provide better access to the North bypassing most of these populous towns from Tarlac to La Union, but our guide said this had been halted by the new administration. It was clear though that such a road project was long overdue.

That’s as far as infrastructure and transport corridors are concerned. We haven’t discussed the problem of environmental degradation. In both Baguio and Boracay where I took my family, the effects of what urban planners call regional agglomeration were quite evident. Tourism was enticing a major “big box” shopping center to expand in Baguio. Such a move could upset the already congested situation, worsening the air quality, not to mention the aesthetic and cultural appeal of the tourist destination.

Meanwhile, I was shocked to see D’Mall in Boracay. It sort of depressed me actually. I ended up skipping lunch because I had lost my appetite after seeing this transplanting of Divisoria or Baclaran to the once pristine island. It made me wonder if there was such a thing as having too much fun in the Philippines.

If tourism was sold to our government planners as an environmentally safer path towards development compared to industry or mining, I say, think again. There are no free lunches as economists are wont to say. We can’t expect rapid development not to have an impact on the natural habitat. It would be dangerous to think so.

I actually prefer having a greater emphasis on industry, because you can at least concentrate the site of industrial projects within a confined area and choose the type of industries (say light industries or agro-industrial ventures with a smaller ecological footprint) or provide incentives and regulations to govern the heavy polluting ones.

The Philippines has a lot of catching up to do in this area. I am not simply speaking of tourism now. Wasn’t inclusive, sustainable growth and development at the heart of PNoy’s social compact though? This administration like its predecessors is fond of catchy slogans beginning with Daang Matuwid (Righteous Path). It’s more fun is just the latest. But apart from having these platitudes, where is the plan? We have yet to see a blue print for developing the infrastructure, the security, the regulations and incentives that would responsibly manage the growth in our economy? The case of Norwich must be heeded; otherwise, the Philippines could remain grounded for a bit longer.

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.

A Quarter of the Way

image courtesy of 123rf.com

That is how much of P-Noy’s term of office would have expired by the end of next month. It usually marks the end of the window of opportunity for introducing major reforms. In the case of the US presidency, the current occupant of the White House President Obama was able to introduce his stimulus program, banking reform and of course, the once in a lifetime reform of the healthcare system within his first eighteen months in office.

At the end of that period, the tea party movement rebelled against the direction he was taking the nation and voted the Democrats out of their majority in the lower house of congress. The new Republican-led house’s intransigence over the deficit has blocked any further reforms (witness the failure of the super committee over the weekend), and it will probably take another election to allow the grid-lock to be broken.

As we approach the quarter mark of P-Noy’s presidency, it is worth reflecting on his accomplishments or lack thereof and the conditions under which he has had to govern that may or may not have enabled him to achieve what he promised during his campaign. More than anything, I believe that these first eighteen months have highlighted the inconsistencies in his promises and the inevitable tensions that come about from pursuing them.

Firstly, let me tackle his social contract and the plugging of the fiscal deficit. Due to his pledge of no new taxes, the finance and budget departments have had to rely on better tax compliance and program savings in order to bridge the government’s fiscal gap while attending to social and economic infrastructure programs. This is in a country of very wealthy elites who are averse to paying their fair share of taxes.

Despite my distaste for the government’s attempts at “fiscal consolidation” a euphemism for austerity measures I dubbed the “surplus fetish”, one benefit that I now see with the way in which they have gone about things is that it has exposed the inability of tax agencies even under the best efforts of honest officials to raise enough revenue to meet the government’s social compact obligations.

This is why Secretary Purisima, in a bid to shore up enough revenues down the track has flagged a few revenue measures to congress including the rationalization of fiscal incentives, the indexation of sin taxes, and as recently as this week the raising of a minerals tax similar in vein to the Australian resource rent scheme. These three taken alongside the stricter enforcement of the tax code on self-employed entrepreneurs and professionals could yield an estimated four hundred billion pesos, enough to close the fiscal gap and then some.

Enacting these revenue measures would lift the tax collection effort to a more sustainable nineteen percent of GDP, a position last held in the late-90s when the country eked out a surplus. The reform of the tax and incentives system would allow a more progressive and equitable fiscal expenditure program. One reason why the growth of the last decade was not felt by the broad masses of people was that the growth went largely to big business in the form of profits. Benefits through the tax system could not be shared with the less fortunate as the tax collection rate continued to decline despite the growth.

The absence of a successful asset reform program to tackle landlessness in the rural sector led to continued urban migration and growth of informal labor markets. This normally would lead to greater social insurance spending by the state, but this has only been recently addressed with the conditional cash trasnfers program. By next year, the government believes it will cover two of the four million poorest households. The funding comes from the scaling down of the grains importation program, a low lying fruit. To cover the remainder would require doubling the current thirty billion pesos spent on the program. This can only be accomodated through new taxes.

Secondly, given the new-found consensus around new revenue measures, getting them adopted will entail the exertion of executive will and the full cooperation from the congressional leadership. The legislative record of the government has been rather dismal with only 3.25 of its thirty three priority measures passed this year.

These include the reform of government-owned and controlled corporations, changes to labor regulations covering night shifts for women and the synchronization of the elections in the autonomous region of Muslim Mindanao with the rest of the country. The passage of an ammendment to the Electric Power Industry Reform Act that contained one fourth of the recommended changes of the administration accounts for a quarter-measure (hence 3.25 out of 33 measures).

At this rate, it will take a little over ten years to get all of the priority bills passed, including the reproductive health bill which has been seized on by the local Occupy movement. The actual tally of bills passed was seven, three of them not flagged as urgent including one that granted Philippine citizenship to a certain Marcus Eugene Douthit. The country spends about a hundred and ten billion pesos a year for both houses of congress. This is about sixteen billion pesos per measure, which represents very low value for money.

Contrast that with the performance of the Gillard government in Australia which passed two hundred and fifty measures this year including a highly contentious carbon tax and emissions trading scheme. This is quite impressive considering that it has had to seek an alliance with the Greens and a few independents to see these bills through both the lower and upper house.

In the Philippines, the majority in the lower chamber is always loyal to the president, which makes the Senate the only real check on executive power. But the senators unlike in the past are not particularly hostile to P-Noy, which represents a window of opportunity. Unfortunately, much of the upper chamber’s attention has been devoted to controversies involving the former regime which is perhaps why it has had little time to devote to other matters.

Thirdly, the pursuit of the rule of law and anti-corruption under the rubric of Daang Matuwid (Righteous Path) and the prosecution of the former president have come into conflict with each other. It is clear that P-Noy does not want a repeat of the ongoing saga with the Marcoses. This is perhaps the reason why he sought to bring Mrs Arroyo to justice by sending her to jail before Christmas this year.

The lady he has put to the task, his justice secretary, might have skirted a few legal formalities in order to make that happen. This is the conclusion arrived at by a few dispassionate observers including legal luminary Fr Joaquin Bernas, SJ, dean emeritus of the Ateneo Law School from where a number of the president’s men have been trained.

During the campaign, it seemed that the rule of law was intertwined with bringing Mrs Arroyo to justice for misdeeds done while in office. Now, given the situation where the high court is stacked with her appointees, certain exigencies have to be dispensed with in going after her. Indeed it would be preferable from Mrs Arroyo’s point of view for these cases to be tried immediately while she still enjoys some legal cache with those on the Corona bench.

In pursuing the case against her, P-Noy runs the risk of succumbing to the “dark side” by employing extra-legal or extra-constitutional tactics as she did during her presidency. Rather than lifting the country out of the mud, what could happen is that his presidency could get dragged through it with her. The impending release of the Supreme Court’s order to distribute his family’s hacienda to its poor tenants can be seen as a form of retribution. It distorts the narrative of “light vs darkness” by laying the blame for social inequity and injustice squarely on the president.

At any rate, what economists and foreign investors mean when they refer to the rule of law has nothing to do with prosecuting former incumbents but with the securing of ownership and property rights and the efficient enforcement of contracts. And here once again, the pursuit of daang matuwid has led to the scrapping of a few contracts involving foreign donors and their suppliers for the simple reason that they were signed by the former president. This has if anything maintained the image of the Philippines as a country with a high sovereign risk attached to it.

In conclusion, it is worth reflecting on how the shadow and specter of Mrs Arroyo’s administration has haunted her successor. In the first instance, an absence of public trust in government has cemented the idea in P-Noy’s head that he could only fund his social contract by improving tax collection rather than new taxes. This has been shown to be a false economy of sorts. Secondly, investigations into anomalies committed by her have distracted congress from pursuing his legislative agenda. Thirdly, prosecuting her at all costs has compromised his pursuit of the rule of law, property rights and good governance.

At some point, P-Noy will have to pivot from correcting the errors of the past to ensuring a brighter future for all. To do that, he will have to wrestle with the internal inconsistencies of his reform agenda and exert executive will to get his measures passed as well as restraint when required to show an even hand in prosecuting Mrs Arroyo.

In the end, he would want to avoid a problem known to economists as the winner’s curse. This situation could arise if he becomes overly-invested in the hunt for personal vindication against Mrs Arroyo and her minions. In seeking to settle a few scores with her, he might eventually get side-tracked into a very personal and passionate fight. This could detract him from pursuing a much broader reform agenda for the country. In this manner, he could easily squander the remaining time he has in office and wind up with very little to show for it.