Thailand

The path towards “inclusive growth” – some indicators

In his fourth State of the Nation Address before a joint sitting of Congress, President Noynoy Aquino made reference to inclusive growth, inclusive progress or broad-based growth about thrice in his hour-and-a-half-long speech, but he mentioned the words transformation 15 times, change 14 times and reform 11 times. At the midpoint of his term, PNoy sought to bring home the message that change in the culture of “wang-wang” which he coined in his inaugural state of the nation address has taken place under his watch and that as a result of the reforms he instituted, the path for providing opportunity to all has been opened up irrevocably.

Inclusive growth as he declared in his speech was about providing everyone the chance to have a go at life, what the Australians call “a fair go”, which constitutes a social contract that if you work hard at bettering yourself, you can move ahead in life. It is not about guaranteeing the same outcome, however, meaning it is up to the individual whether to take advantage of the opportunities presented, or not. Providing equal opportunity means building human capabilities to pursue “the good life”.

The Asian Development Bank has come up with a Framework for Inclusive Growth which provides a set of indicators for measuring whether governments and societies develop that basic level of capacity in its people. The framework is comprised of three pillars: the first one supports economic growth to expand opportunity, the second one supports social inclusion to provide equal access to economic opportunity, and the third supports social safety nets for those who slip through the cracks. There are a number of indicators for each pillar.

I have sampled a few and collated the results for the Philippines and six other emerging economies from our region to compare the different paths we have taken down the road of inclusive growth and development. Let me start with the most basic one: income or the lack of it. Having a decent level of income is one of the most basic measures of material well-being. Social disadvantage comes from not having income sufficient to live on. The following chart shows the proportion of people living on less than $2 a day for us and our Asian neighbours at the start of the 90s and the end of the noughties.

income

At the start of the 90s, Vietnam had the highest rate of poverty at 85.7%, followed by China and Indonesia which were each at 84.6%, India at 81.7%, the Philippines at 55.4%, Thailand at 37.1% and Malaysia at 11.2%. By the end of the noughties, India had the highest poverty rate at 68.7%, followed by Indonesia at 46.1%, Vietnam at 43.4%, the Philippines at 41.5%, China (29%.8%), Thailand (4.6%) and Malaysia (2.3%). In percentage terms the countries that had the largest decline of poverty was Thailand which saw a drop of 88%, followed by Malaysia (-79%), China (-65%), Vietnam (-49%) and Indonesia (-46%).

The Philippines and India saw the least amount of poverty reduction at -25% and -16% respectively from their initial states. Despite the periods of rapid growth that both these countries experienced during the past two decades, the relative insensitivity of their poverty rates to growth is a bit disconcerting.

The most important predictor of future income is of course the amount of schooling one receives. This is best measured by the years of schooling a person achieves by a certain age. The following chart shows the average total schooling for youth aged 15-24 at the start of the 90s and end of the noughties for the same set of countries.

school

At the start of the 90s, Malaysia and the Philippines recorded the highest totals with 10.2 years and 8.1 years for each of them respectively. China (7.6 years) and Thailand (7.2 years) came next, followed by Indonesia (6.5 years), India (4.6 years) and Vietnam (4.5 years). Two decades later and Malaysia retained the top spot with 12 years on average, but China with 10.9 years overtook Thailand (10.6 years) and the Philippines (9.7 years). Vietnam nearly doubled its number of years to 8.8 overtaking Indonesia (7.7 years) and India (7.1 years). Vietnam succeeded the most in this area lifting the average years of schooling by 4.3 years, followed by Thailand (3.4 years) and China (3.3 years). India lifted its average by 2.5 years, followed by Malaysia (1.8 years), the Philippines (1.6 years) and Indonesia (1.2 years).

The Philippines which started out as first runner up has been relegated to fourth in ranking among these seven countries with Vietnam closing in. The high tech industries of the Philippines and India demand college educated workers. This means that good employment opportunities in these two countries are available only to a few. To be able to perform well at school, children need adequate nutrition.

When people suffer starvation at a young age, it affects their future prospects in life. Malnourished children suffer learning difficulties as their mental development is set back. The prevalence of underweight children under five years becomes a significant predictor of future misery. The following chart depicts this for the same set of countries.

underweight

At the start of the 90s, the highest levels of malnourishment were found in India with 52.8% of children underweight, Vietnam with 36.9%, the Philippines with 29.9% and Indonesia with 29.8%. They were followed by Malaysia (22.1%), Thailand (16.3%) and China (12.6%). At the end of the noughties, India still had the worst result at 43.5% followed by the Philippines (20.7%), Vietnam (20.2%), Indonesia (17.9%), Malaysia (12.9%), Thailand (7%) and China (3.4%).

Both India and the Philippines saw their prevalence drop the least in percentage terms by 18% and 31% respectively, while China and Thailand saw it drop the most by 73% and 57%. The huge disparity of income in India and the Philippines is the main cause of their underperformance.

Finally, how can an individual seek human well-being if he or she does not even survive early childhood. The under-five mortality rate provides an indication of the quality of health care provided to mothers during pregnancy and children at the very start of their lives. The following chart shows the number of deaths per 1,000 live births across the same sample of countries.

child mortality

At the start of the 90s, India had the highest rate of child mortality at 115 deaths per 1,000 live births, followed by Indonesia with 85, the Philippines with 59, Vietnam with 51, China with 48, Thailand with 32 and Malaysia with 18. By the end of the noughties, the mortality rate in India dropped to 63, while in Indonesia it fell to 35, likewise in the Philippines to 29, Vietnam to 23, China to 18, Thailand to 13 and Malaysia to 6. In percentage terms Malaysia saw the largest drop at 67% followed by China at 63%. India saw the slowest reduction at 45% followed by the Philippines at 51%.

Baseline

These figures provide a good baseline for measuring inclusiveness within these countries. There are more indicators provided by the ADB, but these form the core set for anyone interested in studying inclusive growth. The Philippines seems to be in the same situation as India, in that they both experience the slowest reduction of social disadvantage among these countries–social disadvantage which is experienced at the very beginning of life. It is for this reason that the social reforms undertaken by the government are worth noting.

In his SONA, the president announced that he would be increasing the coverage of the conditional cash transfers to four million families and the period of eligibility up until children reach the age of 18. Patterned after successful programs in Brazil and Mexico that have been around for over a decade, the program screens participants based on a multi-dimensional test of social disadvantage. It provides cash straight to them through e-cards given to the mothers to avoid the usual bureaucratic double handling. They continue to receive a monthly cash transfer if they keep their children in school, make them undergo vaccinations and receive reproductive health counselling at health centres.

Their compliance and continuing eligibility is monitored regularly by the Department of Social Welfare and Development. A recent impact evaluation conducted by the World Bank shows that the intended program objectives are being met. School enrollment and attendance and better nutrition has been observed among children of CCT participating communities compared to non-participating ones. Although the poverty rate of the Philippines did not shift significantly between 2009 and 2012, it does not mean that this program was ineffective. The intergenerational nature of this reform implies that the Philippines will begin to reap the benefits of Pantawid Pamilya six to ten years after it was instituted. That means only by 2016 and beyond will this reform’s impact be noticeable through national family income and expenditure surveys when the children of Pantawid reach the working age of 15 years.

It will be PNoy’s successor who will reap the social dividend from the expansion of this program. It is true that this reform can now be considered irreversible in the sense that it will be hard for any successive administration to retract it. The only way to phase it out would be to make it obsolete by reducing the number of poor households. Although the president inherited the program from his predecessor, he can claim credit for rapidly expanding it. The other reforms which the administration instituted, such as closing the classroom gap, the sin tax law, expanding affordable healthcare, offering rent subsidies to informal settlers and the reproductive health act could also reap benefits for successive administrations.

What is disconcerting is how many Filipinos among the educated and upper socio-economic groups still oppose the reforms just mentioned, begrudging the opportunities given to the poor as mere dole outs. It is a sign of just how exclusive and inequality tolerant we have become as a society. Perhaps it isn’t any wonder why our growth has not been very inclusive so far, and why the path towards inclusive growth needs to be pursued even more vigorously by the current administration.

The Thai experience (or why P-Noy <3 Yingluck shouldn't be the headline)

The Philippines it seems is engulfed in all things Hollywood at the moment. With the filming of the Bourne Legacy taking place in Manila filling the nightly news with human interest stories surrounding both actors and extras, another “courtroom drama” was unfolding in the Senate with the impeachment trial of Chief Justice Renato Corona.

Meanwhile, as the president hosted the Thai PM Yingluck Shinawatra, you could be forgiven for thinking your were watching an episode of “The Bachelor” unfold as all the major dailies focused on these two eligible single ASEAN leaders visibly at ease in each other’s company. Kris Aquino, the president’s irrepressible match-making “gossip girl” kicked things off. Such a diversion might have been timely, as the president’s ex-girlfriend was betrothed to marry a prominent congressman barely a few years after their own public version of “The Break-Up”.

All this talk of romance swamped the more substantive purpose of the Thai PM’s trip. Investment and trade flows are not quite as important as the bonds of friendship and affection it would seem. However, despite the superficiality with which this visit has been depicted, there is one important lesson that the Philippines needs to heed from the Thai experience.

With “love brewing”, it is easy to forget the controversy swirling in both the Thai PM’s and the Philippine president’s countries. Political instability and turmoil have hounded both nations. But the lesson from Thailand that I would like to draw on comes from its path to development which led to its overtaking the Philippines back in the 1980s. Their experience could be very instructive for us today as we grapple with how to make our local industries more competitive.

Back in the 1970s, the price of Thai garments were found to be 30% more expensive compared to the world market. To deal with this situation, the local association of garments makers decided to raise a levy on each spindle. The revenue raised was used to subsidize exporters. The amount of transfers depended on the volume of exports. A subcommittee set up by the Thai Textiles Manufacturing Association monitored and enforced such an agreement.

But even after taking this collective course of action, garments were still 20% more expensive when compared with competing products overseas. They then turned to the Bank of Thailand to cut energy rates and lower interest on trade bills for exporters. They persuaded the government to grant rebates on business taxes and import duties. This effectively dealt with the remaining price differential. As a result Thailand was able to break into international markets.

From this specific case*, we can begin to make some general inferences. The Thai experience shows us that the private sector should not simply wait for government to come to its aid. Domestic players need to band together and work out solutions for themselves. It is only when they have taken the initiative but still fall short that government needs to step in and provide them with the necessary incentives and support to bridge any remaining gaps.

As our exporters grapple with high fuel and energy costs and a rising peso, there is the temptation to think that we simply need to let the market dictate what products we specialize in in terms of the global supply chain. The prevailing economic philosophy governing our policy elite frowns upon subsidies and tariffs, viewing them as distortions that make markets less efficient. Worse, they tend to view these things as symptomatic of poor governance and as sources of corruption and rent-seeking.

What the Thai experience tells us is that this is not necessarily the case. Rent-seeking, particularly the kind that encourages innovation and productivity, can play a central role in national development. It takes a set of very broad minded policy and business leaders to propose such unconventional solutions. Even the leading exponents of market orthodoxy are beginning to acknowledge that without such out of the box thinking, we may end up with no manufacturing base to speak of.

If the president is interested in leaving behind a legacy beyond simply jailing his predecessor and her cohorts, it is time his administration began looking beyond the traditional policy toolkit. Such a new direction would help push the country’s growth and employment rate above its historical trend. The sustained trajectory of Thailand’s economy since the 1980s and our own under-performance during the same period should provide us with enough reason to chart such a new path.

It is not a romance with Thailand’s PM that we should be encouraging, but rather, a love affair with their formula for economic success. In the parlance of reality TV, it should be less, “The Farmer Wants a Wife” and more “Celebrity Apprentice”.

*The case of the Thai garments sector during the 1970s discussed here is based on the chapter of Richard F Doner and Ansil Ramsay in a book edited by Mushtaq Khan and Jomo K. S. entitled Rents, Rent-Seeking and Economic Development: Theory and Evidence in Asia first published in 2000 by the Cambridge University Press.

The Human Development Report 2011

The latest release by the United Nations of the Human Development Report provides an occasion to review how the Philippines is tracking compared to its Asian neighbors.

Since 1980, the UN has compiled data relating to the human development of nations. The HDI or human development index is a composite of three dimensions of human well-being. The following dynamic chart provides a history of the country’s HDI from 1980 up to 2011 in relation to four other countries in the region, namely Malaysia, Thailand, Indonesia and Vietnam.

Click the “play” button and you will find that as all nations in the region climbed up in the HDI ladder, the Philippines which ranked a close second to Malaysia in 1980 with an HDI score of .55 compared to .56 for the latter was overtaken in 1992 by Thailand. Malaysia has widened its gap with the rest of the pack scoring .76 this year compared with .68 for Thailan and .64 for the Philippines.

Education

Turning to the Education Index, which is based on the mean years of schooling for adults and the expected years of schooling for children, we find that the Philippines was the leader of the pack back in 1980 with a score of .53 compared to Malaysia the first runner up with .42 and Vietnam the second runner up with 0.4.

It took seventeen years for Malaysia to close that gap and overtake us in 1998. It now sits in the lead with a score of .73 compared to us at .68. Thailand ranks third with a score of .6. This is in part because of the expected years of schooling of our children which at 11.9 years is below Indonesia’s which is at 13.2, Malaysia’s at 12.6 and Thailand’s at 12.3, Vietnam is catching up to us with 10.4.

Health

In health, the Philippines began in third position with a health index of .68 in 1980. It has ended at the bottom of the heap in 2011 with a score of .77. It has the lowest life expectancy at birth of 68.7 years compared to Vietnam which ranked first with 75.2, Malaysia at 74.2, Thailand at 74.1 and Indonesia at 69.4.

The Philippines has the second to the lowest level of expenditure on public health at 1.3% of GDP compared to Vietnam which ranked first with 2.8%, Thailand with 2.7%, and Malaysia with 1.9%. Only Indonesia spent proportionately less than us with 1.2%.

The Philippines also has the second to the highest mortality rate for under-five year olds with 33 children out of one thousand live births dying before the age of five, compared to 39 for Indonesia, 24 for Vietnam, 14 for Thailand and 6 for Malaysia.

Income

In terms of income, the Philippines ranked second to Malaysia in 1980 but was overtaken by Thailand in 1982 and then by Indonesia in 1993. Vietnam is quickly gaining on us. In the three decades from 1980 and 2009, average incomes rose by 22% in the Philippines from $2,620 to $3,220 (measured in purchasing power parity terms). Thailand’s average income tripled to $7,260 from $2,200. Malaysia’s grew by 260% to $12,725 from $4,890.

Poverty headcounts measured as a percentage of the population was included in this year’s report. It showed the Philippines with the second lowest poverty incidence of 13.4% compared to Thailand with 1.6%, Vietnam with 17.7% and Indonesia with 20.8%. Malaysia’s poverty headcount was not available.

In terms of the severity of poverty felt by those who are in poverty, however, which is based on multiple dimensions of poverty, not just income, the Philippine poor suffered the highest intensity of poverty.

Gender Gap

The Gender Inequality Index started to be collated in 1995. This is a composite measure which tracks inequality between women and men in three dimensions involving reproductive health, empowerment and the labor market. The lower the score is, the higher the level of development.

The Philippines had an inequality index of about .49 the second highest. This has gone down to .43 with no change in its ranking among the five countries. This is in part to do with the high maternal mortality ratio which in 2008 was still close to one in a thousand live births resulting in death for the mother compared to the leader Malaysia which sees three in ten thousand live births.

Our adolescent fertility rate is the highest in 2000 at 49.1 per one thousand women aged 15-19 years falling pregnant. It has actually gone up to 54.1 per one thousand women falling pregnant in 2010.

On the plus side, our representation of women in secondary education is the highest with 1.03 women to men enrolled, and similarly our ratio of women in parliament is second best at 27%. However in terms of labor force participation, we place a very distant third place with only about a 63 percent ratio of women to men participating compared to nearly ninety percent for Vietnam and about eighty percent for Thailand.

Environment

The Philippines had the second highest average number of people per year affected by natural disaster with 48,370 per million inhabitants affected in 2010. Thailand had the highest number with 58,220 affected. Indonesia had the lowest with 1,364. But in terms of casualties, the country suffered the biggest number of deaths with ten for every million inhabitants dying due to natural disasters.

Use your coconut: Of investment gaps and how to fill them

The coconut serves as a good analogy for our under investment problem.

The five year Philippine Development Plan (aka “the Plan”) released by the government of President Aquino earlier this year identifies a number of “structural defects” underpinning the country’s poor economic performance. Depicting the problem was easy enough. Without a significant uptick in investments, inclusive growth will remain elusive and poverty will continue to hound us, so the Plan says.

Using an analogy inspired by Robinson Crusoe to grasp this, imagine living on an island where the only resource is the coconut and inhabitants keep arriving. The only way to feed a growing population is to plant more coconut trees. “Investing” in more trees requires hiring more laborers to climb them in order to harvest the coconut. Some coconuts could be consumed, while others could be traded for products from other islands.

The Philippines has lagged behind its Asian neighbors in investing, which explains why it is so poor. Exhibit A as provided by the Philippine Development Plan is reproduced here (see below). Since peaking at 25% in 1997, the country’s investment-to-GDP ratio has been steadily declining, underperforming Indonesia, Malaysia and Thailand. A familiar story for Philippine-watchers–we have all heard or read about this before.

Chart 1. Investment-to-GDP Ratios of Selected Asian Countries: 1994-2010 (in percent)

So what is the reason for this underinvestment? The answer given to us is a lack of competitiveness. The country’s lagging infrastructure, its poor governance and inadequate skill base are increasing the cost of doing business in the country. On the island for instance, a lack of tools to harvest coconuts, a lack of laborers with the skill at converting coconuts into useful products and a lack of boats to transport them offshore is the problem. Now what? Well, according to this narrative, massive infrastructure spending, improved governance and human capital development is warranted.

So beginning next year, the government will be bidding out four initial infrastructure projects amounting to twenty five billion pesos to improve infrastructure in the country. After a year of delays, the amount is about a quarter of what was originally slated. The projects include the construction and maintenance of three airports in Cebu, Bohol and Misamis Oriental and the ticketing system for Manila’s three light railways.

The government has also been busy this year fixing the internal procurement systems within the public works, agriculture and education departments. Much of the budgeted expenditures for this year was held back (a little over half of infrastructure budget as of September has not been spent) due to these efforts, but beginning next year, we are told, they should proceed much more smoothly. The DepEd also has a plan to close the gap in school buildings within the next five years mainly through build, lease transfer agreements with the private sector.

Assuming all these projects go ahead without further delay, we should expect the nation’s problems to be fixed in five years, right? Well, not exactly. One needs to get a sense of the scale of the problem first. This is why I did some very rough back-of-the-envelope calculations to determine the overall size of the employment and investment gaps. Using our island analogy it is like asking the question, how many coconut trees need to be planted to provide enough work for its growing number of inhabitants?

Climbing the coconut tree

Using data from 2005 to 2010, I tried to compute how much additional investments would be needed in the next five years to bring unemployment down from where it is currently at 7.4% to a more manageable level of say 4%. The country has about three million unemployed workers out of a total labor force of thirty-nine million in 2010. Each year about seven hundred thousand new entrants are added to this pool, which means a workforce of about forty-three million by 2016.

So for the country to produce jobs for all of these new entrants and reduce the pool of unemployed workers down to about 1.7 million consistent with an unemployment rate of 4% by 2016, about one million net new jobs need to be created each year. This is consistent with the government’s employment target. There is nothing new there.

The reason why we haven’t seen unemployment decline is because the number of net new jobs created each year is usually slightly below the number of new entrants (see Chart 2 below). Thus, the number of those unemployed steadily rises each year in proportion to the growing work force leaving the unemployment rate relatively stable at around 7.5%. The question now is how much additional investments have to be raised to bring this down to 4%.

Chart 2. Supply and Demand of New Jobs in the Philippines: 2006 to 2010

If one compares the average investments over the past five years of about one-and-a-half trillion pesos per year  (roughly 15% of GDP as shown in Chart 1–see preceding section) with the average number of net new jobs created of about seven hundred thousand per year, one arrives at a figure of about four hundred and fifty new jobs for every one billion pesos spent.

The number of jobs created per peso invested has actually been declining. Back in 1994, a billion pesos in today’s prices would produce about four times as many new jobs. This means that part of the problem has been the increase in productivity particularly in the manufacturing sector where technological progress has reduced the amount of workers required for any given level of output to be produced. In other words, new tools have been created that make climbing the coconut tree a lot easier. As a result, fewer workers are needed.

Assuming that the ratio of new jobs created per peso invested remains steady for the next five years, the amount of investments required to bring unemployment down is about two trillion pesos per year (20-25% of GDP, roughly where we were in the mid- to late-90s). Compared with the average amount of investment spending cited above, this would mean an increase of more than half a trillion pesos (close to six hundred billion) a year or an increase of about forty percent from the current base.

Had the government stuck to its original plan and rolled out a hundred billion pesos worth of projects and assuming an investment multiplier of two (which means a one-for-one additional investment in complementary projects amounting to two hundred billion in total), we would end up filling about a third of the required level of additional investments. Given its planned roll-out is now about a quarter of the original, we will only be achieving close to ten percent of the investment gap. In short, the “solution” does not seem anywhere near the required amount.

“The coconut nut is not a nut”

Here is another problem with the Plan: the assumption that improved competitiveness will steadily increase investments seems straight-forward, but reading the Global Competitiveness Report produced by the World Economic Forum, I find a few anomalies. The chart below shows the various country rankings from 2005 since the Report first came out until 2011 (click the play button).

The Competitiveness Index is a composite score made up of twelve components. These “twelve pillars” that hold up an economy cover things like institutions, macroeconomic policy, infrastructure, health, education, innovation and regulation. The Plan says that the “structural defects” in these pillars as shown by our declining ranking is the chief cause for our declining economy as measured by our investments-to-GDP ratio.

Our ranking has declined alright, but only because of the addition of more countries in the league table in the intervening years. Our score (which you can see by hovering the cursor over the appropriate column) on the competitiveness scale actually rose from 3.71 to 4.08 out of six during the period covered just above Indonesia’s score of 4.05 back in 2005.

Refering back to the first chart, it is clear that in 2008 when our score was actually 4.09, our investment-to-GDP ratio did not climb to anywhere near the level of Indonesia back in 2005. This is like saying two students who scored the same on their tests, did not receive the same final grade. There is an anomaly here.

One might argue that it is our ranking and not our score that counts, so that relative to our neighbors, our score continued to lag and that explains the poorer investment-to-GDP ratio. Makes sense if the grading of students is not based on their absolute scores, but on their relative rankings within the class, right?

Well then, according to that argument, Malaysia which ranked first among its neighbors in terms of competitiveness should have outperformed them in terms of its investments, but the first chart actually shows it slipping steadily below Indonesia and Thailand since 2002 and coming dangerously close to parity with the Philippines. In fact, Indonesia which has consistently come in third in the ratings and rankings of the four neighbors has steadily risen to outclass the Malaysian and Thai investment ratios by 2009 and 2010.

So perhaps, achieving “global competitiveness” is not what it is all “cracked up” to be. It would seem that some other dynamic is driving investments. As one song goes, “the coconut nut is not a nut.” This should give you a lot to think about, which gives me a few days to conclude this. Until then, let me leave you with this tune to fuel your ruminations…

Jammed

Does public infrastructure represent the best use of private investment?

It seems that our corporate titans have nothing better to do with their excess cash than to pour it into the growing public utilities and infrastructure sector. Whether it is San Miguel the beverage giant which went heavily into power or the Metro Pacific group a major player in telecoms which operates the NLEX-SCTEX road networks, there does not seem to be anything which competes for their attention than this sector.

About one-and-a-half trillion pesos is sitting in Special Drawing Accounts with the BSP deposited by banks which are unable or unwilling to lend them out. With a country as underdeveloped as ours, one would think that such excess savings could be put to better use. Why for instance isn’t San Miguel investing to develop coco juice exports which it has the capital and expertise to do?

Since our lost decade in the 1980s when a banking crisis followed by a political upheaval reduced our economy to tatters, manufacturing has never really recovered from the heights it once achieved by the end of the 70s and early 80s (see chart). Meanwhile, our ASEAN neighbors Indonesia, Malaysia and Thailand overtook us in moving their economies towards industry. Our gross capital formation as a percentage of GDP is the weakest in the region as a result.

Vietnam, a relative latecomer in the game has seen its manufacturing sector grow by leaps and bounds, while Singapore cannot be held up as an example for us to follow since it is a city-state with a tiny population and workforce. It can afford to de-industrialize its economy, while we can’t. While some would argue the high value services sector is nothing to sneeze at, it still cannot be relied on to provide the kind of jobs that match the skills held by our bulging population. The answer lies with manufacturing.

The Philippine Development Plan identifies infrastructure as the “binding constraint” to speedier growth. The reason it claims Philippine goods remain uncompetitive is our inability to bring them to market efficiently. Apart from that there is the implicit “tax” that comes by way of corruption which increases the cost of doing business and the unfair competition from smuggled or pirated goods that discourages domestic manufactures, the result of weak rule of law.

With its low tax collection rate and chronic fiscal deficits, partly to do with an aggressive liberalization policy pursued since the 1990s, the government was more than willing to let the private sector fill the breach in public infrastructure.

Since private business seems so gung-ho about providing public goods, it seems the identification of infrastructural bottlenecks was the correct diagnosis of the problem of underdevelopment. One wonders, however, if these firms are moving into such projects because there is no attractive alternative in other sectors, or is it because of higher returns now currently on offer from public-private partnerships?

Also, if indeed there are “bottlenecks” causing the cost of doing business and cost of living to skyrocket, then one would expect the public would be willing to absorb the fees charged by private operators under existing PPP arrangements. That is not what has been observed though (think MRT and LRT). One would then have to conclude that either the private operators have negotiated prices above the market-clearing level or that the demand for such infrastructure was not sufficient to begin with.

Investing in public goods by their very nature would often produce a private return lower than the commercial rate of return. That is why it is often financed in capital scarce countries through “concessionary loans” from foreign governments and multilateral institutions. If private operators borrow at prevailing market rates, then they cannot possibly make a profit unless the government provides a subsidy to pay for the spread between the “risk free” government borrowing rate and the commercial lending rate.

Turnaround

The sudden flash of insight Sec Mar Roxas used to interject into the president’s faltering public-private partnerships roll-out was that it would be better for the government to borrow at the risk-free rate and contract out the construction phase of some projects in effect passing on the cheap cost of capital to contractors. It could then auction off the operations and maintenance contract separately minimizing the need to subsidize fees charged to customers.

The question then is can government afford to borrow more in order to finance its infrastructure roll-out? It could if it chooses take-up the BSP’s offer to borrow against the country’s excess international reserves that accumulate each year. The state would effectively be borrowing against itself. Given the total cost for the original projects of about one hundred billion pesos, the surplus of reserves flowing into the country each year of four to five billion dollars is enough to cover these projects twice over.

If the public sector is then able to deal with the cost of providing infrastructure, how can it stimulate complementary investments needed in the private sector? If the lack of domestic capital and skilled labor are not responsible for the observed underinvestment, neither are low rates of return (low taxes and labor market flexibility are found in special economic zones), then what else could it be?

There are a number of candidates. Government failures which include corruption or weak property rights and rule of law are one option. A second possible candidate is market failure due to inabilities to coordinate investments in complementary upstream and downstream sectors or to internalize the benefits of innovation and experimentation.

The first has been identified by the National Competitiveness Council and the government as an area of concern. The decline of the Philippines ranking in the latest Ease of Doing Business survey by the World Bank reflects the country’s inability to address government failure. On the other hand, if these are the causes for underinvestment, why is it that manufacturing has suffered a decline relative to services in terms of investment and output? Shouldn’t they all be suffering the same fate?

This leads me to identify the problem of market failures as well. The systematic break that occurred in the mid-80s when the country turned away from industry policy and underwent an aggressive reduction of tariffs unilaterally ahead of WTO commitments left our manufacturing sectors at a disadvantage vis-à-vis our ASEAN neighbors. This is perhaps the reason services have oustripped manufacturing since it represents non-tradables which can only be provided domestically. Think retail, housing, commercial property and yes, utilities. Mining is a similar story. How then could the government begin to stimulate activity within the tradable industries? The following five measures would represent the most important steps.

  1. Partially rollback tariffs to within acceptable levels still within WTO commitments targeting in particular greenfields. Sustainable technology is one example of greenfields. To partly offset the modest rise of inflation that would come with this, tax cuts and (conditional cash) transfers should be directed to low income families.
  2. Finalize the list of investment priorities to signal the areas that government wants growth to occur in. Government must consult with business groups in compiling this list, but it must also exert some independence and take the lead in some areas and not simply take a market follower approach.
  3. Rationalize fiscal incentives and gradually fine-tune the selectivity of sectors for promotion. This has already been initiated by the BOI, but follow through and institutional capacity building needs to occur, which leads to the next item.
  4. Strengthen the economic bureaucracy to solve investment coordination problems across related sectors. Improve the ability of state agencies like the BOI, PEZA, DTI and other government agencies to undertake a consultative and promotional role.
  5. Create a research and innovation fund jointly run by public and private enterprise to encourage commercialization of ideas. Given the excess foreign reserves cited earlier, the state can also afford to undertake this strategy in partnership with academe and the business community.

Compared to the strong-arm tactics being employed by Argentina and Brazil which like us bought into the liberal free trade argument in the 1990s and have like us seen their manufacturing sectors stagnate (see chart), these measures would be considered rather tame.

From 1949 to 1959, the Philippines used heavy handed trade and industry policies similar to what LatAm countries pursued from the 1930s to the 1980s. This led to the fastest growth ever sustained in our history (and theirs). Unfortunately, it did not last long enough for investments to expand beyond light industries as Paul D Hutchcroft notes. The direpute to which import-substitution subsequently fell was the result of the Filipino First policy instituted in 1958 towards the end of the decade of growth, an over-reach of the “elite” nationalists. The poor administration and outright corruption that the policy bred stymied it and led to the liberal policies of the 1960s supported by the landed agricultural exporters.

Pres Marcos tried to weaken the landed aristocracy and revive our nascent industry sector in the 1970s, but the lack of checks to the predatory nature of his regime led to its collapse. The Philippines has been following the liberalization paradigm ever since. The stagnancy of our manufacturing and overall weak economic performance is hard to explain given the structural reforms undertaken from the late-80s. The Philippines since the early 2000s has become a net saving country due to overseas remittances and is rapidly accumulating foreign reserves (it has more than enough to pay off all our external debts). With some tweaking, we can unlock this capital and put it to better use.

So far from encouraging private investors to get into public utilities, the government should actually follow Sec Roxas’s advice to break-up build, operate and transfer contracts to lower their cost to the public. Finally, the government must look to revive investments in the industry sector (which includes high value agricultural and services too) through pragmatic policies. It must create as much policy space within existing WTO arrangements to maximize the benefits of industrialization. Without this its vision for a rapid, sustained and inclusive pace of development might simply come to naught.

Budget 2012: How it all stacks up

Among the nations in the developed world that follow in the Westminster parliamentary tradition, the most eagerly anticipated policy speech by the government is not the state of the nation address but the budget speech.

The budget tackles not only the spending side, you see, but the tax side as well. On budget night, citizens find out if they are to get some form of tax relief. They also look for any additional spending on things they directly benefit from, like schools, hospitals or infrastructure.

The rich nations that make up the OECD (Organization of Economic Cooperation and Development) have varying levels of taxation. The Scandinavians typically tax more and provide a high degree of social insurance and welfare. The Anglo-American nations of the UK, US and Ireland tend to have lower taxes but provide a smaller safety net for their people.

Australia, the nation I am most familiar with seems to have the best of both worlds, with a tax take much lower compared to the Nordic countries but providing a level of social insurance and welfare comparable to them. That is because its tax and spend policies are some of the most progressive in the world.

Australia spends about 16 per cent of GDP on cash benefits (pensions, unemployment insurance, healthcare and community services) compared to an OECD average of just over 19 per cent. It is able to keep this expenditure down by means-testing benefits enabling it to target spending on those that most need it. Its tax take is about 27 per cent of GDP compared to an OECD average of close to 35 per cent. It is the sixth lowest-taxing country in that group.

Rich country, poor country

It is perhaps in this light that we need to focus on the Philippine tax and spend situation. Most poor countries are able to generate only as much as 20% of GDP from their tax systems. Yet the demand for public service is much higher than in advanced economies. The Philippines is no exception.

In 2012, the government projects it will generate about 1.5 trillion pesos worth of revenue out of a domestic economy that is expected to reach 11 trillion or about 13.6% of GDP. In the current year 2011, the government projects to earn 1.4 trillion out of an economy of 9.9 trillion or 14.2% of GDP. In 2010, the ratio was 13.3% (based on DBM papers).

In 2012, due to its low tax take and with a budget of 1.8 trillion, the government will incur a deficit of 286 Billion (up from the original 260 B) or 2.6% of GDP. That is compared to its projected deficit in 2011 of 300 Billion worth 3% of GDP and 314.5 Billion for 2010 or 3.5% of GDP.

Social services which include education, health, housing and land distribution are programmed to consume 556.2 billion pesos or 30% in 2012. That compares with 529 Billion in the current year equal to 31% of the budget in 2011 and 399.3 billion in 2010 worth 26.2% of that year’s total spend.

Among the social services, education takes the largest share. Next year it will amount to 309 billion or about 2.8% of GDP. This is up slightly from 2011 which was 272 Billion or 2.7% of GDP and from 2010 which was 225 billion or 2.5% of GDP. By contrast, Singapore and Thailand spend anywhere from 3.5-4% of GDP on education. Malaysia spends from 5-6%. If we were to match Thailand’s education to GDP ratio, we would need to spend an additional 70 billion on education.

As for health, next year’s budget includes 59 billion or 0.5% of GDP, up from 48 billion in the current year (0.48%) and 36 billion last year (0.39%). In contrast, Singapore spends about 0.9-1.5% of GDP, while Malaysia spends 1.8%, and Thailand 1.2-3%. If we were to match Singapore’s ratio, we would need to spend about 40 billion more on health.

Finally in housing, the 2012 budget contains 14.5 billion worth of spending or 0.13% of GDP compared to the current year’s 21 billion (0.2%) and 12 billion (0.13%) from 2010. Singapore by contrast spends about 1.8-2.5% on housing. Malaysia spends 0.3-0.6%, and Thailand spends 0.5-1%. If we were to simply match Malaysia, we would need to double our current spend by another 14 billion.

Living within our means

Judging from the magnitudes and ratios alone, we can plainly see that the country will continue to lag behind its neighbors in the region when it comes to providing basic social services for its citizens. As a result, it has much higher levels of poverty and inequality and lower levels of human development among the ASEAN-5.

If you take out the possibility of tax reform, “living within our means” confines the budget department to look for savings and improve the structure or mix of spending to improve the quality of the spend rather than the quantity. Past studies have shown that our education spending is already quite progressive, while that of our health sector tends to be regressive with its focus on the tertiary hospitals in urban centers rather than on primary healthcare in the community.

Certainly, there are opportunities to improve the progressivity of our spending program in health. One problem is that our health system follows the model in the US, Europe and Japan which relies of specific contributions. Those who earn more tend to receive higher reimbursements. While in Australia, health expenditures are financed from income taxes, but then are spent in a more egalitarian way by means-testing recipients so that those who earn more tend to pay more out of pockets than those who earn less.

Can afford more

The orthodoxy of constraining the budget because we have to live within our means can of course be challenged by simply asking the question, can society afford to pay more?

From his State of the Nation Address, the president hinted that we probably could afford to pay more when he cited to his own disbelief the close to two million self-employed entrepreneurs and professionals who declare incomes beneath the minimum wage. The BIR has said subsequently that it believes that the current 10 billion raised from these individuals should actually be about 100 billion.

Aside from professionals and self-employed individuals, the corporate sector might also afford to pay more. That is according to a five year old study by Dr. Renato Reside. His work showed that a very low correlation between investments approved by the BOI and PEZA with actual capital formation in all regions except Regions 4 and 7. He concluded that since investments did not materialize companies were simply using their fiscal incentive privileges to engage in tax avoidance. The recipients of such incentives read like a who’s who of Philippine business elite according to Dr Ben Diokno.

Because companies under this scheme are also allowed to sell as much as 50% of the goods they produce to the domestic market, Dr Reside also believes that much revenue is lost. According to him, back in 2004, we were losing as much as 59 billion pesos from revenues on imported capital goods, 135 billion on imported raw materials, 10.5 billion on the use of domestic capital goods, and 44 billion on income tax holidays provided to these so called exporters. If even half of these were recoverd, it would be an additional 125 billion in revenues.

Another form of tax incentive is provided to sin products because of the non-indexation of taxes imposed on them. It is an incentive because every year the prices of these products go up, but the taxes imposed on them don’t. Government revenues are eroded over time. By gradually increasing the taxes along with the rise of prices in general, the additional revenues from sin products estimated to be as much as 70 billion annually could help beef up our infrastructure which in 2012 will be 270 billion a mere 2.5% of expected GDP.

Indeed, from the combined tax breaks given to entrepreneurs, professionals and corporations, our society could afford to bridge the gap in social as well as economic infrastructure. We could become a more inclusive society. With a combination of better policies and stricter enforcement in revenue and incentive granting agencies, by renovating our economic bureaucracy, we could produce a more progressive tax and spend system.

The Daily Roundup: 27 January 2011

Philippines-US dialogue starts today” by Bernice Camille V. Bauzon

The Philippines and the United States will hold their first strategic dialogue in Manila today until tomorrow to discuss the two countries’ various concerns on foreign policies, trade and economy and defense and security.
Philippine-US relations have been nurtured by a shared history and adherence to common values, especially a commitment to freedom, democracy and free enterprise, the Department of Foreign Affairs said on Wednesday.

“The dialogue will affirm the strength of the Philippine-US alliance and the dynamic partnership for peace, security, stability and prosperity,” Foreign Affairs Secretary Alberto Romulo said in a statement, adding that the dialogue is a “clear manifestation” of both countries’ resolve to enhance their relations.

Read more at The Manila Times

PNoy thanks PBSP’s support for his government” by Amita O. Legaspi

President Benigno Aquino III might have been two and a half hours late for his appointment with the officers and members of the Philippine Business for Social Progress (PBSP) Tuesday, but still he was received warmly.

The cordial welcome was not only because Aquino once worked for the PBSP, a business sector-based non-government organization, but more importantly because its members understood the need for him to attend to the victims of a bus bombing that happened just a block away, some hours earlier.

Read more at GMA News

The issue of NFA’s existence” by Solita Collas-Monsod

National Food Authority Administrator Lito Banayo seems to be between a rock and a hard place. He has been blowing the whistle on what he perceives to be at best mismanagement and at worst corrupt practices of the previous NFA/Department of Agriculture leadership as exemplified by the unnecessary importation of rice at inflated prices.

So much so that there is talk that Arthur Yap, the former DA secretary (therefore ex-oficio chair of the NFA Council), and possibly even former President Gloria M. Arroyo (this, I would like to see — it just sounds good in the media, but I cannot imagine how the connection between her and the NFA Council decisions and the NFA bidding process can be established) will be haled to court to answer for their sins in this regard.

Read more at Business World

RP bill should not delay enactment of RHB-solon” by Fernan Marasigan

THE drafting by Malacañang of a responsible-parenthood (RP) bill as espoused by leaders of the Catholic Church should not in any way cause a delay in the legislation of the reproductive-health bill (RH), a legislator said on Wednesday.

Party-list Rep. Luzviminda Ilagan of Gabriela said Congress has already held several hearings and consultations, and a technical working group is already working on the consolidation of the several bills filed and deliberated upon, thus “The legislative mill must continue uninterrupted.”

Read more at Business Mirror

Social protection review gets grant

A technical assistance grant of $1.4 million will be provided by the Japan Fund for Poverty Reduction for the Philippines to help “overhaul” the country’s social protection programs.

The grant, to be administered by the Asian Development Bans, aims to identify priority social protection programs and those which should be phased out.

Read more at Malay Business Insight

No body in charge” by Rigoberto D. Tiglaw

EVEN AS the Left and the opposition were very noisily claiming that it was a prelude to the imposition of martial law, the Human Security Act (actually the anti-terrorism law) was passed in 2007. Its provisions enabled the Arroyo administration to contain terrorism.

One of the law’s key features, intended to create a strong institution that is alert and capable of fighting terrorism, is the seven-member Anti-Terrorism Council. Under the law, the executive secretary serves as its chair, with the justice secretary as vice chair. The other members of the council are the secretaries of national defense, foreign affairs, interior and local government, and finance as well as the national security adviser. Executive Secretary Eduardo Ermita and even his successor who served at that post for only four months, Leandro Mendoza, convened the council every month.

Read more at Philippine Daily Inquirer

Loves, dreams shattered” by Tina Santos, Nancy C. Carvajal

Sweethearts Shirley Kristel Ausena, 25, and Jhohansson Reyes, 24, left home on Tuesday morning with high hopes for their families and each other.

Their dreams of finding a better life were shattered by the explosion that ripped through a passenger bus in Makati City just before 2 p.m.

Kristel and Jhohansson were among the five people killed in the explosion, which authorities claimed was caused by an improvised explosive device.

Read more at Philippine Daily Inquirer

Muslim militants eyed in EDSA bus carnage” by Cecil Morella

Muslim militants from the remote southern Philippines may have been behind a bus bomb attack in the nation’s financial hub that killed 5 people, authorities said on Wednesday.

A mortar bomb triggered by a mobile phone caused Tuesday’s explosion that ripped apart a bus travelling along one of Manila’s main roads, the city’s police chief and President Benigno Aquino’s national security adviser said.

Read more at ABS-CBN News

Blast a preemptive attack” by Cris G. Odronia

PRESIDENT Benigno Aquino 3rd on Wednesday said that a bus explosion on Tuesday that killed five persons and injured more than a dozen others could be the handiwork of attackers who may be planning another strike at his administration.
According to President Aquino, the government, however, for now would not point to any particular group as being behind the blast.

“We’re not even sure that the label ‘terrorists’ is the most appropriate [for those who carried out the attack],” said the President, who also on Tuesday saw “terror” and “destabilization” in the explosion.
No individuals or groups have claimed responsibility for Tuesday’s attack.

Read more at The Manila Times

24 Hours of Bombings: Russia, Philippines, Thailand, Iraq” by Maria Ressa

It used to be that when near simultaneous, coordinated bombings happened, it would be an automatic signature of Al-Qaeda.

Not so in our world today.

Since 9/11, authorities around the world have arrested or killed top and mid-ranking leaders of Al-Qaeda and its associate groups like Jemaah Islamiyah in Southeast Asia. You would think that would be a good thing, but I’d argue it’s now much harder for authorities to identify and fight terrorists. Recent events show how the threat has evolved in a decade (yes, this year marks the tenth anniversary of 9/11).

Read more at Maria Ressa’s Blog

How Mr. Condom made Thailand a better place

Mechai Viravaidya was recognized by The Bill & Melinda Gates Foundation today with a $1 million award for confronting “taboo subjects like sex and HIV/AIDS directly in order to save lives." Photo: AFP/Getty

I think the Philippines should take a closer look at neighboring Thailand. They used to have a 3.3% growth rate, much worse than our 2% growth annually. Mechai Viravaidya, or Mr. Condom of Thailand, shares in this TEDxChange video how Thailand was able to raise the Thai standard of living by using population control as the first step. Keep in mind that the majority of Thais are Buddhists but still, the same can be done here if we will finally separate Church from State.

Thanks to Krishna for sharing with me this video.

A Philippines that Works: Economic Vision and Platform

Speech by Senator Benigno S. “Noynoy” Aquino III delivered on January 21, 2010 before the members of the Makati Business Club at the Peninsula Manila Hotel, Makati City

Four-part video of the speech, courtesy of NoyTV on YouTube:

[youtube]http://www.youtube.com/watch?v=oAFlybsqCjc&feature=player_embedded[/youtube]

[youtube]http://www.youtube.com/watch?v=NV-Uyoe_eso&feature=player_embedded[/youtube]

[youtube]http://www.youtube.com/watch?v=DnM2qrEpEes&feature=player_embedded[/youtube]

[youtube]http://www.youtube.com/watch?v=Andlyzn6f1A&feature=player_embedded[/youtube]

A Philippines That Works Economic Vision and Platform

Officers and members of the Makati Business Club, Your Excellencies of the diplomatic corps, ladies and gentlemen, my friends and countrymen.

Thank you very much for giving me the opportunity to address you. I trust your asking me first is not based on alphabetical order, or based on age, but perhaps, based on who you think will most likely win the coming election.

As managers, you recognize that one of the necessary skills of an effective manager is time management. Is it possible that you have invited me to determine if there is still a necessity to spend time with the others?

Baka naman inuna niyo ako upang malaman kung sapat na ako at hindi na kailangang pansinin yung iba?

I think we are all aware of the problems facing our country. We share the same statistics. We probably even share the same conclusions about the need for better governance. To rehash all of these problems at this forum would be a waste of your time. But what we have now is an opportunity for you to get to know me, to find out the advocacies that I champion, the perspective and philosophies I bring to the equation and some of my proposed solutions to give an insight into my inner persona.

Levity aside, the political exercise that we will engage in this May is a crucial one. It will be, as it is for every fledgling democracy, a test of the strength of our political institutions. The peaceful transition of power has become a symbol of political maturity across the world, with many still failing to achieve the credibility that is the cornerstone of a genuine political mandate. With the electoral scandals that have stalled our democratic progress as of late, it is not a test that we can afford to fail.

We have an administration whose mandate is clouded in doubt and overshadowed by allegations of fraud because it refused every opportunity to clear the air and be held to account. Its choices have limited its decision-making to seeking ways to ensure day-to-day political survival and self-interest. We must now become a government committed to accountability. A government that works with the people in achieving long-term change.

We must make the shift from bare economic survival to robust economic growth. We must make the change from treading water to keep afloat, to reaching that promised shore where we can all stand tall as healthy, happy, educated and responsible fellow citizens.

But why does transformation seem like such an impossible dream?

Isa sa mga tema ng ating kalaban, yung “ang pagbabago, madaling sabihin yan pero mahirap gawin,” is probably echoed by a lot of Filipinos. The oft-repeated question is, why can’t we advance? Why can’t we progress? What is it in us that limits or prohibits our growth as a people and as a country?

All of you are aware that most of the contenders have had years, possibly even decades, of preparation for this electoral exercise. I had no such ambitions to run in the 2010 elections but I responded to the people’s clamor. I am but the face of what we believe is the overwhelming demand of our people to repudiate everything wrong in the current administration.

Given that I only announced my decision to seek the presidency on September 9, and I only came to that decision the day before, I have not had material time comparable to our opponents. What is perplexing is that viewing the same problems, and having access to the same data for the most part, we believe the solutions have been there all along, and necessitate only clear political will to execute. But most of our opponents seem to indicate the contrary opinion that there is very little that we can do to change the situation. One has to wonder: did they overstudy the problem, or are they committed to preserving the status quo?

If the leader is not convinced that change is not only necessary, but extremely possible, how does he lead us to the promised land?

What is it that we want to change?

We want to repair the damage that has been wrought on our democratic institutions by those who have sought to manipulate them for their own selfish ends.

We want to improve the situation of our people, who have suffered years of neglect because of a self-absorbed leadership obsessed with political survival.

They are poor. Many of them are homeless. Each year, we add some 2.5 million mouths to feed to our already hungry population. Of these new additions, one third were the result of unplanned pregnancies. We have a growing underclass that statistics tell us have given up looking for work. A permanent underclass that includes the five million of our countrymen that are illiterate, which means their opportunities in life will always be limited to living hand-to-mouth.

We want to give our young the opportunity and means to improve their lot in life.

It can only begin if our children and their parents are assured that money spent on education is money well spent. Unfortunately, students are at the mercy of our decrepit education system that allows double shifting, erroneous textbooks and substandard nursing schools to exist. No less than DepEd officials admitted that students in Grade 1 take three subjects in one class period. We have a procurement program so heedless of the need for excellence that it doesn’t care if it produces a textbook series riddled with 500 factual errors. For every hundred kids that start grade school with the hope of achieving their dreams, only fourteen will graduate from college and possess a tangible means to materially improve their lives.

To my mind, the crucial, lacking element in all these is a government committed to a transformation: from a society overwhelmingly poor to one overwhelmingly middle class. In every developed, progressive, prosperous democracy, it is the middle class that is the biggest class. Government, for one, has failed to make the conceptual leap from patronage to development. Efforts at feeding the hungry, clothing the naked, providing basic care to the sick, and offering a quality education aren’t only the people’s rights; they are the essential tools for individual self-improvement.

In 1998, when I first campaigned for office, one lady bluntly told me that regardless of who is elected, things would remain the same for her.

What did she mean?

That she was poor to begin with; that she would remain poor, and in fact, she would be lucky if she didn’t end up poorer, after the candidates leave office.

This brings up the question at the forefront of the minds of our countrymen still undecided on whom to vote for, and pursued by my critics. If this is a time that calls for national transformation, am I qualified to be that transformative leader? Having answered the call of duty, can I ask you or anyone to entrust me with your vote, on faith alone? Never having sought the presidency, I preferred to do my duty and not seek the limelight. Now that I have been thrust in the limelight, it is only fair to answer the question: before you tell us what we can do, what have you done?

I have always believed that the job of an effective legislator goes beyond merely proposing laws, for what are laws but written agreements entered into by members of society on how to harmonize their mutual relations? In fact, I do not believe that we suffer from the problem of too few laws. One of my proposed measures was the recodification of laws, in response to an appeal from the legal community to put some order into our laws, their amendments and those that have been repealed, because even our lawyers are at times confused.

Consider the recent controversy over who gets to appoint the next Chief Justice. We maintain that there are no ifs and buts in Article 7 Section 15 of the Constitution where it states that the current President cannot appoint anybody within two months prior to a presidential election up to the end of her term. An exemption exists, but it applies only for positions in the Executive Department. Yet you have two retired justices arguing exactly the opposite. How can former justices of the Supreme Court be so seemingly confused, when the fact is that the provision regarding presidential appointments is stated clearly in the law?

Our problem is the lack of political will to faithfully implement the many world-class laws that our legislature has passed. A preference for ambiguity even when times call for clarity, leads to artificial controversies. Insecure or overly ambitious leaders need to create a climate of doubt, because it’s in the grey areas that its ambitions thrive.

It is in addressing this problem that I focused on the fiscalizing aspect of a legislator’s job – on Congress’ oversight and investigative functions.

Consider intelligence funds. In the proposed 2010 budget, a total of 1.4 billion was allocated to confidential and intelligence funds.

Woodrow Wilson once wrote that oversight is always preferable to investigation, which is like putting out a fire instead of preventing one. We proposed that if the Executive wants orderly transactions, at least a few members of Congress should be privy to all of the details to determine if they were spent properly. However, this proposal was dismissed out of hand without even a single hearing for the reason that they undermined the Executive’s privileges.

And yes, the investigations were a vital part of my functions, too. I don’t think anyone will begrudge me my efforts in this regard. From Hello Garci and the impeachments, to NBN-ZTE and the fertilizer scam, I did my duty at the forefront of these issues.

The original design of the NBN-ZTE project required a BOT agreement between government and the supplier, not a government loan. But during the NBN-ZTE hearings, we learned that the project was entered into through a government loan despite instructions to the contrary from no less than the President herself. The cost of the intended government loan was P40 billion, (in which P16 billion was for the backbone and P24 billion was for the CyberEd project.) Jun Lozada belied this when he cited P5 billion as the actual cost of the entire project. Ito yung sinasabi niyang kalakaran ng gobyerno, kung saan sa sobrang laki ng patong, bubukol na.

SCTEx took around 8 years to construct before it finally opened. Projects of this scale normally require two years to complete. Furthermore, when SCTEx finally became operational, it was found that the central hub, which was Clark, did not have an exit, excluding Clark from the Subic Clark Tarlac expressway itself. How can one justify these kinds of delays where opportunities are lost, costs have escalated and the people’s burdens, instead of being reduced, end up being compounded?

My active role in these congressional hearings has put me at odds with the administration. In 2005, it cost me my post as Deputy Speaker. It continues to put me at odds with the coalition of self-interest that currently holds power. It puts me at odds with other candidates for the presidency.

To lead transformation, you cannot be part of the problem. As I said when I accepted the people’s draft, the job of chief executive is about the efficient allocation of resources. If you have hogged those resources for yourself, if you have lied, cheated, and stolen to gain power, how can you be trusted to lead the transformation our country needs?

Going back on the issue of appointing a Chief Justice prior to the forthcoming elections. If we are to transform the country, it begins with doing what we can, now, to limit the damage and give our people a fighting chance to rebuild our damaged institutions. The Constitution imposes a blanket prohibition with few exceptions concerning midnight appointments. A candidate cannot ask for the people’s mandate, pledging to improve the situation tomorrow, if he becomes complicit in worsening the situation today.

Hindi naman mahirap gawin ang tama. Alam naman ng lahat yan eh. Wala namang magic, wala namang sikreto. Pero bakit pilit pa ring ginagawa ang mali?

There is a widespread perception that success in the business milieu can almost be directly correlated to your closeness to the powers-that-be. Because of this, some players in the industry are forced to focus their activities on maintaining relationships in order to retain the favors that they receive in exchange for cultivating that relationship. This has fostered the wrong kind of competitiveness. While it may work, locally, for now, it has not enabled these players to become competitive in the world market, where the rules of the game do not take special relationships into consideration.

We will encourage free and fair competition in a level playing field. One not need be a crony in order to succeed in the field of business. More importantly, government will not compete with business. Nor will government use its regulatory powers to extort, intimidate and harass.

We will transform our systems to foster service to the public instead of making citizens jump through hoops. We will streamline the approval process, not only for setting up new businesses but also in the regular day-to-day transactions with government, such as the payment of taxes. We will do this on a national as well as the local level.

In 2010, our next President will inherit a continually bloating deficit. As of November 2009, the deficit of the national government already reached P272.5 billion, or 4.1% of GDP.

In addressing the looming fiscal crisis, good governance and the drive against corruption are critical components in our strategy. We will refrain from imposing new taxes or increasing tax rates.

I strongly believe that we can collect more taxes at the BIR and higher duties at Customs if we become more serious in curbing and punishing tax evasion and smuggling. The BIR’s collection dropped by 5.5%, while that of Customs declined by 16.6%. This is the first time in recent history that absolute revenues have actually declined.

Our initial focus then will be to capture a good part of the revenue leaks caused by smuggling and evasion. In this effort, we will not be starting from zero. Be assured that those smugglers and evaders are not faceless and unknown entities. The ideas to improve tax administration and to control smuggling have been there for some time and some programs have been initiated in the past. One of these successful programs was the RATE or Run After Tax Evaders. In fact, some of the people at the Department of Finance and the BIR who have tried to implement reforms before are with us now, and together with reform-minded career executives, we intend to put their commitment and talents to good use under my administration.

My vision is to transform our country into one where we have lower tax rates enjoyed by all, rather than have some enjoy absolute tax exemptions while we burden the rest of the economy with very high tax rates. I believe that markets are better than government in spotting where the growth opportunities are, and, with universal low tax rates, we will encourage entrepreneurs and enterprises to invest and create jobs in any industry. We will, therefore, pursue the rationalization of fiscal incentives early in my administration.

There is a lot of room for our revenue base to grow. Our tax effort has gone down from 17% at its peak to a worrisome 13% today. If we can only bring this back even to just the 15% level, that will translate to P150 billion in additional revenues, which would make a significant dent in cutting our deficit.

My budget team estimates that for 2009 alone, around P280 billion of our national budget was lost to corruption. If we take the years 2002 to 2009 the total estimates exceed one trillion. Estimates vary, but everyone agrees that the numbers are huge.

If we agree that change is necessary, how can a Presidential aspirant, whose own financial and political ethics are questionable, be effective in leading transformation as the head of the bureaucracy? How can a leader, who is benefiting from the status quo, be able to restore a civic sense and pride in our citizenry? The leader, who has used public office for private gain, will always be the most committed enemy of change.

Rich or poor alike, we have a tangible experience of the sorry state of public infrastructure at present: traffic, which eats up time, which as the saying goes, is money. Railways are built at bloated cost; urban transport is constructed, but not enough trains are on track. Our people are the first to experience the effect of something that works and conversely, something that is badly done because bad intentions handicapped the project from the start.

It is time that our infrastructure agencies and LGUs transform into cooperative ventures with the private sector by bringing forth an agreed public infrastructure program, based on a cohesive plan that optimizes the value of the entire network. In our conversations with members of the private sector, there has been a lot of positive feedback about possibly working with government on this endeavor.

To transform infrastructure projects from sources of waste and scandal into examples of cooperation and efficiency, we will set objective criteria for different types of projects and develop a scorecard that will assess various projects against benchmarks transparent to the public.

Initially we want our infrastructure program to transform from being the means to enrich a few, to being labor-intensive and biased for employment as a means to pump-prime the economy.

When I read about countries that have invested in their agriculture sectors and succeeded, it always pains me to find that these countries – Vietnam and Thailand, to name just a couple – had started by sending their experts to be educated in the Philippines. It seems that we cannot implement among ourselves the lessons we successfully imparted to experts from elsewhere. This will have to change. We must be able to harness our homegrown talent in order to further our local industries.

When we change administrations, there must be a complete review of all the programs in the Department of Agriculture. We can do a lot for our farmers given the present budget of the Department if we eliminate the leaks and focus on the efficient use of resources. For example, we must stop eating up millions in mere administrative costs as in the case of NABCOR, which charged our government P60 million because it served as a useless conduit to regional offices. We will also support efforts such as supply chain management that minimizes losses, creates jobs, consults with stakeholders, and capitalizes on our competitive advantage.

Our core belief is that the current approach to governance and power must change. That is why our terms of reference always begin with the present government, what it has done, and how different our institutions and our nation must be six years from June 30, 2010.

In a small-scale operation it is easy for everyone involved to visualize that entity as the combination of their collective efforts. As opposed to, say, when you are a bigger firm, and there is the management side and there is the labor side. In Tagalog, it’s even more dramatic. Kayo at kami, sa halip na tayo.

We must find a unity that transcends the divisions of today, based on a shared commitment to transforming our country into one that works: One where traffic flows well, garbage is collected efficiently, crimes are solved, justice is served, and our kids are educated properly. It works in the sense that you do not have to flee the country to move up in the world, improve your lot in life, and rise to the highest level your personal merits can achieve.

We are a nation of sacrifice, of diligence, dedication and, idealism, because we are a people imbued with compassion even when we have officials who lie, cheat, and steal. Our faith teaches us that we are our brother’s keeper. Our logic should tell us that in taking care of others, their growth equals our own.

In the movie “Invictus,” Nelson Mandela says, “In order to rebuild our nation, we must exceed our own expectations.” It requires us to insist, always, that we are not a nation of crooks, of thieves, of murderers who get off scot-free and where justice is won by the highest bidder.

In May, you will be asked to make a choice. Will you choose transformation and change or will you choose to uphold the status quo?

We have already made our choice. Ours is a journey towards transformation. I ask you today to join us in this journey now.

Thank you.

[Archived from the official campaign web site of President Benigno S. “Noynoy” Aquino III]