The private sector’s united economic message to the President

The Philippine Business Groups (PBG), including members of the Joint Foreign Chambers, sent a united message to President Aquino to recommend an economic focus to his program of government for the second half of his term. The message conveys their effort to share in the President’s “vision of inclusive growth through job generation, poverty reduction, and global competitiveness.”

“For accelerating achievement of inclusive growth.” The message points out the golden opportunity to institutionalize the efforts as the ASEAN Economic Community (AEC) comes into being and the Philippines is hosting of the APEC Summit in 2015.

The PBG signatories include the Makati Business Club, Employers Confederation of the Philippines, Philippine Chamber of Commerce and Industry, Philippine Exporters Confederation, Alyansa Agrikultura, Management Association of the Philippines, and the Foreign Chambers of Commerce representing investors from the US, Japan, Europe, Korea, Canada, and the multinational association of Multinational regional company headquarters.

The letter to the President emphasizes a few issues to focus on. Each of these organizations list their specific approaches and concerns separately in their attachments but they summarize in their letter recommendations on the issues that they have in common:

• Acceleration of transportation infrastructure projects (included here are the PPP pipeline and other strategic transport projects, including three that are key to debottlenecking the country’s main international gateways, the port of Manila and connecting NLEX and SLEX).

• Enacting an effective anti-trust law and competition policy (to create a level playing field, encourage more productive investments, and aligning with the impending ASEAN integration).

• Address the smuggling problem effectively (their solution: overhaul the Bureau of Customs and create an oversight body with private sector representation; and to fulfil international commitment to the convention on simplification and harmonization of customs procedures).

• Rationalization of existing incentive giving laws (to include administrative reforms to simplify procedures, delineate functions and responsibilities and establish effective coordination and monitoring of investment projects).

• Retention of Philippine Mining Act complemented by internationally competitive fiscal regime (to include conformity of local ordinances to national policies as well as respect of vested rights).

• Implementation of investments in additional power capacity in the country (to bring down the cost of power and also to provide a favorable investment climate for energy investors).

• Amending the economic provisions of the 1987 Constitution (pending such amendment, revise the Foreign Investment Negative List by reducing the list of industries where FDI is limited).

• Instituting reforms that address issues of competence and efficiency in the justice system (by internal reforms that provide training and capacity building as well as proper compensation to public employees in the judicial system).

This is probably one of the few occasions when all the main chambers contribute to send a single message to bring out their concerns. A concerted message provides great drama and hopefully much greater impact to secure attention. By coming together, they make emphatic and urgent the need to address their common concerns.

“Scope for direct executive action.” These private sector recommendations can be dealt with at two levels. Most of them involve simply government executive action. No new laws need be passed, only firm government commitments and implementation of what are doable.

In fact, there is a lot of scope for executive action on the problems enumerated. Effective and timely solutions to these problems could be undertaken through executive, regulatory or administrative decisions to solve them.

Processing of contract procedures, speeding up right of way problems through the smart use of the power of eminent domain, and increasing the number of qualified contractors are matters for executive and administrative decisions. Let it be further said that the number of PPP contractors can be widened with improving the conditions by which foreign contractors can participate in large infrastructure projects.

Dealing with the smuggling problem is fundamentally an implementation problem for the government. And so is the problem of coordinating the various regulatory agencies in dealing with fiscal incentives.

Sometimes, the bottlenecks and issues come out of the processes of government that take a lot of time to vet and to implement. This is an area where true leadership is at stake. Expeditious outcomes often require good designs and close monitoring of progress during implementation.

“Leadership efforts when legislative actions are needed.” In all these areas, leadership is required so that the independent branches of government move in the desired directions.

Two major priorities discussed in the common concerns of the private sector letter come to mind: the restrictive economic provisions of the Constitution on foreign capital and the need to enact an anti-trust law that would help promote greater competition. A third item also requires corresponding legislation: those dealing with rationalizing fiscal incentives.

“The restrictive provisions of the Constitution on foreign capital.” This is the principal stumbling block toward getting good and competitive inflows of foreign direct investments into the country compared with other high growth economies in the Asian region.

The main point about a lot of desirable FDIs is that they choose us. We don’t necessarily choose them. They choose us according to our strength as an investment site and what we can offer to them compared to what other countries can offer them. We should make it easy for them to want to choose us and not put the impediments that make us into a turn off when it comes to choosing us.

Dealing with this issue properly will help improve competition in the domestic and regional market for Philippine products. It will help to deepen investments in critical areas of the economy. It will help to strengthen the country’s economic choices and opportunities over a wide range of economic activities – in industry, agriculture, natural resources, infrastructure, services, and in public utilities.

Among recent Philippine presidents, President Aquino probably would be the most effective to deal with this reform because of his popularity. It is unfortunate that he is the principal roadblock to its adoption as a measure. Other political leaders in Congress and the Senate have expressed support for these amendments.

Narrowing down the Negative List for FDI is a useful but an inferior solution to the problem of FDI attraction. This policy relies on the power of fiat to deny or to permit and is subject to easy political and other manipulation. Of course, it would partially address some areas of participation by foreign capital but it has limited impact on FDI attraction policy compared to an amendment of the restrictive provisions. (To be continued)

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