Do we have an economic game plan?

Beyond the press releases and statements of intentions, do we honestly have an economic game plan? If you ask the folks who continue to put their money on SDA accounts, I guess their answer is no. They would rather let the BSP have their money for safekeeping at an interest rate lower than inflation because something is still not right with the investment climate.

Maybe, somewhere in the mess that passes for government thinking on economic policies, there is a game plan or an idea of it. But I wouldn’t bet on it. Government agencies are acting at cross purposes and P-Noy has failed to take on the role of an orchestra conductor so what we hear will finally be music to our ears. Now it is all noise… nothing but noise.

It is amazing really. The BSP cuts the rate it pays for SDA accounts and the deposits grew from P2 trillion to almost P3 trillion now. I guess it shows folks with cash still don’t trust the economy or the government enough to invest in the equity bull market or in some venture in the real economy. They would rather let BSP keep their money and earn next to nothing while they wait for better signals to invest.

Those two investment grade ratings are like diplomas on the wall. Proud as P-Noy and his Cabinet economic cluster may be about these diplomas, real people have yet to feel the good times press releases say the upgrades herald.

Perhaps, the real test is not in convincing the credit rating agencies to give us the upgrades. It is FDI P-Noy should focus on because that’s what creates jobs and is a better measure of what a healthy economy is about. Investors, local and foreign, are looking for just about the same things.

Let me guess. They will be really impressed if P-Noy can improve coordination in policy implementation. They will also be impressed if he could get the infra agencies like DOTC working on projects on the ground and not just on their desktops.

It is nearly half time and if the bureaucrats can dribble the ball of progress for three years, what’s three more years? Before we realize it, P-Noy is preparing to evacuate Malacañang for his usual digs at Times Street.

The week I wrote a series of columns on the delayed schedule of DOTC projects, I was told the Cabinet Economic Cluster met to precisely speed up the projects. I understand the President is not happy with the prospect no major projects will be completed before his term ends.

What happened afterwards is vintage DOTC. Sec. Jun Abaya told reporters that they will meet their deadlines and P-Noy will inaugurate those projects. Words, unfortunately, are cheap.

Then there is Tourism Sec. Mon Jimenez and his target of 10 million tourists. I don’t think there is a cabinet member more fired up and more frustrated than Sec. Mon. His tourism campaign abroad is gaining traction but infra bottlenecks at home mean he can’t bring those prospective tourists here.

Sec. Mon did a great job convincing DOF Sec. Cesar Purisima and Congress to let go of a much complained about tax on foreign carriers. But guess what? The foreign carriers can’t come back anyway because flights to NAIA are curtailed… congested already. The other regional airports including the key airport in Kalibo for the premier tourist destination of Boracay are ill-equipped to handle even current flights.

Hotels aren’t just going to materialize too. Private sector must invest in building those hotels. We have promised those investors some fiscal perks under the groundbreaking Tourism Law. But implementation has gone awry.

The incentives need implementing revenue regulations, and the DOF and the BIR have not issued those regulations to this day. Investors took our government’s word for it, but now don’t know the status of our promise. Over P100 million have already been invested in the three designated Tourism Economic Zones (TEZs).  

Worse, the Board of Investments issued a rule that limits the perks for investors in Manila, Cebu and Boracay. PEZA also limited the creation of new TEZs in these same key tourism markets. This must make Sec MonJ feel like a fool representing a government that is not coordinated… says one thing and does another…

P-Noy has been getting raves for his Daang Matuwid. But like the poverty statistics that disappointed an incredulous P-Noy, the latest annual review of corruption in Asia by Political & Economic Risk Consultancy (PERC) indicates the corruption needle hardly moved.

In a report released March 20, 2013, PERC still rates us at 8.28 or the third highest after India and Indonesia. The closer the rating to 10, the more corrupt the country. We rated 8.25 in 2010; 8.90 in 2011 and 9.35 in 2012. PERC obtained the scores for this latest survey by averaging responses from at least 100 expatriate executives working in each of the countries surveyed.

“The respondents (there were 2,057 in total) were directly assessing political leaders, civil servants and key national institutions for their propensity for participating in corrupt activities. They also gave their opinions on the degree of success that different countries are having in fighting corruption, the extent that corruption hurts the overall business environment…”

P-Noy should worry that his flagship program, Daang Matuwid is in trouble. That’s probably why even if foreign analysts praise him for it, FDI is not coming in. Only short term “hot money” is cashing in on our good reviews.

Unless we do something drastic, that second upgrade from S&P is probably not going to make a difference in a way that would matter to us… While that upgrade means investors like San Miguel and Metro Pacific can borrow cheaper abroad for infra projects, government approval of their projects is taking too much time. We will likely miss a good opportunity the upgrade is giving us.

Economist and National Scientist Raul Fabella wrote about a month ago about his fear we face another episode of wasted opportunity. The Philippines, he said, is notable for wasting opportunities.

Here is how Dr Fabella puts it:

“The annals of underdevelopment are filled with chapters on failures due to wasted opportunities… in the late 1970s, the Philippines faced the opportunity of almost unlimited foreign borrowing at negative real interest rate. The authorities borrowed to the hilt among others to finance the ill-fated 11 industrial projects, mostly tradable import substitutes (cement, petrochemicals, steel, copper, etc). These didn’t stand a chance between two grindstones: the anti-Filipino strong peso policy and the additional cost of up-front payolas.

“Taiwan had at the same time a program of 10 major industrial projects, most of which were public infrastructure (highways, airports, etc) that paid for themselves and then some.

“Paul Volcker’s war on inflation sent global interest rate soaring and doomed the Philippine’ major projects to sudden demise. The resulting debt overhang was the millstone that mocked the Cory Aquino economic recovery. Unable to show convincing economic dividends from restored democracy, it became hostage to the misguided ambitions of the Enrile-Honasan clique.

“In the 1990s, at the height of excitement over the Ramos capital account liberalization and deregulation, foreign resources were once more knocking at the door.

“But the tsunami was dominated by portfolio investment which cared little for good roads, the price of power and stable regulatory environment. They instead cared for and helped along price bubbles in the stock and real estate markets…

“Foreign direct investment (FDI), by contrast, kept well clear, frightened by the strength of the peso, the grossly inferior regulatory and physical infrastructure.

“To confound matters, the 1990 Supreme Court decision on the ‘Garcia versus DTI’ case cynically wrested the location decision of a petrochemical project from investors who promptly packed their bags.”

Honestly, nothing much has really changed. Even the Supreme Court and the court system in general are driving investors away, e.g. the PLDT ruling. The foreign chambers of commerce tried to help by working on a detailed Arangkada plan but the progress had been slow and painful.

The National Competitiveness Council, where private and public sectors work, have been trying to make our country attractive to investors. But the NCC isn’t getting much support from the country’s leadership. One initiative to make NAIA 1 better was quickly rejected.

The challenge for P-Noy after the election is to show potential investors he has an economic game plan. He got them all excited with the PPP during the first months after his election only for the program to fizzle out. It will take more to excite investors this time around. Let us not miss this opportunity again.

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Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco