Economic take off, finally?

BSP Governor Ben Diokno was bullish but at the same time cautiously optimistic about the economy in his speech before the Manila Rotary Club last Thursday.

Our economic prospects based on the numbers look good, Diokno explained. But the China-US trade war and our propensity to shoot ourselves in the foot every time we are poised to take off are probably also at the back of his mind.

It was wise of the BSP governor to say that there are things we must do in the light of current external and internal challenges. “Keeping our house in order remains the first and best line of defense.”

The trade war, he said, has “no direct imposition against the Philippines in terms of the country’s exposure to the products imposed with tit-for-tat measures between US and China.”

But there is a flip side. The BSP governor should have acknowledged that we may not feel the potential positive effect in terms of increased investments from companies fleeing China as quickly as Vietnam would.

A report made by Nomura, the Japanese banking group, concludes the Philippines was the least likely to benefit from the United States-China trade war out of 13 Asia-Pacific economies. The boost to Philippine trade was only equivalent to 0.1 percent of GDP.

According to Nomura’s “Emerging Markets Special Report” published June 3, the economy that benefited most from the trade diversion was Vietnam with a potential boost of 7.9 percent to gross domestic product (GDP).

The Philippine Economic Zone Authority (PEZA), our leading investment promotion agency, has said the Philippines is missing out on investment opportunities. I heard a major mobile phone manufacturer considered us for a $3 billion investment but didn’t push through.

PEZA director-general Charito Plaza said she has met with about 20 firms, mostly from China, looking into transferring operations here. But uncertainties surrounding the government’s push to alter the fiscal incentives regime made them go elsewhere.

That just proves Gov. Diokno correctly warned that we have “to compete with other potential relocation sites like Vietnam and Indonesia.”

Perhaps, the first order of business for the new Duterte-controlled Congress is to remove the uncertainties by acting on the TRABAHO bill. Pass the bill as proposed by DOF or amend it but act on it. Investors just want to know under what rules they must operate.

On this point, the BSP Governor is sure government will soon be able to clear things up for investors.

“No doubt, the Duterte administration is in a strong position to push for reforms by leveraging on its strong political capital as evidenced by the number of laws enacted in less than 3 years of the current administration’s leadership.

“These include, among others, recent enactment of the tax reforms, amendments to the BSP Charter and Rice Tariffication Law. These reforms, along with the other structural reforms in the pipeline, will continue to play a significant role in propelling the economy on a path of balanced, sustainable, and inclusive growth.”

But is Duterte ready to use his political capital? He hesitated to do so over the last three years. Malaya Business Impact reports that the Senate managed to pass only 15 of the 28 measures in the priority agenda of the Legislative Executive Development Advisory Council (LEDAC) for the 17th Congress.

In the question and answer portion following his speech, the BSP Governor supported calls for increased liberalization of foreign equity participation in the economy. He is fully supportive of an early passage of the proposal to reform and update our Public Service Act.

Gov. Ben also emphasized the need to keep our focus on economic reforms to sustain the gains over the last years. In this regard, I asked him what he thought about federalism.

Gov. Ben was not ecstatic about it. Like the other economic managers, he is not convinced it is the answer to our problems. It is likely to cause greater divisiveness and divert our attention from more urgent and more doable programs. And it will significantly increase the cost of government.

In the meantime, he thinks Duterte’s political capital is better used to institutionalize the economic reforms the economic team is advocating for inclusive economic growth. I agree. They have to act quickly on fiscal and economic reforms so the benefits can be reaped in the remainder of the Duterte term.

It will help if the economic team does a better job of explaining the reform packages and why these are necessary. As it is, the technocrats are talking to themselves in technocrat language. That makes them easy targets for those who want the chaotic status quo.

As for the economic reform packages already passed by Congress, the executive branch must implement quickly. It seems the fight for reform measures ends after the President signs the bill into law.

The ease of doing business, for instance, is a nice motherhood kind of reform aspiration that is now a law. But it is still to be felt in city halls and bureaucrat offices nationwide.

As one millennial tech entrepreneur once wrote me, start-ups operate out of their homes or a coffee shop where they work on their laptops all day. Normal requirements for a Mayor’s Permit do not apply. And when start-ups fail, as a lot of them fail, it is as difficult to legally end the business as it is to start it.

Gov. Ben ended his speech by giving “the assurance that the Philippine economy is sound. It is one of the best performing economies in the world. Its prospects are bright—extremely bright.

“And if you have money to invest, this is the best time to invest, invest, invest in the Philippines. Do not delay, do not waver. Because if you do, you will regret it.”

Gov. Ben is asking for an act of faith that they will deliver as promised. We first need to see proof of life.

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