Business World, 28 January 2013


2012 should go down in Philippine history as a magical year. In the first semester, PNoy wagered his whole presidency on the removal of Chief Justice of the Supreme Court and beating the odds, won. A move of sheer genius on hindsight, it was a neophytic suntok sa buwan ex-ante. The battle royale of 2012 would not have happened had trad-pol calculus been employed. His two appointments to the Supreme Court — like the impeachment project — itself displayed a healthy scorn for flawed tradition and meant to ensure matuwid na daan’s footprint beyond 2016. But there was more.

In the second half of the year, the administration pushed the Sin Tax Bill over the ramparts defended by the powerful cigarette industry lobby considered impregnable by previous presidents. Then it saw the passage into law of the RH Bill over the apoplectic objection of the Catholic Church. The latter had stymied its progress under three seasoned previous presidents. 2012 was markedly consonant with a country extricating itself out of, rather than wallowing in, dysfunction. The political center — once a hapless pawn of large business and/or religious-vested interests — had finally shown some mettle. Tectonic is an apt description.

Other news helped stoke the excitement. The third-quarter growth of 7% and a 6.55% growth for the year, while Vietnam, India and Indonesia are facing some difficult headwinds, were fetching. The stock market reached new heights before the close of the year. For once, the usual dose of tragic “acts of God” could not bottle the unusual run of good governance and economic news. The world is taking favorable notice and an investment grade rating is probable.

It is refreshing, and for a minute we are entitled to a lusty lungful. But a year — however kissed by fortune — does not make an era. And we need at least an era of persistent good news to bend the arc of our history. Only at five-year sustained 6% will growth become inclusive and labor-absorbing. Our history says that wasted opportunities are second nature to us. The big question then: Will we fritter away the promise of 2012?

We have, in the past, witnessed episodes of great promise turned into muck by our visceral inability to handle favorable times. In the mid-1990s, the hopeful sapling nurtured with courageous policy reforms by the Ramos administration also attracted favorable global notice. But it was the carpetbaggers (nee portfolio investors) who flocked to make a killing on very high domestic interest rates and open capital account. Direct foreign investors were, contrariwise, held back by the regulatory maze, the high power cost and the appreciation of the peso. Like the Olsonian roving bandits, carpetbaggers thrive on such frailties. And the Central Bank (BSP) — playing the grateful host — rewarded carpetbaggers with peso appreciation and encouraging domestic private banks and corporations to join the feeding frenzy by borrowing dollars abroad. They borrowed and how and for two years we partied. They promptly created asset bubbles in the equity and real estate markets, birthing illusory prosperity before leaving the killing fields. This decision by the BSP to tango with portfolio reaped a firestorm in 1998. Thus was neutered Ramos’s recovery.

2013 has the hallmarks of the mid-’90s. The good news and talk of an impending investment grade credit upgrade are again attracting the wrong crowd. The Foreign Direct Investment (FDI) flow has hardly budged. As a proportion of GDP, observed Reuters (Dec. 18, 2012), “The Philippines’ net FDI stood at 0.6% last year, compared with 2.2% in Indonesia and 6.2% in Vietnam.” While the FDI flow is stuck at about $1.5 billion for 2012, portfolio flows have already totalled $3.8 billion. The Philippine peso has been allowed to appreciate 7% since end of 2011 and the PSI index has risen a record 33% in 2012. The high return on offer in the Central Bank’s Special Deposit Account, though recently reduced to 3%, is still too tempting for portfolio managers. Carpetbaggers are again massing at the gate. The authorities seem oblivious to the dangers. Stock market booms in our history have been auguries of doom. Like cocaine, they can induce an addictive temporary escape from present reality.

The impressive economic growth of 2012 has marked signs of weakness. It is largely consumption-led at a time when its main anchor, OFW remittance, is fraying. Our physical infrastructure remains a spectacle designed (carefully as it were) to scare tourists and potential investors. Government infrastructure outlay remains dismal at 2.3% of GDP; the standard in East Asia is 8%. Our comfortable fiscal position and our BOP surplus that inspire favorable comments are still partly paid for by short- changing our future: our investment rate is stuck at 20% versus 35% among our neighbors. Our power reserve is thin; if we grow 6% three years running, we’d run into a power crisis. And yet no appreciable greenfield investment in power generation is being done, which speaks of the regulatory regime in power made murky by EPIRA. The recent rapid — and the talk of more — appreciation of the peso keeps investment in tradable sectors at bay. The reasons why FDIs aren’t flocking are obvious.

In the 1990s, we allowed carpetbaggers to chart our destiny. Instead of leveraging the good news to seed the future, we decided to tango with portfolio. The cocaine high was short-lived and the crash was crushing and protracted. Today, given our comfortable GIR position, we can choose to rebuff carpetbagging investors. The BSP is smarter and is pushing back. But, as Sen. Edgardo Angara recently asked, is it doing enough? Will our future be once more neutered? In the spirit of Andy Grove — the Intel guru — in 2013, we cannot have too much paranoia.