Business World, 23 April 2013


In order to catch up with its ASEAN-5 peers, the Philippines needs to ramp up investments in public infrastructure. But catching up is extremely hard to do if the administration’s focus is on fiscal consolidation (keeping the deficit low) and if its continues to be ineffective in moving projects that have already been authorized by Congress. The much heralded public-private partnership (PPP) program has not contributed at all to the growth process; thus far, it has been a monumental failure.

The failure to allocate and implement ample resources for public infrastructure is truly disheartening. The cost of borrowing money to finance carefully chosen public infrastructure projects is at its historic low. And such opportunity may not come this way again.

The indicators of poor infrastructure are too glaring to ignore: dilapidated airports, rickety seaports, crumbling highways, outmoded sewerage systems, and sputtering power supply.

Among ASEAN-5 economies, the Philippines has the second poorest quality of overall infrastructure, according to the World Economic Forum (2013) Global Competitiveness Report. It ranked 98 among 144 economies, the second worse among ASEAN-5 countries: Malaysia (29), Thailand (49), Indonesia (92) and Vietnam (119).

On the quality of port infrastructure, the Philippines ranked 120, the worst among ASEAN-5 economies. Malaysia ranked 21, Thailand 56, Indonesia 104, and Vietnam 113. For an island republic which relies heavily on sea transportation, this state of port infrastructure is truly a national disgrace.

On the quality of air transportation, the Philippines ranked 112, again the worst among ASEAN-5 economies. Malaysia ranked 24, Thailand 33, Indonesia 89, and Vietnam 94.

On the quality of electricity supply, the Philippines ranked 98, the second worst among ASEAN-5 economies. Only Vietnam has the worst ranking at 113. Malaysia ranked 35, Thailand 44 and Indonesia 93.

In order to catch up with its ASEAN-5 neighbors, the Philippines has to spend an amount equivalent to 5% of GDP, or around 500 billion annually. The Executive Department allocates only about 2% of GDP. And what little has been allocated has not been spent fully — for three years in a row now.

The Public-Private Partnership (PPP) program has remained stuck. Only two projects have been awarded to date — the four-kilometer, four-lane Daang Hari toll road and the first phase of the School Building Program. The first has been started (29.6 % completed as of March 31, 2013) but is facing some redesign problems; the second has yet to take off the ground.

The government has to invest more in public infrastructure for the economy to grow more rapidly.

The benefits of growth have yet to be felt by the masses. Hence, the Philippine government has to invest more, open up and improve governance, according to the most recent report [IMF Country Report No. 13/102, dated April 2013) of the International Monetary Fund (IMF)].

“The benefits of faster growth have yet to be disseminated to the broader population. Unemployment and poverty remain stubbornly elevated. The long-standing problems of poor infrastructure, limited competition, and governance issues have created a climate that is not conducive to investing in productive sectors or generating well paying jobs, inducing large overseas employment and, in turn, remittance inflows and real appreciation,” said the IMF.

Unemployment and poverty incidence in the Philippines remain the highest among ASEAN-5 countries (Indonesia. Malaysia, Philippines, Thailand and Vietnam).

Among the IMF’s recommendations to make growth inclusive are: first, continuing to mobilize fiscal revenue while stabilizing the deficit at 2% of GDP would fund increased spending for inclusive growth and strengthen resilience of public finances to shocks; and second, improving the investment climate by allowing more foreign ownership, timely and transparent execution of PPPs, and adopting a continuously rolling medium-term fiscal plan would promote FDI, expand competition, relieve infrastructure bottlenecks, and catalyze private investment in productive sectors.

The Aquino administration is faced with two problems in providing essential public services: first, its limited resources and second, its ineffectiveness in project implementation.

The present tax-to-GDP ratio of around 13% has to be raised to around 17%. Such goal cannot be achieved through administrative measures alone. New and higher tax rates are needed.

Government’s effectiveness should be raised. For the third year in a row, actual public spending for public infrastructure has been below the levels approved by Congress. This can’t — and shouldn’t — go on for the rest of President Aquino’s term.

The IMF’s recommendations are formidable. Doing them requires clear thinking, open-mindedness, perseverance, and willingness to use political capital. But nothing is impossible. If the same level of effort, hard work and high degree of statesmanship that was shown in pushing through the Reproduction Health Law can be applied, there’s no reason to doubt that the recommendations will be done.

But time is running out. Mr. Aquino has only three more years to go. He should be ready to present to the new Congress that will be elected in May 2013 concrete proposals that need legislation when Congress meets in July 2013.

But for measures that do not need legislation, for example, the restoration of power in Mindanao, Mr. Aquino has to act now.