Deregulation, not higher taxes, to spur faster growth

Deregulation will spur faster growth than raising taxes, a prominent US-based businessman said yesterday, adding that the country's difficulty in attracting investments was a promotion problem more than anything else.

Speaking before the Makati Business Club, American International Group (AIG) chairman and chief executive officer Maurice Greenberg said that when government has a budget deficit, liberalizing the economy is far better than increasing the tax burden.

"The more you liberate the economy, the faster it will grow," Greenberg said. He warned that excessive regulation would have a more disruptive impact, especially when trying to protect small market economies from speculation. "Fixing foreign exchange rates, for example, would not work."

"People will invest in a country that shows it moving closer to a market economy." Greenberg noted that the Philippines was the least affected by the Asian crisis and had the resources and vitality to compete. "It should do better than it currently does," he added.

According to Greenberg, the country's difficulty in attracting investments was a problem of promotion. "You need to do a better job at promoting yourselves than you have done in the past," he said.

Greenberg said trade missions abroad should go as far as taking legislators to expose them to the business community. "They should see that their inaction on reforms pending in Congress has a strong impact on investors," he explained.

Greenberg said the Philippines is in a position to take advantage of the recovery of the Asian economy although it should watch for critical factors that could derail the regional recovery.

The US trade deficit, Greenberg said, has reached unsustainable levels and could trigger a round of interest rate hikes which would have an adverse impact on Asian economies.

Greenberg said the Japanese economy also remains sluggish and the ascension of China into the World Trade Organization (WTO), likewise, bears watching since it would have an impact on world trade.

"China has 1.3 billion people, how do you keep a country like that out of the WTO?," Greenberg asked. "There should be no problem with getting China into the WTO but there will be problems if we exclude China from world trade."

While keeping a tight watch on global developments, Greenberg said the Philippines should continue implementing the reforms it had set out to undertake. "I hope that this will happen because there is nothing that will stop the Philippines from being the fastest growing member of the region," he said.