Investors looking for credible gov't

Philip Medalla, former NEDA chief and current UP economics professor, wrote something incredible in reacting to something posted on the e-group of the Foundation for Economic Freedom (FEF). More than 40 years ago, Philip recalled, World Bank economists picked the Philippines and Burma as the two Asian economies that were most likely to succeed.

Wow!!! I think that’s absolutely surreal. Goes to show how clueless World Bank economists can be. I guess the economists simply took note of the natural resources of both countries and took it for granted that both would be blessed by great leaders or even just good leaders whose good governance will bring forth prosperity upon the two countries.

But in fairness to us, I don’t think we have ever been as bad as Burma. I have been to Burma some years ago and I got the impression of a country suspended in time… like the black and white pictures I have seen of Manila in the early 50s… recovering from the ravages of WWII. The Philippines showed more progress 40 years ago than the Burma I saw 10 years ago.

How could the World Bank economists have missed the role of good governance in economic development? That’s our problem today. The economy is getting nowhere fast… or in any case, not growing fast enough to take a bite out of poverty. All our neighbors, with the exception of Burma, have overtaken us or threatening to overtake us.

We have lost almost a decade under Ate Glue. And if we do not elect the right person to replace her next year, one who is highly credible to everyone including the business community, the only country we will be competing with in the next few years would be Burma and possibly Laos. Even Cambodia will leave us eating their dust.

Just the other day, Business World reported that we do not have enough domestic savings in RP to support investments. The Philippines, it was reported, recorded a larger savings-investment gap of $873 million in 2008 — the widest in four years — against $749 million the year before. Without domestic savings, the economy continues its reliance on borrowings to finance investments.

The report confirmed that the Philippines is indeed a laggard among Southeast Asian economies in terms of mobilizing domestic resources to fund capital spending. That’s probably understandable given our level of poverty.

Data from the Asian Development Bank, show the Philippines’ investments of $5.79 billion in 2008 outpaced savings which reached only $4.91 billion. The country’s savings rate has remained locked within a 14.5-percent to 16-percent range in the last seven years. Simply put, our level of savings cannot cope with the investment requirements needed to sustain economic growth.

The Philippines was one of only two Southeast Asian countries last year — the other being Vietnam — where savings were smaller than investments. But in the case of Vietnam, the gap was compensated by a heavy inflow of foreign investments.

Singapore has had the best ratio since at least 2004, with its savings last year outpacing investments by $31.33 billion. Indonesia came in second with $23.35 billion worth of excess savings, followed by Thailand and Malaysia with $21.16 billion and $20.80 billion, respectively.

Because we don’t or can’t save enough, even government is heavily reliant on foreign borrowings to finance infrastructure that are necessary to spur economic growth. It wouldn’t hurt as much if like Vietnam, we are attractive to foreign investors. But we aren’t.

We have, to our credit, done a number of things to improve our investment attractiveness. We have pass laws improving regulatory framework to make sure that savings intermediation will be done efficiently. This includes the passage of Pre-Need Code; amendments to the Insurance Code; [as well as] building a stronger central bank with a credible leadership and a new Securities Code administered by relatively credible bureaucrats in the Securities and Exchange Commission.

But we simply do not have a credible administration. Because of that, even locals with money to invest (like the taipans) are taking their capital to invest abroad, mostly in China. I think we can have a turnaround in our fortunes if we elect the right leader next year, one who is credible to the people and to the investors.

Right now, we are off the radars of potential investors. They are waiting in the sidelines to see how we vote. If we vote right, we should be able to leave Burma and Laos to share the distinction of being Asean’s basket cases.

Subsidy for the rich

Among Ate Glue’s advisers, it seems only Gov. Joey Salceda deserves our respect. He does not leave his brain nor his principles at the door of Malacañang when he provides counsel to Ate Glue. Gov Joey is so unlike some people we know who sacrifice both when they defend some Palace positions that they know are indefensible. Joey tells Ate Glue what she must hear, not what she wants to hear.

Maybe it is because Joey has not yet been to Harvard. He points out his MBA is from a local institution, Asian Institute of Management and not Harvard Business School, the alma mater of a high profile Palace economist often quoted in media. Joey postponed a stint in Harvard scheduled for this year because he could not leave his constituents in Albay in the midst of reconstruction efforts after typhoons and threats of volcanic eruptions in the province. Today under Joey’s leadership, Albay is probably one of the best prepared provinces for natural calamities.

Joey is not afraid to give contrary views in an Ate Glue Cabinet that is full of sycophants who are all afraid to lose their positions of influence. When Joey offered a contrary view on the oil price freeze EO, he blasted the excuse of Palace officials that the EO was designed to help the poor.

Contrary to the common notion, Joey observed, the oil price freeze disproportionately benefits the wealthy families of Forbes, Magallanes and Urdaneta over the welfare of and at the expense of the informal settlers in Tondo, Payatas and Lupang Arenda. Joey used his training in economics to prove his point.

“Using the 2006 (latest) Family Income and Expenditure Survey (FIES), 82 percent of the savings on fuel, light and water arising from the oil price freeze and a monstrous 90 percent of the savings on transportation and communications are being savored by the rich (those earning over P100,000 per year) who hardly needs the assistance of the government for relief from the adverse effects of Pepeng, Ondoy, Ramil, Santi and Tino.

“Aggravating the impact on the income distribution are the tax losses of the oil price freeze due to lower prices (12- percent RVAT) and losses of oil companies (30-percent income tax). In the case of Petron alone, with 30-percent market share, its projected loss of P1.5 billion in the fourth quarter of 2009 from an income of P1.25 billion suggests income tax fallout of P1.2 billion!

“Easily, we reckon foregone taxes of at least P4.5 billion from the oil price cap. And given the expenditure incidence of the national government budget, this would be borne essentially by poor households by way of lower cash flows that could have been earmarked for conditional cash transfers, health programs and scholarships.

“Banner programs of PGMA during the oil crisis and the rice price crisis have already proven to work well and accomplish better the intended benefits of EO 839 while avoiding the costs of short-term supply disruptions and long term distortions on resource allocation. These are (a) diesel discounts targeted to transportation sector enough to keep fares at pre-crisis levels. This would be cheaper for oil firms shoulder, (b) discounted fuel access cards for lower-to-middle income class families very much like the NFA access cards administered by the DSWD which the government could also ask the oil firms to underwrite and (c) income transfers to poor families very much like the P500 electricity vouchers.

“The image of the DSWD distributing fuel discount cards to squatters in Payatas who obviously own no cars or the idea of welfare officers dispensing NFA rice access cards to investment bankers in Makati should disturb the nation about the unpleasant realities of EO 839.” 

Why can’t some people in the Palace who we would normally expect to take a well thought out and principled stand on an important issue be like Gov Joey? Sayang lang their Harvard and free market credentials. Nakakahiya.

Bad economy

How bad is the economy, really?

The economy is so bad that African television stations are showing “Sponsor an American Child” commercials!

The economy is so bad, mothers in Ethiopia are telling their children, “Finish your meal! Don’t you know there are starving children in the US?”

The economy is so bad, Angelina Jolie adopted a child from America.

Boo Chanco’s e-mail address is [email protected]. This and some past columns can also be viewed at www.boochanco.com