GMA vows to stamp out graft, revive economy

President Arroyo pledged yesterday to stamp out graft and revive the economy during her last 18 months in office, but analysts said putting the policies into practice will be a tough task.

Mrs. Arroyo said she would cut business costs, spend money on transportation networks and boost key sectors such as power and mining.

The President made the statement as she also signed into law two critical measures: Republic Act 9183 or the Special Purpose Asset Vehicle (SPAV) bill, designed to help banks get rid of bad loans, and RA 9184 or the Government Procurement Reform Act (E-Procurement Act), which aims to boost efficiency and tackle graft in public sector purchasing.

Mrs. Arroyo signed both measures at the Philippine Stock Exchange (PSE) trading floor yesterday while pledging to introduce reforms in the energy and trade sectors and solve the government’s budget crisis.

The historic signing ceremony, held for the first time outside the walls of Malacañang, took place at center stage of the trading hall of the PSE building in Makati City before the start of trading.

The market cheered the enactment of the two laws, with the key stock exchange index rising 2.22 percent or 22.99 points to close at an eight-week high of 1,058.30 points.

"The SPAV (law) seeks to save the banking sector from the financial fallout of lending decisions that went sour after the Asian crisis (in 1997-98)," Mrs. Arroyo said.

The banking sector is weighed down by more than P300 billion in bad loans and more than P200 billion in repossessed assets.

"The SPAV should bring in new money to revive bad loans, find new uses for foreclosed assets, rehabilitate failed businesses and open wide the lending windows again," Mrs. Arroyo said.

Many foreign and local banks have said they are ready to sign agreements with asset-management companies (AMCs) which will acquire the bad loans and assets.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura told reporters the law could help reduce the non-performing assets of the banking system by as much as P200 billion.

He expressed hopes that asset transfers would take place within six months of the expected implementation of the law by April.

The BSP said the banking system’s non-performing loan (NPL) ratio stood at 16.36 percent at the end of October.

Speaker Jose de Venecia said the two measures signed into law by Mrs. Arroyo represent the two most important reform bills from Congress aimed at rejuvenating the economy and reducing corruption in government procurement.

As principal author of the two measures, De Venecia explained the SPAV would catalyze the inflow of up to $5 billion in equity investments from foreign institutions to turn the economy around and solve almost P600 billion of the country’s non-performing loans that have stunted borrowing.

He said the E-Procurement Act underlines transparency in the bidding of public contracts which could save the government P30 billion lost annually to corruption.

Malacañang explained the law was enacted for three reasons, primarily because the budgetary situation leaves very little room for government buyout while the opportunity cost of foregone taxes and fees is considered minimal as not many asset sales are taking place anyway without incentives.

Secondly, the banking system is largely owned by the private sector.

Malacañang also pointed out that the magnitude of non-performing assets is relatively smaller and the degree of provisioning is also substantial enough for banks to resolve their own problems with limited assistance.

Mrs. Arroyo has promised to devote her final months in office to economic and political reforms after deciding last month not to contest the May 2004 presidential election.

"By 2004, I want to see a revitalized economy that adequately serves the needs of our people, creates even more jobs and raises people’s income levels," she said in a speech. "Our focus must be on pro-active microeconomic and structural reforms."

Mrs. Arroyo also announced yesterday that other crucial reforms were forthcoming, including a "master plan" for the power sector, which she promised would end power outages in the central Philippines.

She also said that laws would be enacted soon to eliminate the growing budget deficit.

Attacking what she called "unfair trade," Mrs. Arroyo said she would slow down tariff liberalization to the very minimum required by the World Trade Organization (WTO) and ASEAN Free Trade Area (AFTA).

Manila would take "full advantage for all exemption windows allowed," particularly for the petrochemical industry, Mrs. Arroyo said.

She remarked that "unbridled globalization is no longer in vogue."

Mrs. Arroyo, who says she is not running in next year’s election to give her full attention to the economy, has enjoyed a period of benign inflation and growing exports since she took office from her deposed predecessor Joseph Estrada in January 2001.

But the economy faces problems in other areas, with foreign investors rattled by three budget deficit blowouts last year, weak tax collection, pervasive corruption and security concerns.

Overcoming barriers

Adam Le Mesurier, a regional economist with Goldman Sachs in Singapore, said Mrs. Arroyo’s intentions were positive but the markets wanted her to deliver by overcoming institutional barriers.

As a practical example, he suggested Mrs. Arroyo should follow up an International Monetary Fund (IMF) recommendation that the tax agency be restructured, starting with a personnel overhaul.

"She’s laid out a new agenda — as she laid out an old agenda — and it’s going to be an issue of execution," Le Mesurier said. "Can the country do it?"

Mrs. Arroyo, reprising tough talk on graft and tax evasion, said her reforms required the cooperation of all Filipinos and that members of her Cabinet must follow her lead or step down.

"There can be no trust when businessmen are not afraid to void contracts because they can buy judges and republic officials are not afraid to extort from businessmen," she said. "The only way to foster trust is to punish its betrayers."

The "with me or against me" approach may strengthen Mrs. Arroyo’s call for cooperation but she risks polarizing powerful people and lobby groups intent on protecting their interests.

"The shift in focus to economy from politics is important," said Makati Business Club executive director Guillermo Luz. "It’s not fair to ask ‘Can the president do it?’ What should be asked is ‘Can the country do it?’ This is a collective effort."

Mrs. Arroyo called on Congress to push for other key reforms to trim the bulging deficit, such as inflation-linked taxes on cigarettes and alcohol that would bring in an extra P40 billion in revenues each year.

She also detailed rail and road infrastructure projects that would help bring down shipping costs and promised to introduce major steps to revive the mining sector.

"I will soon unveil a master plan for the power sector that will cure the brownouts that we are now beginning to experience in Panay and prevent the brownouts that threaten to darken our country by the year 2005," she said.

David Cohen, regional director of macroeconomic analysis at MMS International, said building road and railway networks was fine but question marks about financing hung over the policy.

"The infrastructure projects would potentially be helpful to economic growth but the market would be focused intently on how the government would raise revenues for such projects," he said.

"There is no magic wand that she could wave to bring down the budget deficit overnight. That clearly is the primary concern in the market." — Paolo Romero, AFP