EDITORIAL - Risky business

While President Arroyo is pitching the Philippines to investors in the United States, the Asian Development Bank has come out with a study showing that the risks of doing business in the Philippines are increasing.

In the study, the ADB noted that while the government boasted of a 191 percent increase in foreign direct investments in the first half of 2005 compared to the previous year, the amount was miniscule compared to FDI in other developing countries in the region. The ADB also observed that FDI levels in the Philippines have not recovered since the Asian financial crisis in 1997.

The reasons cited by the ADB in its study are known to all. Investors have been turned off by the influence exerted by vested interests in the judiciary and legislature, and the failure of the government to guarantee a level playing field for free market competition. Investors are worried about systemic corruption, the huge fiscal deficit and the high costs of power and labor in this country, the ADB added.

"Disputes concerning private contracts in power, water and airport sectors have highlighted the weakness of the legal and regulatory framework, the limited recourse available to resolve disputes, and the high level of political intervention in the commercial sector," the bank said.

The increasing risks of doing business in the Philippines are driving investors to other destinations in Asia, the ADB said. The bank, however, said that while the problems are daunting, the Philippines could still hurdle the challenges "with sustained political commitment."

There, of course, lies the problem. Many of the "vested interests" that influence the courts and Congress are so deeply entrenched in the political system that they can survive every change of administration, ensuring that they will continue wielding influence in economic decision-making. Their influence has slowed down efforts to strengthen the regulatory environment.

The problems enumerated in the ADB study have been known to every administration since 1986. Efforts to address the problems have always been stymied by a culture resistant to change and the lack of political will.