Aquinomics

A year into the administration of Benigno Simeon Aquino III, “Aquinomics” is the buzzword of his economic team.

At the heart of this, Finance Secretary Cesar Purisima told us the other night, is that “good governance is good economics.”

The focus is not so much on the amount of government resources but how it is deployed, or “how we are able to squeeze out more” from what’s available, Purisima said.

This means, among other things, better tax collection rather than new taxes. It also means, according to Customs Commissioner Angelito Alvarez, “making smuggling an unprofitable business and a shameful crime.”

Aquinomics aims to create an environment that will give the private sector confidence to put in their money, generate jobs, accelerate economic growth and sustain it, Purisima explained.

At the start of the Aquino administration, Purisima and his team visited The STAR to explain the financial goals and strategies of the new government.

The other night they returned to The STAR for a chat on what has been achieved and what’s in store.

They are heartened by bullishness in the stock market, and the fact that within a year, the country has received credit upgrades from international rating agencies, with the best assessment putting the country just a notch below investment grade. The last time the country had such a positive assessment was at the start of the administration of Gloria Macapagal-Arroyo, in the heady days after EDSA II.

How to sustain that positive outlook this time and achieve sustainable growth are among the challenges that Aquinomics seeks to address.

* * *

Aquinomics has four pillars. One is fiscal sustainability and macroeconomic stability. In this Purisima says the country is on track, with reserves at historic highs and borrowing costs down, a balance of payments surplus, moderate inflation, and deficit targets within range.

The second pillar is the private-public partnership or PPP program. This has stalled a bit, with seven instead of 10 projects scheduled for bidding within the year. But Purisima said “we’re resisting the temptation to rush into half-baked projects.”

A third pillar is ease in doing business, for both local and foreign investors. Last week, for example, the Securities and Exchange Commission signed an agreement with the Land Bank of the Philippines, allowing the bank’s branches nationwide to accept incorporation papers. The SEC and Department of Trade and Industry will soon be combining their data.

The fourth pillar is investment in people – giving Filipinos health care, education and the skills necessary to become “productive participants in the economy,” Purisima said.

All the pillars are anchored on good governance. Corruption led to wastage in the past, Purisima said. “Now, even if we’re deploying less, we’re accomplishing more.” What is saved can be spent on improving infrastructure and basis services such as education and health care.

“If we are blessed,” Purisima told us, the country will get investment grade within two years, but “definitely” within P-Noy’s term.

In the next five years, the President wants to nurture industries where the country has a competitive advantage. These are tourism, business process outsourcing and electronics. The administration wants to position the country as a northern and Pacific gateway to the Association of Southeast Asian Nations.

The President also wants to grow agro industries and improve access to micro finance and markets. He is set to formally appoint an adviser for micro financing for the rural poor: Aris Alip, founder and managing director of CARD or the Center for Agriculture and Rural Development Mutually Reinforcing Institutions.

The President also wants to create “an entrepreneurial environment” with a middle chain that adds value. For example, Tony Meloto of Gawad Kalinga, in tandem with the Philippine Chamber of Commerce and Industry, launched a project three weeks ago in Angat, Bulacan. Meloto wants to create “an army of middle entrepreneurs” who can go to farmers, create a brand for their products and market the items.

“If we succeed here, I think it will have the greatest impact on poverty,” Purisima said.

The government wants projects that link agribusiness with tourism: spas built on plantations, for example, with tours organized around them.

“The important thing that the President is trying to do is set the right foundation,” Purisima said.

* * *

With the focus on deployment of resources, the burden is on the Customs and revenue chiefs to collect sufficient resources, with income tax considered as “one big hole.”

The finance team has consulted the Professional Regulation Commission to estimate how many professionals and self-employed individuals are evading proper tax payment.

Purisima, Alvarez and Revenue Commissioner Kim Henares crunched numbers in front of us. The World Bank estimates that there’s still about four percent out there in uncollected revenue. Assuming an economy of over P8 trillion, four percent means P320 billion in revenue that can be collected.

“That’s if we have Scandinavian standards of (tax) compliance,” Purisima said with a chuckle. “Realistically, we should aim for half of that. That’s P160 billion. That’s still a lot.”

P-Noy has been criticized for lacking vision. Purisima counters that “it’s 99 percent execution.”

“The challenge to vision is really about execution,” Purisima told us. “The key really is strategy more than vision.”

That’s Aquinomics for you. You’ll hear more of it in the coming days.