Crumbling

Early this week, MRT operations were again interrupted, not by the usual mechanical breakdown, but by the attempt of a suicidal person to use the tracks to end his life.

How poetic. The emblem of our nation’s crumbling infrastructure is now the favored site for suicides.

Government, this week, approved a score of infra projects — finally. The projects come late into the current presidential term. After four years of utter diffidence towards our yawning infra gap, the administration is rushing monuments to itself.

The comparison with the Cory presidency is compelling. In the last two years of her administration, government launched into a mad frenzy of construction. The metropolis was in virtual shutdown as flyovers and tunnels were built simultaneously by an administration anxious to leave behind some sort of legacy besides the coups and the brownouts.

In the last four years, only one traffic-relieving project was inaugurated: the minor underpass at the junction of Quezon and Araneta avenues started by the previous administration.

Meanwhile, the infra gap continued to yawn. The Port of Manila is maddeningly congested. With no new road space, vehicular movement in the metropolis has slowed to a crawl. Key provincial ports have not been upgraded. Our dams are in peril of bursting. Our airport is the worst in the world. The rail links to the north and the south of the metropolis are in limbo.

Next year, we will surely face power shortages. Nothing could be done anymore to avert that. The time for applying solutions was four years ago.

Add to that the obsolescence of our transmission system. Renewable energy could not be encouraged because small producers cannot sell back to the grid.

Should the drought be serious next year, we could face fresh water shortages in the city. As in all the other infra concerns, no new fresh water source has been developed.

The current estimate for economic losses due to traffic gridlock alone is $2.7 million per day. That translates into billions of pesos each year — good money that might have otherwise been used investing in greater inefficiency.

This week, logistics companies warned there could be serious shortages by the onset of the holiday season. Not only are goods trapped in the port, erratic policies are now preventing trucks from moving in the streets. Hundreds of millions worth of perishables will perish.

The infrastructure gap is not some abstract engineering calculation. It is a problem that impacts on the quality of life of all citizens.

The basic reason for why government exists is for an agency to take a longer view of things. Government must anticipate the needs of a growing economy and provide for them. The core of that response is the provision of public goods through economic investments in infra.

Now that the port is congested and traffic hardly moves, those in charge of providing the public goods sheepishly attempt to cover up their neglect by saying these things happen because the economy is growing. It has been their duty to provide for that growth.

The scale of the infra gap can only be described as criminal negligence perpetrated by a bankrupt political class more absorbed in mudslinging and factional maneuvering than in providing effective governance.

Bonds

People are wondering why DOTC Secretary Joseph Abaya seems so obsessed with buying back the dilapidated MRT instead of using whatever funds might be available to buy more trains and improve the tracks.

After all, the two government banks, LBP and DBP now own the bulk of the bonds issued by MRTC based on the guaranteed 15% annual return on the investment. Because the government banks control over 80% of the MRT bonds, they also control the MRTC board.

The bulk of the P53.9 billion Abaya imagines he already has for the equity value buyout of the MRT will in fact be paid to the two government banks. DBP and LBP went on a program of buying up MRT bonds from the international market in 2008 to corner, on behalf of government, the huge 15% guaranteed return that might otherwise go to the global investment houses and vulture funds. In today’s low-interest financial market, no one issues bonds with that high rate of return.

If government controls the board of the MRTC anyway, thanks to the two government banks, what urgency is there to buy out the bonds?

The short answer to that is: pressure from the BSP for the two banks to dispose of their bond holdings. The BSP generally frowns on the government banks holding on to bonds and stocks for too long. This is to diminish the temptation for the policy banks to simply sit on high-yield stocks and bonds rather than fulfill their developmental banking roles.

Too, it is not in the core competence of the LBP and the DBP to run a commuter rail line. They should be using their funds for supporting enterprises that drive inclusive economic growth.

To be sure, the two banks make handsome profit from holding on to the MRT bonds. Half the profit reverts back to the National Treasury by way of annual dividend. Over a third of what is left is clawed back by the BIR by way of corporate taxes. The effective public payout to service the bonds is about less than a third of the 15% contractual obligation.

For the DBP, in particular, income from the MRT bonds masks the otherwise lackluster bank earnings posted by the present management. By buying out the bonds entirely, DOTC corners all of the 15% return. That, not service upgrade, is the deal here.