Is P-Noy's Proposed Infrastructure Fund the Way to Go?
The government urges creation of an infrastructure fund to help fund Public-Private Partnerships. Sec Purisima says ““We’re solid in our belief that we need to invite investors to our country. Investors need a fair return as payment for their capital and the risk they’re taking. We need to make sure that we simplify the processes.” One step in this direction, according to Purisima, was the initiative of the Department of Trade and Industry to streamline the approvals process for foreign investments and to cut red tape.
As pointed out by the Inquirer article – “The idea of a Philippine infrastructure fund is not a new one, with previous administrations having tried to drum up support for private-sector funded projects through the state-owned National Development Corp.
Is this the right direction to go?
The latest incarnation of this idea proposed by the Arroyo administration as recently as last year was the allocation of P50 billion for the NDC, which would be used as seed money for big-ticket infrastructure projects. Under this scheme, the cash would be raised by selling bonds to the public. Purisima acknowledged that the funding requirement for President Aquino’s infrastructure program would be nothing short of massive.
What is wrong with this picture?
A couple of things.
#1 – The need to invite investors. Sec Purisima says “We’re solid in our belief that we need to invite investors to our country”. If we are indeed solid in this belief, given that the Philippines has reputation as being among the most restrictive in Foreign Investments, prudence dictates that we address the issues which give us such reputation – “overly restrictive and obsolete laws are an impediment to foreign direct investment and their poor implementation creates additional costs to investment”.
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.- 1987 Philippine Constitution, Article 12
So how do you exactly invite investors when the Philippine constitution is very restrictive? You go out on a selling mission – only to turn back investors because of equity limitations? It does not make sense.
Which reminds me of the recent SONA – invite foreign dignitaries, Noy speaks in Tagalog and expect consuls and ambassadors to bring their own language translators because Aquino does not want to speak English. Remind me of the times when the Aquino supporters were mocking Erap for speaking Tagalog.
#2 – Fair Return on Capital. It is true that Investors need a fair return as payment for their capital and the risk they’re taking. Investors also want a modicum of control to ensure that their investments don’t end up in a government pork barrel somewhere, or the fat paycheck of an inconsequential and incompetent government bureaucrat. Or that their local partner with 60% has colluded with the Philippine government to rip off the foreign partners. Then there’s also the longer view – what are the prospects for getting good returns given a non-performing Philippine economy. There are many variables to consider.
#3 – Process Improvement. Process improvement is but one component. One step in this direction, according to Purisima, was the initiative of the Department of Trade and Industry to streamline the approvals process for foreign investments and to cut red tape.
The bigger component to attracting foreign investment is still one that involves equity and property ownership. Why will an investor put major money if he does not have major control? You can have a streamlined process but when the constitution RESTRICTS FDI – there’s not much to process, really.
Is there a better way?
The SONA’s reference to inefficiencies in water, rice, electricity, calamity funds and transportation with reference to the Metro Rail Transit are inefficient is not because of foreign competition or due to foreign investors but due to the lack of it.
Our utilities are inefficient because we took the protectionism route, embedded it in our constitution, thereby missing out on the efficiencies that come with competition. It ensured that our industries never got to grow up – perpetual cottage industries that failed to launch. Much like a person who is chronologically old but with the emotional and mental age of a six year old.
This shows a complete failure of the Aquino administration to see the evils of protectionism – and its presence in the 1987 Philippine Constitution.
But what do you expect? President Noynoy Aquino is a tool of the Filipino monopoloy businesses/oligarchs (MERALCO, MWSS, MAYNILAD, PLDT, FIRSTGEN, FPHC, FPIC, ABS-CBN, SMART, GLOBE, PAL) is just too real. In the recent electric rate increase, Aquino was reduced to being an apologist for the inefficiencies of an ownership structure that protects vested FILIPINO monopoly business interests.
Kung anong puno, siyang bunga.
A toast to the Philippine Idiocracy
Barely 3 days after the May 10 elections, The Economist wrote:
He has served in both houses of Congress, but has a lacklustre record there.
Mr Aquino will face problems familiar to his predecessors: how to spur an economy that lags behind most of South-East Asia; widespread, entrenched poverty; a high birth-rate; reform of an over-prescriptive constitution; communist and Muslim separatist insurgencies; and home-grown terrorism linked to al-Qaeda.
He will need the co-operation of a new congress, also elected on May 10th. It was not immediately clear how well Mr Aquino’s Liberal Party and its allies had fared. But parties often count for little—for the most part congressmen align themselves with the main source of political patronage, ie, the president. This kind of political opportunism and the tradition that new presidents return the favours done by power brokers during their election campaigns mean Mr Aquino will need all his mother’s fortitude to resist the blandishments of those around him.
Another misgiving about the incoming president is that, like Mrs Arroyo (the daughter of an ex-president), he comes from one of the handful of families that have dominated Philippine politics and the economy for generations. His mother is remembered for restoring democracy But she failed to entrench stability or prosperity. During her presidency the economy boomed but then sagged, and she had to fend off several military-coup attempts. And she allowed the dominant families to regain the political and economic clout usurped by Marcos and his cronies.
So here we are again – using the same protectionist optimization tactics when the root of the problem is the protectionism embedded in the Philippine constitution itself. This is the same protectionist constitution that ensures the Philippines gets the crumbs in FDI.
Same old solutions, Same old results
We have been protectionist since Day One of the 1987 Philippine Constitution. Don’t expect free market efficiencies from an inefficient protectionist environment. You can blog to death what a jerk I am, but will that really bring down the cost of utilities, will that really lead to more economic freedom?
You asked to be put on a cliff, you asked to be cheered because you are on the cliff, you asked to be supported as you go throw your bare self down the cliff.
I could have told you not to jump from the cliff – but then I would be an obstruction to your happiness.
So, when your body goes splat as it hits the ground – I will be cheering too.
You all asked for it, you got it – SIX LONG YEARS OF AQUINO – minimal infrastructure, high utility rates, lack of economic choices,
The Pope, Jesus Christ, Mary, Joseph, Saint Jude and the entire pantheon of Catholic Saints ain’t gonna save your ass.
My country, I grieve for what you have done unto yourself.