February 20, 2022 | 9:11 pm
In a two-part column last year, “The First 365
days” (https://www.bworldonline.com/the-first-365-days-2/),
I wrote a wish list for the first year of the
next administration, a collective work of a handful of economist and subject
matter expert friends from the Foundation for Economic Freedom, the Management
Association of the Philippines (MAP), the Makati Business Club, the Philippine
Disaster Resiliency Foundation.
Last week, I had
the privilege of moderating a MAP forum on the Philippine economic outlook,
featuring three most knowledgeable and articulate economists — current
Socioeconomic Planning Secretary Karl Chua, professor and former Socioeconomic
Planning Secretary Ciel Habito, and World Bank Senior Economist Rong Qian.
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There was good
alignment in their basic analyses and thrusts, and richness in their
recommendations. As I concluded in the forum, “I so hope national candidates
and/or their teams were tuned in.” Here is the video recording for the benefit
of readers, maybe including some candidates: https://youtu.be/XB0LoxxOu4E.
What struck me most
is how much we are in agreement on “what not to do,” and that surfaced sharply
especially during the open forum. I summarize: “Don’t reverse reforms that have
been done over successive regimes that strengthened Philippine macro stability
and resilience, and improved productivity and global competitiveness, and
helped contain inflation by opening up the economy.”
This is important
to keep in mind as politicians are under pressure to promise the moon during
the campaign period, and worry about delivery later on. Many may know the adage
that “one should never hold to their word three kinds of people: those who are
drunk, those who are proposing marriage, and those running for public office.”
However, with the prevalence of recording and social media, candidates may have
boxed themselves into having to do shortsighted populist measures, despite
being inimical to long-term broad public interests.
What are these past reforms that need
preserving?
1) Tax Reform for
Acceleration and Inclusion (TRAIN) Law, Corporate Recovery and Tax Incentives
for Enterprises (CREATE) Law, and other tax reform measures over several
administrations that have made the tax system more buoyant, equitable, and
investment-friendly. These have provided us the fiscal space to manage the
pandemic, as the pre-COVID public debt-to-GDP ratio was brought down over time
to a record low of 40% in 2019. Today it is now up to 60%, on account of much
needed COVID-related spending, the lower tax revenues that raised the public
debt numerator, and the contraction in GDP that accompanied restricted mobility
over two years that depressed the GDP denominator.
Candidates have been promising
suspending one tax or another, generous fiscal incentives for one deserving
sector or another. And yes, side by side with massive spending programs — from
free houses for all to legislated minimum wages that are multiple the current
levels. Clearly a recipe for fiscal disaster and a
debt crisis.
What is needed instead is what Dr.
Qian said during the forum:
“To regain policy space, the
government will need to start a gradual, fiscal consolidation
process, the pace of fiscal consolidation needs to be studied. Too fast
consolidation might slow down growth, which will be counterproductive to reduce
debt-to-GDP ratio. Too slow, it will dampen confidence in government’s
commitment to consolidate, while the higher interest payment will prevent
productive investment.
On the revenue side, the government can
introduce new taxes, increase existing taxes, and expand tax collection. As for
spending, the government could spend less in areas that produce fewer jobs so
it could spend more in areas that do, such as education. The government could
also spend better by trying to use fewer resources to get the same outcome.
Finding the right mix to achieve the
inclusive growth agenda needs to be a priority for the next government.”
2) Rice
Tariffication Law and other liberalization in imports of food (pork, chicken, fish)
that have helped contain inflation especially in the past two years. More
fundamentally — as well discussed in the columns of Dr. Ciel Habito, University
of the Philippines Economics Professor Ramon Clarete, and Agriculture
Undersecretary Dr. Fermin Adriano — this milestone reform will improve the
nutrition of the poorest quarter of our people (addressing physical and mental
stunting), prevent the past fiscal wastes, leakages and rent seeking of the
National Food Authority and its patrons, redirect public spending and implicit
subsidies towards more productivity-enhancing activities, esp. within the
agriculture sector.
This will also enable us to be more
wage competitive, since our high cost of food is pushing up wages — a drag on
investments and job creation economy-wide.
Finance Secretary Carlos G. Dominguez
III and the whole economic team working with reform minded legislators deserve
our gratitude and congratulations for this difficult milestone reform — started
over three decades ago — that rent seekers are now actively lobbying to
reverse; and at least one national candidate has embraced harking back to a
flawed reading of economic history, so-called rice self sufficiency in the
’70s. (See, for example, the column of Dr. Clarete: https://www.bworldonline.com/rtl-can-modernize-the-countrys-rice-industry-and-lock-in-rice-security/ )
3) Opening up the
economy to more FDI (foreign direct investment). Credit again to the economic
team and progressive legislators for bringing to the finish line three
investment liberalization laws for economic recovery. More FDIs will mean more
jobs, increased competition to bring down prices and improve productivity.
These have just hurdled both houses of Congress and are awaiting the
President’s signature.
a) amendment of the
Public Service Act — opens up to 100% foreign investors such essential infra as
shipping, telcos, rail, ports, transportation, digital services, etc.
b) amendment of the Retail Trade
Liberalization Act — that lowers the minimum capital investment by foreign
investors.
c) amendment of the Foreign
Investment Act — excluding the “practice of professions” from the coverage of
the law and reducing the number of required direct local hires of foreign
investments in small and medium enterprises from 50 to 15.
d) The Regional
Comprehensive Economic Partnership (RCEP), negotiated by Trade Secretary Mon
Lopez, signed by Pres. Duterte, and now awaiting ratification by the Senate —
As I wrote in a column a year ago: “… RCEP with the lower tax regime under
CREATE along with proposed amendments to the Public Services Act (PSA), the
Foreign Investments Act (FIA), and the Retail Trade Liberalization Act (RTA)
strung together would send a powerful signal of the Philippine’s readiness to
welcome foreign capital to help with post-pandemic recovery, offering a light
at the end of the current gloomy tunnel.” (https://www.bworldonline.com/legislation-in-aid-of-investments-jobs-recovery/)
4) Energy sector reforms
a) Oil deregulation done during the
Ramos Administration. Christine Tang and I wrote a case study on this for the
World Bank Growth Commission chaired by Nobel Laureate Michael Spence (https://openknowledge.worldbank.org/handle/10986/28020).
We concluded in 2008, a time when oil
prices were surging like we are again seeing today.
“… The benefits of
oil deregulation became evident during the most recent run-up in world oil
prices. The full pass-through of world oil price increases to domestic oil
prices helped to shield the fiscal sector from the burden of providing oil
subsidies at a time when government finances were most fragile. Other benefits
have included (i) increased competition in the industry with the entry of new
players; (ii) less politicization of oil pricing; (iii) proper market response
to high oil prices, including conservation and the search for substitutes like
biofuels; and (iv) clean and good restrooms at service stations all over the
country as a byproduct of introducing competition in the industry, helping
support tourism.”
b) Electric Power
Industry Reform Act (EPIRA) — there have been noises about government getting
back into power generation, to address the high cost and possible shortage of
power. This will be a big mistake. As I have written in the past, the way
forward is to fully and properly implement EPIRA. (See https://www.fef.org.ph/opinion/the-way-forward-for-the-power-industry/,
and https://www.bworldonline.com/power-regulation-in-the-dark/)
My appeal to the next administration:
preserve our gains; build on what has been built by past administrations, that
have, until COVID came along, propelled our economy to a higher and more
inclusive growth path. Primum non nocere, “first,
do no harm.”
Former Pres. Gloria
Arroyo in her 2002 State of the Nation Address paid homage to Dr. Jose Rizal
and her father who captured poetically what is the job of a President:
“Jose Rizal wrote: ‘A life not
dedicated to a great ideal is useless; a mere pebble in the field that forms no
part of an edifice.’”
Diosdado Macapagal
touched on this theme as he assumed the mantle of national leadership 40 years
ago: “No President can build the whole edifice of a nation. All that he is
called upon to do is add a fine stone to that edifice, so that those who shall
come after him may add other fine stones that will go for a strong and enduring
structure.”
Romeo L. Bernardo was finance
undersecretary during the Cory Aquino and Fidel Ramos Administrations. He is a
trustee/director of the Foundation for Economic Freedom, Management Association
of the Philippines, and FINEX Foundation.
romeo.lopez.bernardo@gmail.com
