Pandora’s hope

Executive Summary

The Philippine economy withstood a Delta-driven surge in Q3 and is set to end the year on a high note. We forecast GDP growth at 5.5% this year and next, bringing domestic output to pre-pandemic levels only by late 2022. This outlook is based on two critical assumptions: (1) existing vaccines work against Omicron, the latest “variant of concern,” in preventing severe illness; and (2) national and local elections slated for May 2022 are conducted credibly and the results conclusive.

Even against this backdrop, the year ahead will be quite challenging, having to contend with all the ills that followed covid19 out of Pandora’s box. The virus itself has yet to fade away, various government restrictions are still in place, and the vaccination drive, currently covering less than half of the population (two doses), still has a long way to go. The usual election jitters are heightened by political polarization following the entry of Ferdinand Marcos, Jr., the former dictator’s son, in the presidential race. On the economic front, inflation and debt worries are top on mind, with expected tighter financial conditions globally limiting the maneuvering room for monetary and fiscal authorities and generally raising risks for emerging markets. Too, the US-China trade and technology conflict is lingering, creating additional uncertainties for trade and investments. In this environment, it is the paranoid’s instinct to expect the worst.

We are rather clinging to the hope that the midyear political turnover will give rise to good and effective leadership under which there will be macroeconomic policy continuity and micro/ meso level reforms to treat the pandemic’s scars and get the economy back to its pre-pandemic growth path.

The rest of the report dives into what we think would lend credibility to any forthcoming fiscal consolidation program as well as election prospects in a time of covid.

Scenarios: A challenging year ahead

 

Despite a disappointing start and the unfortunate turn of events at mid-year, the economy seems set to end on a high note. Q3 GDP outperformance amidst the spread of the delta variant has raised hopes that immunization, now expanding to cover children and to provide booster shots for vulnerable sectors, would finally bring more normalcy to people’s social and economic life. Although renewed optimism and the beginnings of election campaign enthusiasm could impel consumer spending in the short-term, how far can these drive economic expansion in 2022?

Scanning the environment, downside risks are still easy to spot. Foremost is the risk of more covid19 waves driven by new strains that cause breakthrough infections. Unclear also is how long it will take to untangle current global supply bottlenecks, which is threatening to unhinge inflation expectations, as well as the impact of the green transition on already elevated commodity prices. Too, tighter financial conditions as interest rates rise expose emerging market sovereigns and corporates that have seen debt levels rise sharply during the pandemic to default risk, especially if sentiments turn.  Domestically, the usual jitters associated with the conduct of presidential elections easily come to mind which this time may be exacerbated by increased political polarization due to the candidacy of the late dictator’s son, Ferdinand Marcos, Jr.

Our central scenario is based on credible election process and outcomes. In this case, we forecast GDP growth at 5.5% this year and next, bringing domestic output to pre-pandemic levels only by late 2022 and still far short of its pre-pandemic path. Given almost 100% vaccination coverage in economic heavyweight Metro Manila, also the entry point of infections, we expect the health system will be better able to cope with surges, assuming that there will be no letup in administering booster shots and expanding vaccination coverage to the rest of the country. In this environment, we anticipate sustained growth in business process outsourcing, digital transformation, and resilience of remittances to support the economy’s recovery.

Despite this and the momentum going into 2022, we expect the unevenness in growth across income groups and industries reflecting firm and labor market scarring to continue and weigh on activity further out. There will also be more uncertainty about sources of growth as poll-related spending disappear by midyear and focus shift to questions of policy continuity under the new administration.  Our outlook also factors in less fiscal impulse from government deficit spending and the start of monetary tightening later in the year.

Overall, the mood locally is still one of watchfulness with health concerns and election-related uncertainties top of mind, and with ongoing shifts in technology and supply chains as well as climate change and unresolved US-China tensions complicating investment calculations. Heretofore potential upsides from easing of travel restrictions and allowing of face-to-face classes in schools are threatened by the emergence of Omicron, another “variant of concern”.

TABLE 1.

Forecast Summary (Base Case)

		GlobalSource Dec (Aug)		Consensus Dec (Aug)
	Unit	2021	2022	2021	2022
GDP annual change	%	5.5 (3.5)	5.5 (6.5)	4.4 (4.7)	6.8 (7.0)
CPI inflation (annual ave)	%	4.3 (4.1)	3.5 (3.2)	4.3 (4.1)	3.2 (3.0)
Policy rate (eop)	%	2.00	2.25 (2.0)	2.00	2.20 (2.25)
Exchange rate (eop)	PhP/USD	51.26 (51.35)	52.72 (52.26)	50.6 (49.7)	50.6 (49.7)
Fiscal balance/GDP	Unit	-8.8 (-9.0)	-7.6 (-7.5)	-8.4 (-8.1)	-6.9 (-6.5)
Current account/GDP	Unit	0.2 (0.7)	-0.8 (-1.2)	0.4 (0.8)	-0.5 (-0.2)
International reserves	USD bn	110.4 (109.3)	110.1 (103.0)	109.5 (110.6)	113.7 (114.0)
External debt/GDP	%	25.7 (26.8)	26.1 (26.2)	25.9 (25.4)	24.8 (23.7)

Notes: Numbers in parentheses are previous authors’ and Consensus forecasts (none if unchanged).

Source: Authors’ forecasts, FocusEconomics Consensus Economics Forecast Asia.

 

Activity: What are the sources of growth?

Despite a weak Q1 and stretches of stringent mobility restrictions to control covid19 infections in Q2 and Q3, GDP growth averaged 4.9% during the period as government ramp up its vaccination program. Private consumption turned in a surprisingly strong performance in 3Q with expenditures rising not just for essential items but various discretionary goods and services as well. Investment growth kept ahead of GDP growth due in large part to expansions in public infrastructure as well as improving spending on road transport, telecommunications, agricultural and other miscellaneous durable equipment. Imports rose with recovering domestic demand, offsetting the gains in exports from higher external demand for both goods and services. Overall, economic growth thus far continued to be government-led.

Our view

The momentum from GDP outperformance in Q2 is likely to continue considering the widening immunization coverage, including booster shots, and the start of election campaign season.  We had previously upgraded our GDP growth forecast to 5.5% this year, which we expect can be sustained through 2022. Although the level of economic output should return to pre-pandemic levels before the end of 2022, we expect the momentum to fade especially after the elections, leaving a large gap vs. the pre-pandemic path.

In the near-term, the loss of momentum is due to the following:

1.     On the public sector side, although fiscal policy will still be expansionary, the smaller budget deficit in 2022 translates into a negative fiscal impulse, per the IMF.[1]  Moreover, we think the odds of underspending higher next year because of: (a) lack of absorptive capacity in many local governments to spend their larger slice of national taxes (equivalent to about 1% of GDP); and (b) a possible slowdown in disbursements under a new administration still learning the ropes.  The latter may be somewhat mitigated by frontloading planned infrastructure to start early in the year, which will also help avoid the election ban. Beyond the learning curve, the next administration would also have to operate under tighter medium-term fiscal constraints.

2. On the part of households, there may be considerable pent-up spending needs given that expenditures on “discretionary” goods and services are still far below 2019 levels. But the strength of this recovery depends jointly on incomes and government mandates, which in turn depend on the still unpredictable evolution of covid19. To the extent that infections are kept under control, current efforts to resume face-to-face classes as well as restart tourism could help keep consumption growth robust in the near-term, especially with election-related transfers and remittances helping to support incomes. However, given the prolonged shock to jobs (including overseas

      deployment), incomes (effective wage cuts due less hours worked) and savings,[1] as well as the still high un- and under- employment (22% of labor force vs 17% pre-pandemic), binding income constraints among the disproportionately more numerous lower classes will become more evident post-elections. Current outsized consumption growth can thus be expected to shrink.

4.       On the part of firms, fixed investments as a share of GDP in the first three quarters was about 5ppt below the 2019 investment ratio.  So far, new investments in durable equipment are still quite selective, e.g., in growing sectors (telecommunications, BPOs), in specific sectors with policy support (e.g., agricultural machinery in line with the Rice Tariffication Law) or perhaps out of sheer necessity (cars). In terms of construction, building activities of corporations are only about half of the pre-pandemic level. Although there may be some catchup in investments (e.g., in power sector), we think  the general mood will remain cautious given uncertainties related to: (a) whether another lockdown will accompany new waves of infections, (b) the credibility of the election process and outcomes as well as policy directions of the next government, (c) resolution of supply chain disruptions that have led to rising raw material costs, (d) increased hurdle rates due to rising global interest rates and higher public debt burdens, as well as (e) other more specific investment climate risks such as the adequacy and cost of power supply and other infrastructure constraints.

4.     On the external front, economic and financial conditions have become less favorable with world economic growth, already uneven to start with, beginning to slow down, particularly in China. Interest rates are also starting to rise, with inflation in advanced economies more persistent than anticipated and global commodity prices remaining high. With elevated debt levels everywhere, the combination of slower growth and higher interest rates can be expected to increase financial market volatility and risk aversion towards emerging markets in general.

With higher immunity from vaccination and natural infections, more stable supply of vaccines, availability of new treatment drugs and improved lockdown protocols, we think the risks on the health front more evenly distributed going forward. However, with the emergence of Omicron, a potential gamechanger globally, we assess the downside risk of another wave of infections in the short-term greater than potential upsides from further easing of restrictions and improving confidence. Health issues aside, risks on the whole are still tilted towards the downside given election-related uncertainties, reduced macro policy space and tighter global financial conditions.

___________________________________________________________

Box 1:  Power sector risks

Businesses have been keeping close track of recent developments in the power sector due to their impacts on the cost of electric power and the prospect of shortages in the near to medium-term. The issues may be summarized as follows:

In the decade leading up to 2020, power demand in the country has grown faster than supply (based on dependable capacity) (4% vs. 3.4%).[1]  Demand this year is almost back to pre-pandemic levels and is projected to grow 4-6% annually over the medium-term. The lockdowns meanwhile have delayed the commissioning of new power plants.  Although data from the Department of Energy show that over 8,300 MW of various types of power projects all over the country will come online through 2027,[1] many of these are encountering delays.[2]

At the country level, the 23,410 MW dependable capacity in 2020 was well over the pre-pandemic peak demand of around 15,578 MW. However, this does not give the true supply-demand picture. The power network is made up of three grids – Luzon, Visayas and Mindanao, not all interconnected. Luzon is the largest of the three grids, comprising about 70% of the pre-pandemic peak demand and has dependable capacity of over 16k MW in 2020. Despite the pandemic, peak demand in Luzon has increased to over 15k MW this year. Luzon is connected to the Visayas grid and can thus draw from any excess supply there (Visayas has 3,369 MW of dependable capacity) but it is not connected to the Mindanao grid (4,031 MW). 

Projects to interconnect the three grids as well as investments in other transmission lines to be able to dispatch “stranded” generation capacity have been delayed considerably.[3]

Even though supply in the Luzon grid exceeds demand on paper, the grid’s reliability periodically comes under threat especially during the summer months when demand peaks just as water supply for hydro plants drops. The continuing threat of brownouts as demand picks up over the medium-term may be inferred from the following:

Old plants that are prone to breakdowns. Apart from the age of the plants (over 70% of at least 16 years old), there are plants nearing the end of their BOT contracts that may no longer be well maintained and would require more investments to modernize.[4]  The power shortage in July this year, which saw Luzon’s registered capacity drop by over 6,500 MW,[5]  serves as an example of possible power loss from unplanned and concurrent plant outages.

Uncertainties regarding remaining Malampaya gas supply and the fate of five natural gas power plants with combined capacity of over 3,400 MW, equivalent to over a fourth of the grid’s generation mix.  The expected expiry of the service contract and the gas supply agreements to the power plants in 2024[6] has been compounded by the early exit of the owners, Chevron last year and Shell Philippines (SPEX) by yearend, who sold their 90% stake in the joint venture company to local conglomerate Udenna Corporation. The entire transaction, including Udenna’s technical and financial qualifications as well as the Energy Department’s approval of the sale to Chevron and pending review of the SPEX deal, has come under the scrutiny of the Senate Energy Committee and is the subject of a complaint before the Ombudsman.   The controversy has not only raised questions about possible gaps in operational expertise in the short-term but prospects for continuing extraction beyond 2024 and new gas drillings needed for the country’s energy security.

Inadequate incentives for new investments in power plants designed to meet peak demand due to regulatory issues on (i) contracting “firm” ancillary services and (ii) price caps in the wholesale electricity spot market (WESM).

The price of electricity in the country, already one of the highest in the region,[7] will be under more pressure from: 

The occasionally price spikes at the WESM due to supply-demand imbalances resulting from 1-3 above.

The partial or complete pass through of elevated global energy prices including for crude oil and coal.  Prices of crude oil have risen about 50% since the start of the year to over $80/bbl in October while those of coal have more than doubled to over $200/mt.   The Philippine power sector relies importantly on coal (57% of generation mix in 2020) as well as oil (2.4%) and natural gas (19%), the latter also pegged to oil prices.[1]

What all the global climate change initiatives mean for an emerging economy like the Philippines.  At its stage of development, it is unclear how it will be able to balance the needs of energy security (investments in close to 70k MW of additional capacity in the power sector in the next 20 years) and calls for decarbonization.[2]

Prices, Interest Rates and Exchange Rates: Bracing for tighter global financial conditions

The headline inflation rate remained outside the BSP’s 2-4% target range in Q3 but has slowly decelerated from a high of 4.9% in August to 4.6% by October. About 60% of inflation so far this year can be explained by rapid increases in food and energy-related prices, with disinflation in recent months due to offsetting prices of food (lower) and oil (higher). Because of the supply side origins of domestic inflation and fragility of output growth, monetary authorities have maintained relaxed policies, promising to keep its key policy rate at 2%.

Although the short end of the yield curve reflects the loose policy settings and excess monies in the system (close to P2 trillion are parked in BSP liquidity management facilities as lending growth has been weak), yields further out have risen markedly, by over 80bp between September and November in the case of 10Y yields. This has led to the steepening domestic yield curve, likely reflecting growing worries about the persistence of global inflation, particularly for commodity prices and shipping, and its pass-through to local inflation as domestic demand strengthens.  A similar upward shift of longer-term yields may be observed in the U.S., although the rise in interest rate differentials may signal weaker exchange rate expectations. The peso has weakened in the three months to October due to double-digit import growth.

Our view

 

In contrast to the U.S., we think the slack in local labor markets and absence of wage pressures will continue to limit second round effects. Significant negative base effects through the start of next year will also see the headline rate returning within the BSP’s target band before the end of the year, helping to manage inflation expectations. However, economists everywhere are still split over how long supply dislocations will persist as economies recover asynchronously from the pandemic. Given still elevated world food and fuel prices as well as logistics costs and reports from manufacturers of much higher raw material costs and shrinking profit margins, inflation worries are likely to linger.

 

For now, monetary authorities have said that the risks of tightening too soon exceed those of tightening too late. We expect this growth bias to last well into the latter half of 2022 with any sooner-than-expected US Fed policy rate hike[1] adding to expectations of a matching local rate hike. Comparing progress in economic recovery and health management at this time, we do not think that the BSP needs to follow the U.S. lockstep, especially since the economy’s two growth engines, remittances and BPOs exports, will benefit from a weaker peso. However, depending on local growth outcomes and global financial market conditions at that future point, the BSP may also decide to take pre-emptive action and avoid what financial markets seem to fear, i.e., belated, aggressive policy rate hikes.

The Public sector: Much work, limited space

The national government’s primary balance, i.e., revenues minus non-interest expenditures, reached a deficit of P800 billion in the first three quarters of the year, over 40% higher than the comparative figure last year. From a pre-pandemic deficit of 1.5% of GDP, the primary deficit rose to 5.5% last year and is on its way to exceed 6% this year. The primary deficit is the largest contributor to the increase in government’s debt, which totaled P11.9 trillion (61% of GDP) as of September, up from P7.7 trillion (40% of GDP) at the end of 2019.

Economic managers have in place a medium-term fiscal program that by our estimate, aims to more than halve the primary deficit by 2024 in order to return the debt ratio to a downward path.[1]  Whether the next administration will buy into this program is unknown at this point.  However, despite current noisy campaign promises to cut taxes and provide more stimulus, government’s large annual financing needs going forward (about 12% of GDP annually) can be expected to compel the next finance secretary to put forward a fiscal consolidation plan that will satisfy credit raters and help manage borrowing costs.

 

Our view

 

More than the pace of deficit reduction, we think creditors will primarily scrutinize any fiscal consolidation program for its credibility.  The first test will be the reputation of the next President’s economic team, particularly the person of the finance secretary and relationship with the President.

Then, the plan’s feasibility will be judged by the team’s demonstrated ability to carry out near-term deliverables, constrained by a hand-me-down budget and the policy choices made by the current administration.   An important example of the latter given the lingering pandemic is ensuring that local government units (LGUs) are able to perform the additional functions transferred to them in line with the Mandanas ruling where they will have a one-year windfall in 2022 (increased revenue allocations based on 2019 national taxes, equivalent to 1% of GDP).[2]  Likewise, given the value to long-term economic growth of keeping infrastructure spending at 5% of GDP, clearing bottlenecks that have stalled the private sector’s participation in public-private partnership (PPP) projects would be a way to help ease government’s budget constraint.

A third test would be policy continuity in the sense of building upon the work done under the current administration, including work on the remaining areas of tax reform to broaden the tax base and simplify taxation, digitalization of government to fit it for the post-covid world, ability to deliver on long-delayed roll-out of the national ID, as well as pending economic liberalization bills to attract investments[3] and get GDP back to its pre-covid potential growth rate of 6-7%.[4]

Here, we are reminded that when the outsider Rodrigo Duterte won the presidency in May 2016, it only took a press conference led by his close friend, Carlos Dominguez, presenting the President-elect’s 8-point economic agenda, to calm the business community.

 

External sector: Still good

Exports and imports of goods are back to their pre-pandemic levels with both growing at double digits in the first three quarters of the year.  Import growth (30% yoy) outpaced export growth (18%), bringing the trade-in-goods gap to $29 billion compared with $18 billion last year and $30.5 billion in 2019.   Although the rise in imports was partly due to higher oil and coal prices, most of it reflects demand increases in specific sectors, e.g., construction-related raw materials, inputs for electronics exports, chemicals including for medicines, capital goods in telecommunications, as well as durable (particularly cars) and non-durable (food) consumer goods.  Meanwhile, about 60% of export growth can be traced to the electronics sector which has benefited from the strong recovery in global demand.

The sizable increase in the trade deficit has led the BSP to reduce substantially its forecast of this year’s current account surplus, from $10 billion to $3.5 billion, and to change the 2022 forecast from a $6.7 billion surplus to a $1.4 billion deficit.  It continues to expect overall BOP surpluses for both years, anticipating continuing net public sector borrowing[1] and net inflows of direct and portfolio investments.

Our view

 

Overall, we expect a wider current account deficit next year that will result in a deficit in the balance of payments.  With continuing difficulties in passing key reforms to liberalize the foreign investment environment[1], we are also not as confident as the BSP that foreign direct investments will be on an upward trend given the more competitive environment for FDIs and more restrictive Philippine rules for foreign participation in local industries.[2]  However, the external balance sheet will still be quite healthy. The gross international reserves will still be hefty, about $109 billion based on our estimate, exceeding our forecast stock of external debt and providing ample cover for short-term debt maturities.

 

Politics: Elections in a time of covid

 

By law, Philippine elections are held on the second Monday of May, every six years for national elective positions and every three years for local positions. The contest next year is scheduled on May 9, 2022, a day when over 60 million registered voters all over the country are expected to make the trip to polling stations to elect the next president and independently, the vice-president as well 12 senators (half of membership) and local government leaders (from congressional representatives to city/municipal councilors). 

For those who fret about no-election (or “no-el”) scenarios, the fact that the country has found itself in the last two Mays in the middle of covid19 surges and under lockdown presents a distressing prospect: that with the emergence of a new covid19 variant, the administration may have legitimate cover for postponing the elections indefinitely.  There is precedence for this around the world since February 2020, from general to local elections as well as constitutional and other referendums.[3]  In the Philippines, a local plebiscite in Palawan originally scheduled in May 2020 was postponed and held 10 months later in March 2021.

But even if health conditions permit and elections were to proceed in May 2022, the other worry we hear is low voter turnout, seen in 65% of the worldwide cases where elections were held despite covid19.[4]  Voters may either choose not to vote for fear of getting infected, more probable among the older cohort, or find it difficult to get to precincts if mobility restrictions are in place, e.g., capacity limits in public transportation.  The fear is that in a tight race, a particularly low voter turnout vs. historical experience[5] could raise questions of legitimacy and affect the winning candidate’s ability to govern. 

 

Our view

 

Given the unknown characteristics of Omicron, we cannot fully discount a scenario where the elections need to be postponed.  A June Pulse Asia survey[1] showed that 46% of Filipinos will skip the vote if covid19 cases are high, although increased vaccination since then may have lessened the fear.[2]  However, barring a serious surge that will significantly reduce voter turnout, we are not very concerned at this time about the risk. 

Our main consideration is that the latest opinion poll shows one candidate, the former dictator’s son Ferdinand Marcos, Jr. (“BBM”), with an overwhelming lead over the others, with a score that is almost at par with the combined voter shares of the other five contenders.[3]  Moreover, major political players, including two past presidents, have coalesced around his candidacy, with the withdrawal of Senator Christopher Go from the presidential derby signaling that President Duterte himself may be prepared to back BBM.  The conditions for this may include retention of some of the President’s cabinet members to ensure continuity of his administration’s programs and projects, protection from international charges related to his drug war, and support for a bid to be senator, possibly senate president. As to the disqualification cases against BBM, our best guess based on its past postures is that the Comelec will simply allow him to run and let the people decide, an outcome that is highly likely if he has the President’s support considering all Comelec commissioners will be his appointees by February.

Two questions remain. First, can the opposition finally unite behind a single candidate to pose a credible challenge against BBM? Despite early attempts at this under the 1Sambayan banner, there is little indication that this is gelling.

Second, would a BBM presidency be crippling for the economy? Considering past disruptions that came with changes in administration, we see much value to policy continuity, particularly at this time with major challenges in the public finance front. However, we are aware that there are a lot concerns among the business establishment who fear the continuing chipping away of the rule of law and further erosion of democratic institutions, harking back to his father’s martial law rule.  We can expect investors, especially foreign ones, to “wait and see” who will be in his cabinet, what his early economic policies will be, and if he will be true to his “unifying leadership” pledge.

Elections are still six months away and as noted in our last report, in the last five presidential races, the early frontrunners, more often than not, have been unable to sustain their leads. This election has sprung so many surprises this early and considering the continuing uncertainties from the pandemic and an unpredictable president who holds sway over Comelec and the Supreme court, it would be quite rash to conclude that the game is over.

The first 365 days

 

December 19, 2021 | 10:20 pm

Introspective By Romeo L. Bernardo

 (Part 2)

As an input to the programs of the national candidates and their teams, a few economists and subject matter expert friends in the Foundation for Economic Freedom, the Management Association of the Philippines, the Makati Business Club, the Philippine Disaster Resiliency Foundation, and I developed a 10-point wish list for the first 365 days of the new administration. I am pleased to share this with readers, abbreviated a bit to fit column space.

 (Points one to four of the 10-point wish list were tackled in Part 1 which can be found here: https://www.bworldonline.com/the-first-365-days/.)

 

5. ADDRESS THE COUNTRY’S ENERGY SECURITY

Address the country’s future Energy Security situation to ensure continued access to cleaner forms of energy, future exploration of offshore resources which do not place the country at political or national security risk, and the provision of affordable secure energy and power.

a. Background: Malampaya currently serves around 30% of Luzon’s power demand, however, the indigenous gas field has already exhibited resource decline beginning in 2021. With the expectation that the resource is good for another five to seven years, there is an urgent need to develop the “next Malampaya” to ensure the country’s energy security.

b. It is critical to secure private sector investment developing all forms of energy investments, with government guaranteeing a fair, transparent, and consistent selection process for granting service contracts. It is likewise critical to address geopolitical issues (i.e. enforcement of The Hague ruling) and firmly establish fiscal terms (i.e. review of PD 87) in seeking to expand oil and gas exploration in the West Philippine Sea.

c. Create a dynamic LNG (liquified natural gas) economy by investing in enabling infrastructure through PPP (private public partnerships).

d. Scale up renewables by setting aspirational goals. Enforce the upgrade of the national grid network through a thorough implementation of the transmission development plan and ensuring accountability.

e. Aggressively encourage greater electrification in the transportation sector by introducing better incentives for public utility and private electric vehicles, including incentivizing or supporting the construction of needed infrastructure (e.g. charging stations).

6. UPHOLD THE RULE OF LAW

Uphold the rule of law through increased transparency in government, successful prosecution of erring individuals, and restore and strengthen faith in our institutions.

a. Ensure the proper implementation of the intent and letter of Executive Order No. 2, s. 2016, which operationalizes the Constitutional provisions on the Filipino’s right to information, at least for the Executive Branch.

b. Aggressively pursue and swiftly decide on cases against officials and associates accused of corrupt practices (e.g. PhilHealth, Pharmally), with utmost adherence to the principles of justice and fairness, while on trial or under investigation. Commit to a clear policy that erring public officials will not just be merely “fired” from their government posts (and be placed in another agency) but will be disqualified from public office as the law provides, and prosecuted to the law’s fullest extent.

c. Restore and subsequently strengthen faith in our institutions, particularly those that directly interface with the public (Land Transportation Office, National Bureau of Investigation, Bureau of Internal Revenue, Philippine National Police, Metropolitan Manila Development Authority, etc.). As a significant and high impact start, correct negative perceptions against the Philippine National Police, considering the present administration’s drug war and persistent perceptions of corruption.

 

7. REVIVE THE PPP MODEL OF INFRA DEVELOPMENT

Revive the PPP model of infrastructure development to accelerate both physical and digital infrastructure investments.

a. Accept and process unsolicited PPP proposals, especially mature ones that the current administration was unable to evaluate and pursue, while a new pipeline of solicited projects is being developed. In addition, convert back to PPP, projects that were redirected for ODA (particularly Chinese ODA or official development assistance) and government procurement (e.g. new water sources for National Capital Region, regional airports, etc).

b. Consider major tweaks in PPP policy, including those that may require legislation, particularly on proper risk allocation (e.g., stringent Material Adverse Government Action [MAGA], which remain as an obstacle in pursuing PPP due to unacceptably high regulatory and political risks). Furthermore, be open to PPP solutions that go beyond what is provided in the BOT (build-operate-transfer) Law to address critical national and local needs in public health, digital transformation, and ease of doing business.

c. Declare and commit to the sanctity of contracts through good faith adherence to PPP contract terms and decisions of international arbitration tribunals (e.g. MWSS concession contracts, automatic adjustments in rates in toll roads). Apart from exceptional circumstances where the public interest is conclusively compromised, contracts executed by parties should be upheld in its entirety. Any concerns on contract terms should be discussed in a constructive manner, aimed at coming up with a fair agreement to all parties.

 

8. CRAFT INDUSTRY ROADMAPS IN 10 KEY SECTORS

Craft Industry Roadmaps in the 10 sectors with the most potential for massive job generation, such as tourism, BPO (business process outsourcing), agriculture, forestry, manufacturing, construction, responsible mining, MSMEs (micro, small and medium enterprises), among others.

a. Roadmap development will be led by the respective industry associations and co-created with the National Government and Academe.

b. To be developed roadmaps will feature assessments of our global competitiveness, international benchmarks, and persistent systemic challenges, while exploring and recommending solutions and opportunities to harness.

c. These roadmaps will mandate actionable, time-bound plans for the next five years, with a prioritized list of support required from the National Government.

 

9. INSTITUTIONALIZE LABOR FLEXIBILITY

Institutionalize labor flexibility both through executive action and through legislation for quick employment generation especially in depressed areas, through win-win solutions.

a. Establish Special Employment Zones (SEZs) in high unemployment areas. The chief features of these SEZs will be a suspension of the minimum wage and labor security regulations, while allowing for flexible wage rates. Legally mandated social security protections like social security payments will be kept in place.

b. Pass a revised Apprenticeship Law. The existing apprenticeship law is defective as it is applicable only for technical industries, and the coverage is only good for six months, which is not enough time for an employer to properly train an apprentice and subsequently decide whether to engage the apprentice as a full-time employee.

c. Amend the Labor Security Provisions in the Labor Code in exchange for Portability of Pensions. The current arrangement of requiring companies to permanently hire employees who have rendered six months of tenure has given rise to the ENDO (“end of contract”) phenomenon to the detriment of employees, while imposing restraints on employers in adjusting their staffing cases of undesirable employees. A win-win solution would be to allow for flexible employment arrangements, but supporting this by requiring companies to fully fund and allow portability of pensions that the employee had already accumulated to his next employer, rather than having it reset to zero when he or she changes jobs.

 

 

10. IMPROVE EASE OF DOING BUSINESS AND PUBLIC SERVICE DELIVERY

Improve the ease of doing business and delivery of public services through e-government and the National ID System.

a. Further digitalize government services to improve service delivery. Use the National ID as the basic platform for eGov services. For Businesses, a Philippine Business Number (PHBN) can be created as a form of “national ID for enterprises.”

b. Follow the principle of “one-time only data entry” and sharing of data across agencies so businesses do not need to keep submitting same data to different agencies. PHBN could address this issue.

c. Look at national government agencies that interface with a large constituency and digitalize their services (Department of Foreign Affairs, the Bureau of Internal Revenue, Securities and Exchange Commission, the National Bureau of Investigation, the Land Transportation Office); LGUs to be tackled differently (they should just plug in to an existing platform, rather than build their own).

d. Promote innovation by allowing private sector app developers to offer service subscriptions to national government agencies and LGUs and to earn a revenue share or transaction fees from their services. The aim is to steadily shift government’s digitalization paradigm from procuring hardware and creating applications from scratch to buying software-as-a-service/subscriptions.

Above are policies; implementation will only happen with strong, honest, Cabinet appointees. Our next leader’s most important task, by far, in his/her first 100 days in office will be to pick a first-class team equal to the most challenging circumstances facing our country, committed to the rule of law, and genuine servant leadership.

 

 

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