October
12, 2022 | 6:42 pm
Introspective By Romeo L. Bernardo
I am pleased to share with readers a post that
Christine Tang and I wrote on Oct. 10 for subscribers of Globalsource Partners (globalsourcepartners.com), a New York based network of
independent analysts.
One hundred days have passed since Ferdinand
Marcos, Jr., the late dictator’s son and namesake, was sworn in as the 17th President
of the Philippines. So far, he has behaved as we expected, i.e., not like his
father. Although we had said that this is both good and bad, the overall net
sentiment of businesses seems to lean towards the former. That his main concern
is the redemption of the family name is perhaps the key takeaway during these
early days. Below is our assessment of the positives and negatives of his
government so far.
THE GOOD
1. The President’s appointments for the economic
cluster deserve the first mention. We count here not just the core oversight
functions — finance, planning, budget and industry, central bank — but several
key agencies (the “++” for lack of a better term) — foreign affairs, public
works, transportation, energy, trade and industry, labor and migrant workers.
The naming of a five-person private sector advisory council directly in
touch with the President seemed to have bolstered confidence that this will be
a business-friendly administration.
2. A medium-term fiscal consolidation program
containing concrete macro targets that seemed to have convinced markets of the
new government’s commitment to fiscal sustainability. The sovereign has
continued to maintain its investment grade credit rating and despite current
volatile global financial conditions, was able to raise $2 billion worth of
global bonds from the international capital markets at relatively tight
spreads.
3. Fast-tracking the revision of the Implementing
Rules and Regulations (IRR) of the Build-Operate-Transfer (BOT) Law which will
help rekindle private sector interest in investing in infrastructure. Keeping
public infrastructure investments at 5% of GDP is an important plank of the new
administration and the hope is that public-private partnerships will help
government overcome its tight budget constraint post-COVID. As it is, the 2023
budget does not explicitly provide budget cover for donor-supported, mass transport
projects that are expected to begin construction.
4. Decisiveness in acting on major pending issues
that threatened the country’s energy security, including approval of Prime
Infrastructure Capital’s acquisition of Shell Philippines Exploration BV’s
(SPEX) 45% stake in the Malampaya gas field, as well as determination by the
Department of Justice that renewable energy is not covered by 60-40 restriction
on foreign equity. Both moves would pave the way for much needed investments in
oil exploration and electricity generating capacity to improve energy security.
Additionally, there was broad support for the Energy Regulatory Commission’s
decision denying the joint petition of Metro Manila’s electricity distributor
and one of its power suppliers for fuel pass-through price adjustments that
would have contravened the basic terms of the power supply agreement that the
two parties entered into voluntarily.
5. Reverting to a more centrist approach to foreign
policy after the two previous administrations’ polar positions, i.e., Aquino’s
overly pro-US then Duterte’s overly pro-China stances. Unlike his predecessor,
the President appears inclined to follow the lead of his foreign affairs
secretary, a career diplomat, as gleaned from his well-received speech at the
UN General Assembly last month and a constructive meeting with the US President
at the sidelines. Observers take this to mean that the balance will likely tilt
more towards the US although the President’s personal ties with the
neighborhood Goliath will likely mean continuing friendly relations with China.
THE BAD
The President boasted of having put in place a
“functional government” in his first 100 days, an achievement that seems to us
par for the course. Yet even this we find hard to agree with given his
inability to name the key person, i.e., a health secretary, to manage
COVID-19’s transition to an endemic disease. When asked, he explained that consultants
are still working on a “new structure” of the health department to make it
responsive to all aspects of public health. Although the more sympathetic could
appreciate the care being taken to choose the health chief, many observers have
taken to crossing their fingers in hopes that despite a stalled vaccination
program happening alongside the education department’s back-to-school mandate,
the immunity wall built up thus far would be strong enough to avert another
wave of infections. The critical problem of lack of leadership extends to the
scandal-ridden health insurance agency that has an estimated actuarial life of
only about five years.
The other disappointment is that the President has
yet to convene the Legislative-Executive Development Advisory Council (LEDAC).
The body, which is composed of the leaderships of the executive and legislative
branches as well as representatives from public and private sectors, is crucial
to ensure that the two branches work in sync and priority reforms are not delayed
in congress. As it is, we worry that the gathering global gloom leaves the
economic team much less time to deliver on promises and with more and more
analysts expecting domestic economic growth to markedly underperform
government’s target next year, congress needs to focus soonest on the
President’s most urgent tax and expenditure reforms.
THE UGLY
We have written about the leadership vacuum in the
Department of Agriculture when the President appointed himself secretary and
its early fall out, the sugar crisis, how it was a test of the President’s
leadership mettle, and how the mismanaged crisis may have sent the wrong
signals to well-meaning technocrats in government. The belated resignation of
his executive secretary gives hope that in time, the President would develop
better instincts to course correct sooner.
At this time however, his flip-flopping on the
issue of importing sugar, a move backed by his point person in the agriculture
department and by his economic managers based on data showing production
shortfalls, raises the question of how he intends to address the food crisis
that he himself brought to the fore. There are several upcoming issues, most
important of which are estimated shortfalls in rice outputs and the end-year
expiry of Executive Order 171 issued by the previous administration allowing
freer importation of major food items and coal.
Year-to-date, food inflation accounted for about a
third of the headline inflation rate. Per the latest Pulse Asia survey,
controlling inflation which is “the only majority urgent national concern, the
plurality opinion among Filipino adults (42%) is one of disapproval for the
national administration’s performance.” Given the predominantly supply-driven
nature of domestic inflation, the BSP has repeatedly stressed the “importance
of urgent non-monetary government interventions to ease domestic supply
constraints.” n
Postscript. All told, so far, much more good than
bad. The LEDAC was convened the day after we released our GSP report. We hope
LEDAC will meet regularly, at least once a month, as it did during President
Fidel Ramos’ administration.
Romeo L. Bernardo was finance undersecretary from
1990-96. He is a trustee/director of the Foundation for Economic Freedom, the
Management Association of the Philippines, and the FINEX Foundation. He also
serves as a board director in leading companies in banking and financial
services, telecommunication, energy, food and beverage, education, real estate,
and others.
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