Duterte’s economic agenda: doable, inclusive, and comprehensive

President-elect Duterte was swept into the presidency not on the strength of his economic agenda but on the promise of law and order and the wiping out the drug menace everywhere, in urban centers and rural communities.

One can argue that Duterte won the presidency largely due to his reputation as a punisher and, at the same time, as a compassionate mayor -- an indirect repudiation of the supposed ineptitude and indifference of the Aquino administration.

Overall, Mr. Duterte’s economic road map is doable, inclusive, and comprehensive.

Below are my random notes on Duterte’s 8-point economic agenda.

1. Continue and maintain the current macroeconomic policies. However, reforms in tax revenue collection [within the Bureau of Internal Revenue and the Bureau of Customs] efforts will be complemented by the reforms within the bureaucracy of these tax-collecting agencies.

Uncertain.

I don’t know what macroeconomic policies will be continued and maintained. If it refers to the low interest rates and low inflation rates, then the low interest rates are more the achievement of the independent Bangko Sentral ng Pilipinas, not the Aquino administration. Low inflation rates are more due to the low cost of borrowing money (thanks to the 2008/2009 Global recession) and the sharp fall in oil prices (of which the Aquino administration deserve no credit).

I disagree with Mr. Aquino’s contractionary fiscal (expenditure-tax) policy. It should be reversed. Past and future growth could have been faster had the Aquino administration allocated and spent more money for public infrastructure. For the last six years, the outgoing administration has underspent close to a trillion pesos.

I agree that the efforts of the Bureau of Customs have to be stepped up. Smuggling is at its historic heights.

2. Accelerate infrastructure spending by addressing, among others, major bottlenecks in the Private-Public partnership (PPP) program. Maintain the target of setting aside five percent of the country’s gross domestic products (GDP) to infrastructure spending.

Agree.

But public infrastructure spending should not be limited to PPP programs. There are many capital projects, especially in the countryside, which are not susceptible to capital-intensive PPP arrangements.

For a labor-surplus economy like the Philippines, the government should put equal emphasis on many small- and medium-sized projects. They create a lot of jobs and they are faster to implement.

The public infrastructure target of five percent of GDP should just be the beginning. It should be as high as seven percent by the end of 2022.

3. Ensure attractiveness of the Philippines to foreign direct investments by addressing restrictive economic provisions in the Constitution and our laws, and enhancing competitiveness (i.e., “ease of doing”) the economy.

Agree.

Foreign direct investments (FDIs), unlike footloose capital or ‘hot’ money, create decent jobs and introduce into the country modern technologies which, in turn, would improve the competitiveness of the economy.

Sadly, during the last 5 years (2011 to 2015), the Philippines attracted a total of $20.4 billion FDIs, a measly amount compared to Singapore’s $305.6 billion, Indonesia’s $107.6 billion, Malaysia’s $56.6 billion and Thailand’s $42.0 billion (see graph).

4. Pursue a genuine agricultural development strategy by providing support services to small farmers to increase their productivity, improve their market access, and develop the agricultural value chain by forging partnership with agribusiness firms.

Agree.

Under the Aquino administration, agriculture grew by a measly average of 1.6% and was practically flat (0.2%) last year. The sector is expected to contract by single digit level this year.

Given an annual population growth of about 2%, agriculture should grow by at least 3% every year. But for this to happen, it requires massive infusion of productivity-enhancing public infrastructure (farm-to-market roads, irrigation facilities including small water impounding projects), fertilizer, high-yielding seeds, and investment in research and development.

5. Address the bottlenecks in our land administration and management system.

Agree.

The World Bank notes that a big chunk of land in the Philippines is untitled. A majority of land owned by agrarian reform beneficiaries is in the nature of collective, not individual, titles. Titling of untitled land should be the focus of the next administration. If done, it would bring about additional capital in the countryside.

6. Strengthen our basic education system and provide scholarship for tertiary education which are relevant to the needs of private sector employees.

Agree.

The hard reality is that unemployment is highest among college-trained and college graduates. This implies a mismatch between what the education system produces and what the economy needs. Strengthening the basic education system is also a way of providing better foundation for technical-vocational and college work. Scholarship should be provided on the basis of academic performance and needs, not on political connection.

7. Improve the income tax system to enable those who earn little to have more money in their pockets.

Conditionally agree.

The existing tax structure is close to two decades old.

Through inflation, it is taking more money from individuals and firms now than before. The existing income tax system is uncompetitive compared to our ASEAN-5 neighbors. Tax breaks for big firms continue to proliferate.

The Philippine tax system requires a comprehensive overhaul, not minor tinkering.

8. Expand and improve implementation of the Conditional Cash Transfer (CCT) program.

Agree.

There are several ways to improve the CCT program.

First, the program’s leakage has to be plugged. There are many deserving beneficiaries who are outside the program while, at the same time, there are many undeserving participants who are in the program.

Second, by creating a parallel organization to administer the program, its overhead cost is much too high.

Third, local government units, to which social welfare programs have been devolved, were totally shut out of the CCT program. The unelected DSWD officials are lording it over the elected local authorities.

Here’s an alternative arrangement: DSWD may continue to identify the recipients through scientific survey methods, but the administration of the program would be shared with local authorities. This new setup will enhance fiscal responsibility of both national and local officials, and will give the latter part ownership of the CCT program.

In sum, the 8-point economic agenda is an excellent start.

Yet, the devil is in the details.

In the next few weeks, Mr. Duterte and his team should put flesh and blood to the skeletal framework. Moreover, he should identify the men and women who will carry out the agenda. Finally, he should reveal the strategy for managing the reform process, the timing, and sequencing of reforms.

Benjamin E. Diokno is a former secretary of Budget and Management

bediokno@gmail.com

source:  Businessworld

M&As and the PCC’s billion-peso question

In the past few years, our country’s credit rating has improved. From being tagged as the “sick man of Asia,” the Philippines is currently rated “investment-grade” by three of the major global credit rating agencies. Based on the publications issued by the outgoing administration, the increase in rating can be attributed to the strong performance of the service sector, trade, real estate and business activities, and manufacturing and construction subsectors.

Improving the economy has always been a part of any administration’s objective. Thus, the government is always on the lookout for ideas on how to attract investors. However, while there are advantages to having competitive businesses in our country, measures to safeguard competitive conditions should still be put into place. This is among the goals of the long-awaited Republic Act (RA) No. 10667, otherwise known as the Philippine Competition Act, which was approved by the President last 21 July 2015. 

To implement the national competition policy and attain its objectives of protecting consumer welfare by penalizing all forms of anti-competitive agreements, abuse of dominant positions and anti-competitive mergers and acquisitions, the Philippine Competition Act created the Philippine Competition Commission (PCC) under the Department of Justice (DoJ). 

Prior to the organization of the PCC, applications for mergers were forwarded by the Securities and Exchange Commission to the DoJ to get the necessary endorsement, to prove that the proposed mergers will not result in violations of the national competition policy. Thus, the timing for getting the DoJ’s endorsement would also have to be considered in case of mergers.

It was just last 1 February 2016 that the PCC was organized. Within the same month after it was organized, the PCC issued two memorandum circulars which provide the transitory rules and guidelines for mergers and acquisitions. These rules and guidelines are to be implemented until such time the PCC has come up with the implementing rules and regulations (IRR) of the Philippine Competition Act. 

Under the transitory rules, mergers and acquisitions are deemed approved if the value of the transaction is P1 billion or less, or if notice has been provided to the PCC, for transactions valuing more than P1 billion. These mergers and acquisitions are deemed to have received a favorable ruling from the PCC and may not be challenged under the Philippine Competition Act, except when the required notice contains false material information.

The notice to be provided by the parties to a merger or acquisition agreement with transactional value exceeding P1 billion should contain the following information: [a] the parties to the merger or acquisition; [b] the name and contact details of the authorized representatives of each party to whom the Commission may address any correspondence; [c] a brief description of the business of the parties; [d] the type of the transaction, whether a merger or an acquisition; [e] the consideration involved in the transaction; [f] the key terms of the transaction; and [g] the timing for the execution or implementation of the transaction. The transitory rules do not provide a specific deadline for filing the notice to the PCC except in cases where at least one party to the transaction is a listed company. However, in general, it would seem best to file the notice before the target transaction date since one of the information required in the notice is the timing of the execution or implementation of the transaction.

In case of mergers or acquisitions involving a company whose shares of stock are listed in the Philippine Stock Exchange (PSE), and with a transactional value exceeding P1 billion (Covered Transaction), the deadline for filing the notice to the PCC would depend on whether the transaction is required to be disclosed to the PSE pursuant to the Securities Regulation Code and its implementing rules. In case disclosure to the PSE is required, the parties should notify the PCC prior to the execution of the merger or acquisition. On the other hand, parties to Covered Transactions that are not required to be disclosed to the PSE should provide the said notice to the PCC before the close of business of the first working day after the Covered Transaction occurred.

Mergers or acquisitions with transactional value exceeding P1 billion that fail to comply with the required notice do not only run the risk of being questioned, but may be subject to penalties provided under RA 10667. 

In case of mergers or acquisitions of special corporations governed by special laws, such as banks, banking institutions, insurance companies, public utilities and educational institutions, the required notice to the Commission should not be construed as dispensing with the requirement of securing a favorable recommendation from the appropriate government agency.

With the recently concluded elections, Filipinos and the international community are keeping an eye on how the next administration plans to improve our country’s economy. Hopefully, its proposed steps would include the needed measures to carry out the policy objectives of the Philippine Competition Act and its anticipated IRR.

The views or opinions in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

Maria Ysidra May Y. Kintanar-Lopez is an Assistant Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PwC network. 

may.y.kintanar@ph.pwc.com

source:  Businessworld