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Put Your
Right Hand In…
By Michael Alan Hamlin
September 16, 2002
This month a good friend of mine
is bailing out of the Philippines after more than five years. He
says he's headed for Bangkok, where highways get built and maintained,
foreign investors are plowing in money, and stores are full of an
amazing variety of high-quality goods. His leaving got me to thinking
about the 20 years I've been here, expecting the Philippines to
turn around and get respectable just any ol' time.
Unfortunately, it doesn't seem that
there's much chance of that happening, despite the economy's surprisingly
robust growth. That growth is, sadly, spectacular primarily because
government has very little to do with it, although the executive
is untiring in the accolades it dishes out upon itself. To other
observers, the Philippines' economic policy is best described by
that old grade school song that goes, "Put your right hand
in, take your right hand out, and shake it all around; Put your
left hand…" well, you get the point.
Now before anyone suggests that I've
been retained by the opposition, let me note that they are in an
even sorrier state, although in normal circumstances that would
be almost unimaginably difficult to contemplate. There is something
awfully sad, for instance, in seeing a once respected academic begging
yet another heavy-drinking, anachronistic movie star to run for
vice president, only to be shunted aside by the actor suddenly warmed
by the prospect of running for the top slot himself in partnership
with a former and agonizingly controversial top cop.
But such is life in the Philippines,
politically anyway. Meanwhile, to return to the administration's
country management issues, consider that about the time President
Gloria Macapagal-Arroyo was telling reporters last week that the
Philippines "must not be married to the idea that tariffs cannot
be revised," especially when they are needed to protect a few
entrenched, rich manufacturers who run notoriously inefficient operations,
Asean (the 10-nation Association of Southeast Asian Nations) economic
ministers were meeting, including the Philippines' own economic
top gun, "to promote free trade in the region and to keep up
with growing competition from powerhouse China."
The ministers have good reason to
celebrate economic reform. Despite tough conditions, last year foreign
direct investment (FDI) into Asean was up 13.4 percent, to US$13.06
billion. Accelerated moves in the direction of liberalization are
believed to be a principal catalyst for the increased investment.
Liberalization lowers barriers to free trade, encouraging investors
to plow in money in manufacturing operations that won't be hobbled
by tariffs when manufactured products are exported to other Asian
countries.
While Asean was seen to be embracing
liberalization, the Philippines was backing off, using the excuse
that it's already liberalized faster than its cousins. The result?
Instead of investment heating up, FDI plummeted 83 percent last
year. Incredibly, no one seems to have noticed the impact of the
rhetoric. Instead, government has repeatedly expressed its intent
to protect the cement, plastics, and fledgling petrochemical industries,
among others, despite the negative impact on downstream industries
and consumers, all who have to pay higher prices.
Government continues to argue that
this doesn't matter, and points to the 8.4 percent growth in FDI
in the first quarter. But take a look at the raw number. That amounts
to an unspeakably embarrassing US$16 million dollars. In that same
period, Thailand took in about US$1 billion. Now, how's that for
a sobering thought? And, per capita income is better than twice
what it is here. To the average Filipino looking for a good paying
job, that means a lot more than 4.5 percent growth, which mostly
comes from the national penchant for communicating with thumb to
keypad.
Despite the grizzly facts, the Bangko
Sentral ng Pilipinas last week announced its own spin on the attractiveness
of the Philippines to foreign investors. Through August, BSP reported
5.7 percent growth in foreign investment inflows to US$1.003 billion.
However, during that same period US$807.6 million went right back
out, leaving a net inflow of less that US$200 million.
Now, while US$200 million still pales
compared to Thailand's investment flows, US$200 million is something
to be thankful for, until we consider why it's here and where it's
sitting. Some of it is ensconced over at one of the world's sickest
stock exchanges, ours. It didn't get that way because of this administration,
but this one hasn't done much to heal the market.
The point, though, is that most of
the US$200 million is helping fund the deficit, attracted by higher
interest rates, and the prospect of even higher rates. That means
that rather than contributing to investment in jobs, this money
is sitting here taking advantage of the Philippines' perilous fiscal
position. The net effect of all this is that there is very little
apparent foreign investor interest in creating jobs here.
I hate to say it again, but a glance
at the headlines shows why. Consider this past week, and the hugely
embarrassing revelations concerning the construction of a third
terminal at the international airport. First, a controversial government
consultant tries to undo a nearly completed build-operate-transfer
investment ostensibly because of onerous provisions in the contract
but in apparent reality because disagreements between the foreign
investors and their local partners provided an opportunity for others
to step in.
Why would any serious investors consider
the Philippines in the aftermath of such revelations? Second, it
comes to light that the local partner has been paying some former
marketing manager an astronomical PR fee of US$200,000 a month.
Speculation is rife, of course, over who really got the money, and
the relationship of whoever it is to a government that keeps talking
about its determination to meaningfully address corruption.
Developments like these are why it's
not just my friend that's leaving, but a record number of Filipinos,
who are heading for the same places investors are. Which is just
about everywhere else in Asia. Now, sing it again, "Put you
right hand in…"
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001). He can be reached
at mahamlin@teamasia.com.).
Copyright © 2002 Michael Alan
Hamlin. All Rights Reserved.
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