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Is It
Safe to Smile?
By Michael Alan Hamlin
June 2003
Sometime last year President Gloria
Macapagal-Arroyo killed a proposal involving the development of
a government data center to be located in Fort Bonifacio. It was
meant to catalyze modernization of government's ICT infrastructure
and practices, and provide a symbol of the Philippines' emerging
status as an important outsourcing center for e-Services and software
development.
Funding for the project was to be
provided by Japan in the form of a low-interest US$70 million loan.
In return, the data center was to be built using Japanese contractors
and Japanese technology. There were two central issues for the government
to consider in deciding whether to proceed with the project. First,
did the government require a data center? Second, would the project
generate sufficient funds to repay the loan, which is an obligation
assumed by taxpayers?
Apparently unknown to the project's
proponents, the president asked two prominent business people to
undertake a confidential review of the planned development. Their
report came back with a recommendation not to proceed for a number
of reasons, which I'm not permitted to reveal. But the bottom line
was that the project wasn't viewed as an appropriate use of funds,
especially since there was little chance, in the reviewers' minds,
that it would be economically viable. That would mean that if it
went forward, taxpayers would be stuck with the bill for development,
as well as ongoing operational costs.
As a result of the recommendation,
Ms. Arroyo told the project proponents in very clear terms, I understand,
that she would not approve the proposal in one of the periodic Information
Technology & e-Commerce Council (ITECC) meetings. Most observers
assumed that this was the end of the project. But it turns out that
neither the president's decision nor the economic uncertainty that
surrounds the project are sufficient reasons to deter the proponents.
As a result, Phoenix-like, the project
came back to life recently. Undersecretary for Information Communication
& Technology of the Department of Transportation & Communication
(DOTC) Virgilio L. Peña announced that Ms. Arroyo had reversed
her earlier decision, and decided to proceed with the project, whose
deadline had been extended on just such a hope. The government agency
contracting the loan was to be the National Development Corporation
(NDC), which is attached to the Department of Trade & Industry.
NDC was a natural choice since it is cash rich, enabling it to meet
counterpart funding requirements for the loan.
This came as a surprise, however,
to DTI officials. DTI secretary Manuel A. Roxas II, according to
published reports, said politely that the NDC wasn't about to get
involved in the project. Mr. Peña then told reporters that
if NDC wasn't interested, some other agency would have to be identified.
Since then, according to insiders, he's been talking up the project
to government and private-sector executives whose support will be
helpful in getting the project moving.
The Japanese are also desperate to
get the project off the ground, apparently because it's supposed
to be a done deal. So they've been doing quite a lot of lobbying
themselves, even going so far as to suggest that the loan will be
"reprogrammed" after it is approved. Reprogramming the
loan apparently refers to dumping plans for the data center and
reallocating the funds elsewhere. Where else hasn't really been
stipulated, according to the reports I'm getting.
There are a couple of reasons why
this sort of intense lobbying is alarming, aside from the fact that
the average taxpayer doesn't need a US$70 million obligation she's
going to have trouble paying back, even with little or no interest.
First, the loan has already been packaged, and stipulates that it
must be applied to the development of a government data center.
Finalizing the loan with the intent to apply the proceeds elsewhere
involves a little thing called "fraud." Second, the promise
to reprogram the loan is a lie, meant to line up support, it seems.
Present and former government executives tell me there's no way
a loan can be reprogrammed once it's been through the government
approval process.
But what is perplexing about the
whole matter is why the intense push in the first place. This project
was originally conceived at the height of the dot-com bubble, when
things like data centers were all the rage. As a result of that
enthusiasm, the private sector invested heavily in data centers
in the Philippines. And if you visit them today, you'll quickly
see that supply far outweighs demand. That will eventually change,
but not for years.
This suggests at least two things.
First, that government has no business competing with the private
sector, especially in an area that is already under a significant
degree of duress, and is trying to figure out how to stay relevant
under dramatically changed circumstances. Second, that government
would spend for less money by leveraging the benefits of existing
data center resources, than creating even more supply.
Yet this project keeps coming back
from the dead. Another deadline was set to expire as this column
was being written. But I have no doubt that when you read this,
it will have been extended once again. And you should ask why.
(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), and he is
currently at work on High Visibility: The Making and Marketing
of Asian Professionals into Celebrities. Write him at mahamlin@teamasia.com.).
Copyright © 2003 Michael Alan
Hamlin. All Rights Reserved.
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