TRANSCRIPT: Finance Sec. Cesar V. Purisima, Asia Finance and Risk Mitigation Forum in the Asian Institute Management, April 30, 2012. Purisima: We thank the ADB for putting the eye of Asia, the eye of the financial world on the Philippines. In fact, the whole week, there will be an eye on the Philippines featured in CNN. The ADB meeting is like a coming out party for the Philippines under the Aquino administration, under new management.
The thesis of President Aquino is that good governance is good economics. So far, in the 20 months that he’s been in charge of the country, weve started to reap the dividends from this good governance initiative.
First, the financial community has shown more confidence in the country. This has allowed us to continue to reduce our cost of borrowings, our cost of capital. In 2011 alone, we were able to save up around a billion dollars in interest costs compared to our program. That amount was spent on productive social expenditures such as increase in the educational and health budgets, as well as the CCT program. We have also been allocating more and more to infrastructure in the budget of the government.
Until 2016, just on government expenditure, we are allocating close to a trillion pesos just for infrastructure. Also, deployment of the budget will also work through better governance in terms of savings, implementation of projects, and better quality projects- roads that are part of a network that is not simply build for form but really to make the road network in the Philippines efficient. President Aquino now insists for all roads to be a part of the road network and therefore add to the efficiency of our road system.
The other dividend of good governance in the Philippines is an increase in number of registered taxpayers and were continuing to see them register. We still have a long way to go. But then last year, revenues in the Philippines were the highest in over ten years, without asset sales and without new taxes. For the first three months, we’ve seen revenues up 15% much faster than the nominal GDP growth rate. These are some of the benefits of good governance.
President Aquino believes that in solving the big challenges of the countries, we must start at fiscal sustainability. We must chart the course so that we will be able to reduce our debt in relation to our GDP so that we can create more space in the budget for more productive expenses. In 2011, we were able to reduce the interest expenses as percentage of total budget to 16% from 21%. That just shows you that the path along good governance will allow us to get deeper into the virtuous cycle. Of course there are political challenges along this path and that is why Im blessed this time around with a president that has the political mandate, that wants to apply that political mandate to transform the country no matter how big the challenges are.
Up to 2016, the goal of the president is obviously to increase growth rates. But not just increase in a year or two, but to create a foundation to sustain the increase of the economic growth rate. And to do this we need to invest in fundamentals. Its easy to grow an economy in a year, if you’re lucky, if the world starts moving in the right direction. But challenge is how to do it on a sustained manner. To do it in a sustained manner, you need to invest in the political culture, the governance culture. This is what has set us back the past 40 years. We need to correct it and we need to change it such that we reach a tipping point before the president leaves so that his successor has no choice but to continue.
We need to invest in infrastructure. Those of you who travel outside of the Philippines to our neighbours will agree with me that we need to catch up on infrastructure. We’ve increased the component of infrastructure in the budget but its not going to be enough. We need to mobilize private capital. We need you guys to get off from the sidelines and not just walk with your mouth, but walk with your money, and put it into productive purposes.
There is liquidity in the Philippines. In fact, theres close to P2 trillion in the central bank of the Philippines just sitting idly in safe harbour. What we have done is to try to continue to develop the local capital markets so that 25 year financing can be made available to infrastructure proponents in local currency, included as part of Treasury’s regular offering of 15-25 treasury bills, and thats to create benchmark prices of bonds or papers, this term and this long, as possible. Were continuing to look at other products that proponents of infrastructure projects will have risk mitigation instruments available locally.
I believe that peso funding is going to make projects in the future more viable. It is a better match between revenue and the cost. In the past, PPP projects have gotten a bad image because of standard increases in toll fees or cost of services when the peso depreciates because their funding is in foreign currency. We need to reduce this. The challenge of the Aquino administration is not just launching PPP projects, but to bring out confidence and trust to the whole PPP concept in the Philippines. We’ve had successful PPPs such as the water privatization in the past. But we’ve also had unsuccessful, controversial PPPs- PPPs that continue to hound us. And that has given PPP a bad reputation in the country.
What wed like to do is to make sure that all the projects the Aquino does in this administration will stand scrutiny. To do so properly, we need to invest in feasibility studies to make sure the sharing of the risk between the public and private sector is a fair, equitable one, a true win-win project. We did inherit feasibility studies but a lot of them needed updating. This year, we hope to launch at least 8. Last year, I said we said we wanted to launch 10. I fell flat on my face. But Im also proud to point out to those who are eager to jump on me that this is the fastest ever for an administration to launch a PPP project.
During the previous one, it took them two years. The one before that, it was cut short, they didn’t have a PPP project. During Ramos administration, special powers in Congress made it possible for one PPP project. I don’t mean to put them down but I just want to put the record straight: Its not easy to launch these. We’ve loved to launch ten projects. But once were done with this administration, we would bring back the confidence of the public, the investors, and the whole audience at large.
In terms of debt and liability management, thats what were trying to do also â€“ continue to decrease the component of the debt as to percentage to our GDP. On a gross basis, its down to about 51%. In using the OECD definition, its about down to 42%. The foreign component of our debt is now down to 27% to GDP. Our goal is to continue to reduce that so we can reduce the vulnerability of our country from external factors.
One of the things that we as managers of the economy is focus on things we can control. We cant control things in Europe or other countries. All we can control is what we do in the Philippines. We continue to broaden the revenue base, work on tax policies so they become more progressive and more equitable. We will continue to work on tax administration so there is lesser corruption. Were going to continue to improve the debt structure. We’ve been able to increase the maturity of our debt. When we took over it was about 9 years, now its 11 years. The longer it is, the less vulnerable you are to external shocks.
2011 was a very unusual year. There was so many black swans, who could have predicted what happened in Japan? Or what happened in the Middle East? Yet I think we went through 2011 in a rather good shape. As financial managers, I think we should continue to just focus on building fundamentals. Institutions are a crucial part of the equation. We don’t want the progress of the Philippines to be personality-based.’
We’ve been trying to work with the AIM so they can help the DOF and the DOF family agencies in terms of developing a learning and professional education program. Id like our people to commit to certain hours both as participants and as lecturers. That is the only way we can improve the quality of the people -build an institution. We want our people to align their interest with the institutionÂ and not see it as a dead-end jobÂ but see it as just a stop in their career so that they focus on making money by investing themselves and then moving out into the private sector rather than staying in the department or in the bureaus. I believe that is ultimately the best way to fight corruption. But this takes a long time and we need partners in the private sector.
President Aquino’s goal is not just to have incremental change but to have fundamental change; he wants to make tipping points everywhere. The judiciary is a big challenge. Im not trying to put them down because we believe there are good judges and justices except that there are those that do not believe in the new way of doing things. Whatever the result, I believe weve sent the right signals. I believe the institutions involved have learned and are more mature. And I believe that the people will know that public officials are being held accountable. Thats why were very pleased to hold the 45th Annual ADB Meeting in our home country.
The real asset of this country is its people. Its the 10 million or so Filipinos who work abroad, who remit over $20 billion a year. The president does not want them to stay there; but its an asset right now. But its going to be a challenge in the future as children grow without parents or no parents at all. We want them back. Thats why the president wants to create opportunities. But it takes time to create these things. That has been clearly proven to the world that it is the people that are the main asset of the Philippines.
The BPO industry- again we’ve been shown that the Filipino people are adaptable and excel when given the right opportunity. Thats growing and our challenge there is to continue to grow up in the value chain. Were working hard with ADB to create a center for excellence, a knowledge hub. We hope to be able to put that reality so that we can continue to go up the value chain and make sure this particular industry stays in the Philippines.
Tourism. Again, obviously we have the most beautiful beaches. Were right there in the coral triangle. We have a rich culture but it is the warmth of the Filipino people towards guests that makes it more fun in the Philippines. Were not perfect but we hope well continue to work on areas – the airport upgrades, clean toilets. If theyre not, tell us. Yes, you can have an old house but it must be clean. It must show your soul, your personality and your desire to show the very best of the Philippines.
Going back to the topic of this conference, the Aquino administrations strategy is really very simple. Its about going back to the fundamentals. People keep asking us, â€œWhats your vision for the Philippines?â€ Visions are nice and sexy. But if you ask the most successful entrepreneurs in the world, its only 1% strategy and 99% execution. We just need to roll up our sleeves and address it one challenge at a time, maybe several challenges at a time.
The thesis Good Governance is Good Economics will only come to life if you believe in it; if the private sector believes in it – not in talk but in actually mobilizing their capital and their energy, because government alone will not be able to do it.
That is why I want to thank ADB for being supportive of our programs. When the tragedy happened in Cagayan de Oro, without us asking, they gave US$3 million. Theyre also very crucial in giving grant money for feasibility studies for our PPP projects, funded by JICA and AusAid through ADB. So, ADB has been good to the Philippines and I hope we can even be a better host for you, not just for this 45th Annual Meeting, but as you continue to grow and evolve in your role in the region.
To my fellow Filipinos, I hope we roll out the welcome mat. And also the same time, please be patient because Im sure the traffic will be worst than it is normally because weve tried to facilitate the movement between Makati and the main conference area in PICC, as well as SMX.
Im so proud to announce that we have so far 4,300 registered delegates, which is a record. Over half is coming from abroad. We hope that we all show the very best in the Philippines as the Filipino is on the eye of the financial community. Thank you and have a good day.