TRANSCRIPT: Speech of Finance Sec. Cesar Purisima, Asean Finance Minister Investment Seminar, HK, October 2012
Purisima: Were here in HK for two reasons. Today, were here for a non-deal roadshow for the Philippines. Tomorrow, the Philippines is hosting the ASEAN Finance Ministers Investment Seminar. We decided to host it in Hong Kong instead of Manila because there are more regional investors and companies located here. And the goal of the investment seminar is to really expose the idea of ASEAN integrated economic community to more investors.
ASEAN by 2015 will aim to integrate a big portion of the economies of the ten countries. IT will be an economy with over 2.2 trillion in GDP with over 600 million in population with a per capita of over three thousand per person and we with a goal of more than tripling the per capita by 2030. Trade of the ten countries composing ASEAN amount to over US$2.3 trillion but intra-ASEAN trade only amount to only about over US$500 billion. There lies the major opportunity of integration. This should allow the ASEAN countries, the Philippines included to continue to attract major investments especially in manufacturing because the scale will now become better. On the capital market area, integration is also a target and their objective is to create an ASEAN class of financial products. Again, that should allow for a deeper market- more efficient pricing of financial instruments.
On the Philippine side, were gearing up for this. Were investing heavily in our infrastructure, not only from our budget but also with the partnership with the private sector. Were also charted the path towards fiscal sustainability and I think were well on the way towards doing that. On the macroeconomic front, the external area, the central bank of the Philippines has been doing a great job for the past many, many years. President Aquino wants to transform the Philippine economy and really using political capital to deal with difficult problems. During his first year, we opened up the skies outside Metro Manila. That was something that could not be done by previous Philippine administrations given the best of interests involved. But President Aquino was able to do it and it has helped increased our tourist arrivals by 50 percent since he got into office and our goal is to reach 10 million arrivals by 2016, making tourism a third strong leg in our capital account flows. We are already a structural current account surplus country with our remittances and BPO industry.
The other area hes tackled during his first two years is corruption. Weve been filing cases left and right against corrupt officials on the revenue side and across the government. On our first year and a half, we were having difficulty with the judiciary and thats why the president dealt with that issue head on by going for the impeachment of the most senior, the leader of the judicial branch of the Philippines. We have a system similar to that of the US where we have 3 co-equal branches. On the executive side, President Aquino definitely controls that because thats directly under him. On the legislative side, his coalition which has super majorities on both chambers he can influence. However, on the judiciary we couldnt. Thats why the president went for something that again was thought to be impossible but succeeded and clearly sending the right signal to the judiciary and to the rest of the population that its no longer business as usual. That we want change for good. And we want rule of law. The justice that cannot be bought but justice that is based on our constitution.
The other challenges that we are tackling right now are reform of the sin tax law. Again, in the past we tried to reform it but because of vested interests, we couldnt do it properly. For example, the last time we looked at the law was in 2004 which resulted to a law that was inferior. For example, the tax right now in for cigarettes and alcohol is based on 1996 prices. Theyre able to increase their prices and yet our tax is stopped in 1996 prices. Weve gone past the lower house. Were now in the Senate. Again, many political analysts were saying â€œWe could not let it out of the lower house.â€ But we were able to do that. So now, its in the Senate and then it goes to bicameral. Were hopeful that within this congressional year, this will be addressed.
One thats also in the Congress right now is a bill on responsible parenthood. As you know, population can be both be an asset and a challenge. In our case, given the high population growth rate of the Philippines, its become a challenge. Although, we are the youngest population in Asia and were about to hit our demographic sweet spot. Building enough schools, building enough hospitals, providing enough teachers and chairs and technology to make sure theyre properly educated and taken cared of properly from health standpoint is a fiscal challenge.Â Thats why we want to be able to come up with a system that will give people education, and will empower them. Because what weve seen in other countries, the more empowered the people are, the more theyre likely to make the right choices. As a result of his good governance initiative, the Philippines has started to reap dividends from this in term of more confidence from the financial markets, our cost of borrowing has dramatically gone down. Interest now as a percentage of budget is down to 16.6% whereas before it was over 20%, freeing up fiscal space for more productive expenditures. Our revenue compliance has continued to improve. Since President Aquino has taken over, weve been able to increase through efficiency, collection by around 2% of GDP. Our goal is to bring it up to 18% by 2016, total revenues of 22% to GDP.
In terms of expenditures, his zero based budgeting approach has allowed us to reduce wastage and corruption in the deployment of our budget. Ill give you an example. In our department of public works and transportation, before President Aquino took over, the department would build roads wherever they feel like. So we ended up with roads that were not connected to each other especially in the rural areas. So if you drive in these areas, you can still see some of these. Youll have a few kilometres paved, then many kilometres unpaved. That was because in the past, they just built roads and then without work program and without connecting it to the national road network. Since the president has taken over, he demanded that all roads be connected to the national road network because the objective of building roads is to improve the transport network efficiency. So it must be connected. Secondly he demanded that before the budget will be released, that there is a work program, that there is proper bidding of the projects. Weve seen a reduction in the per kilometer cost.
Weve also seen improvements in qualities. Now, I dont think weve completely eliminated wastage and corruption but I believe weve made a big dent already. As a result, our budget has been properly deployed that allowed us to increase dramatically education, health care.
Our conditional cash transfer program which is really the safety net of the poorest of the poor, weve increased by over 300% from P10 billion to over P40 billion this coming year. The goal is to bring it up to over P79 billion so we cover the poorest of the poor, the last quintile of about 4.6 million families.
The other dividend weve gottenÂ from our good governance program is more confidence from our businessmen. For the first time that I can recollect, major business groups are starting to commit substantial sums of money to the future of the Philippines. Just the top five groups, for example, have indicated plans in excess of US$25 million. I think ultimately as we continue to go with the reforms, these will allow us to increase the investment side of the equation in terms of our GDP growth rate. For the past 10 years, weve been relying on consumption for approximately 70% of our growth. That has allowed us to have a continuous growth of about 54-55 straight quarters since the Asian financial crisis. But unfortunately, the average trend growth is about 4.7% and what wed like to do is increase that to 7-8%. Right now we can increase it to 5-6%. We need to continue to tackle the constraints to growth that are still there. Thats what President Aquino plans to do before his term ends.
Weve also increased our ranking dramatically in terms of WEF competitiveness ranking. Were one of 2 countries only that have had two consecutive 10-notch jumps. From 85th to 65th. However, this is still not where we want to be. Thats why were investing in technology, in our people, in aligning our policies so that we can continue to make doing business in the Philippines more fun.
All of these indicate that we are headed the right direction and we just need to follow through. The deputy governor of the Central Bank is here with us and the Treasurer of the Philippines is also here with us. Ill ask the Deputy Governor to give his opening remarks and the Treasurer also.