Coup effect on business climate starts to be felt (Investments may be hard to justify in the short term)

Manila last Sunday and almost immediately after hosting a reception for 600 top officials of the top 500 corporations in the country. “Many businessmen I know canceled their trips. The planes to Manila were half empty,” he observed, but nothing was to stop Merrill Lynch from coming. He said the only change in plans involved in a Sunday instead of a Saturday arrival.

Mr. Dobbs-Higginson said his firm’s commitment to the country is also expressed in a macro economic research report which he said Merrill Lynch is the first to have undertaken among American firms.

ENCOURAGING

The report is “by and large encouraging” he said, and Merrill Lynch’s name on it shows the firm is willing to stake its reputation on the report’s content, he noted. He said the report will be circulated to Merrill Lynch clients worldwide and thus, should give the country wide exposure as an investment area.

Over the medium- term, however, Mr. Dobbs- Higginson warned that “it is not going to be easy” to attract foreign investment into the country.” There are lots of perceptional problems to overcome,” he said.

He pointed to the insurgency problem in the country, widespread talk of debt repudiation, the perceived lack of the environment for “conducting business affairs in a business manner,” and the persistent coup attempts as serving, in foreign investors’ minds, as deterrents to their investing here.

DESTABILIZING

“The insurgency is a very destabilizing factor,” Mr. DobbsHigginson said. Although President Aquino’s policy of solving the problem through peaceful means has been “very positively received abroad, there comes a point where you have to get tough because you can’t have constant insurrections going on. And when you’re a long way away from local shores, you might confuse the insurgency with the attempted coup.”

Asked if coup attempts such as the one the country just went through could not be viewed as part of the transition process the country is experiencing, the Merrill Lynch official said simply: “You can’t say that a coup attempt is natural.”

DRAMATIC MISTAKE

Debt repudiation by the country “would be a rather dramatic mistake,” he said, pointing to Peru as a bad model. No responsible government or person can repudiate commitments, he said, insisting that a reasonable solution is to ask for a renegotiation of the commitments in the “spirit of compromise.”

The Merrill Lynch official expressed great admiration for Finance Secretary Jaime V. Ongpin and Central Bank Governor Jose B. Fernandez, Jr. who have both consistently denounced repudiation as a means of hastening the country’s economic recovery.

BALANCING ACT

“I have a great faith in Mr. Ongpin and Mr. Fernandez,” he said. They know the realities of the outside world and are doing their best to ensure that the interest of the Filipino people are taken into account, at the same time recognizing the realities of outside investors. They are performing a very difficult balancing act.”

Conducting business affairs in a businesslike manner, from the investor’s point of view, involves the absence of bureaucratic red tape and any extension of the old form cronyism, Mr. Dobbs-Higginson said. He indicated, however, that the foreign investors get some assurance from the Aquino government’s external reputation of being very definitely against any form of cronyism and corruption. “The President comes across as being very sincere,” he said.

INSURGENCY

“The insurgency problem also comes into play here because the foreign investor constantly wonders up to when government will remain in power. If the fabric of society consistently changes around him, it is rather difficult for him to conduct his affairs,” Mr. Dobbs-Higginson stressed.

Merrill Lynch itself had a range of views on the bloody Friday coup “from something quite dangerous to a sideshow, or something like a non-event,” Mr. Dobbs-Higginson said. But from the point of far away investors, the coup perpetrators will likely be another batch of insurgents different from that of the Muslims and communist insurgents, he warned.

Mr. Dobbs-Higginson said the Philippine situation is different from that of Thailand which has also been rocked by persistent coup attempts but whose economy has been improving steadily.

“Thailand has a king, he is very important in holding the country together despite the coups. He stays. Its business as usual after the coups,” he said.

PLUS FACTORS

The Merrill Lynch official cited as the “plus” points for the Philippines the “definite opportunities” that abound here, the abundance of natural resources, the educated people and the presence of industrial and infrastructure resources.

“It is just a question of how to tap these in a consistent manner so that one can direct the future of investment endeavors,” Mr. Dobbs-Higginson said.

Finally, he reiterated Merrill Lynch’s commitment to the Philippines and that the Philippines “is the place to be.”

“Obviously we will try to make that point to clients worldwide. But the arguments I’ve just presented I make from the position of a devil’s advocate. These are all the things we have to try and answer and they are not easy to answer.”

LEGISLATION

A very encouraging sign which investors will be looking for, he said, is the pace at which positive legislation is conducted, If there will be a “regular progression” of positive legislation from Congress so that “getting back to business is done promptly,” that would be a plus, he said. Investors would be a watching “very carefully” the interaction between Congress and the presidency in terms of new legislation affecting, for example, agrarian reform, he said. “Will self-interest play a major part in Congress or will it rise above it and try to process these initiatives until it gets the presidential program approved?” he asked.