Get used to not being poor

We really have to get used to the idea that our country is not poor. Yes, we have a lot of poor in our midst… that’s obvious. But if we are talking about the economy, the Philippines is no longer among the poor countries of the world. Those who are protesting that billion dollar assistance to Europe are operating from a wrong premise about our country being poor.

Our problem is a very bad distribution of wealth. Our country taken as a whole has enough resources to start financing some of our infrastructure projects with little or no assistance from the usual ODA sources. Our problem is convincing wealthy Filipinos to invest here instead of warehousing their money with the banks or bringing it elsewhere.

The Bangko Sentral just reported that as of the end of last year, resources in Foreign Currency Deposit Units or FCDUs (remember the accounts of Corona that couldn’t be opened) are up by 1.4 percent to $30.1 billion from the previous year. Resident depositors accounted for 97.5 percent of total deposit liabilities.

The FCDU was initially conceptualized to attract forex deposits from non resident foreigners. That’s why there are those iron-clad secrecy rules similar to what they have in Switzerland and Singapore. But most of those using FCDUs are Filipinos who trust the dollar more, people like Corona.

Then there is the special deposit account (SDA) which has reached the level of P1.6 trillion and it is estimated to hit the P1.8 trillion-level by end 2012. The SDA is a means by which the BSP mops up excess liquidity in the system so as to manage inflation.

Every time the BSP intervenes in the forex market by buying dollars to keep the peso from appreciating too fast, a flood of pesos get into the system. Unless these pesos are taken out of the system through such means as the SDA, inflation may rise. That means higher prices for things we buy in the local market.

All these money in our FCDU and SDA accounts indicate we are as an economy saving more than we are spending… we have a lot of idle capital resources in the vaults of banks and the BSP. If those Filipinos who own these accounts had more faith in our country, our government and our economy, these funds would be invested in things like factories and infrastructure and thus create more jobs.

Then there are the Chinoy taipans moving out their money and investing abroad, mostly in China. That too is quite substantial. If invested here, we may not even need as much foreign aid as we are begging for now. Lucio Tan and company are boosting the already strong Chinese economy instead.

Lucio Tan, George Ty and even Henry Sy are big investors in China. They are investing money they made here in the Philippines. In a sense, we can see that as capital flight. I don’t know if they can show sufficient repatriation of profits made by their foreign investments. (But in fairness to Henry Sy Jr., he invested a large part of his share in the family fortune to modernize the National Grid).

All the news stories we hear about increased confidence in the economy are so far just press releases. We have yet to see these people who are talking good about the economy actually taking their money out of the bank vaults and putting these where their mouths are. Talk is cheap and unfortunately that’s all it takes to be in the good graces of Malacañang. But the real economy requires action.

Last Monday, my colleague Marichu Villanueva raised the point in her op/ed column that Official Development Assistance loans tied to companies in a donor country are more expensive than if we had a competitive bid. We are no longer so poor as to have no choice but to accept onerous ODA loans.

Citing the case of the LRT modernization requiring the procurement of some 156 LRVs or train coaches, Ms. Villanueva reported that the estimated cost of one of these LRVs is a whopping $3,279,666. On the other hand, competitive procurement under a completely untied loan will likely result in a cost ranging from $2 to 2.5 million per LRV.

Ms. Villanueva did some basic arithmetic and found out that “procurement of LRVs costing $2.5 million would result in principal and interest repayment of $474 million or savings of $37 million. A winning bid of $2 million per LRV would cost an estimated $379 million all in, saving the taxpayers $132 million or about the same amount as the commissions unscrupulous government officials and brokers had hoped to pocket in the infamous ZTE-NBN project.”

Ichu makes very good points. We should be able to raise the amounts needed for those LRVs domestically if the right financial package is designed and offered to local investors.

Government can enhance its PPP program with a scheme whose aim is to reduce the costs of PPP projects by using the government’s cheap borrowing costs (from ADB or WB, for instance) to finance a private sector operator selected in a tough competitive bidding.

DOTC Sec. Mar Roxas was talking about something like this early on. It is time for the finance guys to sharpen their pencils and devise such a scheme… something like what ADB is doing for those electric tricycles but better thought out and a lot more meaningful.

Incidentally, BSP Governor Say Tetangco in reply to my query responded that “under its Charter the BSP can’t engage in development financing like infra... But we can sell foreign exchange to the National Government if they have forex requirements for their projects.” Some uninformed people are saying the billion dollar assistance to Europe be used to finance development here instead.

In sum, we have to stop thinking of our country as dirt poor. And because we now have some means, we have to start assuming some obligations in the community of nations. What we have to work on is vastly improving the distribution of wealth in this country. And in the meantime, those who do enjoy control of this nation’s wealth, specially the taipans, should make the effort to invest in this country before moving capital earned here to investments overseas.

Davao City

I received this e-mail from Herbert Ignacio. I’m a regular reader of your column in The Philippine STAR. I greatly appreciate your insights and views on matters that affect the general public.

We have almost the same outlook on certain issues. In fact, on today’s issue, you emphasized the importance of peace and order to entice the investors to do business. At some point, you mentioned about Bayani Fernando of Marikina and Tomas Osmeña of Cebu doing a Lee Kuan Yew of Singapore.

Yes, I agree that our country needs leaders like them, strong willed and determined. However, I’d like to suggest that the names of former Davao City Mayor Rodrigo Duterte and current Tagum City Mayor Rey Uy be included in the list. These two people have shown exemplary record in maintaining peace and order in their respective LGUs that should have been emulated by other LGUs in the country.

I may sound biased because I’m a resident of Davao City. However, the peace and order situation is the main reason why I emigrated to this great city years ago from a small town in a southern Luzon province. I have traveled almost every corner of the Philippines as my work demands, but I have never seen cities as peaceful and orderly as Davao City and Tagu m City in Davao del Norte.

In Davao City, smoking ban in public places has been strictly implemented for 10 years already. Besides, the law on liquor ban from 2 a.m. to 6 a.m. has been enforced. Firecrackers are not allowed since 2002.

On top of that, Davao City is the first city with the so-called ‘911’. Moreover, the city has the most advanced traffic light system in the country that impressed Ayala Land president Antonino Aquino so that he’s incorporating it with the redevelopment plan in the Makati CBD.

In Tagum City, roads and sidewalks are well-paved. Tricycles are all colored green and the public cemetery is well-organized. Traffic violators are arrested and fined.

These two cities are the classic examples of peaceful and orderly LGUs. What makes it ironic is that, these are situated both in Mindanao, a place often tagged as dangerous because of bombings, kidnappings and the like.

Both Davao and Tagum cities have not received enough media attention on the favorable peace and order situation. More investors should have poured in billions of pesos had they known enough about these two cities.

Thanks and more power!

Economy

Saw this line on the web. The US economy is getting so bad a truckload of Americans was caught sneaking into Mexico.

Boo Chanco’s e-mail address is bchanco@ gmail.com. Follow him on Twitter @boochanco