WHERE TO THE PHILIPPINES THE WALLACE REPORT

WHERE TO THE PHILIPPINES

BY

PETER WALLACEFebruary 2008

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3rd Version

A country that needs radical change.

And its leaders to recognise that—in a positive way.

Will it ever get it? It doesn’t seem so.

The Wallace Report February 2008

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THE WALLACE REPORT

WHERE TO THE PHILIPPINES – 3RD VERSION

A country that needs radical change And its leaders to recognise that —in a positive way.

Will it ever get it? It doesn’t seem so. INTRODUCTION This paper was developed from an earlier one: “Does the Philippines Have a Chance” written in October 2002, updated in June 2004. Most of what was said then can still be said now, 5 years later (that in itself tells you much). So the key question is: When will the country’s leaders do something about it beyond just talk – and produce numerous plans and promises that rarely get translated into specific actions and, more importantly, positive end results? The Speaker has written to the President suggesting the need for moral recovery, which she and he could lead. This despite that, the country has sunk through their term to the lowest level it’s ever been on the ranking of corruption in the world. The document reads like a hundred I’ve read before. It makes suggestions I and many others have been making for over 2 decades with nothing being done to address them. I don’t mind if I’m accused of cynicism but I’m willing to bet as little will come out of this initiative as well. It requires a level of revolution this government is not capable of, or willing to execute. This paper further advances the issues, and adds to them. When will someone actually DO something about them? And I will not accept that the recent economic spurt, to a commendable 7.3% in 2007, is a harbinger that the necessary change has now occurred. As this paper will highlight later, it hasn’t. The growth has been too narrowly focused and is not benefiting the bulk of the people, nor is it likely to. And without radical change it’s a cyclical spurt similar to those we’ve seen in the past. Anyway, as I’ve enumerated elsewhere, the 7.3% is high for the wrong reasons. The real economic growth would be more in the order of 5% to 6% if it were healthy growth properly benefiting the whole community. COMMENTARY The problem I have, that led me to writing this paper, is that in almost any statistic you look at the Philippines is the worst, or close to it in Asia. That was not the case in 1975 when I first invested here; it is today. And the funny thing is that people call me a doomsayer for saying so. For saying what the facts tell us.

The Wallace Report February 2008 2

THE WALLACE REPORT

Where to the Philippines… Any logically thinking person can reach only one conclusion: The way the country has been run is wrong. It was not below Malaysia, Singapore, Thailand or Indonesia in 1975; it was ahead of them. It’s behind now. Who else can be to blame than those that lead the country, that set its directions, that decide priorities, that determine basic policy? If not them, who? What does it take to get this message through to the country’s leadership, that what they are doing may seem to be good for them. But it’s no good for Filipinos as a whole. It’s not good for the country. That’s not my “doomsaying” assessment, that’s unbiased, factual statistics, mostly government statistics or independent, unbiased analysts and multilateral agencies that can’t be disputed. This paper tries to address some of that. It needs better minds, much wider discussion and then wide public pressure to force change because I don’t see it happening of politicians’ own volition. There must be change, radical change. Character change, not charter change, as the Church so well said. Just ask the 43.5 million people in poverty (that’s SWS’ figure, a much more reliable one than the government’s. But even the government’s figure of 33% (some 28 million) puts it at or near the bottom in Asia. I cannot accept that 43.5 million Filipinos are poverty stricken when they didn’t have to be if they’d had leadership that truly identified the problems and then truly did something about them. Handouts is not doing something about it, creating jobs (here, not abroad) is. EXECUTIVE SUMMARY In the past 35 years the Philippines has averaged a 3.0% annual GDP growth and a population growth of 1.9%. Which means almost no improvement for the Filipino over the past 3 decades. This is about half the rate achieved by other nations in Asia.

30-YEAR AVERAGE REAL GDP GROWTH RATES OF SELECTED ASIAN COUNTRIES, 1971 - 2005

Look at who’s at the bottom?

CHINA 8.7%

KOREA 7.4%

SINGAPORE 7.0%

MALAYSIA 6.9%

VIETNAM 6.7%

THAILAND 6.2%

INDONESIA 5.7%

INDIA 4.9%

PHILIPPINES 3.0%

THE WAY THE COUNTRY HAS BEEN RUN IS WRONG


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Where to the Philippines…

If you look at it on a per capita basis (which is really the much more important determinant, because it’s the people themselves) the story is even worse.

GDP per Capita (current prices)

Country 1971 (US$)

2006 (US$)

China 146 2,001 Singapore 6,336 29,917 Korea 2,489 18,391 Vietnam 199 723 Malaysia 1,378 5,718 Thailand 615 3,136 India 213 796 Indonesia 303 1,640 Philippines 843 1,345

But it’s even worse than that. Because the top 10% of the population takes 36.3% of the wealth, while the bottom 20% gets only 4.7%. Which works out to US$260 of per capita income for the poor. You can’t live on US$260 per year. The inequality of wealth distribution is one of the worst amongst these countries. Why is the record so dismal? I suggest: 1. Feudalism, at all levels 2. Politics - vested interest vs. national good

3. Uncontrolled population growth 4. Weak educational system 5. Corruption 6. Inadequate infrastructure 7. An agriculture system that hasn’t improved in 30 years

8. An inadequate focus on job creation 9. A judiciary in need of major improvement 10. Weak law and order 11. Threats to security 12. Lack of good governance.

If these 12, and it must be all 12 of them, aren’t fixed the Philippines will average 3.0% for the next 30 years too. The recent “spurt” of 7% will be just another short-term wonder. One we’ve seen before (1988/89 and 1996/97). The logic of this can’t be denied as none of these issues has been subject to any substantive change in recent years. In fact, in most instances there’s been a decline in the systems or, at best, a status quo. Admittedly the economy may achieve 5% or 6% on a more sustained basis with some tweaking of the system, but this won’t break the poverty trap within any reasonable time frame.

Source: World Bank, United


THE WALLACE REPORT

Where to the Philippines… On the numbers that really matter: Poverty and employment in the Philippines has seen little improvement in the past 30 years – and have seen none in the 6½ years of this administration. Mind you, government says that comes next but without the changes we’re suggesting here it still won’t happen. And, anyway, just how long does it take to start to see the beginnings of improvement? In 2000 before the President came to power, there were 43.5 million in poverty (self–rated, which we consider a more accurate measure) and 3.5 million unemployed. Six years later, in 2006, 47.2 million were poverty-stricken and 4.1 million were unemployed (correctly using the same definition). There is a 13th but I’ve been hesitant to include it because of the strong emotions attached. But if the Catholic Church wishes to reflect, it does seem to me to be opposed to too many things, rather than looking for pro-active ways in which it could perhaps help. Let me give just one example, an important one: Mining. The Church wants to stop mining because of the environmental damage it does. Fair enough if we look back on history. But if we are to consider modern mines that are properly run in a responsible manner we find environmental damage is minimised and transitory. A responsible mining company when it has finished mining puts the area back into a condition as good as, if not better than, when they started. Philippine law requires it. So the Church should put its attention to ensuring mining is responsibly done, that the law is properly implemented and enforced, so its rural flock can enjoy a decent standard of living. And so that everyone in the world, including them, can enjoy the modern style of living we have today. And, when you think about it, the Church can’t be against mining per se, just look at all the gold it uses. Not to mention the electronics industry (mobile phones, TVs, computers, etc, etc) that couldn’t be built without the use of gold and other base metals. We have a world that wouldn’t exist without all the metals, cement, etc that we mine. Anyway, the Bible tells us to mine: “For the lord your God is bringing you into a good land – a land with stream and pools of water, with springs flowing in the valleys and hills. A land with wheat and barley, vines and fig trees, pomegranates, olive oil and honey. A land where bread will not be scarce and you will lack nothing: A land where the rocks are iron and you can dig copper out of the hills. When you have eaten and are satisfied, praise the Lord your God for the good land he has given you.” Deuteronomy 8:7-10 (New International Version) How can some members of the Philippine Catholic Church possibly oppose what God has told them to do? Middle Eastern countries are rich because they extract oil from the ground and sell it. The Philippines is poor, in part, because it has not taken advantage of the wealth it owns. I hate to quote her, but Imelda Marcos was right, this is a rich country pretending to be poor. And the Church, I regret to say, is helping to keep its people poor by its adamant opposition to mining.


THE WALLACE REPORT

Where to the Philippines… The Church needs to re-appraise its position on population too (see later). At its present rate of population growth (1.9%) and the economy (4–5%) it will take 30 years for the Philippines to catch up to where Thailand is today. Even at 6%, it will take 25 years. Some 25 years ago it was slightly ahead of Thailand. Go back 40 years and it was second to Japan. Soon it will be behind Vietnam (which is growing at 8%, while its population is growing at a modest 1%). Watch Cambodia come into the picture soon. Science has proven that nothing happens until about 2 days after an ovum attaches to the womb. So any action that intervenes before that is not even interfering in life, there is no life. If God had intended man to have babies only in a natural way he’d have designed us like all the other animals (except the dolphins, but that’s another story) and made the female desirable only when she was “in heat”. He didn’t. He obviously meant us to enjoy sex for its own sake, and I think we’d all admit we do. The logic is inescapable, and I’m at a loss as to why the Church doesn’t understand that logic. Taking that logic further, if the Church insists that only natural methods are permissible then the same law should apply at the other end of life. Using machines to keep people alive beyond the time God had intended must be equally sinful because it too is man interfering in what God intended. Now I no more subscribe to that absurdity any more than I do to the one of banning contraception. But I’d like the Church to explain to me why one in permissible but the other isn’t. Mr. James Fallows was right when he said this is a damaged culture. It is a selfish culture where too many think only of themselves (and family) and care little for others, or the nation as a whole. And, as the numbers that are meaningful to people show, it is a failing economy that needs major change if it is to progress to the benefit of the people. I cannot emphasize too strongly that without fundamental change in these 12 areas (and a positive role by the Church), and the cultural change to go with it, the Philippines will be the basket case of Asia one generation from now. And this change won’t occur if the culture, the attitude (of the leaders) doesn’t change. The Church said it so well, not charter change, but character change. The Philippines needs character change. Leadership is what it’s all about. Leadership of any country is important – but is particularly so in a country as personalistic and paternalistic as the Philippines. And where the president wields enormous power, or can if he, or she wishes to1. This country needs a tough, determined, visionary leader who can motivate the people to want, even demand change for the betterment of their country. And then ensure they get it. It will not be easy, it may not be always popular, it will need a skillful balancing act between pandering to politicians and generating public support whilst effecting major reform. Great leaders were so because they had a long-term vision for their country, gambled their careers to achieve it and were able to convince others to follow them in doing it. 1 President Arroyo in her 2007 State of the Nation Address said “a president is as powerful as she wishes to be,” which, when you think about it, is a pretty horrific thing for a leader in a democracy to say. That’s the sort of thing dictators mouth.

THE COUNTRY NEEDS CHARACTER CHANGE, NOT CHARTER CHANGE

ON THE NUMBERS THAT REALLY MATTER: POVERTY AND EMPLOYMENT IN THE PHILIPPINES HAS SEEN LITTLE IMPROVEMENT, EVEN A WORSENING RECENTLY


THE WALLACE REPORT

Where to the Philippines… The Philippines needs a great leader, statesmanship from politicians. And the active, involved support of the elite — for the common good, not personal aggrandizement. Will it be done? In 2002, I said: “A 9-year presidency gives her a chance for that change”. Well, 6½ years of that 9 have gone and President Gloria Arroyo has not addressed those issues in a sufficiently meaningful way. She’ll argue she addressed some. I’ll agree, but too few and it has not been in the fundamental way necessary to break the economy out of its desultory performance and achieve the real 7%+ growth on a sustained basis it must achieve if it is to break the back of poverty. A poverty that can be reduced even faster if population growth is brought under control — as it must be for humane reasons if nothing else. Just look at the innumerable pictures of starving children.

These are some of the luckier ones – they at least have some food. She had a once-in-a-lifetime 9-year opportunity to effect that change. Now she has but 2½ years. She needs to move much faster and more forthrightly than she has so far if she is to achieve it. If possible with the public’s support (something she should strive to obtain) but if necessary, still act without it. There needs to be less attention to political survival, and more to national development. Somehow I’m not too hopeful. What could have been a (almost) decade of real progress has been effectively wasted. For the sake of those Filipinos who really care for their country. It’s time to act, not talk. To focus on economics and social change, not politics.

IT WAS TIME TO ACT A LONG TIME AGO


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Where to the Philippines… If you still think it’s not important to make substantive changes, just look at some of the numbers that matter, the numbers that relate to the quality of life of the people, and what’s happened to them in just the past 6½ years.

IN A NUTSHELL SOME THINGS THAT WILL WORK

Put 2 big, well-known corruptors who are in favour with the administration in jail. Put 2 big tax evaders who are seen as being close to the Administration, in jail. And a couple from the

opposition, too, for balance. Put 2 of each from the opposition is well just to show impartiality. Appoint only Secretaries and Undersecretaries, nothing below. And select them for competence and

expertise, not political or social connection. All below should be career officials, no more political appointments. All current political appointees should be retired.

Offer an attractive “retirement” package to all government officials. Use the money saved to increase the salaries of those remaining. A doubling of salaries should be aimed for.

Mandate deadlines, with much shorter time than currently for all government actions — or it’s automatically approved.

Reduce government signatures required to 2, with 3 as the maximum in special cases. Have only one form to fill in to register a business, or do much else in government. The receiving

agency should be the one to distribute to all relevant agencies, not the registrant. Put the E-procurement law into full effect. Take measures to get the power sector up to the level needed to ensure full supply at all times. Privatize NPC at any cost — and provide guarantees for “political risk”. Provide guarantees for all BOT projects for political risk using the World Bank offer. Reduce time to process BOT projects from 4 to 7 years to 1 by using independent consultants to

prepare the terms of reference of projects. Ensure the infrastructure projects promised to be started this year do all get started. Concentrate infrastructure development in the Greater Manila Area, Central and Southern Luzon areas

for now — where the best leverage into economic growth can occur. But do expand irrigation in the rural areas.

Apply an annual index on the excise tax on sin products and remove the classification system — even increase the tax further – as most other countries have done.

Re-establish and strengthen the family planning clinics, to provide information and assistance on all kinds of contraception. Let people make their own decisions.

Provide free education for primary and secondary schooling—plus provide the funds for all ancillary costs. Remove the government funding for tertiary schools and devote congressmen’s “pork barrel” to pay for this. Add 2 years to the school system, and strive to reduce classes to a maximum of 30 students.

Ensure English as a primary language – and it is that properly taught. Rewrite the Constitution to remove the economic limitations. Concentrate all efforts on promoting and supporting the 5 areas of “natural advantage”:

Agriculture Mining Tourism I.T. Healthcare, and retirement


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THE NUMBERS SAY IT ALL:

QUALITY OF LIFE IINNDDIICCAATTOORRSS 22000077 22000000 RREEMMAARRKKSS

Real GDP per capita (Php) 15,589(est.) 12,670 3% P.A. growth Unemployment 2.6M, 7%(new definition) 3.5M, 11.2% reduced labor force

under ‘07 definition Underemployment 6.6M, 19.7% 5M,19.9% 1.6M more FDI US$2.5B US$2.2B Slow and low uptake Degree of hunger 17.9% 10.8% Worse Poverty Government 25.5M, 33% (2003) 23.8M, 30% 1.7M more SWS self-rated 43.6M, 49.5% 43.5M, 56.5% No improvement Education as % of budget 11.4% 17.4% 6% points less NG Spending on infrastructure

1.6% of GDP 2.7% of GDP 1.1% points less

UNDP human development ranking

90th out of 177 countries

70th out of 162 countries(2001)

Slipped 20 places

The way unemployment is measured was changed in 2005. The change in the definition effectively reduced those counted under the labor force by including an additional criterion in the labor force definition – the “availabity to work”. An example of those now excluded would be students who seek work, but are actually studying. Another would be those who have given up looking for work. With the redefinition, unemployment now stands at only 7%. The new definition is fine for a first world country, but in the Philippines the reality is if you’ve stopped looking for work it’s most often because you’ve given up in despair knowing there’s not going to be a job for you. So, using a consistent definition there are more people un — and under-employed today than there were 6 years ago and more people in poverty. And its ranking in the world for how it treats its people is worse. Similarly, the Philippines’ competitiveness in the global market place has declined.

POLITICS REARS ITS UGLY HEAD

INDICATORS 2007 2000 Int’l competitiveness ranking:

Int’l Institute for Management Dev’t (IMD)

45th out of 55 – 82% 40th out of 49 – 82%

World Economic Forum (WEF) 71st out of 125 – 57%

36th out of 75 – 48%

Index of Economic Freedom 69th out of 141 – 50%

81st out of 161 – 50%

Corruption (Transparency International ranking)

131st out of 179 – 73%

69th out of 91 – 77% 65th in 01 — 71%

Security (Global Peace Index – EIU)

100th out of 121 N/A

Globalization Index (AT Kearney)

31st out of 62 N/A

These are not numbers to be proud of.


THE WALLACE REPORT

Where to the Philippines… In fairness the fiscal situation is much better, and credit must be given to the President and her financial executives for achieving it.

THE ECONOMIST SHINES THROUGH IINNDDIICCAATTOORRSS 22000077 22000000

GIR US$33.7-B: 5.9 mos. import coverage

US$15.1-B: 3.5 mos import coverage

Budget deficit P16.3-B surplus 4% of GDP Public sector deficit/surplus 0.1% of GDP (Jan-Sep‘07) 4.4% of GDP Current account US$4.17-B surplus: 6.4% of GDP

(Jan-Sep‘07) US$2.2-B deficit: 2.9% of GDP

Balance of payments US$6.7-B surplus US$509-M deficit Non-performing loans 5.19% of total loans (Sep‘07) 15.1% of total loans Foreign debt 42.8% of GDP (1H‘07) 67.5% of GDP Benchmark 91-day T-bill rate 3.38% 9.9%

But these numbers don’t relate to people, and its people we must talk about. The Philippines has had 2 revolutions in recent times but it has had no revolution. An unsatisfactory leader was twice kicked out, but the society remained essentially unchanged. And the basic problem still remains: A financially and morally impoverished people. The revolution of society hasn’t happened. Does it need to? Yes, here’s why. In 1938, the Philippines had the highest per capita income in Southeast Asia. In 1952, the Philippines had twice the per capita income of Thailand. Today, Thailand has twice the per capita income of the Philippines. These numbers, these statements can’t be denied, they are fact. And there are many, many more similarly dismal comparisons as the earlier boxes showed. As further example, next is a table comparing the Philippines with Thailand. So it’s very, very clear something is fundamentally wrong. We must seriously reflect on what that is, and correct it if the Philippines is not to sink even further behind. But what does it take to get this country’s leaders sufficiently concerned to act? If it were me, I’d be mortified to lead such a dismal record. And be searching with considerable urgency for answers.

OBVIOUSLY SOMETHING IS FUNDAMENTALLY WRONG


THE WALLACE REPORT


THE PHILIPPINES VS. THAILAND: SELECTED DEVELOPMENT INDICATORS

1975 2005 Indicator

Philippines Thailand Philippines Thailand Remarks

GDP (US$B)

15.8

14.7

99.0

196.6

Double

GDP/head (US$)

376

354

1,176

2,749

More than double

Population (M)

42.1

41.4

85.2

64.8

24% less

Domestic savings rate (%)

21.9

22.3

20.1

29.4

1/3 less

Export of goods (US$B)

2.3

2.20

46.8

130.0

3 times more

External public debt (% of GDP)

16.4

8.7

61.6

43.5

30% less

Net FDI (US$M)

97

87

1,100

4,500

4 times more

Poverty incidence (% of population - 2003)

52.0

NA

33

14

4 times less

Infant mortality (per 1,000 live births)

60

75

25

18

12,000 babies in 2005 died who shouldn’t have

Access to safe water– urban (%)

67.0

60.0

90.0

98

slipped slightly

Sources: Asian Development Bank (ADB (ADB Key Indicators); World Bank Did you get that? Some 12,000 babies died who shouldn’t have. If you’re a parent reflect just for a moment how you’d feel if your baby died because your government wasn’t looking after you the way it easily could. Thais, Malays, Chinese in Hong Kong and Singapore aren’t any better or smarter than Filipinos, but their countries are doing much better. The conclusion is obvious: The structure of society and the way in which it’s led has been wrong. “More of the same” won’t work.


THE WALLACE REPORT


Almost none of this could be said by the time we first wrote this report in 2002, and still can’t be said today. What is urgently needed now is to not only find out what has gone so drastically wrong, but then take decisive action to effect the necessary change. EDSA DOS should not be wasted. And there should not be an EDSA TRES. We must answer this problem—and then solve it, or the Philippines, and Filipinos, except for a small elite, will remain desperately poor, and growingly so, throughout this century. One of the most horrifying numbers is that there were 20 million Filipinos in poverty in 1970 (based on official statistics); 37 years later, this had increased further to 28 million. If it is based on the more realistic self-assessment, there were 47.2 million who considered themselves poor in 2006 — half the population! That’s worse than just 6 years ago when there were 43.5 million. Forget the percentage of population government likes to announce. We’re talking about actual, real people, not percentages. Which means 3.7 million more people were poverty stricken in 2006 than in 2000. Let me repeat it so it’s very, very clear: We’re talking about people. If more people in real, actual numbers are in poverty then the system has failed its people. The government and the Church must both take responsibility. How do we get them both to understand that, accept it and then do something about it? If you refuse to recognise the problem, how can you fix it?

In 1957, the World Bank said:

“… THE PHILIPPINES HAS ACHIEVED A RAPID RATE OF ECONOMIC GROWTH IN THE POST–WAR PERIOD (SINCE 1949). PRODUCTION HAS CONTINUED TO GROW AT AN

ANNUAL RATE OF 7 PERCENT, DESPITE THE DISRUPTING EFFECTS OF THE HUK MOVEMENT, WHICH HAMPERED ECONOMIC ACTIVITY UNTIL 1952…

BY COMPARISON WITH MOST UNDERDEVELOPED COUNTRIES, THE BASIC ECONOMIC POSITION OF THE PHILIPPINES IS FAVOURABLE. IT HAS A GENEROUS ENDOWMENT OF ARABLE LAND, FOREST RESOURCES, MINERALS AND NORMAL POTENTIAL. THROUGH A

COMPARATIVELY HIGH LEVEL OF EXPENDITURE ON EDUCATION, TRANSPORT, COMMUNICATIONS AND INDUSTRIAL PLANT OVER THE PAST 50 YEARS.”

“THE PHILIPPINES HAS ACHIEVED A POSITION IN THE FAR EAST SECOND ONLY TO JAPAN,

BOTH IN RESPECT TO ITS LEVEL OF LITERACY, AND TO PER CAPITA PRODUCTION CAPACITY… THE PROSPECTS OF THE PHILIPPINE ECONOMY FOR SUSTAINED LONG–

TERM GROWTH ARE GOOD. APART FROM GENEROUS ENDOWMENT OF MATERIAL RESOURCES AND HIGH LEVEL OF LITERACY, OTHER FAVOURABLE FACTORS ARE THE GROWTH OF THE LABOUR FORCE, THE AVAILABILITY OF MANAGERIAL AND TECHNICAL SKILLS, THE HIGH LEVEL OF SAVINGS AND INVESTMENT, RATHER GOOD PROSPECTS

FOR MOST OF THE PHILIPPINE EXPORTS, AND CONSIDERABLE POSSIBILITIES FOR IMPORT SUBSTITUTION”

WE’RE TALKING ABOUT ACTUAL, REAL PEOPLE, NOT PERCENTAGES

IF YOU REFUSE TO RECOGNISE THE PROBLEM, HOW CAN YOU FIX IT?


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Where to the Philippines… I cannot emphasize too strongly that action to effect that change must occur. Talking about it is not action. Writing innumerable plans is not action. Doing it is. There were 43.5 million in poverty in 2000, 3.7 million more are now. I can’t accept that, can you? Will you do something about it? In the main, change will have to come with the next generation through a school curriculum that emphasises social responsibility, morals and ethics. The Church too must do a better job; it’s clearly failed with this generation of leaders. A sense of being part of a whole, of a team — Team Philippines. That it is fundamentally wrong to think of just self and family. But a start can be made now through informational campaigns by government and by addressing some of the issues contributing to the decline of the Philippines. Selfishness, unfortunately, is not something that can be changed overnight — but it can be changed.

THE MAJOR CONCERNS FOR DOING BUSINESS IN RP (As identified by CEOs)

RANK ITEMS

SCORE 2006 2004 2003 2002

Corruption 123 1 1 1 2

Political Instability 52 2 2 5 5

Peace and Order/security problems 41 3 3 2 4

Bureaucractic red tape/mess 39 4 6 4 6

Inconsistency of policies 33 5 5 9 10

SOURCE: 2006 Corporate Performance Survey Nothing that is said in this report hasn’t been said before, but I had been hopeful that by tying it together in one concise report it may help focus attention on a serious rethink of Philippine society and the recognition this is possibly the last chance for a long time to effect that change. Well 5 years have gone by since I first wrote this — and nothing has changed. If anything, in some areas it’s gotten worse (see the table on page 8 for a few examples). Critical, and most difficult, is explaining why drastic action is necessary—and will be to the benefit of all in society, particularly the poor and underprivileged. The hard part is getting the leaders to genuinely care. Selling its policies and reforms is something the government (all of them) has been particularly poor at. Government seems unable to bring explanations down to the level of simple people and counter the emotional arguments of the opposition. There will be antagonistic reaction by some to much of what I say, but it’s said by someone who loves this country and is convinced that, after over 30 years of analysis and involvement, fundamental change in the systems and attitudinal change in the leaders must occur if poverty is to be eradicated and the average Filipino is to have a chance for a decent life in his own country — instead of fleeing it as 8 million have done. And many more would if they could. Fixing the fiscal situation, which the government is doing, is important but it is not the fundamental change I am talking about. It is a good start, but is but a small start. And that fix remains, anyway, too narrowly focused and fragile. Far too few are benefiting from it.


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Where to the Philippines… Poverty cannot be eradicated unless the economy (as mentioned earlier) grows at over 7% per annum on a sustained basis. The economy as presently structured can’t do this. So the first thing to be addressed is the economy. Everything else can follow. To get poverty below 15% of population from the current 30% (the latest official figure for 2003) will take 15 years at an average GDP growth rate of 6.5% (the best it will do in the current environment). At a 7% growth rate, it falls to 8 years. And only then if that economic growth translates into a better distribution of wealth and opportunity favoring the poor and disadvantaged. Under the current structure this hasn’t happened as the numbers quoted earlier showed. So it is unlikely to happen into the future. So the 15 years would be only under the most ideal circumstances. The reality is it would be much more than that. And if we take a more realistic self-rating of poverty, then 54% (SWS in 2006) of households consider themselves in poverty. To bring this to 15% would take 40 years. And this is an area that is too often glossed over: Inequality. The GDP/capita of P14,849 is not equally shared. The top 10% of the population skim off 36.3% of the wealth. The bottom 20% share 4.7%, which equates to an unliveable P7,000 per annum (not per month) per head. The quality of life could be good in the Philippines — but only if we face up to the reality that massive change must occur. The trouble is that the kind of change needed doesn’t show much in the way of short-term results, which is one (by no means the only) reason they’ve not been tackled before. Short-term, high impact solutions won’t solve the Philippines problems. Addressing these issues will.

POVERTY CANNOT BE ERADICATED UNLESS THE ECONOMY GROWS AT OVER 7% PER ANNUM ON A SUSTAINED BASIS AND THE WEALTH IS MORE EQUITABLY DISTRIBUTED. AS CURRENTLY STRUCTURED IT CAN’T DO THIS.

IF YOU WANT TO GET THE 54% OUT OF THE MISERABLE POVERTY THEY LIVE IN —CREATEPAYING JOBS. AND CREATE THEM HERE NOT OVERSEAS, SO FAMILIES CAN STAY TOGETHER. REMEMBER IT’S BUSINESSMEN THAT CREATE JOBS – AND NATIONAL

WEALTH. NO ONE ELSE DOES. SO, WHAT IS GOOD FOR BUSINESS IS GOOD FOR FILIPINOS.


THE WALLACE REPORT

Where to the Philippines… MAIN REPORT THE SAD STATISTICS The Philippines has averaged a GDP growth of 3% over the past 35 years (see chart). A better 5% in recent years, but still well below what’s necessary. And anyway it’s done that kind of growth a couple of times before too, but it never lasted.

PHILIPPINE GDP GROWTH RATE (%)

The few times it hit 6% it’s done so for only a year or 2. And it’s only exceeded 7% twice in the past 30 years, and then only for that year. The first time it did was in 1973 when the government implemented a policy to encourage exports and foreign investment. It happened again 3 years later in 1976 during martial law when huge amounts were spent to spruce up Manila for 3 major global events — the IMF-WB convention, Ms. Universe pageant, and the Ali-Frazier boxing fight! Five times it hit 5-6% but couldn’t sustain it. Political crises were the main pull-down factors, but so too were the economy’s structural and physical weaknesses. The collapse in 1997 was an exception as it was due to the Asian financial crisis triggered in Thailand.

-9

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MARCOS - MARTIAL LAW CORY FVR ERAP GMA


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AVERAGE REAL GDP GROWTH RATES OF SELECTED ASIAN COUNTRIES (1971-2005)

Clearly 3% is not good enough. All major Asian countries have done better. Even during the Asian financial crisis most did better than the Philippines’ 30-year average. Worse, if you look at it on a compounded basis, calculating from a base of 100 in 1975 then China has grown 5 times more than the Philippines; Thailand (the country we can most reasonably compare with) has grown at least 2 times more. And on a per capita basis, the Chinese have become 7 times richer than Filipinos, and the Thais, 3 times richer. In recent years Vietnam, that had a GDP/capita of US$290 in 1995 or 1/3 of the Philippines, is now only less than 50% behind. And will overtake us in less than 15 years at the present (2006) rates of growth of both countries.

COMPOUNDED PER CAPITA GDP INDEX (1975=100)

COUNTRY COMPOUNDED COMPOUNDED COMPOUNDED GDP INDEX POP’N INDEX GDP PER CAPITA INDEX

CHINA 1012 138 733

KOREA 654 131 499

SINGAPORE 639 156 410

MALAYSIA 518 195 266

THAILAND 483 145 333

INDONESIA 372 156 238

PHILIPPINES 215 185 116

0 2 4 6 8 10

ChinaS. Korea

SingaporeMalaysiaVietnamThailand

IndonesiaIndia

Philippines


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Where to the Philippines… But, of course, this is too general as a determinant, it assumes similar income distribution – GDP/capita averages out the super rich with the desperately poor. Evening out the hugely unequal distribution of wealth in the Philippines is equally important. As it now stands 10% of the population accounts for 36.3% of the country’s wealth. The bottom 60% garners only 26.2%. Which means that the per capita wealth of that top 10% is P110,000, while the 60% poor, that’s 48.6 million Filipinos, get only P13,000. The bottom 20% are on an unlivable P7,000 per annum!

COMPOUNDED PER CAPITA GDP INDEX (1975=100)

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The Philippines, as currently structured, cannot aspire to these growth rates and will remain Asia’s laggard unless it makes massive, radical change. Concurrently with this change is the need to focus on what you do best. The Philippines has a built-in advantage in 5 areas:

1) Agriculture 2) Mining 3) Tourism 4) IT 5) Healthcare The Philippines has arable soil and a good climate; it has richness in minerals; it has beautiful places to visit and charming people; it has enough (for now) educated, English-speaking people adapted to Western culture; it is a society that cares for others where health is concerned. If all effort is focused on being the best in these, it can be. It’s called niche marketing, and when you’re small (as the Philippines within the global market place is), it works.


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Where to the Philippines… For example: The Philippines must concentrate on being a leader in the new IT world – the fastest growing sector in the world today. That means an IT-oriented curricula, an emphasis on English and a Department of Information and Communications Technology (DICT). This latter has been gathering dust in Congress as the current administration shows an equally apathetic interest in it. I cannot for the life of me understand why. We have a Department of Agriculture, and one of Trade and Industry. Well IT is going to be bigger than both – yet it has no high level attention (that a Cabinet-level Department would provide) given to it. Why does this even have to be argued? What’s even worse is that the various entities responsible for the development and regulation of IT have been kicked around like a football from one department to another. In the meantime, India, Ireland, South Africa, even Canada (all English-speaking) are streaking ahead in attracting IT business. And China is beginning to. It is a bill the President must encourage Congress to pass. The call centers and back-office firms that have established here has been successful, the momentum needs to be maintained. The lessons from the success of other countries can be learnt. 1. FEUDALISM In some ways, number 1 is perhaps much of the underlying problem. The history of Europe and the US to an extent was one of feudal lords and serfdom — and little economic or certainly social progress. A few families generated enormous wealth, the masses were mired in poverty or, as bad, serfdom. The middle class hardly existed. Sounds like the Philippines today, doesn’t it? The democratic revolution changed that. Today what dynastic control still exists in these countries is localized and essentially subservient to national dictate. In the U.K., for instance, a society where the hierarchical system was well entrenched, the middle class now constitutes 51.8% of the wealth base. The elite families, what few there are, are now only 8.8%. The poor (by English definition, certainly not by Philippine definition where they’d be considered moderately well off) are 22.4% of the economy. Around 45% of Americans are in the middle class, only 20% of Filipinos are. I postulate that these societies are highly developed today because they discarded the feudal systems, they built a wide base of egalitarian human economic development.

PASS THE DICT BILL — NOW

THEY BUILT A WIDE BASE OF EGALITARIAN HUMAN ECONOMIC DEVELOPMENT


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Where to the Philippines… In the Philippine Congress, of the 65 congressmen and women who couldn’t run again 70% put up relatives to replace them. To the best of my understanding there is no genetic trait that is predisposed towards political competence. The Constitution actually calls for a ban on dynasties, but unthinkingly left it to Congress to pass an enabling law. A Congress that thrives on dynastic practices. So of course the law will never pass. Unless public pressure is so intense they have no option. The likelihood of this is vanishingly small. As is politicians having a social conscience and saying, “Well there may be no law but the intent of the Constitution was quite clear, I’ll follow it of my own volition.” Even the President couldn’t do that, and if she couldn’t why should anyone else? Just one horrendous example, the Filipino people kicked out the Marcoses in a revolution 22 years ago for unbelievable levels of corruption and theft of the people’s inheritance. One of the family ran for Congress in the recently-held elections, and got elected. Imelda Marcos, reputedly (lawyers say I have to say that) one of the worst kleptocrats the world, not just the Philippines, has seen, still struts around town accompanied by fawning acolytes. And no one gets upset. I did, I left a party when she walked in. Now if everyone did that she’d be ostracized. For her that would be a worse penalty than jail. So let’s do it, let’s walk out when she walks in. It’s the least she deserves for the harm she did to this country. On the corporate front it’s the same. There are still too many of the largest companies controlled by family descendants, and too few public companies owned by a wide swathe of the public. Mind you some of these companies are very well run by the family, and successful because of it. But the wealth generated rebounds to the benefit of the few in those families, not to a wider mass of shareholders. And thence to development of the economy in a much larger range of areas. 2. POLITICS AND POLITICIANS Politics is at the heart of the problem. There are notable exceptions but, in the main, Philippine politicians are driven by their own agendas. Just one small example, we are proud that there were only 2 deaths during the May 1 rebellion. BUT there were over 150 deaths related to the 2004 elections, and 121 in 2007. No developed democracy kills its opponents just to gain a position of power. In the last 6 elections, since Marcos fell, there have been 830 to 850 politically related murders.

Type of election

Year

Violent incidents

Deaths

Local 1988 405 188 National & local 1992 157 89 Congress & local 1995 244 108 National & local 1998 322 77 Congress & local 2001 152 98 National & local 2004 249 150 Congress & local 2007 176 121

Sources: Friedrich Ebert Stiftung, Philippine Daily Inquirer

WALK OUT OF THE ROOM WHEN IMELDA WALKS IN


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Where to the Philippines… This is totally unacceptable. These are human beings that God gave life to – and no man is allowed to take away (the 6th Commandment). In Australia if there were even just one death there would be a huge outcry. The murderer would be caught and permanently jailed. Here no one gets caught. Occasionally the perpetrator is but the masterminds behind it never are. Yet everyone knows it was a politician seeking to eliminate his opponent. So I have a simple suggestion: when a politician is killed, his opponent is automatically banned from running in that election. If there’s more than one, they’re all banned. If there’s the occasional instance where it wasn’t a politician who ordered it then that’s tough for them. Maybe they’re not guilty, maybe it’s not fair – but killing someone is much, much less fair. If you can’t gain by killing your opponent, in fact, will lose, why do it?

I venture to suggest that the death rate will drop dramatically. If the senators and congressmen genuinely believe in the sanctity of life, then they’ll pass such a law. Families remain in power generation after generation. And too many of the other politicians are elected into power for no other reason but they are popular. Running for office when you are clearly untrained to handle it (as Mr. Estrada highlighted and Mr. Poe wanted to emulate) is another example. The beginning collapse of the economy under Mr. Estrada emphasises just how disastrous that can be—and almost could have been again. In business you have to demonstrate expertise and experience if you are to be allowed to take on senior managerial roles. Yet in the more important area of a country’s future you need no experience or expertise to presume to know how to manage the huge complexities of running a country. What madness is this? Democracy needs a rethink. A rethink toward an intelligent vote, not a mindless or, worse, “influenced” vote. Also those running for office should be required to have certain, fundamental minimum requirements. Not just the 4 simplistic ones the Constitution requires: To be born a Filipino; to be over 40; to have lived in the country for 10 years; and to be able to read and write. What presumption says being born Filipino makes you more nationalistic than someone whose been naturalised? To be over 40? Alexander the Great was 22 at the height of his powers and died at 33. Christ was also 33 when he died. And “able to read and write”? Oh come on. That doesn’t even begin to be sufficient qualification. Billions of pesos were spent and cheating was reported in the 2001 and 2004 elections, (and undoubtedly in 2007). Does anyone really think they spend all that money of their own or other people to win elections just so they can serve their fellow man? These are actions of people desperate for power and a return on their “investment”, not actions of people genuinely wishing to serve.

IF A POLITICIAN IS KILLED DURING AN ELECTION HIS OPPONENTS ARE BANNED FROM RUNNING

DEMOCRACY NEEDS A RETHINK


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Where to the Philippines… No society is perfect in this regard, but the Philippines, like in so much else, is at the bottom end of the scale. No business would put an inexperienced, poorly educated person in charge of a company, yet too many cities and regions, which are at least as complicated as a corporation to run, are run by people without adequate experience or training. And the low government pay ensures too many of his/her support staff is of mediocre capability, compounding the problem. JOB CRITERIA TO BE A CEO JOB CRITERIA TO BE PRESIDENT OF THE PHILIPPINES

UNIVERSITY DEGREE TOP MANAGEMENT EXPERIENCE IN

RELATED FIELD (AT LEAST 10 YEARS) FINANCIAL SUCCESS IN PREVIOUS

UNDERTAKINGS ABILITY TO GET ALONG WITH

PEOPLE RESULTS ORIENTED STRONG WORK ETHIC

LEADERSHIP QUALITIES

MORAL CHARACTER

NATIONALITY, AGE AND RESIDENCE TOTALLY IRRELEVANT

MUST BE A FILIPINO MUST BE AT LEAST 40 YEARS OLD MUST BE A RESIDENT OF THE PHILIPPINES FOR

AT LEAST 10 YEARS

MUST BE ABLE TO READ AND WRITE

WHY WOULD YOU WANT TO BE A SENATOR? SENATOR’S PORK & OTHER PERKS

SALARY/MONTH P35,000 x 12 MOS x 6 YRS= 2.5 M MONTHLY BUDGET FOR P1.7 M x 12 MOS x 6 YRS= 122.4 M OFFICE & STAFF EXPENSES FOREIGN TRAVEL & CAPITAL P760,000 x 6 YRS= 4.5 M OUTLAY/YR PORK BARREL / YR P200 M x 6 YRS= 1.2B (30%) 360 M

PLUS MONTHLY BUDGET FOR EVERY OVERSIGHT COMMITTEE CHAIRMANSHIP

A TOTAL OF 490-M FOR A TERM OF 6 YRS ROUGHLY 980-M IF S/HE GETS RE-ELECTED FOR ANOTHER TERM

POLITICS IS A GOOD BUSINESS CONSIDERING THE P200-300-M CAMPAIGN EXPENSES

FOR A SENATORIAL ASPIRANT

POLITICIANS ARE ECONOMIC ANIMALS TOO!


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Where to the Philippines… Politicians if they seriously care about their country need to start considering what’s best for the country, not what’s best for them. And Filipinos have to vote more wisely and demand honesty and competence from their leaders. Two facts that are confirmed by: 1) EDSA 2, the result of not voting wisely; and 2) the various rebellion attempts, power-hungry politicians uncaring about what impact their actions have on the country. The trouble is our Constitution allows Filipinos who can neither read nor write to vote. They cannot vote WISELY! For example, I’m told the Mangyans in Mindoro are herded like cows 2 or 3 days before election, housed and fed so that on election day they could be brought to the election precinct to vote for the candidate who provided them food. Knowing how to read and write should be an absolute minimum requirement for every Filipino to be allowed to vote. I wouldn’t even mind a simple test to show you have some understanding of what it is, who it is you’re voting for. I realise it’s not done (yet?) elsewhere in the world, but surely it’s a strange democracy where you can vote without even knowing what it is you are voting for. Education (see more later) is probably the basic solution. In 3 ways: First, if everyone is educated then those elected will be part of that educated lot; secondly, an educated populace will be more aware of the issues and vote more wisely. Thirdly, it provides social mobility as President Ramon Magsaysay Sr. so well demonstrated, rising from being a mechanic to president of the country. On top of that is the need to clean up the political system by charging and convicting—and jailing—those guilty of illegal activities. Two South Korean presidents were jailed within 9 months of uncovering of their offenses. Two of the Philippines presidents have been listed amongst the top 10 most corrupt leaders in the world neither spent any time in jail. Instead Marcos fled to Hawaii to die comfortably, while Estrada was ensconced comfortably in his rest house on a case that languished in court for 6 years before a recent judgement finding him guilty. But within days he was pardoned by the President (would that other functions in government moved so fast). Why? He’s been judged guilty. Justice is blind, he should get no special favors. If anything his punishment should be worse as he was the President, he’s supposed to set the example. He belongs in the same jail as any other criminal. Imelda has had 22 years of freedom. While her cases drag on forever. Justice delayed is justice denied - couldn’t have more truth to it. The message that comes out of these cases very clearly is that if you’re powerful or powerfully – connected you can do what you like - and get away with it. Leading it all is the President, and the most important characteristic needed of the president is just that: leadership. An ability to lead, to encourage, to excite, to bring confidence to the people. Particularly to the businessmen, whose investment is needed to create jobs and national wealth. This is a skill that can’t be learnt, but it can, perhaps, (I’m no psychologist) be improved by a determined focus on it. Leadership is defined as having a passion, a dedication to a vision. And working unceasingly at it regardless of the roadblocks encountered. And doing it in such a way that others want to follow.

POLITICIANS SHOULD CARE ABOUT WHAT’S BEST FOR THEIR COUNTRY—NOT WHAT’S BEST FOR THEM


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Where to the Philippines… The Filipino today is depressed, disaffected, disillusioned and needs some major morale boosting as an incredible 46% who don’t trust the current leadership shows. Filipinos need to regain confidence and pride, they need a leader they want to follow. Not one half the population wants to kick out. And that leader must be prepared to listen – to the bad as well as the good. Ms. Arroyo has the potential to be a great leader. And certainly those who follow her believe she is. But that’s only 32%, a much larger 48% of the population is dissatisfied with her performance, and that has got to tell her something. Much of it boils down to her style, a lack of empathy with people so essential in getting enthusiastic support. And, most importantly, an inability to accept criticism, even critical advice. She reacts antagonistically if the advice is critical — which means she only gets the sugarcoated inputs. People are scared to tell her bad news, particularly if it involves herself. Great leaders listen dispassionately, and then act for the common good. They don’t care about themselves, or their image. Perhaps now that all elections are over, she’ll do that listening. Put around her a few trusted friends who can and will tell her the “naked truth”. Tell her it like it is. Then she could become a great leader. She’s driven enough, hard–working enough, patriotic enough. And desperately wants to go down well in history. Well she has to change in the present for a better future if history is to be kind to her. We believe she can, but will she? The few months since the elections don’t seem to indicate so. And then there’s the opposition. It needs to support the President’s reform agenda, even be a part of formulating it. Once the country is up and going it can revert to the more traditional opposition role. Today is a time of national crisis. A time to pull together not pull everything apart. The media could also play a more responsible part by considering the consequences of the way in which they slant the news, —a headline in late 2004 warning of a coup (without substantive basis) does not encourage interest in the Philippines. But there was such a headline. There was no coup, no plot.

PRESIDENT ARROYO CAN BE A GREAT PRESIDENT — BUT WILL SHE BE? IT DOESN’T SEEM LIKELY ANYMORE.

YOU CAN’T FIX SOMETHING IF YOU DON’T KNOW IT’S BROKE


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Where to the Philippines… 3. UNCONTROLLED POPULATION GROWTH A growing, young population is, indeed, a driver of economies as those who oppose family planning keep telling me. But successful countries became so, in part, because the growth of the population was at a pace that support services could provide for. In the Philippines the population growth is at an excessive rate, beyond what the state can support. Fewer people sharing the national wealth are richer — and so spend more on high value-added products, helping drive the economy up at a spiralling rate. Thailand had 38.9 million people in 1972, the same as the Philippines. Today, Thailand has 65 million people, the Philippines has an estimated 88 million (and probably, almost certainly, considerably more). Thais average US$2,600 per capita, the Philippines is struggling at US$1,300. And it will be another 30 years before the Philippines meets the Thai’s modest level. Yes, modest, Australian’s GDP per capita was $35,000 in 2006. In 1972 it was $4,300. Australia has pulled itself up to first world status. The Philippines hasn’t even begun to. A fast-growing population is a primary reason. And the correlation has been proven2. What must be pointed out is what is inevitable if the current rate of population growth continues, there will be 155 million Filipinos by 2030. We can’t feed 88 million today, let alone give them a decent, human life. Some 1.87 million tons of rice were imported last year because Filipino farmers couldn’t feed 88 million people. One shudders to think of what 2030 will look like. There is not enough available land to plant the extra supply of rice that will be needed to feed 67 million more Filipinos after 20-25 years. Unless you want to chop down what little forest is left. And there’ll be even less if the Arroyo government goes ahead with its hare-brained scheme to “give” 1 million hectares to the Chinese for their food needs. I know this is a contentious subject and do not wish to discuss the theological view beyond saying that science has proven that nothing happens until about 2 days after an ovum attaches to the womb. So any action that intervenes before that is not abortion, not even interfering in life, as there is no life. If God had intended man to have babies only in a natural way he’d have designed us like all the other animals (except the dolphins, but that’s another story) and made the female desirable only when she was “in heat”. He didn’t. He obviously meant us to enjoy sex for its own sake. To me, this is an inescapable logic the Church has not logically answered. To base it on the writings in a bible produced about 40 years after the event, and when there were only about 300 million people in the known world, surely stretches credulity. Also the Constitution clearly delineates between Church and State. The State must be responsible for the people’s well-being/quality of life, and of all Filipinos, not just Catholics. The Church has the more limited responsibility for the moral values and religious beliefs of its flock. Which as the Filipino Moslems, Protestants, atheists, and others will tell you, does not include them. Yet, they too, are Filipinos, and the state has an equal responsibility to them.

2 “The Population – Poverty Nexus: The Philippines in Comparative East Asian Context” - Dr. Arsenio Balisacan & Charisse Tubianosa

155 MILLION FILIPINOS BY 2030

ECONOMIES GROW FASTER IF POPULATION GROWS AT A RATE THAT CAN SUPPORT IT


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POPULATION GROWTH - CATHOLIC COUNTRIES

Source: Website of Selected Countries

The State has the obligation to provide the option and accessibility to family planning of all kinds as a responsibility to the society it serves. It should then be up to the Church to convince its flock not to accept practices they believe go against God’s wishes. But it has no right to stop the State as it is now doing. The Constitution is very clear on this and the President is making a serious mistake, in fact maybe violating the Constitution, in not providing assistance many Filipinos (that she swore to serve) want. This is a responsibility the President, as president, must accept regardless of her personal beliefs. But the Philippine Catholic Church should perhaps reflect on why other Catholic countries seem able to allow family planning – or, at least, not try to stop it so vociferously. The home of Christianity, Italy, has a minimal population growth (a population growth rate of 0.03% versus the Philippines 1.9%) so why not the Philippines? On this issue, the Philippines seems to be at odds with its other Roman Catholic compatriots. It is one of the world’s fastest growing population, with Malaysia, Nigeria and Pakistan. None of which are Catholic. The fastest growing Catholic country remains to be the Philippines at 1.9%, with Venezuela (1.67%), Peru (1.45%), and Columbia (1.41%) slightly behind. Otherwise all other predominantly Catholic countries exhibit growths of a high of 1.28% to negative 0.09% (Poland). With most below 1%. Catholic countries don’t have to have high population growth rates.

COUNTRY ROMAN POPULATION GROWTH CATHOLIC 2005-2010 PHILIPPINES 90% 1.90

VENEZUELA 83% 1.67

PERU 89% 1.45

COLUMBIA 96% 1.41

IRELAND 92% 1.28

BRAZIL 80% 1.26

MEXICO 90% 1.13

CHILE 89% 1.00

ARGENTINA 92% 1.00

SPAIN 99% 0.43

PORTUGAL 94% 0.41

FRANCE 90% 0.34

AUSTRIA 78% 0.14

BELGIUM 75% 0.14

ITALY 100% 0.03

POLAND 95% -0.09

THE PHILIPPINES IS IN A POPULATION GROWTH CRISIS


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Where to the Philippines… No one can deny that Italy or Spain is staunchly Catholic—yet their populations are growing at only 0.03% and 0.43%, respectively. The logical conclusion is not that these other nationalities are less horny, it’s that the Philippine Catholic Church could do more to help parents better plan their families — without violating Church strictures on how this should be done. If the Church believes people are entitled to a decent life, as I certainly hope it does, then it ought to become a (very) active participant in reducing the population growth rate. Otherwise it must accept much of the responsibility for the poverty that will remain unavoidable and should accept responsibility for its actions by providing the jobs and support for that excess poor that the State can’t support. What would also help is better education – better education gives educated parents the capability of understanding the importance of education for their own children and the need to have only those children they can afford. Over time, this leads to lower population growth rates. However, it is very slow. The Philippines is in a population growth crisis, and cannot afford to wait a generation or two. As an aside, the Church opposes the use of contraceptives as being not natural, not being as God wanted. Well doesn’t the same logic apply at the other end of life? Isn’t using man-designed life support systems equally against God’s will? God wanted someone to die and go to heaven, scientist said, “No, I can keep him here longer.” I’ll be interested to know how the Church rationalises this? 4. EDUCATION The Philippines used to be at the forefront in Asia in high school enrolment and college enrolment ratios. Admittedly, these numbers have continued to improve but those for other countries have improved much faster, so the gap is narrowing. In a few more years, the Philippines will be overtaken if it does nothing. Enrolment though is meaningless if you don’t finish. And here the record is worryingly bad. One–third of Filipino kids don’t even finish primary school, less than half get to graduate secondary school. That equals 55 in every 100 Filipinos without the very basics of education. And the government is talking of a Cyber-education system? They must be out of their minds. But graduation is only a statistic. What matters is what is learnt. And here it is even more depressing. The University of the Philippines (UP) used to be among the top schools in Asia in the 60’s through the 70’s. Today, it is struggling to keep its place near the bottom of the Top 50 at number 48. The Ateneo and De La Salle are even lower, near the bottom of the Top 80 (number 71 and 72). Bangladesh and Sri Lanka have schools ranked higher than these three. And no Philippine school is among the top science and technology schools in Asia. India has five in the Top 10.

CATHOLIC COUNTRIES DON’T HAVE TO HAVE HIGH GROWTH RATES

THE PHILIPPINES IS IN A POPULATION GROWTH CRISIS


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Where to the Philippines… Foreign students, mostly Asians, used to study in the Philippines to get a good education. Now they’re going elsewhere, or staying at home to learn. The number of foreign students in Philippine schools has fallen to 2,000 from 4,000 in the late 90’s and from a peak of almost 12,000 (the 3rd largest in Asia after Japan and India) in the mid-70’s. Now Filipinos go overseas to learn. The educational system needs to be brought back to the pre-eminent position it had in the mid 70’s. A first step is to get government out of funding the tertiary system for now and leave it to the private sector. It does not have the funds for both. Free education is essential for primary and secondary schools. And that must include provision of meals (not rice, much of which gets stolen along the way), books, and, possibly, transport, etc. As the numbers in the box show just under half (45%!) of kids finish secondary school yet everyone must have basic schooling. A primary reason for dropping out is the ancillary costs of schooling. The numbers in the boxes below say it all, this is a situation that must be reversed with extreme urgency. Yet government has been bleating about through 5 Secretaries of Education and almost nothing was been done in the past 6½ years.

100 – Enter primary school – 100% 40 – Drop out – 40% 60 – Finish primary school – 60% 60 – Enter high school – 100% 36 – Drop out – 60% 24 – Finish high school – 40% 24 – Enter college – 100% 22 – Drop out – 90% 2 – Finish college – 1%

And keep in mind this educational system is two years less than elsewhere — 10 years vs. the 12 in most other countries. Why a “compromise” of one extra year is being considered, I’ve no idea. It needs to be two, 168 countries can’t be wrong. There are only about 7 countries with a 10-year curriculum.


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And that education must include English as a principal language. Language does not define a nation. Language has one, and only one, important function: to communicate between people. Or these days, machines too (the IT world is an English–speaking world) A common language gives mobility, gives choice. There are over 8 million Filipinos working overseas supporting their families back home. Not one of them is there because they speak Tagalog or Cebuano or Ilocano. While its English capability is still widely acknowledged as one of the key advantages of its workers, this is mostly a myth based on historical record, not current reality. The Chinese, the Koreans, the Taiwanese are frantically learning English to join the IT world – ironically learning it from Filipinos who found jobs teaching English to workers in these countries. I read that China wants to hire 20,000 Filipino English teachers — now we’re helping our competitors to advance — at our expense. As columnist, Belinda Cunanan said “But one thing this business of providing services as call operators will require is continued mastery of English, which is something our educators have to pursue. This is one of our advantages over other countries in Asia and we should not give it up but improve on it. In China, as I have mentioned, they are very systematic about learning English, especially now that they are preparing for the 2008 Olympics. Even taxi-drivers are learning the language from tapes while waiting for their fare. Here we still are wishy-washy about our language policy, and we are made to feel guilty about speaking English well, as if we can only be nationalistic when we speak only in the native tongue “. The Philippines is throwing it away, there is only one English-speaking TV channel – and that’s not all the time. And no local English radio stations in the AM band. A complete reversal of what it used to be. I have a suggestion – instead of dubbing English-speaking movies and TV programs into Filipino, leave the English and put Filipino sub-titles. It becomes an easy fun way of learning, particularly for children with cartoons.

ENGLISH SPEAKING IS MOSTLY A MYTH

SAD STATISTICS ON THE STATUS OF EDUCATION IN THE PHILIPPINES

1.7 million number of 7-12 year olds that are not in school because of

poverty 60-80 actual class size vs. ideal of 25 10 number of years spent in elementary and secondary schooling

(for other countries, it’s 12) 7% percentage of school entrants who finish college. Within which,

25% of the richest kids graduate, but only 1% of the poor do. $100 average gov’t spending on education per student vs $380 in

Thailand and $1,060 in Malaysia P22 billion amount lost in overpriced materials = 45,000 classrooms or 180M

books or 11M desks or 440,000 computers that weren’t bought.


THE WALLACE REPORT

Where to the Philippines… As to primary and secondary education, 25 years ago teachers earned P600 per month when the minimum wage was equivalent to a monthly rate of P300. Today they earn P9,000 compared to a minimum wage of P7,000. In other words teachers now earn only 29% more than a minimum wage earner where before they earned double. You don’t get the best people as teachers if you don’t pay them. Many public school classrooms are turned over twice in a day, and classes are held on weekends, especially in urban areas because of the lack of classrooms. Some schools hold classes in schoolyards. The average number of students per class today has doubled from two decades ago. Remote barangays have no schools at all. The reform in basic education curricula, emphasizing maths and science, is a welcome change. But it should only be considered as the start of a comprehensive overhaul of the education system as more reforms are needed. The use of English has now been restored, but there’s a shortage of teachers who can teach it. If children are to benefit in this English–speaking world, proficiency in English is an essential requirement Additionally the style of teaching needs to be changed. Children should be encouraged to question, not just accept unquestioningly what the teacher says. People must be able to think for themselve s, encouraged to display initiative and analyse the consequences for their action. This will require much smaller class sizes. In primary school this should be 20, or less. Above 35 it becomes impossible and degenerates to lecturing, not teaching. Teachers must be able to teach a few, not lecture to many. Although education has the biggest allocation in the national budget at 20% of the total, and has doubled in inflation-adjusted terms from P330 per student in 1980 to P230 in 1999 to P700 today, it is still appallingly low. Thailand spends about three times as much, Malaysia five times. China has overtaken us and India is catching up.

PUBLIC SPENDING ON EDUCATION PER STUDENT (US$), 2006

Singapore has no natural resources. What they only have is human resource. So they have to be good at it. But that’s still no excuse for the Philippines to not also give it similar importance.

2006 1999 GROWTH %

Singapore 5,593.46 3,823.53 46.3

Hong Kong 5,423.73 3,087.34 75.7

South Korea 2,934.80 1,437.25 104.2

Malaysia 1,064.04 578.07 89.0

Thailand 377.97 325.74 16.0

China 143.92 89.58 60.7

Philippines 100.60 58.58 71.7

India 67.30 51.44 30.8

Indonesia 39.52 21.10 87.3

Pakistan 30.26 19.47 55.4

Sources: UNESCO/UIS WEI (www.uis.unesco.org/publications/wei2006) International Association for the Evaluation of Educational Achievement ADB Key Indicators 2005 UNDP Human Development Programme 2006

TEACHERS MUST BE ABLE TO TEACH A FEW, NOT LECTURE TO MANY.


THE WALLACE REPORT

Where to the Philippines… It’s not just a question of money, it is also a question of money wisely spent. During the past 2 decades or so, there has been a shift in the education budget favoring tertiary or college education - at the expense of basic (elementary and high school) education. This is wrong, elementary education should be where the top focus is because it builds the foundation. With a good elementary education, high school and college education can follow. It is the government support for basic education that provides the most significant impact on poverty alleviation, and is where government should focus its limited funds. On top of that as the World Bank said: “DECS is widely believed to be one of the most corrupt of the government departments.” The textbook scandal in early 2000 could be just one of the manifestations. So addressing corruption is a must. People who steal a child’s future should be locked up, and the key thrown away. In this day and age, it’s not labor, capital or natural resources that dictate a country’s competitive edge—it is knowledge. Educated people get jobs or, at least, have a far better chance at doing so. An educated workforce attracts investment. That creates jobs, and national wealth. As China dominates more and more in the manufacturing area (as they will) the Philippines will lose, as it already is, much of its manufacturing sector as a main driver of the economy and employer of people. (Texas Instruments is a special case — of a company with a history here). This can be replaced by entry into the IT arena where the growth will be phenomenal and the need for educated people high. But the Philippines is drifting further and further behind in the quality of its education, and, hence, ability to take advantage of the blooming opportunity. It’s the same with healthcare and taking care of the aged - educated doctors, nurses and caregivers are needed. Yet what few there are are leaving for much better opportunities overseas. 5. CORRUPTION What to do about corruption is easy, it must be stopped. The only people who don’t agree with this are the ones doing it. Every President has promised it, none has done it. Some have been involved in it, provably in the case of Mr. Estrada. And according to the surveys, all are believed to be involved to some degree or other. Bad as it’s been throughout Asia, it’s arguable that stealing (corruption) was less in the more successful countries. Whether it was, or not, at least much of what was stolen was directed back into the economy through corporate building, rather than exotic mansions and fancy motor cars and girl friends—and deposits overseas. And no other country in Asia can boast of having had two of its leaders listed in the top 10 most corrupt leaders in Asia — Mr. Marcos and Mr. Estrada.

PEOPLE WHO STEAL A CHILD’S FUTURE SHOULD BE LOCKED UP, AND THE KEY THROWN AWAY

AN EDUCATED WORKFORCE ATTRACTS INVESTMENT (PARTICULARLY TRUE IN THIS IT AGE)


THE WALLACE REPORT


CORRUPTION

Based on the Ten Commandments one must presume many Filipinos end up in hell—for eternity. Confession doesn’t work unless you really mean it, and God knows whether you do or not. Most assessments of the level of corruption in government put it at at least 20-30% of government procurement and infrastructure spending. Plus what is lost from uncollected revenues because a bribe was paid to overlook it. A Transparency International Report in 2006 put the Philippines 4th from the worst in Asia (out of 15 Asian countries rated). The much publicised PERC survey had the Philippines as the most corrupt country in Asia based on the perception of some 100 senior businessmen in each country surveyed. It is perception that determines decisions. We base our decisions on the perceptions of a situation. The annual Wallace Business Forum survey of CEO’s in the Philippines has always listed corruption as one of the top three deterrents to doing business in the Philippines. All these independent assessments can’t be wrong. There’s too high a level of corruption in the Philippines, and too little has been done to reduce it. Hundreds, thousands of businessmen can’t all be wrong. Regrettably, corruption occurs at 2 levels: Overpricing, to pocket the difference; and, under-building to make even more money. There’s a lovely, not very old concrete road traversing Samar, but already it’s full of potholes from an inferior quality, too thin cement surface. You can’t text on a mere 10-year old skyway because the surface is so bumpy. It’s a story oft repeated.

1. Thou shalt have no other gods before me 2. Thou shalt not take the name of the lord thy god, in vain 3. Remember that thou keep holy the sabbath day 4. Honor thy father and thy mother 5. Thou shalt not kill 6. Thou shalt not commit adultery 7. THOU SHALT NOT STEAL 8. Thou shalt not bear false witness against thy neighbor 9. Thou shalt not covet thy neighbor’s wife or husband 10. Thou shalt not covet anything that belongs to your neighbor.

CONFESSION DOESN’T WORK UNLESS YOU REALLY MEAN IT


THE WALLACE REPORT


TRANSPARENCY INTERNATIONAL CORRUPTION PERCEPTION INDEX Putting Mr. Joseph Estrada in jail was a beginning of the clean-up — but why he is was treated with kid gloves is beyond me. It’s an established rule that all are equal under the law. In fact, as president his crime is far worse. He is supposed to set an example and, as president, be more aware of what’s right and wrong. Instead he’s pardoned and released a scant 3 weeks after conviction. There was apparently enough evidence to charge Estrada with plunder for which there is no bail allowed. You go to jail — not a rest house — while the trial proceeds. And right there is another weakness of the Philippines system, and another reason why so many practice corruption with impunity — they can get away with it. Mrs. Marcos still struts freely around Manila 22 years after her alleged crimes were committed with almost none resolved. Mr. Estrada was in his comfortable rest house for 6 years. This is not justice at work. This pandering to Mr. Estrada’s foibles is a good example of one of the things that’s wrong with the Filipino culture. Forgiveness is an admirable trait, but only in the right context. This is not the right context. Mr Estrada’s trial took far too long, and now the court assessment and decision — that he’s guilty — has been overturned by a president who puts politics over the laws of society. It should have been followed up with prosecution of the many other large-scale corruptors to get the message through very clearly: You can’t get away with it. Instead the message is: You can if you’re powerful enough. The World Bank in its report on corruption spelt it out very clearly: You must catch, and jail some “big fish”. The President should prosecute someone close to her, and someone from the opposition (to be

Score Global rank Country

2005 2006 2007 4

14 17 34 42 43 72 72 84 94

123 131 138 143 162

SINGAPORE HONGKONG JAPAN TAIWAN SOUTH KOREA MALAYSIA CHINA INDIA THAILAND SRI LANKA VIETNAM PHILIPPINES PAKISTAN INDONESIA BANGLADESH

9.4 8.3 7.3 5.9 5.0 5.1 3.2 2.9 3.8 3.2 2.6 2.5 2.2 2.1 1.7

9.5 8.3 7.6 5.9 5.1 5.0 3.3 3.3 3.6 3.1 2.6 2.5 2.4 1.9 2.0

9.3 8.3 7.5 5.7 5.1 5.1 3.5 3.5 3.3 3.2 2.6 2.5 2.4 2.3 2.0

PANDERING TO MR. ESTRADA’S FOIBLES IS AN INDICATOR OF WHAT’S WRONG


THE WALLACE REPORT

Where to the Philippines… fair) that are known major corruptors. And ensure they go to jail, real jail without any of the trimmings such as Jalosjos wangled. And go quickly. An example must be set of people who are believed to be untouchable. The names are well known. Then the government system needs to be changed so that it is simple and transparent, with as few actions needed by government as possible. And done by computers not people. You can’t pass money under the table if there is no table (electronic transfers can be traced).

Global Corruption Report 2004 (Transparency International) Top 10 Corrupt Heads of Government

Head of the Government

Estimates of funds

allegedly embezzled

GDP per capita

(2001)

Mohamed Suharto President of Indonesia, 1967–98 US $ 15 to 35 billion US $ 695

Ferdinand Marcos President of the Philippines, 1972–86 US $ 5 to 10 billion US $ 912

Mobutu Sese Seko President of Zaire, 1965 –97 US $ 5 billion US $ 99

Sani Abacha President of Nigeria, 1993–98 US $ 2 to 5 billion US $ 319

Slobodan Milosevic President of Serbia/Yugoslavia, 1989–2000 US $ 1 billion N/A

Jean-Claude Duvalier President of Haiti, 1971–86 US $ 300 to 800 million US $ 460

Albert Fujimori President of Peru, 1990–2000 US $ 600 million US $ 2051

Pavlo Lazarenko Prime Minister of Ukraine, 1996–97 US $ 114 to 200million US $ 766

Arnoldo Alemán President of Nicaragua, 1997–2002 US $ 100 million US $ 490

Joseph Estrada President of the Philippines, 1998–2001 US $ 78 to 80 million US $ 912

I wonder why there is only one prime minister. Is it harder to be corrupt in a parliamentary system? If so it’s a good argument for the shift. Note the Philippines is the only one with two. South Korea had two, but they were small potatoes in comparison, nonetheless they spent real time in a real jail before being released. There is no doubt in my mind that now that Mr. Estrada has escaped, the Philippines is indeed a “banana republic” and will be for decades to come because the message is that as long as you’re at the top you’ll be excused whatever sins you commit. Is Ms. Arroyo setting a precedent as a possible contingency? And, finally, an area where there’s not only large levels of corruption, but it’s ubiquitous throughout the country. That’s jueteng. Those involved, to survive, bribe government officials and police. Because of the illegal nature of the activity it breeds “war lords” who, with their power

AN EXAMPLE MUST BE SET OF PEOPLE WHO ARE BELIEVED TO BE UNTOUCHABLE


THE WALLACE REPORT

Where to the Philippines… then turn to other profitable illegal activities – drugs, smuggling, etc. It’s one of the accusations against Mr. Estrada, where he was given his share of illegally generated funds. It becomes a whole culture of corruption. Remember the prohibition days of the 1920’s in the U.S., Al Capone, drive-by killings, etc.? It all stopped when drinking and gambling were made legal. The solution was that simple. The solution to jueteng is equally simple: legalise it. You’ll never stop it, so make it legal so people can’t be preyed upon by unscrupulous beings, and the government can even earn some money from taxes. Like the Church I have no love for gambling, but, unlike the Church, I know it can’t be stopped (gambling has been around longer than the Church and n where has it been stopped). So the best thing to do is make it legal. Clean, honest and controlled. Could I be accused of being too cynical if I suggest the reason Congress hasn’t legalised it is because they’re benefiting? Surely not. Anyway, isn’t Bingo gambling? Aren’t raffles at the church bazaars gambling? Where do you draw the line? 6. INFRASTRUCTURE It takes too long, is too often too controversial, and mired in legal argument. Infrastructure is a “no brainer”. You put it in, you get business. You don’t, you don’t. It will go elsewhere. As it has done over the past few decades. In every survey we have done, it figures as one of the top 3 disadvantages of the country. The Philippines’ level of spending on infrastructure compared to its neighboring countries shows it lagging behind at the bottom 3 ranking in 2003.

JUETENG, YOU’LL NEVER STOP IT SO LEGALISE IT


THE WALLACE REPORT

Where to the Philippines… The Philippines also ranked in the bottom 3 among its East Asian neighbouring countries when it comes to the overall quality of infrastructure.

6.6

6.4

6.3

5.7

5.4

5.1

5

3.4

2.7

2.6

2.5

0 1 2 3 4 5 6 7

Singapo re

H o ngKo ng

Japan

M alaysia

T aiwan

Ko rea

T hailand

C hina

P hilippines

Vietnam

Indo nesia

Source: World Bank

Quality of Infrastructure of Selected East Asian

(Scores based on a set of criteria*, 10 being the highest, 0 the lowest)

2.3

2.7

3.6

4.0

4.7

7.3

9.9

15.4

0 5 10 15 20

Thailand

Vietnam

China

Lao PDR

Mongolia

Philippines

Indonesia

Cambodia

Infrastructure Expenditure of Selected East Asian Countries (% of GDP) 2003

Source: World Bank


THE WALLACE REPORT

Where to the Philippines… In the last 16 years, the Philippines’ infrastructure spending was only of 3.9% of GDP on average, when it should be at least 5%. In the past 6½ years, it’s only been around 2% - which puts it very definitely at the bottom.

COMPLETION TIME OF WORLD BANK-FUNDED PROJECTS Right-of-way arguments, congressional probes, TRO’s and court cases and, too often, the need to strike deals lead to excessive delay. Let alone just the incredible inertia and complexity of the bureaucracy. Given government’s limited funds, as much of it as possible must be done by the private sector. Government should be prepared to pick up the difference between what would be the normal charge for the service (based on achieving a reasonable, and agreed minimum rate of return) and whatever fee is imposed due to social concerns. Government must guarantee a minimum rate of return if it is to attract investment into what is generally a regulated arena. Investors are going to be reluctant to invest the large capital cost for the many years of involvement at this time of uncertainty in the Philippines, so some strong “inducement” will be needed. This differential cost will be far less than shouldering the full cost of the project. The World Bank and ADB have offered to provide such guarantees. The offer should be willingly accepted. Government also needs to provide assurance it considers contracts inviolate and will no longer seek to renegotiate or, worse, abrogate them. Otherwise, what’s the point of a contract? And this includes contracts subsequently considered “disadvantageous to government”. If they were, then negotiate better next time. Learn from the error. Only if a contract can be proved legally fraudulent should it be changed or abrogated.

PROJECTS PHILIPPINES REST OF % REGION DIFFERENCE WATER SUPPLY 9.3 6.0 53.8% HIGHWAYS 7.4 5.9 32.6% POWER 7.1 5.9 21.2% IRRIGATION/DRAINAGE 8.5 7.8 8.0% PORTS 6.6 6.7 — AREA DEVT 7.6 YRS 7.0 YRS 8.2%

YOU PUT IN INFRASTRUCTURE, YOU GET BUSINESS

CONTRACTS MUST BE INVIOLATE

GOVERNMENT MUST GUARANTEE A MINIMUM RATE OF RETURN IF IT IS TO ATTRACT INVESTMENT


THE WALLACE REPORT

Where to the Philippines… And where ODA (official development assistance) funding is offered the government too often can’t provide the 25% counterpart funding required or just takes too long to process the project. So they get cancelled by the donor who can’t keep funds aside for so long. These donor agencies are prepared to drastically reduce, even possibly waive, the counterpart requirement. They are willing to offer financial aid and ready to provide support. The government’s earnestness to get things done must be done quickly enough for this financial aid to remain committed. That earnestness is currently lacking. In December 2005, ODA commitments for infrastructure projects amounted to US$6.6 billion. Out of this $6.6 billion, only $715 million was actually disbursed. That’s $5.8 billion of undisbursed ODA funds. Money that was available to build desperately needed infrastructure allowed to just fade away. What wasted opportunity. Lack of counterpart funding, inefficient coordination among implementing agencies and financial institutions, bureaucracy in the procurement process, right of way and resettlement issues - the government is throwing away huge sums of money in commitment fees imposed by donor institutions. Just because project implementation moves at a snail’s pace. So why isn’t government moving faster? The key word is “action” - infrastructure must be built, and built quickly. Projects must be realistic. They must reflect the government’s ability to provide the counterpart resources when any proposal eventually gets implemented. When it comes to right of way, just pay 2 times the assessed market value to compensate for the inconvenience and force sale immediately. The owner should have no option but to sell and with the inducement of a price he’d never get otherwise there’d be no reason and no justification not to sell. The right of eminent domain must be enforced. The 3 to 7, or more years just to get a project started is totally unacceptable. It should take no more than 1, from inception to project awarding. It’s time to work fast. And not just prior to elections as we saw with a flurry of projects initiated. I have one example of a local mayor who started a concrete road to a town 4 kilometers away had no road. Some 200 meters of road was built, then the elections, the road construction was stopped. The mayor had won. I suggest hiring independent consultants to put the projects together. They could do it in a year, or less, if properly chosen, because they’d have the expertise to do it that government departments just don’t have. In Sydney, where I was recently, cars almost never have to stop because roads have been widened, tollways and freeways built and tunnels and bridges provided wherever needed. Plus sophisticated traffic management systems—and, importantly, disciplined, polite drivers. It used not to be like that, it was just as bad as here but action was taken. Traffic violation here is a way of life. Chaos is the result.

IT’S TIME TO WORK FAST


THE WALLACE REPORT

Where to the Philippines… As the MRT down EDSA shows, and the Skyway (as far as it goes, which is not far enough) improving public transport and infrastructure and the ability of vehicles to move dramatically reduces travel time increasing economic productivity, and improving quality of life. Besides, infrastructure spending by itself stimulates the economy by creating jobs, as was shown by the massive spending on public works done by former U.S. President Franklin Roosevelt to stir his country out of the Great Depression in the 1930’s. Some 63% of the country’s economy is generated in the Greater Manila Area, Central and Southern Luzon, and 38% of the population lives there. Consequently, priority should be given to infrastructure in those areas. So that greater wealth can be created to build infrastructure elsewhere. In other words, the rest of the country won’t be deprived, only that the needed infrastructure will come in a little later. Put the money where it will do the most good, fastest. The Philippine government has finally paid attention to the calls of foreign and local investors for better infrastructure. Last year, the President promised to spend P1 trillion in the next 3 to 4 years for infrastructure projects. This is after 2 consecutive years under a re-enacted budget and years of under spending in the infrastructure sector. This planned spending is highly dependent, though, on the government’s ability to reach its fiscal targets. And to reach these targets, substantial revenues must be generated — not from selling state assets or imposing new tax measures, but from better tax collection and better tax management. But it seems that this is not happening, the Bureau of Internal Revenue (BIR) missed its revenue collection target in the January-November 2007. So the question now is — where is this P1 trillion to finance these infrastructure projects going to come from? It’s all very well to announce plans and intentions but you must have the money to bearing them to fruition. With a tax effort of only 14% of GDP, a level that is one of the lowest in Asia, it’s hard to see how the money can be raised. Unless the tax cheats are caught and forced to pay. And if the President’s economic team is serious about making her infrastructure program work, then it better do something to hold investor interest and prove that the country’s fiscal gains are sustainable. The priority list of infrastructure projects (based on the President’s super regions and infrastructure projects concept) recently revealed and said to be “ready-to-go” are not saddled by right-of-way problems and are already in the advanced stages of government approvals according to the government. They are now being offered for private sector or international donor funding. This list is at least a positive sign as it shows that at last a few of the priority projects are moving. It’s hard though not to be skeptical after all the years of disappointment of the huge gap between promise and reality. I would grant the Administration emergency powers (as was done to solve the electric power crisis in 1993) to award BOT projects for infrastructure and utilities and mandate specific deadlines for processing, awarding, completion, etc. As mentioned earlier I would have independent consultants, preferably with an international affiliation, handle it to ensure honesty and fast implementation — the current 3-7 years just to get a project started is too long. One year is long enough. I detailed this many years ago in a separate report entitled “A SEAMLESS INFRASTRUCTURE PLAN.” Priority must be on ensuring adequate power. But whether enough people will be interested to invest is problematical — given the policy inconsistencies governing infrastructure projects. People are buying existing (NPC) plants, but that doesn’t add power. New plants are needed.


THE WALLACE REPORT

Where to the Philippines… The PSALM urgently needs to sell the remaining power plants of the National Power Corporation (NPC) so that consumers can finally enjoy the benefits of open access and retail competition. The high electricity prices in the Philippines have been a major reason for low levels of investment. The privatization of the National Transmission Corporation (Transco) was an important step forward, but whether it will withstand congressional scrutiny, and obtain the necessary franchise is still up in the air. The fat lady hasn’t sung yet. Also, power capacity expansion of these plants can be done once they have been sold off. At present, NPC cannot implement capacity expansion projects because the power reform law strictly prohibits this move. But what is more urgently needed is more power, new plants. But guaranteed and negotiated contracts will be needed to get new power plants built fast (do we never learn?). 7. ANTIQUATED AGRICULTURE The biggest revolution for most countries was in agriculture. The sector that dominates fledgling economies (it accounts for 20% of the Philippine economy and directly supports 37% of the workforce, highlighting its importance to be first addressed). Particularly as the 12.2% of total workforce that’s unpaid family members belongs to that sector. The trouble is it is too highly politicised in the Philippines. Commonsense has been thrown out the window. I wonder if politics is the antithesis of commonsense (like Congress is the antithesis of progress). And, as in almost every other comparison, it performs poorly compared to most of its neighbours.

Average Growth in Agri Gross Value Added (Percent per annum)

1980–1990 1990–2000 2001–2005 Average 1980–2005

China

4.9

5.6

4.4

5.1

Pakistan

4.9

3.7

3.5

4.1

Malaysia

4.9

2.8

4.1

3.9

Indonesia

4.7

2.1

4.7

3.7

India

3.8

3.0

1.9

3.1

Bangladesh

1.9

2.7

1.4

2.1

PHILIPPINES

1.2

2.3

3.3

2.1

Thailand

2.1

2.0

0.6

1.8

The high growth rates in agriculture of China and Malaysia brought them to a level of efficiency by 1990 that was well ahead of the Philippines, so that in succeeding decades, these saw only marginal improvement in its agricultural sector. They now appear to be having another agricultural revival, leaving the Philippines further behind. The others also continued to outpace the Philippines.


THE WALLACE REPORT

Where to the Philippines… During the first half of this decade, however, Philippine agriculture experienced a revival of some sort, accelerating its pace of growth to a 3.3% average from 2.3% in the 1990’s. Growth was based on a few major crops that are mostly sold in the domestic market — rice, corn, sugar. The gains were achieved not through increased productivity from the land but by putting more land into use. This type of growth is fragile as there are now very limited areas for expanding farmlands. Moreover, rice, the primary crop, needs a 40% tariff protection against Thailand just to begin to compete. Rice yields are half those in China. Australia produces about 160 tons/ha of sugar cane versus the Philippines’ 78, and so on. And it is the same with most crops, hugely inefficient, for no good reason. In 1960 there were 27 million Filipinos to feed. Today there are 88 million. But the area of farmland increased far more slowly — from 7 million hectares to 10 million hectares. So the population increased 204%, farmlands only 43%. That means more pressure on the farms to deliver with the people/hectare ratio rising from 3,800 in 1960 to 8,800 today. It’s now approaching the point where there will be more people than can be fed, in fact it’s already there — basic foods must be imported to meet demand. This can be addressed by a serious effort at improving irrigation (only slightly above half of potentially irrigable farmlands are irrigated, and much of that is poorly maintained). El Niño becomes irrelevant if you can draw water from a dam. But the users should pay for the service just as urban people do (or are supposed to) for the water used in their homes. Better post harvest facilities (for example, post harvest losses are huge — 30% in rice, when it should be 5-6% as in other growing countries), and more enlightened farm practices should be implemented. No sensible nation dries its palay on the road. These are issues that have been discussed for over 2 decades now, with little improvement achieved. The introduction of genetically-modified crops (which the Arroyo administration is trying to do) would also help, not only to improve yields, but also have the added advantage of providing nutrients and other essentials, particularly needed for young children. And have the side advantage of reducing the use of fertilizer and pesticide. So why there is opposition to GMO’s is a mystery hard to understand. But that opposition is making it difficult to produce more, better quality food people need. The Catholic Church, which opposes the use of hybrid seeds, should be more concerned about the nutritional lack of its people. Surely God gave man a mind so he could modify his environment, improve his living conditions, find ways to extend and uplift his life. Otherwise why was our brain given? To take (il)logic further, shouldn’t the Church also oppose the use of man-designed medicines as they stop what God had otherwise intended to happen to our bodies?

THERE ARE MORE PEOPLE THAN CAN BE FED

COUNTRY 1991-2005

CHINA 5.2

MALAYSIA 3.2

COUNTRY 1991-2005

PAKISTAN 3.6

INDONESIA 3.0

INDIA 2.6

PHILIPPINES 2.6

BANGLADESH 2.3

THAILAND 1.5

DEVELOPED STILL DEVELOPING


THE WALLACE REPORT

Where to the Philippines… IRRI has done some excellent work on providing superior seeds and planting methods. And in developing low cost machinery and equipment that can dramatically improve efficiency. The Philippines is not taking advantage of this research. Other countries are though. But the biggest deterrent to efficiency is land reform. You just cannot be efficient on 5 hectares (7 for rice) of land. This is so obvious that it’s frightening that politicians refuse to see it. Yes, it’s nice to own your own land. But farmers on 5 hectares make up the bulk of those in poverty. In fact they’re not on 5 hectares as the 3.8 million hectares of land that have been distributed to 1.8 million farmers under CARP from 1972-2006 equates to only 2.1 hectares per farmer family. And owning land doesn’t pay the bills, a job does. I venture to suggest that many farmers would prefer to own a house on a 500-square-meter land — and work for a plantation with a steady decent income for their family. Plantations can provide such jobs. And that job would come with free schooling for the children, health services for the family, and much more. Unfortunately an uncompromising agrarian reform program that doesn’t allow large plantation ownership necessary for efficient production of a number of crops has deterred all but a few existing agri-business companies. Unfortunately, the law has been extended for another 7 years until 2015 without the amendment that (at least) allows both small plots and plantations to co-exist, and allows agrarian reform beneficiaries to sell their land and banks to accept it as collateral. As it now stands, there have been no new major plantations started, yet there needs to be. Co–ops and contract growing are the only alternatives. Both add cost and reduce efficiency, something you can’t afford in today’s highly competitive world. And with Philippine agricultural productivity generally the worst, or close to the worst, in Asia, a fundamental re-think is essential. Bananas, pineapples, mangoes, etc can be major export earners but no new corporation is going to invest under the present law. The law must be changed. In 1950, based on official figures, there were 18 million hectares of forest. Today there are only about 7.2 million hectares. And these official figures are almost certainly overstated — hardly a million hectares of virgin forest still stands today, while the reforestation program has been marked by scandals of money collected but no trees planted on de-forested land. A ban on logging is not the answer. Managed forestry is. New Zealand has shown very successfully how forestry, properly managed, can be beneficial to a country. As a start, when you cut down a tree, plant 2 — or 3, or 4. Surely that can’t be difficult. Education of the people is what will do it, if necessary with free provision of seedlings.

PLANTATIONS SHOULD CO-EXIST WITH SMALL PLOTS

THE CATHOLIC CHURCH, WHICH OPPOSES THE USE OF HYBRID SEEDS, SHOULD BE MORE CONCERNED ABOUT THE NUTRITIONAL LACK OF ITS PEOPLE

WITH PHILIPPINE AGRICULTURAL PRODUCTIVITY THE WORST IN ASIA A FUNDAMENTAL RE–THINK IS ESSENTIAL


THE WALLACE REPORT

Where to the Philippines… Allied to agriculture in that it also provides — or can provide — income in rural, is the exploitation of natural resources. But, this is another controversial issue where the Philippines could generate significant wealth — and do so in the countryside where it could really help — but doesn’t. Doesn’t because of an inability to weigh benefits against disadvantages by far too many NGO’s who don’t understand the issues, and often have their own agenda. And (again, why does it oppose so many things that could help people have a better life?) by the Catholic Church, who opposes it on environmental grounds, instead of using their influence to see to it that mining companies act responsibly to minimise damage to the environment whilst mining and to restore the area afterwards. The Church could play an important role in this manner. If, however, they continue to just block mining activity then they should, as we said earlier, be required to provide the jobs and income to the local communities that mining companies would have provided. Otherwise they are responsible for rural poverty. And they should stop using anything that come’s from a mine unless they are to be accused of being duplicitous. The Philippines could export US$5 billion as a minimum annually from mineral production, and it could be a lot more. Currently it exports about US$1.3 billion. Australia exports US$20 billion annually, and uses US$5 billion domestically, and with little long-term damage to the local environment. Modern mining techniques are, as environmentally compatible as they can be, weighing benefit to the people versus some degradation to the land. Maintaining pristine beauty is a nice concept, but look at a starving child and decide which is more important. Tourism also benefits the rural poor and deserves a closer look for the medium term (5 to 6 years) because of the foreign exchange-generating capability, potential investor-drawing possibility, and a more global outlook for the population at large. And it spreads wealth and creates jobs in the countryside. But it will call for reforms that will strengthen allied service sectors. One example is the airline industry, where bilateral agreements need to be re-thought. Whether it’s “open skies” or some similar concept it certainly needs to be something that encourages much larger numbers of tourists to visit the Philippines. The emphasis should be on encouraging tourists, not protecting airlines. They also need to ensure those people can get to their destinations i.e. infrastructure. It can take a whole day, or more just to get to a resort — if there is a resort. Infrastructure is an inextricable part of tourism. You should be in your resort on the same day as you arrive in the Philippines. 8. JOB CREATION Addressing poverty directly isn’t the answer. Poverty is an outcome from other factors. There are only 3 ways to get people out of poverty: One, give them jobs. Not houses, not meals, not free medicines – but jobs. This means providing the environment that attracts the US$10-billion investment pledges Vietnam does, not the measly US$4 billion in 2 or 3 corporations the Philippines

LOOK AT A STARVING CHILD AND DECIDE WHICH IS MORE IMPORTANT

YOU SHOULD BE IN YOUR RESORT ON THE SAME DAY AS YOU ARRIVE IN THE PHILIPPINES.


THE WALLACE REPORT

Where to the Philippines… garners. What that environment should be is pretty much detailed in this report. Second is to properly educate people so they can do the jobs. It’s the old saw, give a man a fish and he has a meal. Teach him how to fish, and he’s fed for life. Third is to slow the rate of population growth so there are enough jobs to go around. Anything else is short term, and is a palliative that quite simply won’t solve the problem. Give the poor a job, and they are no longer poor. So the focus should be on job creation by providing the environment that will attract investment. And this environment, as we’ve said a hundred times, must address what businessmen most complain about.

MAJOR CONCERNS FOR DOING BUSINESS IN THE PHILIPPINES

Rank in … Rank

2006 Item Score in

2006 2004 2003 2002 2001 1 Corruption 123 1 1 2 3 2 Policy inconsistency 52 2 5 5 6 3 Political instability 41 3 2 4 1 4 Bureaucratic red tape 39 6 4 6 7 5 Lack of political will to change 33 5 9 10 - 6 Labor problems 30 - - - - 7 Economic instability 26 5 8 8 4 8 Lack of judicial effectiveness 25 - - - - 9 Poor infrastructure 23 7 6 3 2 10 Security issues 19 4 3 1 5 11 Low market growth (local) 17 - - - - 12 Tax transparency 17 - - - -

Inadequate infrastructure has been one of the top 10 concerns for years. President Fidel Ramos understood this — look at what he did for power. And more. Lack of funds cannot be an excuse, the money must be re-directed — and the theft (corruption, where the Philippines ranks up at the top in Asia) stopped. ODA and BOT funds are available too if the political will is there to use them. And if government uses them honestly and responsibly — the proposed National Broadband Network was an example of what not to do. Corruption, as we said earlier, reduces the amount available to build by anywhere from 20% to 30%. Corruption occurs in 2 areas: “Commissions” from the contractors and sub-standard construction. You pay more for a lesser product. This, too, is always a top concern of investors. Then, stability, consistency, continuity. A businessman needs to be assured the environment within which he works will remain stable and predictable. And when there is change, as there must be in any society, it will be fair, have listened to all sides, and time given to adapt. Allied to it is the need to simplify and speed the bureaucracy — and do so dramatically. Not 58 days to register a business, but one. Not 15 steps, but one (the government does the rest internally). The country’s labor laws are also in need of substantial review. They are too restrictive, and by being so discourage the creation of jobs. More flexible work arrangements would bring

GIVE THE POOR A JOB, AND THEY ARE NO LONGER POOR


THE WALLACE REPORT

Where to the Philippines… businessmen into the formal sector and lead to many more jobs – not the less the unions so wrongly presume. Security of tenure is just one example of what needs to be changed. If it’s almost impossible to terminate a worker you’re very cautious about hiring any. No one fires capriciously. You terminate a worker for 1 of 3 reasons: The job is no longer needed; the worker’s performance is inadequate; or the manager is a bastard. In the 2nd case, there is no job loss. One person loses a job, another gets it. The person who lost gets a message: Perform better next time. The person who got the job will, to keep the job. For the 3rd case, which I suspect is the reason for the law - how many of these really are there? It can’t be many as there’s a high cost to changing staff. The learning curve alone adds considerable cost. Anyway who wants to work for a bastard manager? Lastly, a safe environment. The risk of being kidnapped or killed does not attract people with money. Fortunately this risk has lessened in recent years, but the image still remains to be addressed. The recent bombing at Batasan and the explosion (where a bomb still seems the most plausible) in Glorietta don’t help. Do these 6 and watch the economy grow. Watch businessmen invest in businesses. Watch poverty disappear. Fixing this isn’t rocket science. Getting politicians to understand it does require a rocket though. Too often, they are the problem. How do we get them to understand this — and change? The Philippines is not attracting the investment it could because it has yet to make the changes enumerated in this paper. In 7 years (2000-2006) Thailand attracted US$68 billion in foreign investment, the Philippines only US$26.3 billion, less than half as much. Most of this was in manufacturing where it takes US$70,000 to create one job. So this equates into 971,400 jobs in Thailand versus 376,000 in the Philippines. More than half a million Filipinos didn’t get jobs they could have/should have got. There were 600,000 more people unemployed than there were in 2000. They could have had jobs – if the Philippines was an attractive enough place to invest in.

NET FOREIGN DIRECT INVESTMENTS INTO SELECTED ASIAN COUNTRIES (US$)

COUNTRY

1990-2000

2001

2002

2003

2004

2005

2006

TOTAL

1990-2006

China 321.5 44.2 49.3 53.5 58.8 67.8 70.0 665.1

Singapore 84.7 (8.6) 1.7 5.6 5.4 14.6 31.9 135.3

Malaysia 45.1 0.5 3.2 2.5 2.6 1.0 3.9 58.8

Thailand 34.8 3.9 0.9 1.9 0.7 3.4 7.9 53.5

India 17.5 3.8 3.7 4.3 3.1 5.7 9.5 47.6

Vietnam 14.8 1.3 1.4 1.4 1.6 2.0 10.2 32.7

Philippines 13.5 1.0 1.8 0.3 0.5 1 2.3 20.4

Indonesia 16.1 (3.3) (1.5) (0.6) 0.9 2.2 2.0 15.8

HALF A MILLION FILIPINOS DIDN’T GET JOBS THEY SHOULD HAVE GOT


THE WALLACE REPORT

Where to the Philippines… 9. THE COURT SYSTEM The mining act sat in the Supreme Court for 7 years, unacted upon. Billions of dollars of investments and exports and job creation were lost. Then, in a disturbing decision in January 2004 it reversed the actions of its 2 co-equal branches (that had supported giving foreigners a major role) and threw out the Mining Act. The 8:5 decision showed that it was not a clear-cut legal case, but one of judgement. And I’d argue, that in making that judgement the court should have taken greater cognisance of its 2 co–equal (by the Constitution) partners. This is the 11th controversial decision the Supreme Court has made that has failed to take the business and economic impact of its decision into sufficient account. The lower courts have limited discretion, but I would argue by its very nature the Supreme Court can take into account other factors — such as social, economic, business, etc (I’d hesitate on political) — in reaching a decision. We believe the Supreme Court should invite independent experts (friends of court) to advise them of the technical, economic and social consequences of whatever decision they might then make. They did it when FPJ’s citizenship was at issue. They can do it when business future is at stake. Fortunately they did review their decision in December 2004 in the case of mining and agreed foreigners could operate mines. The other 10 cases weren’t so lucky.

THE SUPREME COURT SHOULD INVITE INDEPENDENT EXPERTS TO ADVISE THEM


THE WALLACE REPORT


SUPREME COURT DECISIONS WITH NEGATIVE IMPACT ON BUSINESS

As to the lower courts, any society that wishes to be civilized must have a blind court system, one that looks dispassionately at each case. Yet no one I’ve ever talked to believes it is. The miniscule number of top level people in jail is sufficient proof of this. On top of that there are thousands of poor people languishing in jail for years under appalling conditions for petty crimes they’ve often not yet even been convicted of. And held way past any term they might suffer had they been found guilty. The conditions in the jails are sub-human. The courts accept too many nuisance and harassment cases. A survey we did showed that 64% of MNCs had an average of 6 cases per company, yet won most of those cases — highlighting the lack of legitimacy of so many of these cases. There is a widely held perception that the courts often do not make impartial decisions. The bedrock of any democratic society is a justice system that is fair, swift, and impartial. Deciding only on the facts. The Philippine court system is, it would seem, far from this. But there is some promise here. The last 2 Supreme Court Chief Justice’s made some progress and Chief Justice Puno has started well, and courageously. But their task is monumental as massive change is necessary. And they need the funds to do this. Funds that are not given. The courts get a measly 0.8% of the budget (in 2008).

YEAR

CASE

RESULT

1990 Naptha cracker proponents wanted it in Batangas. SC said put it in Bataan

1995 Manila Hotel overturned winning bid by Malaysian Renong group as hotel is part of RP heritage & should be offered 1st to Filipinos – at lower cost

1996 U.S. jeans-maker Lee trademark ruling in favor of local manufacturer

1997 Oil deregulation law

watered down original law — introduced anti-competitive provisions: 4% tariff differential on crude oil and refined products and minimum inventory req’t

2001 Keppel (Subic shipyard)

SC declared JG Summit as winner 5 years after Keppel won project, saying shipyards are a public utility and should be at least 60% Filipino. But shipyards are not in Foreign Investment negative list. Decision now reversed —but damage is done, and JG Summit appealing the case

2002 ISM equal pay for Filipino & foreign teachers – retroactive

2002 Amari-PEA land deal nullified agreement between PEA & Amari on sale of reclaimed land

2003 Meralco RORB BT not AT – retroactive

2003 Closure of UBP CA suspended BSP Governor, 4 others

2003 Camp John Hay Redevelopment voided tax incentives on John Hay

2004 Meralco rejected ERC–approved P0.12/ kwh rate increase

2004 Mining Act of 1995 declared FTAA “unconstitutional’ as SC said it constituted a “service contract”

2005 Clark incentives nullified the fiscal incentives granted to some 300 investors in Clark ecozone

2006 Meralco’s rate increase

cancelled the price increase approved by ERC by reversing ERC’s implementing rules or automatic rate recovery.


THE WALLACE REPORT

Where to the Philippines… There’s a strange custom here that when a court of law finds you guilty you are not subject to the jail penalty imposed until the Supreme Court agrees if you appeal. I don’t understand that. What’s the role of a judge if not to judge. If he pronounces you guilty that was his job, and you are. You can appeal, but while doing so you are guilty as decided by a competent authority to do so: A judge. If the Supreme Court reverses it then and, only then are you innocent and released from jail. I would expect, and hope it’s a rare occasion when the SC reverses a judge, otherwise what’s the role of the judges? 10. LAW AND ORDER I am all for outlawing guns to be held by anybody except the police and military — a gunless society. You do not need a gun in a civilized society. As to crime: First, legalize jueteng, as others have also strongly recommended. It’s a no brainer! Gambling can never be stopped, so bring it above ground. The national and local government can even generate taxes from its operation and subject it to regulation. For other crimes the solution is, as anywhere, catch the criminals and ensure they go to jail. Senator Lacson and then Secretary Reyes showed that with a determined, dedicated effort kidnapping could be curbed. Other crimes can be similarly addressed if the resolve is there. Theft, robbery, and assault remain the 3 most common crimes anywhere. In Muntinlupa City for instance, theft the past year has occurred 8 times a week on the average, assault 6 times, and robbery almost 6 times. The average monthly reported cases of crimes vs. persons (murder, homicide, physical injury, rape) and crimes vs. property (robbery, theft) in the country in recent times is 3500! It’s actually 6000 if non-index crimes (vandalism, gambling, counterfeiting) are included. Common theft incidents include pick-pocketing inside commuter transport, in malls, and shoplifting. Reported robberies often include cellular phone- and bag-snatching and residence break-ins. Poverty breeds criminality, and vice versa. It’s a vicious cycle. Common assault incidents, which sometimes lead to homicide, almost always involve the presence of heated arguments and intoxication or both. By and large, crime stories dominate the local news pages. The most prominent and infamous of which is the extrajudicial killings with a frightening total of 860+ cases since Ms. Arroyo assumed the presidency in January 2001. Even the New People’s Army (NPA) appears busy with petty criminal activity. The NPA continues to extort varying sums from just about anybody in its areas of operation, primarily in the countryside. It is estimated to earn millions from extortion. The NPA’s notoriety for fund generation increased following their being branded as a foreign terrorist organization and the freezing of its foreign funding largely from Europe where NPA founder Jose Maria Sison is in self-exile. A major overhaul in the 5 pillars of the criminal justice system (i.e., court, prosecution, penology, law enforcement & community) is imperative if the Philippines is serious in pursuing judicial and social reform.

YOU CAN’T SHOOT SOMEONE IF YOU DON’T HAVE A GUN


THE WALLACE REPORT

Where to the Philippines… It also needs a tough, no-nonsense approach by a tough, no-nonsense leader. Not one that just talks the talk, but achieves the essential change. It is impossible to depend solely on the police and military to solve criminality and insurgency. Both are complex problems as they have economic, political, and ideological dimensions. 11. SECURITY Security and Development = Peace + Stability This is the basic equation needed to address the problem of the secessionist Moro Islamic Liberation Front (MILF), and the rebel New People’s Army (NPA). Peace talks with the NDF or MILF can never work if attempted in isolation. Economic development must go hand-in-hand with counter-insurgency measures. Poverty is an essential ingredient as to why the youth join these social movements. There’s less reason to rebel if you’re (relatively) well off. The government cannot win by fighting them. And cannot negotiate peace in isolation. The fact that the government cannot win the fight against insurgency is due mainly to 2 reasons. One is that the AFP is relatively the weakest armed forces in the region. Hampered by internal problems that include a serious lack of logistics (their capital expenditure budget has been a miniscule P330 million annually over the past few years) and corruption. The AFP has not succeeded against the NPA or MILF over the last 3 decades. Second is that fighting only increases the enemy’s resolve. With every suspected rebel that the AFP kills or maims, the AFP gains ten additional enemies. Filipinos have very strong family ties. Therefore, the enemy of one offended family member becomes the enemy as well of all other relatives who are sympathetic. That the government cannot hope to win peace in isolation is clear. The 1996 Peace Agreement with the Moro National Liberation Front was a good starting template along with the earlier peace pact with the right-wing Reform the Armed Forces Movement. The developmental initiatives that followed during the period – a modern-day replica of Magsaysay’s 1950s success formula with the rebellious Huks – prove to this day the effectiveness of the security and development tandem. There was leadership by example then. And the RAM, MNLF, NDF, and even the MILF reciprocated by laying down their arms. The MILF agreed to follow the MNLF’s lead in 1997 even after it said that it would never agree to any compromise with the Philippine government. By then, the RAM had ceased attempting any coup with its leader, Gringo Honasan running and winning a seat in the Senate. While the repeal of Republic Act 1700, which had outlawed the Communist Party of the Philippines allowed the communists to pursue a parliamentary struggle

THE GOVERNMENT CANNOT WIN BY FIGHTING THEM, AND CANNOT NEGOTIATE PEACE IN ISOLATION.


THE WALLACE REPORT

Where to the Philippines… instead of fighting. But a non-strategic demonstration of impatience, climaxed by a declaration of war by President Estrada against the MILF dashed any hopes of peace in the South. The current administration appears to be following its predecessor’s policy in terms of negotiating peace in Mindanao. It is again pursuing peace, but half-heartedly. While demonstrating strength to force the MILF to the negotiating table is sound strategy, the reality of it is simply not there. Again, the AFP is not a superior army. The fact that it has been unable to defeat a supposedly inferior army in over 30 years is indisputable proof. It’s not the soldiers, who are quite capable, it just hasn’t been given the resources. It has also kept changing the government chief negotiator with the MILF thereby adversely affecting the peace process. The government has promised a P5-billion annual budget for modernisation and upgrading over the next 10–12 years. It will need to provide it if it’s to have any success. Otherwise the AFP’s ability to defeat any of its long-time enemies anytime soon is increasingly doubtful. Apart from the problems of logistics and corruption, its limited resources are stretched too thinly by fighting on 3 fronts all at the same time: the NPA nationwide, the Abu Sayyaf in Sulu, and the MILF (its renegade forces ,which oppose peace negotiation and now employ terror tactics) in Central Mindanao. Lately in fact, a renegade MNLF force under Habier Malik has begun to fight the AFP out of frustration at the non-implementation of the 1996 Peace Agreement signed with the government. The continuing rebellions in the country are multidimensional problems that are better addressed by the developmental instruments of government – not the military. At the end of the day, the role of the military is to destroy whom the government wants destroyed. This is the military’s expertise. It as an option the President should only use sparingly – like when there is a real need to defend lives and preserve the peace, but nothing more. The problem is, in part, idealism but in larger part, poverty. Too many youth are captured into these 2 groups for no other reason but that they are poor and jobless and the rebels offer to provide for them. Although in the case of Muslim youth most come from Islamic schools where they are only taught religious subjects – so they make easy targets for fundamentalists. And are not equipped to become productive members of the workforce. So, economic development of the conflict areas and fuller education must go hand-in-hand with a firm hand by government, coupled with serious peace negotiation, because resolution of the problem with the MILF can perhaps be attained, but only if it’s accompanied by economic development and an educational system re-focused to the modern secular world. Not easy, and not likely to happen for a long time. But it must be tried. Only by addressing the twin problems of security and needed development can peace and stability be achieved. The trouble is: On the security side there are now proven links to Jemaah Islamiyah and involvement of al-Queda has also been established. So the MILF and, more especially, the Abu Sayyaf Group (ASG) have become not just a domestic problem, but an international one, with the U.S. being particularly concerned. And if it were shown that the links were not just with elements of the MILF, but supported by its leadership the MILF would have to be branded as a terrorist organization. Which would bring the Philippines further away from its peace agenda. To date, and perhaps in deference to the Philippine government that is holding peace talks with it, the MILF has not yet been branded by the United States government as a terrorist organization like the New People’s Army and the Abu Sayyaf even if some of its members – in collusion with


THE WALLACE REPORT

Where to the Philippines… Jemaah Islamiya forces — are suspected of using terror tactics in some of the bombings that have hit parts of Central Mindanao late 2006 and early 2007. While on the economic side the failure of the Philippine government to develop the Autonomous Region of Muslim Mindanao (ARMM) and the inability of the Muslims to take proper advantage of the autonomy granted has led to the region being one of the least developed in the country. Which could be justification for the MILF to be wary of any promises of the government. The fighting that has gone on, and the earlier kidnapping (principally by the ASG) have given the Philippines an appalling image of insecurity and risk that has deterred investment not only in the ARMM but in Mindanao as a whole, and even, to an extent, the Philippines in total despite that the risks, with a couple of notable exceptions, have been limited to specific areas. Lately however, the incidence of kidnap-for-ransom has died down dramatically. Perhaps, this is due to a number of factors that include the relentless pursuit of the ASG by Philippine security forces aided by U.S. intelligence and hardware in the south as well as the rise of other lucrative crimes in the northern parts of the country. Resolute offensive operations against the ASG in Sulu since mid-2006 have put the bandit group on the defensive preventing it from carrying out its criminal activities. Meanwhile, unconfirmed intelligence reveals that the illegal drug industry may have edged out kidnap-for-ransom as a prime lucrative activity of criminal syndicates. The ASG are just murderous thugs and must be treated accordingly. While the communist NPA must be neutralized by the Army, while at the same time economic development is brought to the countryside – a good argument for developing mining. And for accelerating improvement in agriculture and encouraging tourism. All activities located where the NPA are. In the short term all 3 must be fought to reduce their ability to inflict harm on the innocent populace. Armed people, no matter how just their cause, cannot be allowed in society. 12. GOOD GOVERNANCE First and foremost is consistency - investors can’t tolerate uncertainty and where it exists they would rather go elsewhere where the environment is more predictable. A book published by the Princeton University Press in 2003 pointed out that the Philippines stagnated because of “rising institutional uncertainty” — not because of “too many shocks” (natural disasters), wrong policies, a decline in investment, weak institutions or corruption. Although all those do have an impact too. The book added that Indonesia had overtaken the Philippines despite having relatively weaker institutions, because in Indonesia, investors feel secure that their contracts will be enforced and not changed. And they can be assured that their returns will be generally as expected. Policy inconsistency means the government declaring a particular policy (and having rules to support it) but acting otherwise, or bending rules to support favored groups, or changing rules in midstream. Things that happen far too often in this administration. BE CONSISTENT

ARMED PEOPLE, NO MATTER HOW JUST THEIR CAUSE, CANNOT BE ALLOWED IN SOCIETY.


THE WALLACE REPORT

Where to the Philippines… To achieve policy consistency, the President must have a clear vision of what she wants the country to be at the end of her administration, and preferably beyond. It should be a practical, realistic vision. One possible suggestion is making the Philippines among the most investor-friendly countries in Asia in 3 years. This vision must be communicated to and followed by all levels of government —then let them work out the details. The leadership must not stray from this vision, otherwise the commitment of the entire government machinery will break down. The President must not succumb to populism especially if it means reversal of major beneficial policies. Gain cannot be achieved without pain (e.g., loss of a few businesses and jobs), and there is more to gain in making the policy environment more predictable, particularly to business. Investment thrives on stability. The pain can be eventually eased by greater productive opportunities created by stability. Making ad hoc, reactive decisions to suit an instant occasion is very much the wrong thing to do. Avoid unsettling contracts, particularly those dealing with infrastructure. It is far better not to lose tens of billions of pesos in potential investments because of a perception that the government can’t enforce contracts than to gain a few hundreds million of pesos in savings by amending or voiding live contracts. Just make sure that future contracts are done with greater transparency, are fully thought through, and are equitable to all parties concerned. In other words, do a better job at the beginning, when the contract is negotiated. Contracts must be inviolate, particularly from the government side where trust is an essential element of governance. If a contract has weaknesses or flaws they must be amicably settled — or just accepted, and more care taken next time. Rules can’t be bent to favor supporters and friends of the President at the expense of other groups. Yet they are, there are too many people around the President seeking favor — and getting it. Business entry approvals must be based on the intrinsic merit of the project, compliance with the mandates of the law, and transparency. And then there’s bureaucratic red tape. Let’s start at the top. Firstly, no appointments as a thank-you for supporters. Cabinet Secretaries should be chosen for one reason only: competence and expertise in their area of concern. That means some of the existing officials should not be retained.

BE TRANSPARENT

BE PREDICTABLE

ENSURE EQUITABLE RELATIONSHIPS

APPOINT ONLY THE SECRETARY AND UNDERSECRETARIES


THE WALLACE REPORT

Where to the Philippines… Second, appoint only the Secretary and Undersecretaries. All other ranks should be promoted from the regular employees. If this doesn’t drastically boost morale in the public service, nothing will. And, in line with that, offer an attractive retirement/resignation package with the aim of eliminating 25% of the government employees. That 25% personnel saving should then be translated into a 25% increase in salaries for those remaining. That should boost morale further. And vastly improve efficiency. But then demand performance. The remaining public servants should then be given 2 ultimatums: 1) Act within x days (x depends on the complexity of the action to be undertaken) or it becomes automatically accepted/ approved; 2) Reduce the number of signatures needed for any one activity by initially a minimum of 50% (maybe no more than 6 signatures needed for anything). And then bring it down to 2 within the next 12 months. The E-procurement law should be put into full effect. It is much harder to be bribed by someone if there is no someone, particularly given the personalistic society that is the Philippines. But governments can’t operate without money. This is a poor country, it’s been a failing economy (if you don’t believe me, look at the numbers) —and it’s been so for decades.

HOW WE COMPARE GDP growth

ave. GDP/ capita

Ave. productivity Net FDI Fiscal

Balance % of pop’n in poverty Paved roads Phone

lines

US$ US$ per worker US$B as % of GDP

Less than $2 a day

as % of total roads

per 100 persons

Country

1991-2006 2006 2004 2000-2006 2006 1990-2004 2003 2004 China 10.5 2,001 1,850.3 665.1 -0.7 46.7 79 241 Singapore 5.8 29,917 47,655.6 135.3 0.1 (‘05) — 100 440 Vietnam 8.0 32.7 33 25 70 Malaysia 6.6 5,718 6,535.9 58.8 -3.3 9.3 78 179 Korea, Rep 6.3 18,391 25,650.0 39.0 0.6 (‘05) <2 77 542 India 6.1 796 11,374.7 47.6 3.7 63 Indonesia 4.9 1,640 1,903.9 -0.7 52.4 58 46 Thailand 5.0 3,136 2,409.0 53.5 1.1 25.2 99 107 Philippines 1,345 2,723.6 20.4 -1.1 47.5 42 One reason (not the only, but a major one) is the lack of money. Government gets far too little (a mere 16.2% of GDP compared to its neighbors who average 20%). A major reason is the large number of people who don’t pay taxes, or pay much less than they should. In some cases the evasion runs into billions of pesos. And the names are known. We don’t need new or higher taxes. Although certainly on cigarettes and alcohol (except red wine—a health drink) we do — but this was mangled by Congress in such a way as to favor one company, resulting in revenues in 2006 of only P 859 billion versus the P880 billion targeted originally. No one could have complained about a full application of higher taxes on these products.

723 561.2

3.9

15.8

-4.1

10

41 79.9


THE WALLACE REPORT


Tax Revenues as % of GDP, 2006

The increase in the VAT to 12% resulted in a dramatic improvement — 21.8% increase in revenues collected, and resulted in a budget deficit half of what was predicted, and aversion of a looming fiscal crisis. It was a bold, tough step that worked. What is needed now is honest payment. That will only happen by throwing some of the biggest cheats in jail. Knowing you’ll get caught is the reason in other countries why people pay their taxes. Not for love of country, but fear of jail. The budget deficit could be wiped out if the correct taxes were paid. Put 2 of the biggest in jail who are thought to be close to the president and watch tax payments escalate dramatically. The government is doing better, but not in the magnitudes necessary to support a more effective delivery of social services and to build the much-needed infrastructure. The government needs to continue its programs for improving tax administration, particularly the computerization thereof. The leadership must, at the same time, show more resolve in persuading Congress to pass the proposed revenue enhancement bills. And Congress must do so. And this includes the “corporatisation” of the BIR. This is a matter of national urgency if the Philippines is to avoid the risk of a debt crisis. Even with the heroic efforts of the BIR and the BOC to improve collections from existing taxes, the budget deficit problem won’t be solved permanently without change to the system. An honestly applied national ID system could also help if it is tied into a computerized system that links economic/business activities. The risk of abuse by a government on the political side must, though, be carefully watched. And quickly stopped if it begins to occur.

PEOPLE PAY THEIR TAXES NOT FOR LOVE OF COUNTRY, BUT BECAUSE OF FEAR OF GOING TO JAIL

0

5

10

15

20

25

Vietnam

China

Thail

and

Malays

ia

Philip

pine

s

Indon

esia

India


THE WALLACE REPORT

Where to the Philippines… The debt issue is closely linked with the public sector deficit issue. Solve the budget deficit problem and government borrowings will be reduced, so the debt problem is almost automatically contained. The rule of thumb is the budget deficit as a percentage of GDP must be well below the real GDP growth to achieve sustainable levels of national government debt. That is now the case. The tax system needs to be overhauled to arrest the decline in the tax base (due, for example, to non-indexation to inflation of the excise taxes), and to capture the shift in the tax base (i.e., the tax system is heavily concentrated on the sluggish local manufacturing, while the more dynamic sectors like telecommunications are relatively lowly-taxed) CONCLUSION

The crisis affecting the world since 9/11 has seen governments take bold steps to minimise the damaging impact of those dreadful attacks. It has prompted governments to do things they otherwise would not have done. And things that are vastly unpopular—like intrusive security searches. But people accept it, for the greater good.

The Philippines has, added to this, a domestic crisis of its own. This provides an excellent window to effect change, of a radical kind. And it must be radical. The history of the country, the sorry statistics this report highlights say without any doubt at all, that if fundamental change isn’t done he Philippines has another 30 years of 4% or 5% growth, and a population that is double what it is today with almost no improvement in the quality of life.

Is this too harsh on the Philippines? I don’t think so. The numbers say it all: The Philippines is behind. I know it can do better—but it must, really must change its culture. Develop a sense of national pride and doing things for society, not for the individual.

Unless fundamental attitudinal change is made real improvement cannot be expected. Others may have other ideas, but what should now happen is active discussion on what these might be, agreement then on the key ones – and then action to make those changes. In 2001 I said: “President Gloria Macapagal-Arroyo has the unique opportunity to effect that change. A possible 9 years continuity to address the underlying root causes of Philippine failure to develop like its neighbours. To do better than its neighbours. At worst, 3 years to get it started. But I venture to suggest that getting these 9 (the last 6 is up to the courts) started will help capture the next 6 if properly explained.”

WHAT IS NEEDED IS ACTIVE DISCUSSION ON THE CHANGES NEEDED —AND THEN GET IT DONE

VETO THE DEBT CAP BILL

DO THINGS FOR SOCIETY, NOT FOR THE INDIVIDUAL


THE WALLACE REPORT

Where to the Philippines… Well, unfortunately, the 12 issues weren’t sufficiently addressed. And sometimes where unpopular, tough but necessary decisions were to be made they weren’t because of strong public opposition. And a president who capitulated to it. So there is a concomitant need to explain better and elicit that public support. With it the task would be far easier. But regardless of whether that support can be obtained or not, the next 2 ½ years must be devoted to tough, dramatic changes if the Philippines is not to continue to slither along at the bottom in Asia. The time for change is now, but it needs people who care for their country to stand up and be counted. To demand change. And a leader that will do it. WHAT THEN NEEDS TO BE DONE? First: The leadership needs to think long term in effecting change and think about how to explain it so it gets support. The President must do what’s right and necessary and set the foundation for the long-term future. The tough decisions must be made now. The world’s greatest leaders were the ones that were fiercely nationalistic and “bucked the trend”. That had a national vision pursued fanatically and with a sense of urgency. Explained it clearly and elicited, and got, strong support. Secondly: Corollary to setting the long-term change, concentrate on doing (and again I stress, doing) the little things, the big ones will follow. As we’ve said above, visions are necessary - but not enough. Neil Armstrong, the astronaut, said it well: “One small step for man, one giant step for mankind.” Societies are built step-by-step, each action building on the previous one until a complete whole is achieved. And that raises another point: Change won’t occur unless we all work for it to do so. The President can lead it, but can not do it alone. Each one of us must stand up and be counted. Each one must do his bit. Must help to effect positive change—and that especially includes the political opposition and leaders of the business community. There may be questions about her legitimacy and she is hugely unpopular, but she does know what should be done and any alternative before 2010 is worse, so helping her get it done becomes the practical imperative. Who is the leader of the opposition? Does anyone know? Thirdly: Related to the above, there is a need to develop a sense of nationalism and social responsibility—and that’s where self-centeredness comes in. Self-centeredness (which equates to a lack of concern for society as a whole) is all around you. I suspect this is the truly fundamental, underlying problem in the Philippines. Because of its past — of colonial domination — there was an understandable shift to ensuring the well being of yourself and your family. And no concern for a country that was ruled by foreigners. But today Filipinos are ruled by Filipinos. Today they must shift to supporting their own leaders, their own country. They are now on their own and can prove to the world they can be just as successful as other Asian countries. Everyone must be taught to take personal responsibility, to participate in the community in a responsible fashion if the Philippines is not to remain near the bottom of the Asian heap. A jeepney driver must be so educated as to think automatically: “Oh, I mustn’t stop here, look at


THE WALLACE REPORT

Where to the Philippines… the disruption I’ll cause behind”. “I must help in my own small way to see to it that my country progresses.” Today, it’s a laughable concept. Tomorrow? Well, it’s up to you — and to government to educate that driver on how to think that way. The elite, even more importantly because of their influence, must too. Fourthly: The population growth rate must be slowed. At 1.9% per annum, population growth in the Philippines is growing at almost twice the average in Asia, and 3 times the world average. If the Philippines had matched Australia’s growth rate there’d be 39 million Filipinos earning $2,600-double what they earn today. And that’s the impact of just one factor. The Philippine Catholic Church must be prepared to accept, and justify, that it is a principal cause of an economy that does not grow as fast as it could: People are poorer than they need be because of church dictate upon society. Fifthly: Stop talking, and act. Get things done and implement or enforce laws—without exception. If the rich and powerful break the law they are just as guilty as the poor. More so, because they know better, or should. Instilling discipline, addressing the immediate problems is part of achieving the overall goal. A country that can’t dispose of its garbage, enforce discipline on its streets, make people pay taxes due, etc, etc and etc, will never also make the necessary, fundamental changes. And won’t grow. But, sixth: Far and away the most important thing is education, proper, well-structured education. Not just the 3 R’s, but the teaching of morals and ethics too (an area where the Church should be much more influential than it is today). And education that meets the country’s needs: more science, less law (not that there’s anything wrong with lawyers, but we need more technically oriented people). It must also encourage a sense of nationalism (in a positive sense), civic pride and involvement. There is no question in my mind but that a far, far greater emphasis on education will do more good than almost anything else. But it must be education that meets society’s needs. This is an area to focus ODA funds. Funds that are too often wasted, misused or controversial as to their benefit. But no one will object to money spent to educate their children. The Philippines is a country that could be great, it isn’t. But it deserves to be. Some reasons have been detailed here, no doubt there are others. Open discussion on them, and then action to effect them are now the necessary steps. ACTION. And that is the concluding word: ACTION

WHERE TO THE PHILIPPINES THE WALLACE REPORT

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