Economy, SONA 2022

SONA 2022: Marcos Jr. to keep neoliberal policy track

In his first State of the Nation Address (SONA), President Ferdinand Marcos Jr. left no doubt that his regime would continue the path toward neoliberalism. The general direction for the economy that Marcos Jr. outlined will lead to more liberalization and privatization at the expense of genuine national development, Filipino industries, and local jobs and livelihoods.

He opened his SONA with this pronouncement on the macroeconomic blueprint that his administration will pursue: “Our country must become an investment destination, capitalizing on the Corporate Recovery and Tax Incentives for Enterprises or the CREATE Law and the economic liberalization laws such as the Public Service Act and the Foreign Investments Act.”

Marcos Jr.’s priority is to ensure that the neoliberal policies that his predecessor Pres. Rodrigo Duterte passed are maximized to create the most favorable environment for big businesses, including foreign capital. To become an investment destination, the administration will provide massive tax breaks to corporations through the CREATE Law and provide foreign companies more profit-making opportunities with the amended laws on public services and foreign investments.

According to the research group IBON Foundation, the CREATE Law would provide around ₱372 billion in additional profits for corporations from 2021 to 2023, an amount that also represents revenue losses for the government.

The Public Service Act or Republic Act (RA) 11659, which Duterte signed into law just six weeks before the national elections, paves the way for 100% foreign ownership in telecommunications, railways, expressways, airports, and shipping industries.

These policies tie up to the infrastructure development program of the Marcos Jr. regime, which will be pursued through public-private partnership (PPP) or privatization. As he declared in his SONA, he will keep the momentum of Duterte’s “Build, Build, Build” program with “Build Better More.”

Allowing greater corporate, much less foreign, control over critical public infrastructure is flawed development planning. More than anything else, infrastructure development is meant to provide essential services that address the country’s economic and social needs based on a clearly defined national agenda. Turning over the design, construction, management, and operation of infrastructure to private and foreign interests primarily motivated by profits distort at a fundamental level such orientation of an infrastructure development program.

The Philippines already has a long history of how privatized infrastructure caused massive burdens on the people and the economy. Exorbitant user fees for the use of rail transit, toll roads, and power and water services, among others, have made the cost of decent living increasingly unaffordable for many Filipinos. Meanwhile, valuable public resources are siphoned off to guarantee the profit rates of private corporations involved in PPP projects.

Moreover, complete foreign control over critical infrastructure like telecommunications could compromise national sovereignty and security. A glaring example is China which has already established a strong presence in the country’s infrastructure development through Duterte’s Build, Build, Build program. Marcos Jr. has declared his regime’s plan not just to continue this relationship with Beijing but even to shift it into a “higher gear.” The expansion of Chinese equity in the global telecommunications industry, including in the Philippines, is creating legitimate concerns about security risks and vulnerabilities such as espionage and acquiring vital information.

Marcos Jr.’s push in his SONA to make the country an investment destination through liberalization will further stunt local capital development and undermine our long-term industrialization. The amended Foreign Investments Act or RA 11647 allows foreign nationals to own an enterprise with a minimum paid-in capital of just US$100,000. It opens the floodgates for stiff and undue foreign competition that could drive the bankruptcy of more Filipino micro, small, and medium enterprises (MSMEs). It also exposes the local workforce to foreign competition as 100% foreign-owned MSMEs are only required to hire a minimum of 15 Filipino employees from 50 under the old law.

While potentially destroying more jobs with his preferred economic policies, Marcos Jr. has also signaled in his SONA that his administration will continue to impose new taxes on the consumers, another neoliberal agenda. He cited, for instance, the value-added tax (VAT) on digital service providers that will burden consumers with an additional ₱11.7 billion in new taxes in 2023 alone.

All of these make the SONA promises of Marcos Jr. on prosperity for the people, including the attainment of a single-digit (9%) poverty rate by 2028 and upper-middle-income status with a per capita income of US$4,256 by 2024, ultimately meaningless. Without a radical shift from the long-discredited neoliberal paradigm, the Filipino people are doomed to greater destitution and exclusion under the Marcos Jr. presidency. Economic production may increase (i.e., the SONA targets an annual growth rate of as high as 8% in our gross domestic product or GDP from 2023 to 2028), but income and wealth will remain heavily concentrated in the hands of the local elite and foreign businesses.

The President did make notable commitments to address the plight of landless farmers, such as the one-year moratorium on the land amortization and interest payments of agrarian reform beneficiaries (ARBs) via executive order, towards the condonation of such debts through a new law. But consistent with his neoliberal policy bias, Marcos Jr. was silent in his SONA on reversing the decades of neoliberal restructuring of agriculture that has driven millions of farmers into landlessness and bankruptcy. He instead talked about strengthening the value chain, which in the context of the country’s neoliberal agriculture means deepening the ties to the global market and enhancing land monopoly that harm local food security and destroy farmers’ livelihood.

Marcos Jr. spent a substantial portion of his SONA presenting his regime’s plans for the economy amid the daunting global and domestic challenges confronting the country. But what he gave, unfortunately, are hollow targets based on the obsolete and failed policies of liberalization and privatization. Like his predecessors, Marcos Jr. worships unaccountable foreign capital as the driver of economic and national development instead of a more significant government role in the provision of public services and protection of domestic agriculture and local industries, especially the MSMEs and small food producers.

The COVID-19 pandemic and its disastrous socioeconomic impacts are teaching policymakers to be more inward-looking in terms of development planning. Marcos Jr. and his team of recycled neoliberal bureaucrats are not learning, or refusing to learn, the lesson. ###

Fiscal issues, Global issues, SONA 2017

SONA 2017: What’s in it for China in Duterte’s ‘Build, Build, Build’?

President Rodrigo Duterte with President Xi Jinping of China (Photo from Etienne Oliveau/Reuters, Aljazeera)

In his second State of the Nation Address (SONA), President Duterte as expected mentioned his grand infrastructure plan. There was special mention of China that Duterte said generously offered money for his “Build, Build, Build” program.

“If your Congress has no money, we will give you money” was what the Chinese supposedly told him, the President said in his speech.

Duterte in his SONA made the Chinese offer look like simple altruism and generosity. But in reality, on top of making Chinese imperialism appear benign, using soft power by bankrolling the country’s hard infrastructure profits China’s economy in various ways.

No debt crisis?

The concerns that Duterte’s infrastructure plan would result in a heavy debt burden are valid. After all, the price tag of what economic managers call as the “boldest infrastructure development program” in recent history is a whopping Php8 to 9 trillion.

Economic managers, however, assure the public that they have everything figured out. The plan is that government appropriations, not debt, will mainly fund the so-called “golden age of infrastructure”. The Finance department’s tax reform package aims to raise Php157 billion in additional revenues a year; the version passed by the House could generate Php130 billion.

At Php8 to 9 trillion, the annual cost of building infrastructure from 2017 to 2022 would be Php1.6 to 1.8 trillion. Clearly, the additional revenues from the tax package will not be enough even as it bleeds the poor dry.

In reality, the infrastructure program would be mostly debt-funded. But again, the public is being told that a debt crisis will not rear its ugly head. In fact, the Budget department expects that by the end of President Duterte’s term, the debt-to-GDP ratio would even fall to 38.1% from 40.6% in 2016.

Such optimism hinges on the economy not only sustaining its expansion but posting even more rapid growth. To outpace debt, the gross domestic product (GDP) must grow by 6.5 to 7.5% this year and 7-8% between 2018 and 2022.

It is tough to be as upbeat as administration officials given the structural weaknesses of the economy and amid a global crisis. For this year, debt watchers and creditors put Philippine GDP growth at 6.4 to 6.8% – below the range being hoped for by the economic managers. That’s the most bullish the projections could get.

Whatever rate the GDP grows by, the budget deficit is sure to increase as government ramps up infrastructure spending. The plan is to let the budget shortfall climb to 3% of GDP as infrastructure spending reaches as high as 7.4% of GDP.

While a bigger deficit means greater borrowing, there is supposedly no need to be anxious as the Budget department claims they will borrow in a fiscally sustainable way. Eighty percent of the deficit would be funded by domestic debt and only 20% foreign. Such borrowing mix lessens foreign exchange risks that could cause public debt to balloon.

Chinese and Japanese loans

But a review of what the Duterte administration has identified as its flagship infrastructure projects tells a different story. To be sure, the flagships – numbering 75 as of June – are just a fraction of the more than 4,000 infrastructure projects that government plans to do. They nonetheless represent the largest ones in terms of cost and are the top priorities for implementation.

Of the 75 flagship projects listed by the National Economic and Development Authority (NEDA), 48 will be funded by foreign debt or official development assistance (ODA). Only 14 will be bankrolled through the national budget or General Appropriations Act (GAA). Just two projects are planned to be implemented via public-private partnership (PPP) while 11 have yet to be identified which mode to use.

As of June, only 53 out of the 75 flagships have estimated costs totaling PhpPhp1.58 trillion. Of the 53, 41 are ODA-funded projects worth Php1.40 trillion. The remaining Php181 billion would be funded through the GAA. In other words, almost 89% of the total cost of projects with already determined amounts will be paid for by foreign debt. (See Tables below)

Notes: ODA – Official Development Assistance; GAA – General Appropriations Act; PPP – public-private partnership; TBD – to be determined (Based on data from NEDA)

Just nine of the 41 ODA-funded flagship projects have identified donors/creditors, based on NEDA’s June list. These are Japan with three projects worth Php226.89 billion; China, three projects (Php164.55 billion); South Korea, two projects (Php14.06 billion); and World Bank, one project (Php4.79 billion).

The Chinese and Japanese are backing the Duterte administration’s largest mega-projects, an indication of how the two economic behemoths see “development cooperation” as one of the key arenas of their competition in the region. Japan is funding the Php211.46-billion PNR North 2 (Malolos-Clark Airport-Clark Green City Rail); Php9.99-billion Cavite Industrial Area Flood Management Project; and the Php5.44-billion Malitubog-Maridagao Irrigation Project, Phase II.

Meanwhile, China is bankrolling the Php151-billion PNR Long-haul (Calamba-Bicol); Php10.86-billion New Centennial Water Source – Kaliwa Dam Project; and Php2.70-billion Chico River Pump Irrigation Project.

Although not yet identified in the latest NEDA list, various media reports also link Chinese and Japanese loans to other big-ticket rail projects. These include the Php134-billion PNR South Commuter Line (Tutuban-Los Baños); the Php230-billion Manila Metro Line 9 (Mega Manila Subway Project – Phase 1); as well as the Mindanao Rail Project, of which the first phase (Tagum-Davao-Digos) costing Php35.26 billion will be funded via the GAA. (See Table below)

Source: NEDA

Download NEDA’s entire list here

Gains beyond interests

Over-reliance on debt is obviously problematic but by itself tapping concessional loans to build much needed infrastructure is not a wrong policy. Sadly, ODA is shaped not by genuine development cooperation but by the narrow agenda of lending governments and the corporate interests they represent. Thus, potential economic and social development gains for a borrowing country are greatly weighed down by bloated costs of ODA-funded infrastructure.

Big infrastructure lenders like China and Japan profit not only from the interests accruing from their loans to build rails and roads. The larger gains they make are from the conditionalities they tie to these loans such as requiring the Philippines to exclusively source from Chinese and Japanese firms the goods and services needed to build the rails and roads.

Lenders dictate the technology, design and construction of the infrastructure to accommodate their own suppliers and infrastructure firms. As such, Chinese and Japanese contractors are also favorably positioned to corner operation and maintenance contracts once the rail systems and other infrastructure are privatized under the Duterte administration’s hybrid PPP scheme.

Lastly, creditors also favor the development of infrastructure in areas where they have business interests. This explains the concentration of Japan-funded infrastructure in Central and Southern Luzon where export zones with Japanese investments are concentrated. China’s interest in building infrastructure in Mindanao is tied to its plantation and mining interests in the region.

All these make the cost of infrastructure development in the Philippines more expensive and the debt burden onerous. Tied loans for infrastructure development creates commercial opportunities for Japanese and Chinese companies that are otherwise not available to them. In China’s case, infrastructure lending in poor countries is even used to create employment for their own workforce at the expense of local labor.

At a time of prolonged global recession and slowdown in profit rates of the industrial economies, these opportunities become even more important. Alas, these opportunities only arise by undermining the debtor’s own development needs. ###

(This is a slightly revised version of an article first published as IBON Features)

Economy, Privatization

‘Dutertenomics’: golden age of oligarchic and foreign interests in infrastructure?

Duterte’s economic managers present “Dutertenomics” – a grand plan that they said will usher in a “golden age of infrastructure” (Photo by Marianne Bermudez/Inquirer.net)

“Build, build, build” is said to be the foundation of the Duterte administration’s development plan, which his economic managers are packaging as “Dutertenomics”. The plan is supposed to usher in a “golden age of infrastructure”.

But despite the attempt at branding, Dutertenomics is neither new nor unique. Its cornerstone of massive infrastructure development is still built on the neoliberal agenda of opening up additional profit-making prospects for big local and foreign business, including through “development” lending, building and operating the infrastructure themselves and/or constructing facilities that would benefit their commercial interests.

Worse, the ambitious plan may not usher in a golden age of infrastructure but instead a golden age of oligarchic and foreign interests in infrastructure while the public bears more onerous financial burden arising from greater debts and taxes.

AmBisyon Natin

There is no denying of the urgent and huge infrastructure needs of the country, especially transport. The Philippines has the worst overall infrastructure and worst transport infrastructure (roads, railroads, port and air transport) among major countries in Southeast Asia, according to the 2015-2016 Global Competitiveness Report of the World Economic Forum (WEF). The intolerable traffic in Metro Manila and the state of disrepair of the public transport system illustrate the dismal shape of transport infrastructure in the country.

Thus, infrastructure, specifically the transport sector, has been made the cornerstone of Dutertenomics. It is a key component of AmBisyon Natin 2040, a vision to make the Philippines a “prosperous, predominantly middle-class society” that President Rodrigo Duterte has adopted as guide for long-term national development planning.

AmBisyon Natin listed priority sectors that include the development of infrastructure such as roads, ports, airports, bridges and communication (“Connectivity”) as well as housing and urban development. It also identified “investment in high-quality infrastructure to make the cost of moving people, goods and services competitive” as one of the policy instruments to make the aspirations of AmBisyon Natin a reality.

The Philippine Development Plan (PDP) 2017-2022 is the first medium-term plan anchored on AmBisyon Natin. Under this PDP, the Duterte administration aims to make its six-year term the so-called “golden age of infrastructure” with spending on infrastructure increasing substantially (i.e. 5.1% of gross domestic product or GDP in 2016 to 7.4% in 2022). Concrete and measurable indicators have been set for transport infrastructure (road, rail, air and water transport); water and power resources; and social infrastructure (classrooms, health centers, housing units).

(Download the PDP’s Chapter 1 – Introduction and Chapter 19 – Accelerating Infrastructure Development)

The “golden age of infrastructure” includes an initial list of 64 big-ticket projects for implementation or in the pipeline that are mostly transport infrastructure such as major road networks, railway systems, bus rapid transit systems, and airport and seaport modernization. These are on top of 15 ongoing infrastructure projects, which are either locally funded, with official development assistance (ODA), or through public-private partnership (PPP).

Hybrid and unsolicited PPP

PPP, which is essentially the neoliberal privatization of infrastructure development and commercialization of services, will continue to be the main program to meet the country’s infrastructure needs. The PDP will promote PPP by addressing “bottlenecks in PPP planning and implementation” and pursuing “reforms to enhance the business environment” to encourage investors. To do these, among the legislative agenda under the PDP is the amendment of the BOT Law and its implementing rules and regulations (IRR).

In the previous Aquino administration, such policy reform has taken the form of the PPP Act that will among others institutionalize state guarantees on financial and regulatory risks of PPP projects. (Read “Aquino’s PPP legacy”) In the current 17^th Congress, bills to introduce the PPP Act and BOT Law amendment have already been filed in both chambers. At the Senate, Sen. Sonny Angara filed Senate Bill (SB) No. 951 (“PPP Act”) while at the House of Representatives Rep. Vilma Santos-Recto filed a counterpart proposal (House Bill or HB No. 1944). HB 2727 of Magdalo party-list Rep. Gary Alejano, meanwhile, aims to amend the BOT Law. There are also moves to introduce foreign investment liberalization through the PPP Act.

As of March 28, there are 15 awarded PPP projects worth Php310.51 billion, based on the latest status report of the PPP Center. Of these, four are completed and operational (Php31.77 billion); seven are under construction (Php150.01 billion); and four are under pre-construction (Php128.73).

The country’s richest and most influential oligarchs control these PPP projects. The San Miguel Corp. (SMC) group accounts for 45.9% of the total cost of ongoing and/or completed PPP projects as of March 2017. The Manny V. Pangilinan (MVP) and Ayala tandem, meanwhile, comprises 21.5% on top of MVP’s own projects comprising 18.9 percent. All in all, the SMC, MVP, and Ayala groups collectively control 10 of the 15 ongoing and/or completed PPP projects worth Php275.15 billion or equivalent to 88.6% of the total cost. (See Chart)

These same oligarchs are positioning themselves to corner more infrastructure projects as the Duterte administration promotes unsolicited projects and the so-called hybrid PPPs to push its grand infrastructure plan.

Unsolicited projects proposed by the big oligarchs now total Php2.6 trillion, mostly in the transport sector as they see opportunity in the traffic crisis. These big oligarchs take advantage of unsolicited projects to build infrastructure that they will not only profit from but would also benefit their other business interests (e.g. SM’s unsolicited proposal to build a Php25-billion toll road that will link its malls in Pasay and Makati). This further weakens the central role that government should be playing in rationally planning and deciding which key infrastructure projects are needed, where to put them, and how they serve the overall development plan.

Hybrid PPP, on the other hand, is a worse form of PPP because it puts even heavier load on the public sector than the already onerous burden it shoulders under a regular PPP. In a regular PPP, the private sector will raise funds to build the infrastructure, and then operate and maintain (O&M) it in a fixed period to recover investments and earn profits. In a hybrid PPP, the public sector will finance the construction of the infrastructure through official development assistance (ODA) loans and then give the O&M to the private sector. The public will thus be burdened with direct debt servicing for the ODA loans (in a regular PPP, debt is often a contingent liability), profit guarantees and other perks for the private operator, and high user fees.

With preference for unsolicited projects and hybrid PPP, and the pending Traffic Emergency Bill – supposedly meant to address the traffic crisis – the stage to favor certain big oligarchs is set. With emergency or special powers, the Executive could fast track the implementation of transport infrastructure projects through negotiated contracts in the pretext of solving the urgent traffic crisis.

Increased foreign role

Meanwhile, as bilateral relations with China warm up under Duterte, the administration is actively seeking Chinese financing for big-ticket infrastructure projects through bilateral ODA loans, as well as multilaterally through the China-led Asian Infrastructure Investment Bank (AIIB), to fulfill the so-called “golden age of infrastructure”.

Reports say that China is set to finance Php172.4-billion worth of infrastructure projects this year. This is part of the 15 projects identified for Chinese financing under the Duterte administration estimated at a total of $6.96 billion (Php349.92 billion). Earlier reports indicated that one of the projects that China will finance is the South Line of the North-South Railway Project (NSRP) for $3.01 billion (Php151.33 billion). China also expressed initial interest in bankrolling “Duterte’s dream” of Php218-billion, 830-kilometer Mindanao railway system.

Aside from China, other imperialist financial institutions are also lining up to fund Duterte’s “golden age of infrastructure”, also mostly in the transport sector. The Japan International Cooperation Agency (JICA) has committed to finance three mega-transport projects with a combined cost of $8.8 billion (Php442.42 billion). Eleven other projects are being pitched as well to Japan for possible funding including irrigation and flood control projects. These projects are: $4.3-billion initial phase of the Mega Metro Manila subway system connecting FTI in Taguig City to the SM North EDSA and Trinoma malls in Quezon City; the $2.7-billion commuter line extending to Los Baños, Laguna, the south line of the North-South railway project, and the $1.9-billion high-speed rail extending to the soon-to-rise Clark Green City of the North-South Commuter Railway connecting Tutuban in Manila and Malolos, Bulacan.

The US-controlled World Bank, on the other hand, is providing $64.6 million (Php3.25 billion) for the first line of the Metro Manila bus rapid transit (BRT) system.

With increased ODA borrowing to fund infrastructure development, Duterte’s economic team has been pushing for a package of tax reforms that would be shouldered more heavily by the poor and ordinary income earners. The tax reform package entails additional burden that includes higher value-added tax (VAT), expanded and higher excise tax on all petroleum products, as well as the sugar excise tax. While the poor bear the brunt of these reforms, the rich get tax benefits such as lower corporate income tax as well as tax cuts in real estate and property-related transactions. And these rich include the oligarchs that corner the infrastructure projects (including those to be funded by ODA) the costs of which the taxpaying public will shoulder.

In addition to financing PPP projects, increased role for foreign interests is expected as the push to further liberalize infrastructure development continues. The US, for instance, has renewed calls to lift constitutional restrictions on foreign investments to allow and encourage American firms to participate in the Duterte administration’s PPP program. Another route being promoted by the US for American involvement in PPP is through the relaxation of limits set under the Foreign Investment Negative List (FINL). Meanwhile, Duterte himself has said that he is supportive of lifting constitutional limits on foreign investments through Charter change (Cha-cha).

Already, the PPP Center under the current administration has launched a UK-funded (Php4.35 million) Development of Foreign Investment Framework Project that “will facilitate the legal and institutional push to further build a favorable PPP business environment for foreign investors”. The output of this project will be translated into inputs to the PPP Act and its IRR.

Another pending legislative proposal to allow full foreign participation in key infrastructure sectors is HB 446 that seeks to amend the Public Service Act and redefine public utility. When passed, it will open telecommunications, transport and power industries to 100% foreign ownership.

Policy issue of profit-driven infrastructure

Ongoing PPP/infrastructure/transport projects continue to burden the people. The Php62.7-billion MRT-7 project (SMC) – the second largest among active PPP projects – for instance, is fraught with onerous contractual terms that are disadvantageous to taxpayers (state guarantees on private debt, amortization payments, etc.) and end-users (guaranteed fare adjustments) while causing massive displacement among urban poor and farmer communities. The same thing is true with the LRT-1 (MVP-Ayala) PPP project. (Read “How MVP-Ayala will squeeze LRT 1 commuters dry”)

Ultimately, it all goes back to the policy issue of private sector and profit-driven infrastructure development that the so-called Dutertenomics promote. The country needs to urgently address its infrastructure crisis but as IBON has repeatedly raised in the past, infrastructure development for transport as well other key sectors carried out with profit-driven agenda contradicts and undermines the role of infrastructure in improving the living condition of the people and serving the overall economic development and general public interests of the country. ###

This article was first published as IBON Features

(Exchange rate used: Php50.2752 per US dollar, March 2017 average, BSP – http://www.bsp.gov.ph/statistics/spei_new/tab12_pus.htm)

Human rights, Poverty

#OccupyBulacan and the anarchy in housing and urban development

Photo from Kadamay

When the urban poor group Kadamay (Kalipunan ng Damayang Mahihirap) led the occupation of idle housing units in a government relocation site in Pandi, Bulacan last week, President Rodrigo Duterte called the action “anarchy”. He even threatened them with eviction.

Latest report says that the urban poor families – numbering about 5,000 people – have already occupied six government housing sites in Pandi and in San Jose del Monte, also in Bulacan.

But if there’s anarchy in this situation, it is not the occupation by the poor of some 4,000 houses that have been left empty for years. It is the flawed, profit-driven public housing program and government’s continuing neglect of the chronic housing crisis that have brought about anarchy in housing production and meeting the needs of the poor and homeless.

These housing units have been unused not because of lack of demand. According to the Housing and Urban Development Coordinating Council (HUDCC), the housing backlog as of December 2016 is pegged at 2.02 million units. From this backlog, the total housing needs is expected to swell to almost 6.80 million units by 2022, growing annually by more than 796,000.

Meanwhile, there are more than 1.50 million informal settler families (ISFs) nationwide, of whom 39% are concentrated in Metro Manila, based on government’s latest data.

The actual figures are much higher of course considering how official poverty data understate the real extent of poverty. A September 2016 survey by the Social Weather Stations (SWS), for instance, estimates that 36% of Metro Manila’s population count themselves as poor. That’s equivalent to around 4.64 million urban poor in the capital alone.

Amid such a huge (and growing) housing backlog and enormous number (official count or otherwise) of urban poor who need decent shelter, there are idle housing units like those in Bulacan. The National Housing Authority (NHA) said that the there are about 52,341 idle housing units as of last year.

This is the anarchy that Duterte should be concerned with, one that raises the question of not only bureaucratic inefficiency and neglect, but more fundamentally, of state policy and social justice.

The anarchy is actually not just in the housing program but also in the overall urban development plan of government, implemented mainly through public-private partnership (PPP), that is biased against the poor and skewed towards oligarchic interests.

To illustrate, profit-oriented infrastructure development in urban centers via PPP such as the construction of mega business districts often leads to the blatant marginalization of poor communities from access to basic social and economic services. Government promotes these projects with its neoliberal bias of allocating public lands not based on the social and development needs of the people but on the most commercially profitable use of urban lands.

One example is the Php65-billion Quezon City Business District (QCBD), a 2009 joint venture between the NHA and Ayala Land Inc. for 10 years. QCBD is touted as the country’s “first transit-oriented, mixed-use business district” and will include, among others, the construction of 45 towers over 29 hectares of property.

The project covers an area where the Ayala group already has established business interests such as the Trinoma Mall and LRT-1. Thousands of urban poor settlers in the area have already been dislocated, with more to come. The NHA estimates that the QCBD will displace over 15,000 families. Even the public Philippine Children’s Medical Center (PCMC), which mainly serves poor children, has been under threat of dislocation by the QCBD.

Development of urban infrastructure under PPP does not only burden the public with exorbitant user fees, state guarantees, tax incentives, etc. but even compromises the usefulness of the infrastructure itself as projects are designed not for public interest but to meet the specific and narrow business interests of the private project proponents.

This is illustrated, for example, by the controversy on the common station of the LRT-1 PPP project. The Ayala group, which is part of the consortium that won the said project, wanted to build the common station – that will link LRT-1 with MRT-3 – in front of its own Trinoma Mall even if it undermines the access and convenience of commuters, on top of additional costs that the public will shoulder.

Turned over to profit-seeking business interests, infrastructure development has become anarchic instead of being planned and coordinated within a pro-people urban development framework. This has resulted to the dismal state of public housing, transportation system, public utilities, and other key economic and social infrastructure.

It is the State that Duterte now represents that brought anarchy to the urban poor. The Occupy Bulacan, on the other hand, is an organized political action by the poor to expose and challenge this anarchy and to assert the legitimate people’s right to shelter and development. ###

Privatization

PPP summit: A grand party of the biggest compradors and finance oligarchs hosted by a haciendero President

(Click here for the official website of the PPP summit)

Senior government officials led by President Aquino himself, some 150 to 200 foreign and local investors, and high-level representatives from the World Bank, Asian Development Bank (ADB), Japan Bank for International Cooperation (JBIC) as well as private financial institutions like the Deutsche Bank AG, HSBC, Standard Chartered, and ING Bank N.V., among others are expected to attend the so-called “Infrastructure Philippines 2010” or better known as the public-private partnership (PPP) summit.

The PPP summit, which will officially open today (Nov. 17) at the posh Manila Marriot Hotel, is like a grand party organized by the haciendero President for the biggest local compradors, foreign finance oligarchs, and multilateral creditors to discuss how they can further squeeze profits from the Filipino people through PPP projects in infrastructure.

Who benefits from PPP?

Private investors participate in infrastructure development with the clear goal of making and maximizing profits, according to the ADB itself. The job of government, as a consequence, has been reduced from ensuring that the infrastructure needs of the people and of the economy are met to ensuring the most favorable investment climate for the private sector. Infrastructure development has become a lucrative business because of captive markets and state guarantees.

The country’s largest businesses, owned by the richest and most influential families in the Philippines like the Lopezes, Cojuangcos, Ayalas, Aboitizes, Pangilinans, and Consunjis have thus taken advantage of the PPP and now control the biggest and most strategic infrastructure such as power generation, toll roads, water utilities, rail transit, etc.

In many cases, they have also partnered with investors from the US, Europe, Japan, and other foreign countries in these PPP projects. Multilateral lending institutions like the World Bank through its various units – International Finance Corp. (IFC), Multilateral Investment Guarantee Agency (MIGA), and the International Bank for Reconstruction and Development (IBRD), as well as the ADB and others have also provided them with loans. At the end of the day, all the costs of the PPP ventures are shouldered by the people through user fees and debt servicing. (See Table below)

More guarantees

The ambitious PPP campaign of Aquino will not take off unless more guarantees, incentives, etc. are provided to the private investors. Thus, to make its PPP summit more saleable, the Aquino administration has designed a new scheme to protect the interest of investors. Aside from the traditional state guarantees on profits, etc, the government is also offering “pertinent incentives” to further stimulate private resources for PPP projects.

One of them is a so-called “regulatory risk insurance” under which the government will protect investors from “certain regulatory risk events such as court orders or decisions by regulatory bodies which prevent investors from adjusting tariffs to contractually agreed levels”.

Aquino’s economic managers explain that such insurance could take the form of make-up payments from the government to PPP investors, other guaranteed payments, and adjustment to contract terms. The terms of protection will be included in the contract of each PPP project.

While the government assures us that the risk insurance will only be offered on a case-to-case basis, it is reasonable to expect every profit-seeking investor that will participate in PPP projects to ask for the said insurance.

More debts

But if the government is operating on a serious deficit, how can it fund the regulatory risk insurance? National Economic and Development Authority (NEDA) chief Cayetano Paderanga said that they will tap multilateral institutions to provide for the guarantees so that when PPP investors face risk, they can still “be paid fast and immediately”.

Ultimately, however, it will still be the taxpayers who will foot the bill of the risk insurance through debt payments – interest and principal – to the multilateral creditors. Likely sources include the ADB and the World Bank, two of the most aggressive lenders and active promoters of PPP projects. The latter has already indicated a willingness to provide funds for the PPP projects of the Aquino administration.

Thus, even if government claims that it is not providing notorious sovereign guarantees for PPP projects, the country may still end up more indebted that ever before.

Undermining the courts

In addition, the risk insurance guarantee may also have the effect of undermining the system of check and balance and the use of courts to protect public interest.

For example, people who will turn to courts to question and stop the implementation of disadvantageous and harmful PPP contracts – like those that will lead to an astronomical increase in toll rates, MRT fares, water and electricity bills, etc; or those that will result to physical displacement, environmental degradation, etc – may get a favorable ruling.

But this favorable ruling will be negated, if not become practically meaningless, because the private operator will still be compensated through the risk insurance, which the people themselves will ultimately pay for to the World Bank, ADB, or whichever multilateral bank is funding the risk insurance.

Infrastructure fund

Aside from the risk insurance, the Aquino administration is also working with the multilateral banks for the establishment of the Philippine Infrastructure Development Fund (PIDF). This new entity is being patterned, according to the Finance department, after India’s Infrastructure Development Finance Co. Ltd. (IDFC) and Indonesia’s PT Indonesia Infrastructure Finance (IIF).

In its website, the IDFC is described as “India’s leading infrastructure finance player providing end to end infrastructure financing and project implementation services”. On the other hand, the IIF was officially launched just last August as a private infrastructure financing company with an initial capital of $170.3 million from the Indonesian government, the World Bank’s private lending arm International Finance Corp. (IFC), and the ADB on top of a 2 trillion rupiah loans from the same multilateral banks.

There is no official and final announcement yet on how the planned PIDF will raise resources (the PPP summit is expected to produce such detail). But it is likely that similar to the IIF of Indonesia, the Philippine government will shell out funds for the new entity’s initial capital, which is also expected to be beefed up by loans from the World Bank, ADB, and other foreign creditors.

In earlier statements, Finance officials also disclosed that the PIDF may engage in issuing 25-year bonds domestically, targeting pension and insurance companies. The money borrowed will then be re-loaned to investors involved in PPP projects. Thus, in effect, the PIDF will become a mechanism of the Aquino administration to guarantee funders and creditors that the money loaned to PPP investors will be repaid.

Anti-development, anti-people

Creating an environment conducive to private and foreign capital, based on the country’s experience from past PPP initiatives, entails government assurance that investors will make handsome profits through guarantees on investment, protection from risks, and other incentives, and ultimately of showing bias against the poor that these PPP initiatives are supposed to benefit.

And let me reiterate that the heavy focus on profitability which is inherent in any private enterprise instead of net economic and social gains make infrastructure projects pursued through PPP ultimately anti-development and anti-people.

A Radical's Nut

Notes on Philippine economy and politics

Tag Archives: infrastructure