AN OUTSIDERS VIEW: PHILIPPINES TO FRY IN OWN FAT --AGAIN
MANILA, NOVEMBER 23, 2010 (TRIBUNE) BY KEN FULLER - In The Untold Philippine Story, published in 1967, Hernando J. Abaya remarked that "where before we were fried in American lard, we now fry in our own fat!" What he was referring to was the tendency of foreign investors to raise their capital on the local market instead of bringing it with them.
This tendency, which had existed earlier, was intensified in the 1960s by the USA's balance of payments problems occasioned by the war in Vietnam, and US companies were now under "explicit instructions from no less than the US government" to borrow locally and to "remit to the US as much of their earnings as possible." (Alejandro Lichauco, "The International Economic Order and the Philippine Experience.")
Bancom stated quite bluntly: "(W)e continue to advise local borrowings as much as possible, as long as possible and at the earliest possible time." As one example, the Ford body-stamping plant in the Bataan export processing zone was established at a cost of $22 million, every cent of which was raised locally. The Manila Times published a study demonstrating that foreign companies were remitting $2.50 for every dollar invested; by 1969 this ratio had widened to $7.08 for every dollar invested. In 1966, while US companies invested $9.2 million abroad, the capital outflow from the USA was only $2.7 million. In the Philippines, the net outflow of capital reached $1 billion a year in 1966.
In 1977, when the Central Bank attempted to impose debt-to-equity ratios on foreign companies seeking peso loans, US Ambassador William H. Sullivan gave the game away by protesting with remarkable frankness that such a scheme "would work against multinationals who come to the Philippines with nothing but a company name and a logo."
Why this history lesson? Well, because it seems to be repeating itself.
On Nov. 18, formally launching his "public-private partnerships" project, President Aquino announced that the Bangko Sentral would raise the limit on the amount a bank is permitted to lend for a single project. Thus, it would seem that foreign investors in the 10 infrastructural projects announced last week — $3.414 billion worth of upgrading for roads, railways and airports — are being practically encouraged to raise their investments locally. Why else would the Development Bank of the Philippines, the Government Service Insurance System, Land Bank and the Social Security System have established their Philippine Infrastructure Development Fund, financing it to the tune of P200 billion?
These four institutions are, of course, in the public sector. One wonders, therefore, whether the public role in these "public-private partnerships" will consist, apart from the P12.5 billion proposed budget allocation for 2011 and, presumably, similar amounts thereafter, merely of loaning investors (mainly foreign) the cash with which to make a killing. It's true that funds — and "expertise" — have also been promised in the form of official development assistance and loans from the Asian Development Bank, the World Bank and the Japan International Cooperation Agency. But will those loans be repaid by the private "partners" or by the Filipino taxpayer?
All of this make a nonsense of the argument frequently advanced by opponents of the nationalist economic provisions in the Constitution. The Philippines, they say, is unable to raise sufficient capital and therefore must resort to foreign investment in order to "develop." Here, the capital being raised appears to be not only Philippine but public — only to be handed over to those "with nothing but a company name and a logo." Not that the proposed projects constitute "development," of course, because infrastructural projects, while of use to the country itself, also enable foreign capital to operate more efficiently here.
The projects offered next year will operate under the "build-operate-transfer" (BOT) system. Thus, an expressway will, for example, be constructed by the private "partner" (probably using, as we have seen, money raised locally, and certainly using Philippine labor); once completed, the road will then be operated (yes, it will be a toll road), by that "partner," who will take all or an agreed percentage of the proceeds for a specific period, after which the project will be transferred to the government.
The "operate" phase of some BOT agreements can be as long as 25 years, during which time, one assumes, there will be nothing in the contract to prevent the foreign investor from remitting the profits to its own country. This arrangement has consequences, among which may be that local business finds itself crowded out on the loans market and, resulting from the net outflow of capital from the Philippines, the foreign debt (currently $57 billion) expands.
By the end of a lengthy "operate" phase, of course, it is entirely possible that the road, railway or airport will be in need of further "upgrading," thus opening the possibility that the cycle will commence anew.
It is also possible, though, that at some point during this lengthy period Filipinos will awaken to the fact that they are being robbed. Such a realization might lead to calls that the situation be addressed by, say, the Supreme Court or the legislature. But investors can sleep soundly, because none other than the president himself has promised to provide them with protection against "regulatory risk."
"If," he said on Nov. 18, "private investors are impeded from collecting contractually agreed fees by regulators, courts, or the legislature, then our government will use its own resources to ensure that they are kept whole."
Well, it may be early days, but such an undertaking seems to have "constitutional crisis" written all over it.
(Feedback to: outsiders.view@yahoo.com)
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Chief News Editor: Sol Jose Vanzi
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