Deeper economic reforms a must after Duterte’s midterm victory
CROSSROADS (Toward Philippine Economic and Social Progress) - Gerardo P. Sicat (The Philippine Star) - May 22, 2019 - 12:00am

The mid-term elections gave a resounding victory to all but one of President Duterte’s endorsed senatorial bets.

New political landscape. The President is assured of strong support now from the senate. No recent president of the country has been in this favorable situation before, with both houses of Congress behind him fully.

The President’s candidates won nine of 12 winning senators. His political ally in the Senate (Sen. Cynthia Villar) topped the vote convincingly. His long-time assistant (Bong Go) and his police lieutenant who implemented the anti-drug program (Bato de la Rosa) were also topnotchers.

The three other winning senators-elect who complete the 12 senatorial vacancies will likely back the President, including the reasonable oppositionist (Grace Poe).

Some foreign observers look at this victory as “weakening” Philippine democracy. This is foolish judgment. The vote was firm and strongly indicated a landslide victory in a fair exercise of the vote, which is the mark of any democracy.

If anything, this result should strengthen Philippine democracy. For too long now, fractious Philippine politics has prevented meaningful economic reforms from getting adopted. Now, hopefully, deeper reforms can proceed.

Empowered by this electoral victory, a wise president acquires the weapons to channel his victory toward the common good, to pursue the programs to strengthen the country’s competitiveness in the world.

The question, of course, is: How wise will President Duterte be?

Need for deeper economic reforms. The country needs to deepen the economic reforms that have been slowly moving forward. This is the time to consolidate the reforms that gives the country an even chance to catch up with our high-economic-achieving neighbors.

Since the late 1980s, from president to president, we have been shooting ourselves in the foot to make decisions and enact legislation that either slowed us down or erected barriers to the very reforms we want to achieve.

Many programs are already in place. They just need faster implementation. Some require critical legislation to remove showstoppers. Some are in the area of administrative reforms and are purely executive in character.

Let me cite a number of these issues, postponing my commentary on the important aspects of the constitutional reforms being proposed by the government, for later.

Public infrastructure program. While the 3Build (Build Build Build program is much talked about, some projects need to accelerate their timetable. Others need to keep, or sustain, their planned timetables.

The delay factors to public infrastructure investments can be hurdled by proper administrative measures. But some require legislative attention.

Close monitoring of issues through an implementation committee should help remove many of the roadblocks. The rights-of-way problem is a persistently annoying source of delays of important projects.

The government’s recourse to the power of eminent domain has not been used enough. There are legislative remedies that should speed up the acquisition of rights-of-way which are a matter of appropriate balancing of the power of eminent domain with the issue of fair pricing of acquisitions for the public use of private property.

We must also admit that technological and financial capacity (or leverage) is a factor that the local construction industry faces, especially with the enlarged bill of infrastructure projects that are foreseen.

The substantial, not minuscule participation of foreign construction companies needs to be fully examined. It is not enough that foreign construction companies be linked only with foreign-assisted development projects.

The government must acquire an independent capacity to deal with foreign construction companies so that it can learn to undertake even larger infrastructure projects with high developmental impact.

Complete the tax reform program. The tax reform program is a major component of any economic program that lifts a nation from its own support structures.

But a sound tax system provides the leverage for enhancing further external finance to fund important development projects. The reasoning is not the other way around.

During the election campaign, the TRAIN I package that reformed the domestic sales tax system and the energy excise taxes as enacted was subjected to populist criticisms as helping to worsen income inequality.

Well, TRAIN I has enabled the country to bolster government finances to finance its development programs. This has firmed up the country’s growth prospects and has raised sovereign credit worthiness. This will reduce the future costs of access to the international capital markets.

Moreover, in the context of the burdens of sales taxation on income distribution, this stronger tax capacity has strengthened the capacity to finance the government’s conditional cash transfer program to help targeted poor and vulnerable citizens.

Further, it emboldened the passage of other government expenditure programs to support universal medicare, free college tuition in public colleges, and other programs that sustains economic development programs.

The other parts of TRAIN which deal with the reform of the corporate income tax and government investment incentives need to pass quickly. This is all the more important because the investment incentives program needs more effective direction. Most importantly, it is tied to the support of reforms in productive markets.

Reforms in industry and agriculture. President Duterte’s government finally adopted a major economic reform that pushes the country’s rice security by opening the country to more imports.

This is critical for the economy’s anti-inflation program. The same reform would open the door to broader agricultural diversification.

However, the land reform program needs to find its ending point to get land markets in rural areas to function properly. The country will benefit from the participation of corporate enterprises in farming, including the attraction of foreign direct investments in it.

Labor market reforms are needed. Lack of flexibility of the labor market is making us lose big-time in creating good jobs for our large, growing young population.

The legislative reforms in agricultural and industrial production incentives need to speed up if we are to get a share in the global and regional economic restructuring that is accompanying the US-China trade war and investment movements.

Principal among these are those tied up to the investment incentives legislation and to labor market rigidities.

My email is: gpsicat@gmail.com. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

ECONOMIC REFORMS RODRIGO DUTERTE
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