Commentary: Good governance is good investment

The Duterte administration is hoping it has all its bases covered when it comes to its economic recovery plan. The plan is hinged on new business-friendly policies and a revitalized infrastructure development program meant to attract investment. Ultimately, the government hopes that these policies and plans lead to job creation and the rebooting of the country’s economy. 

However, though business-friendly economic policies and openness to private sector partnership are indeed essential to attracting investment, investors similarly evaluate other factors, such as governance, political and regulatory stability, and other risk factors such as infrastructure, power and energy, and peace and order. 

The question is, are these new economic policies and plans enough to overcome the government’s obvious shortcomings when it comes to these other factors? 

In line with its economic recovery plan, the Department of Finance has expanded its list of flagship projects under the "Build, Build, Build" program. It now includes 100 flagship projects worth a total of P4.4 trillion. Also, more public-private partnership (PPP) funded projects have been added to its prized "Build, Build, Build" list.

The shift in policy towards PPP surely has some investors excited. After all, if you recall, back when President Rodrigo Duterte assumed office in 2016, he had a distaste for the PPP program and instead preferred increasing infrastructure spending in the national budget and turning to official development assistance funding from countries like China and Japan. 

Experts repeatedly warned that loans from China could bury the country in heavy debts because of higher interests rates and collateral guarantees compared to offers from other countries. 

After so many pledges from China and concomitant delays, the government finally realized it had to push forward with better and ready-to-go options. Current records show that the number of PPP-funded flagship projects on the list has now increased to 29 and have a collective value of P1.8 trillion. 

This punctuates the increasingly important role that the private sector plays in driving economic growth and creating jobs. Thus, the government must work on creating economic policies that provide a business-friendly environment that enables investors to recover from the effects of the pandemic and gain the confidence to bring in big investments.

The government is now responding with the proposed Philippine Economic Stimulus Act, a P1.3 trillion economic stimulus package for businesses that suffered during the pandemic, and the Corporate Recovery and Tax Incentives for Enterprises, which will immediately cut corporate income tax from 30% to 25%. The DOF is even considering asking Congress to give the president the power to grant “flexible” tax incentives to attract more investments.

These economic policies are being put in place to support the business community and incentivize investors. Competitive fiscal Incentives are an attraction, but other factors like political stability, corruption, the rule of law, and the regulatory and bureaucratic environments will be compared with other economies competing for foreign capital. 

How the country is perceived in terms of good governance, predictability, accountability and transparency will either make or break the deal. After all, we are asking them to commit billions of US dollars into our economy. 

Understandably, investors would look for transparency in their dealings with government, the availability of information, and openness to the public about investment policies to check corruption. 

It is also obvious why they would be concerned about the clarity of Philippine policy, the stability of its legal system, predictability of its rules and the fairness of their application. And it only makes sense that investors would want to know the performance standard of the government and its justice system in anticipation of the need for legal remedies.

Unfortunately for us, some recent developments might make it difficult for investors to have confidence in our governance system. 

For instance, the government’s recent political maneuver to push ABS-CBN off the air despite the lack of any well-defined regulatory violations could be interpreted by some investors as unpredictable and unfair.  

Some investors might also look back at the president’s threats of a military takeover of water concessionaires when the government lost its arbitration case and note the skewed enforcement of the rule of law.

Others might consider the fact that, to date, a complete list of beneficiaries of the P200 billion in pandemic-related cash aide remains undetermined. A red flag for the lack of transparency, if not corruption. 

Similarly, other investors might consider the president’s brushing off of Major General Debold Sinas’ clear violation of social distancing and mass gathering rules by holding a birthday bash amidst the lockdown as an unabashed absence of accountability by government officials.

Where does this leave us? Many businesses now struggling to survive and millions who have lost their jobs are pinning their hopes on a government economic recovery plan that will spark a rebound of economic activities.

But how can our economy recover if our government’s economic policy is not matched by good governance practices? The Duterte government may have its economic bases covered, but is sorely lacking in predictability, transparency and accountability. All these need to converge for a secure and sustainable economic recovery.

Paco Pangalangan is executive director of think tank Stratbase ADR Institute.