Economic reforms may be lost in transition, think tank warns

To help maintain the economic reform momentum that the political transition could slow down, the incoming administration must address three key areas, namely foreign ownership restrictions, infrastructure gap, and the peace and stability situation, a global publishing, research and consultancy firm said.

According to the Oxford Business Group (OBG), while the Philippines’ overall economic direction was unlikely to change, some of the reform momentum may likely be lost as the country enters a transition period with the election of a fresh set of leaders on May 9.

In “The Philippines 2016” report, the OBG identified the bright spots in the economy, among them the business process outsourcing sector and the drop in oil prices.  It also noted that growth could accelerate “if infrastructure spending continues, and if the United States economy remains strong.”

Constitutional rule

In a press briefing on Friday, OBG managing editor for Asia Paulius Kuncinas said the Philippines has emerged as one of the star performers in the region with growth averaging above 5 percent, but that it must achieve some critical milestones to sustain  economic growth.

“We hope the new administration will make it easier for investors to come here and deploy capital, technology and know-how and a key, simple step would be the relaxation of Constitutional rule to allow foreigners to have higher equity participation,” Kuncinas said.

“The next big step is to do something about infrastructure because it is proving to be a drain in this economy… We need roads, trains, airports and these projects require long-term commitment from the investment community and so the sovereign has to step up… Unless the sovereign steps up, and guarantees these projects, the private sector will not participate and we will have wasted years wherein connectivity is stifling economy, tourism, transport, logistics and even agriculture and manufacturing,” Kuncinas added.

Guillermo D. Luchangco, who chairs the Investment and Capital Corp. of the Philippines, said in the same press briefing that the administration of presumptive president Rodrigo Duterte should also look at measures and programs that will ensure a better distribution of wealth.

“We need to better disperse economic activity to the regions outside Metro Manila… (D)istributing economic opportunities would not only help relieve the infrastructure strain on Metro Manila but would also spread the benefits to other regions of the country,” Luchangco explained.

Lea Roque, who heads the tax advisory and compliance at Punongbayan & Araullo, meanwhile stressed the need for a comprehensive tax reform that would include the lowering of corporate income taxes and individual tax rates and making tax compliance simpler and easier. Currently, corporate and personal income taxes in the country are among the highest in the region.

Economic agenda

While the eight-point economic agenda unveiled by the incoming administration has calmed investors, they also await solid actions that would address perennial development concerns, among them poverty and the lack of infrastructure.

“We believe that financial markets will welcome the explicit commitment of the incoming administration in keeping the current macro-economic policies, particularly its focus on infrastructure. The absence of any drastic shifts [from President Aquino’s policies] is encouraging, in our view,” global financial giant J.P. Morgan said in a note to clients on Friday.

For J.P. Morgan, “the focus on grassroots development is also laudable, as inclusive growth has been a persistent problem of the economy.”

In a separate report, Trusted Sources UK Ltd. said it expected the incoming political leadership to continue the reformist economic policies of the Aquino administration and the quick passage of Charter change.”

As published in Philippine Daily Inquirer dated 14 May 2016 by Amy R. Remo and Ben O. de Vera