His Excellency BENIGNO S. AQUINO III
President of the Philippines
During the Opening of Infrastructure Philippines 2010: Investing andFinancing in Public-Private Projects
[Marriot Hotel, Manila, November 18, 2010]
Ladies and gentlemen, my fellow workers in government, investors, good morning.
Just a year ago, a gathering like this would have been impossible. Confidence in doing business here was weak. It was a time of backroom deals made with no clear criteria or direction.
Your presence here today is a celebration of just how quickly things are turning around. The darkness is dissipating and what has brought all of us together today is a palpable sense of optimism in the country’s future and the affirmation that Philippines is open for business.
I was elected on the promise to reduce poverty and fight corruption, and to this end we have taken steps toward increasing spending on programs that are meant to reduce poverty. The first full-year budget unequivocally demonstrates this commitment. By sector, the social services sector has been allocated 34.1 percent of the budget given the significantly larger budgets for DepEd (P207.3 billion or 12.6 percent increase) – the biggest education budget increase in a decade – DOH (P33.3 billion or an increase of 13.6 percent) and DSWD (P34.3 billion or a 122.7 percent increase). By “putting money where our mouth is,” the Administration’s commitments have been put into action. It has laid down the foundations for priority programs that are designed to give immediate, direct and substantial benefits to the poor through increased spending on social safety net programs like the reinvigorated CCT and expanded PhilHealth programs.
The government does not have the resources of a developed country. The country’s budget deficit this year currently stands at 3.9 percent of the GDP or P325 billion. It is therefore important that government funds be prioritized. We have done what we can to rationalize and streamline our budget to cut out inefficient programs and transfer resources to priority projects that have demonstrated results. However, we do need your help. In areas like the development of infrastructure, the private sector must be induced to make the investments. And for that to happen, we know that the rules must be fair, clear, and equally applied to all.
The problem is that for the longest time, those rules have been less than fair, far from clear, and not always applicable to all.
I can very well imagine your anticipation mixed with apprehension when we invited you here today. I can imagine you talking to your stockholders: what, they will ask, is different about the Philippines of today, that will prevent our getting burned in the manner of those who tried to do business here in the past?
I have been told of problems encountered before: after signing a contract, it – and the rules governing it – all of a sudden changed without warning. In my discussions with you and your peers here and abroad, these concerns have been repeatedly raised. We fully realize the concerns of your stockholders and partners. We share those concerns.
You cannot deal with a government where the right hand is offering a handshake while the left hand is trying to pick your pocket. In the recent campaign, I put forward the analogy of our country facing a fork in the road, where it could choose to tread the straight path to success or continue negotiating the winding, rocky road of dishonesty.
Let me show you how we are taking your concerns to heart in terms of certain specifics and opportunities to which we are already responding.
If we are truly interested in a square deal for all, then what we shake hands on, should be what endures. To this end, what we will be doing in so far as solicited projects are concerned is to minimize your risk in a meaningful and fair manner.
The government will provide investors with protection against regulatory risk. Infrastructure can only be paid for from user fees or taxes. When government commits to allow investors to earn their return from user fees, it is important that that commitment be reliable and enforceable. And if 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.
The specifics of such protection will be part of the contracts to be entered into between government and winning bidders of PPP projects. Each project will be looked at differently, and the government will use independent financial advisors to study each project carefully before it is bidded out, to determine what protection is necessary. It is important to note that this protection will be limited to regulatory risk. Commercial or market risk, which you are in the business of determining, will be borne by investors, as it should be.
Let me provide you an example of how regulatory risk protection may work: A contract between the government and a private entity building a road or a bridge may specify a formula for rate adjustments. If for some reason, a court decision threatens the adjustment, the government will compensate the private concessionaire for the difference between what the tariff should have been under the formula, and the tariff which it is actually able to collect.
This is different from previous contracts where the government provided politically difficult guarantees to investors against market risk. For instance, with power supply contracts in the past, the government committed to buy power output regardless of what the actual demand was.
These assurances are not meant only for foreign investors. One of the problems domestic investors have with regard to fundraising is the single borrower’s limit imposed on banks and financial institutions that puts a cap on the amount of exposure to a particular project. While this regulation is meant to reduce financial risk, it also hampers the allocation of domestic capital for viable big ticket opportunities.
To address this, the Monetary Board has authorized a separate Single Borrower’s Limit of 25% of a bank’s equity for lending specifically to PPP projects. This will apply only for the next three years, and to be eligible to be counted against the separate SBL (as opposed to the normal SBL), a bank will have to lend to a project which is certified by the NEDA Director-General as part of the government’s PPP program. But we are not disregarding the financial risk. Banks that wish to take advantage of this separate SBL will also have to present the BSP with a plan to manage their credit risk. Governor Amando Tetangco will discuss this in detail in his presentation later in this conference. For now, let me go back to talking about our priorities for investment.
One of the areas that we want to encourage investments is tourism. The Philippines, with its beautiful beaches, rich landscapes and many other attractions, sees only 3 million tourists a year, while countries like Malaysia and Thailand see upwards of 14 million tourists a year. Needless to say the potential is significant. To tap this potential, we are embarking on a new campaign to rebrand the country as a tourist destination. We are also reviving our tourist police to deal with visitors’ concerns. And if that is not enough, we are also rationalizing our network of airports around the country, by expanding runway and terminal capacities in areas that we see as potential tourist hubs. Last but not least, we recognize that international aviation is a major driver to economic progress and a leading catalyst and facilitator to tourism and trade development and to employment generation. Aviation moves 98 percent of international visitors, 54 percent of Philippine export value and more than 1 million Overseas Filipino Workers per year.
Executive Order No. 219 provided the framework for liberalizing the country’s air policy as far back in 1995. The impact of this measure has been dramatic in the domestic passenger market as passengers have enjoyed a wider range of choices and travel opportunities. Additionally, it will also enable more aviation and tourism-related jobs through the increase in local tourism, trade and investment.
What remains to be done is putting teeth to existing policy. We will pursue the full implementation of E.O. 219 in international aviation. Our national development requires promoting an open and competitive international aviation sector that enables Philippine and foreign air carriers to expand their operations, maintain a strong Philippine-based aviation industry, and ensure international connectivity in order to allow Philippine and foreign air carriers to plan and make long-term investments in the Philippine market.
In the past, we liberalized telecommunications, trade, and foreign investments. The change in the country’s investment policies has been a crucial factor in building up confidence in the economic prospects of the country. This is what we will do with aviation.
What we have today is the first in what will be a growing menu of options from which we can pick and mix and match to find opportunities for you to satisfy your stockholders and for us to meet our national development targets. But a menu is not enough.
The specific policies I have outlined just now show how committed we are to a Philippines that is open for business.
Our confidence is founded not on wishful thinking, but on a strategy, and this is what is really different about what has come before.
We call it Daylight.
The way forward is to move, together, in the broad light of day, where everything we do and how we do it is clear, honest, and transparent.
Daylight is not what we hope to achieve – we have a Social Contract that is our blueprint for success – but rather, how we will do things. In a manner that continues our commitment beyond the moment of the handshake, to constantly improving our partnership and cooperation every step of the way.
Daylight is our strategy for rectifying errors in what are, after all, human undertakings. Daylight is the standard of performance both you and I will expect of the Philippine government. Where things are not done in the dark, but rather, where our formula for success is integrated into the procedures we are all obligated to follow.
My mandate was to prove that corruption and poverty can be reduced to the extent that the Philippines of 2016 will be a far different place than the Philippines of June 2010.
Our common goal is to prove that the straight path is the path not only to success, but already a path marked by ever-increasing successes. This gathering today, by its being held, is one.
From here, I wish you Godspeed in returning to your respective countries and institutions. I am confident you will be able to communicate to them that here is a government mindful of the mistakes of the past, committed to a positive, productive partnership based on measurable and quantifiable confidence-building measures.
We are at the threshold of being able to say to our respective stakeholders, here is a Philippines that has the clarity of vision and firmness of mission, to accomplish what we all desire. A Philippines that has turned the corner, that believes in its capacity to succeed, a country willing to share that success with partners who are one with our optimism about integrity and openness as strategies to development.
By the way, I am proud to share with all of you that in my recent trip to Japan for the APEC Summit, we have secured 2.85 billion dollars (USD) worth of new investments and 2.6 billion dollars (USD) worth of potential investments from Japanese investors.
This is well and truly a celebration. Welcome, all of you, to the Daylight Summit.
Thank you and good day.