Dissecting Dutertenomics’ overspending plan

* This is my article in BusinessWorld last Tuesday.


During the BusinessWorld Economic Forum held last May 19, Budget Secretary Benjamin E. Diokno showed two interesting charts: (1) sustained overspending and borrowings, budget deficit/GDP ratio from -0.9% in 2015 to -2.7% in 2016 then -3.0% from 2017-2022. And yet (2) debt/GDP ratio was expected to decline from 44.8% in 2015 to 40.2% in 2017 and further down to 36.7% in 2022.

Is this possible? That one overspends and over-borrows and yet the debt/GDP ratio will keep falling?

DBM, NEDA, and Malacañang say yes because the projected taxes/GDP ratio will increase via the proposed Tax Reform bill of 2017. Sec. Diokno said in the same forum that “We will continue to guard against underspending, the Waterloo of the previous administration.”

“Underspending” for me should mean that expenditures are lesser than revenues, resulting in a fiscal surplus. When expenditures are larger than revenues but the deficit is only at -1% or below -3% of GDP, that is still overspending, not underspending. So the previous administration did not really underspend, just that it did not go into an uncontrolled spending spree.

Here are relevant numbers about the Philippines’ fiscal position and levels of outstanding public debt, and comparative debt/GDP ratio of seven ASEAN countries (see table).

The numbers above show three important facts:

One, the average deficit in the previous administration, 2010-2015 was only P185 B/year or -1.8% of GDP, benign and considered as “underspending” by many fiscal hawks, especially when compared with deficit in 2009 (last year of the Gloria Macapagal-Arroyo administration) and 2016 (first year of Duterte administration).

Two, low annual budget deficit and borrowings in the same period means the country’s outstanding debt stock has risen only mildly, with the average of P260 B/year.

Three, partly a result of this, the Philippines’ debt/GDP ratio over the same period showed significant decline, similar to the experience of Myanmar while other neighbors posted deficits, owing to increased borrowing.

Fewer borrowing means less debt service payments for both principal and interest. It was during the same six-year period that Philippines’ GDP growth was 6.2% per year, much higher than Thailand’s 3.7%, Indonesia and Malaysia’s 5.7%, Vietnam’s 6.0%.

In the same BW Economic Forum, the DoTr showed that these projects will be ODA (government loans) funded, not PPP.

  1. PNR North Railway (Manila-Clark), construction Q4 2017 — Q4 2021, P255 B.
  2. PNR South Railway (Manila-Bicol), construction Q3 2018 — 2021, P270 B (originally a PPP).
  3. Mega-Manila subway (Phase 1, QC-Taguig), construction Q4 2019 — 2024, P225 B.
  4. Edsa-Central Corridor Bus Rapid Transit BRT (Edsa, Ayala, Ortigas, BGC, NAIA), construction Q1 2019 — Q1 2021, P38 B.

Other big projects were identified but it wasn’t specified whether these would be funded by official development assistance (ODA) or via Public-Private Partnership (PPP). In December 2016, DoF Secretary Sonny Dominguez already indicated that infrastructure projects under the Duterte administration will avoid PPP whenever possible. And the massive China and Japan ODAs came into the picture.

Then there are tweaks in some major projects, from PPP to ODA. Like the PNR South Railway and the Kaliwa Dam project in Quezon province of Maynilad Water. What would pre-qualified players like San Miguel do with this policy reversal?

The Dutertenomics’ spending plan is detrimental to taxpayers in general and the investment environment in particular, for the following reasons.

  1. Bigger annual budget deficit would mean more government loans, higher public debt stock, and will lead to higher taxes now and the future to service those huge loans to be contracted. Soon the P6/liter increase in oil excise tax will not be enough, it will further rise.
  2. Massive shift from PPP (private investment) to ODA of major infrastructure projects will result in more loans which mean more public debt, more taxes, and fees in the future.

Top 10 news of 2016

* This is my article in BusinessWorld last December 27, 2016.


Since government by nature consists of force and coercion, legislation and regulation, mandatory contribution and taxation, it naturally creates division among people anywhere in the world. Those who benefit from welfarism are happy while those who are affected by endless regulations and taxation express the opposite sentiment.

Below is my list of top 10 news around the world in 2016, five international and five national/regional.


1 “Brexit.” British voters opted last June to exit from the European Union (EU), a regional government that allows free trade and free mobility of people and services among member-states, but also imposes various protectionism and restrictions on goods and people mobility to countries outside the EU. This combination of free trade and trade protectionism, simpler migration for fellow EU citizens but difficult migration for non-EU people, tax harmonization and prevention of tax competition among member states, among others, have created confusion and even more animosity among the British. So far nothing is definite and details of the exit may not be known until 2019.

2 Trump victory. A big businessman without past political position but employed an unconventional campaign, President-elect Donald Trump outlasted 16 Republican rivals and then a famous Democrat candidate Hillary Clinton. Not being part of the entrenched political establishment, he is known more to reverse the various regulations and high taxation policies of the Obama and Bush administrations. For instance, he plans to cut the US corporate income tax from 35% to 15%, reverse the anti-coal, anti-oil sentiments and policies, and so on.

3 Terrorist attacks in Europe. Massacres in a newspaper office and rock concert in Paris, airport bombing in Brussels, lorry attack of people in the streets of Nice, France during a Bastille Day celebration, another lorry attack of people in a Christmas shopping in Berlin. Plus some foiled attacks in other cities in Europe. To fight this kind of war, governments will need less of those deadly fighter planes, huge battle tanks and ships. Instead, they will need more drones, CCTVs, crawling small robots, cyberware. The fight is not country to country but house to house, building to buildings.

4 Syria. Endless war among many armed factions has resulted in large-scale murders and displacement by the millions. Aleppo has become the main reference point of why civil war by some proxy countries should be avoided as much as possible. The volume of civilian deaths and destruction of properties is so big.

5 Malaysia and South Korea. Big governments always invite big opportunities for big corruption and wastes, the degree just vary from country to country. In particular, the corruption scandals of Malaysian PM Najib Razak over IMDB and S. Korean President Park Geun-hye over her friend Choi Soon-sil’s involvement in government affairs have pushed their people to conduct various rallies calling for their resignations. And these leaders continue to cling to power.


6 Duterte victory. President Rodrigo Duterte was the first Mayor to move straight to Presidency with a different campaign strategy focused on fighting criminality, drug proliferation, and corruption. Unlike the three other major candidates — former VP Jojo Binay, Sec. Mar Roxas, and Sen. Grace Poe — who all focused on more welfarism. And he got huge support from the poor, which shows that the poor are not exactly asking for more welfarism and subsidies, but are seeking increased peace and order to protect themselves against thieves, murderers, rapists, drug pushers, corrupt officials, and other criminals.

7 Drug deaths. From a campaign promise of killing 100,000 criminals if he wins, President Duterte later mentioned that “like Hitler, (I will) annihilate 3 million drug criminals.” The on-going “war on drugs” has resulted in several thousand murders so far, about one-third from police operations and two-third from vigilante-type of executions. The rule of law and its long process of police investigation and court proceedings have been sidestepped.

8 PI Obama, Pakyu EU. Before and during the ASEAN summit and related meetings last September, President Duterte has directly or indirectly lashed out against US President Obama who attended the event in Laos. President Obama and later the EU have voiced criticism over the high number of deaths and disrespect for the rule of law, not the drugs war per se. President Duterte and his avid supporters did not make a distinction between these two and thus, the expletives and harsh words. These were reported heavily in international media.

9 Marcos burial at Heroes’ Cemetery. The sneaky burial of former President Ferdinand Marcos at the Libingan ng mga Bayani has stirred some political upheavals that many protest rallies were held in Metro Manila and key cities in the country. Since the burial is supported by President Duterte and affirmed by the Supreme Court, the cemetery may better be renamed “Libingan ng mga Bayani at Magnanakaw” (LBM).

10 Non-assertion of territorial rights at SCS/WPS. Mid-December, the President said the Philippines and China can “share” oil in the disputed territories in South China Sea/West Philippine Sea despite an international arbitral award affirming the Philippines’ ownership in the exclusive economic zone (EEZ).

From this list, it seems that many people around the world are dissatisfied and disappointed with more government, more regulations, taxation and corruption. Authorities should deliver positive results in areas where stronger government is justified, to protect the people’s right to life, right to private property and right to liberty.

The role of liberal reforms and big population in growth momentum

* This is my article in BusinessWorld last October 27, 2016.


Several issues preoccupy President Rodrigo Duterte’s mind and mouth: the violent anti-drug campaign and murders, his anti-US, anti-EU, and anti-UN expletives and polemics (but later reversing his earlier attacks against these countries and/or multilateral bodies).

After his anti-Obama, anti-US tantrums before and during the ASEAN and related summit meetings, he repeated the same vitriol in his China visit last week, citing his “separation from the US” and that the Philippines is united with China and Russia against the world. As expected, he took back these assertions almost immediately, clarifying that the country cannot afford to be separated from the US the minute he arrived in Manila.

Spouting off these incendiary remarks then taking them back — characterized as “sugod-atras” in Filipino — should not be taken literally as advised by the President’s cabinet officials.

However, these unnecessary assertions have real, negative impact on business confidence in the country, especially for massive investment plans and pledges that remain on the “wait and see” mode since the campaign period (February 2016) until today.

Will these outbursts by the President ultimately derail the economic momentum of the Philippines as started by the previous Aquino administration?

The Economist magazine regularly pools some of the world’s biggest investment banks and ratings companies about their global economic forecast and GDP growth projections. The numbers are shown on the table.

This piece made these country groupings in re-constructing the table. Group A are traditional, developed economy allies of the Philippines; B are President Duterte’s “pivot new friends”; C are the major Asian friends and trade partners; and D are miscellaneous. Venezuela is included in D to show how socialism and heavy statism can lead to economic and business decline (see table).


These numbers show us the following:

One, group A remains to have sclerotic growth, they seem to be very lucky to grow 2% or higher. Unemployment rate is high, 5% and up, except Japan. Not shown on this table are the four EU countries which have incurred double-digit unemployment rates in July or August 2016: France 10.5%, Italy 11.4%, Spain 19.5%, and Greece 23.2%.

These figures show that the developed countries cannot be expected to provide more impetus to lead and drive faster global growth. Their capacity to provide more foreign aid, more loans and grants, is also compromised.

Group B has mixed results. China can be expected to lead regional growth and help pull upwards global demand, but not Russia. The latter remains limping due to low global oil prices, petroleum being one of its major export products, among the important factors.

Groups C and D continue to show fast growth potentials except the developed Asians like South Korea, Taiwan, Hong Kong, Singapore, and socialist Venezuela. The Philippines is expected to retain fast growth, third highest after India and China this year, also third highest next year after India and Vietnam, among emerging and developed Asians.

An important ingredient for faster growth is high and young population. Notice above that countries with 90+ million people — Vietnam, Philippines, Indonesia, Pakistan, India and China — are growing fast. The US, Japan, and Russia should belong to this category but they are growing slow, partly because they have an old and aging population.

Going back to our earlier question, will President Duterte’s emotional outbursts ultimately derail the Philippines’ economic momentum?

The answer seems to be no for two important reasons.

One, growth momentum is retained as various macroeconomic and infrastructure reforms laid by the previous administration are bearing fruit.

Two, our high and young population of 103 million people as of 2016 has become a potent force to provide the necessary market demand and labor force supply for more investments and entrepreneurial advancement.

So, despite the President’s incendiary remarks plus thousands of murders in the anti-drugs campaign that can potentially disappoint if not threaten big foreign investments planning to come to the Philippines, growth momentum is well in place.

Moreover, if this economic momentum is coupled with presidential sobriety and an anti-drugs campaign that is guided by due process, the country’s growth rate of 7%, or perhaps even higher, is very much possible.

President Duterte and ‘Pakyu’ EU

These are news reports from September 21 to 23, except the news on “Killings prompt ‘hesitation’ among European investors” which was published a month earlier, August 2016. I also include here the fb postings by a friend, famous commentator Bernard Ong. No further comments from me.


From Bernard Ong, September 21, 2016:

“China supplies almost 100% of the shabu to the Philippines. Coddles the international drug lords & their syndicates. Takes over our seas & reefs. Chases Pinoy fishermen away from their traditional livelihoods. Corrupts our local officials to extract minerals in irresponsible manner.

Sounds 1000x more damaging than other countries urging the Philippines to respect universal human rights. Something we ought to be doing without anybody’s prodding.

If you must say Pakyu. Be brave, be smart. Point your Pakyus in the right direction.

Pity the die-hard followers who have to switch-on & switch-off their anti-US hatred and pro-China/Putin love.

Those who don’t suffer from mood swings due to drugs, bipolar & other conditions will find it hard keeping up with whom to bash & whom to praise. Last time I checked, the Mochas & Sassots & ThinkingPinoys that feed their confused minds are still on bashing the West (govt, media, human rights) mode. Those guys have not received the memo. Slow. Andanar is sleeping on his job.

My suggestion to die-hards is not to wait for clues from Idol’s speeches. Flip-flops do not provide useful guidance.

Just think for yourself. Think of what is best for the Philippines. Key word is think. Then you won’t bash the UN, US, EU, international media. Not that they are saints. But it is against Philippine interest to do so – we risk losing a lot (investment, aid, trade, tourism, jobs, defense) for the shallow pleasure of petting one man’s ego and venting anger. High cost, high risk, no benefit.

Ignore the leader’s mood swings. Better yet, correct him when he goes off course. Maybe he will listen to you.”


“EU is the Philippines’ biggest foreign investor with an FDI stock of over 366 billion pesos.

EU investment is distributed among 600 companies, employing about 400,000 Filipinos, in relatively higher-paying jobs, in sectors like energy (e.g. Shell), manufacturing (e.g. Loreal, Unilever), finance (e.g. Deutsche Bank).

EU invests almost $400B overseas each year. Philippines gets only 0.1% of that. Could easily double or triple with our market potential – IF we don’t create the perception of risk by behaving like a rogue nation ruled by thugs instead of laws.

To make these numbers digestible: If the Philippines misses out on $3 billion investment in next 6 years, that means 60,000-120,000 fewer high-paying jobs, less income, less buying power, less taxes, less money for infrastructure. There are multiplier effects. Ignore at your own peril.

So “Pakyu EU”. Close the lights on your way out.”


Anti-corruption in the PH and ASEAN

* This is my 1st article in BusinessWorld Special Anniversary issue last July 25, 2016.

du30 anti-corrupn (1)The Duterte administration’s anti-corruption plans

Corruption takes place when a person has the power to dispense certain actions or render services that other parties needs. Voters who sell their ballots in exchange for money and politicians buying them are both engaged in electoral corruption. Similarly, procurement officers who favor certain suppliers even if others can offer the same products or services at lower prices are also committing corruption.

scoreElevate the scene to a city or country level, and we can see or suspect large-scale corruption in various levels. Like a cabinet secretary favoring a particular supplier of construction materials and equipment, or arms and soldier uniforms, or school buildings and textbooks, or hospital equipment and medicines, even if other suppliers can deliver those goods and services at a lower price and/or better quality, corruption occurs.

To reduce or eliminate corruption, the process of procurement and signing of contracts should be made as transparent as possible. And the possibility of prosecution and imprisonment for wrongdoing should also be made as certain as possible. Because while the punishment can be as severe like the death penalty but if the chance of being caught and prosecuted is very small, then people will remain corrupt.

During the BusinessWorld Economic Forum last July 12, 2016, Department of Finace (DoF) Secretary Carlos G. Dominguez III outlined some important anti-corruption measures of the Duterte administration. Among these are the following:

  1. Reduce income tax (personal and corporate), raise the income tax exemption, all in at P1 million a year. This will reduce corruption in the payment and collection of income taxes, broaden the tax base and hence, can actually raise revenues overall.
  1. Rationalize import permit papers, reduce the number of signatures, conduct random audit of shipments, and undertake certain processes outside Manila ports. This will reduce corruption at the Bureau of Customs (BoC).
  1. Accelerate the Run After the Tax Evaders (RATE), Run After the Smugglers (RATS), and Revenue Integrity Protection Service (RIPS) programs of the DoF. Undersecretary Gil Beltran was appointed as the anti-red tape czar of the Department tasked to cut the transaction processes at the BIR, BoC, and other agencies under the DoF.
  1. Maintain transparency in all dealings — the Executive Order (EO) on Freedom of Information (FoI) that will cover the Executive Department will be signed very soon. This will encourage zero tolerance for corruption.

There are other proposals and programs to reduce corruption at the DoF and other agencies, but the above were highlighted in his speech that day.

These are good proposals. Few permits and bureaucratic signatures can lead to a leaner and smaller government. Instead of 8 or 10 directors in one bureau that require 8 or 10 signatures, make it 4 or 5 and the transaction procedures will significantly improve. The number of officials and their offices will also decline and hence, the need for taxes and fees to keep them going will also be reduced. If people have more money in their pockets because government taxation and mandatory fees have declined, that is already one form of public service. Concrete, down to earth public service.

The extent of corruption in the Philippines is captured in various international reports and studies that are reported annually. One such important report is Transparency International’s (TI) Corruption Perception Index (CPI). TI interviews thousands of expats in many countries worldwide and see their perception of corruption or absence of it in the countries where they do business.

Other selected reports are also included in a separate table by TI. For this piece, four of such reports are included in the table below. These are the (a) World Economic Forum’s (WEF) Executive Opinion Survey (EOS), (b) World Justice Project’s (WJP) Rule of Law Index (RLI), (c) Economist Intelligence Unit (EIU), and (d) IHS Global Insights (GI).

score (1)

The Philippines has consistently scored only between 34 to 38 over the last four years of TI’s CPI annual reports. So out of 167 countries covered in the 2015 Report, the Philippines ranked 95th or within the lower half of the countries covered. And the Philippines’ low ranking is affirmed in its low score in the four other reports.

I am hoping that reforms initiated by the DoF and other departments of the Duterte administration will be implemented and sustained for the next six years. There will be significant improvement in the country’s corruption perception and reduction in actual practices of corruption in many government agencies, from local to national, and from the Executive to the Legislative and Judiciary.

Transparent and lean government is good. It will be beneficial for businesses and taxpayers and good for the officials and ordinary personnel in government. Trust and respect for both sides will also improve.

Bienvenido S. Oplas, Jr. (@noysky on Twitter) is the head of Minimal Government Thinkers and a SEANET Fellow.

Foreign direct investments and Pres. Duterte

* This is my article last week in BusinessWorld.


Investments, local and foreign, are like pools of water flowing down. They go where they are allowed and welcomed, not where they are restricted and barred. So government and national policies set the tone and signal if they welcome, partially disallow, or explicitly restrict investments.

Foreign investments are particularly very mobile and flexible. They can come and go in major cities in the world in very short period like within hours or minutes, such as investments in the stock markets and commodities.

Foreign direct investments (FDIs) are for long-term engagement. Once they have decided to come or skip a country or economy, there is little flexibility left because the sunk cost of putting up a factory, hotel, or power plant is huge. It is this type of long-term foreign and local investments that a developing economy like the Philippines should attract and welcome, not restrict and discourage.

The Philippines is not exactly a good haven for FDIs mainly because of the restrictions and the unwelcoming tone of our Constitution where many sectors are outrightly banned to FDIs (media, hospitals, universities, electricity distribution, etc.) or allowed but only up to 40% maximum in total equity investments. Socialist Vietnam has overtaken the Philippines more than two decades ago in attracting FDIs while late-comer Myanmar is trying to catch-up with us, attracting some investors restricted by the latter (see Table 1).


Notice in Table 1 the huge jump in FDIs under the past Benigno S. C. Aquino III administration, almost double compared to the amount attracted by the earlier Gloria Macapagal Arroyo administration.

In terms of accumulated and net inward stock (inflows less outflows of capital) of FDIs, the past Aquino administration has more than doubled the stock in just five years, from $26 billion in 2010 to $59 billion in 2015. Cambodia and Laos have also experienced this more than two times expansion in FDI stock in just five years, but at a lesser magnitude or volume of capital.

Note also the huge volume of FDI stocks in our neighbors in the region, especially Hong Kong, China, Singapore and Indonesia (see Table 2).


Expanding the country’s productive capacity via increased infrastructure will be one of the panel discussions in the forthcoming BusinessWorld Economic Forum, July 12, 2016 at Shangri-La BGC. The role of foreign investments, finance, and technology cannot be underestimated especially in high capex sectors like telecommunications and power generation.

The speakers in the afternoon panel on that day will be Mr. Ernest L. Cu, President & CEO of Globe Telecommunications; Mr. Eric Francia, President & CEO-Ayala Corporation Energy Holdings, Inc.; and Mr. Erramon Aboitiz, President & Chief Executive Officer, Aboitiz Equity Ventures, Inc.

There are a few big challenges for the new Duterte administration to sustain the momentum of high interest in the Philippine economy by foreign investors.

One is to remove the restrictive provisions of the Constitution and allow 100% foreign equity ownership except in land, something that he promised during the campaign period. This will require changing or amending the 1987 Constitution.

Two, to reduce business bureaucracies, local and national, that discourage many foreign investments even in sectors that they are allowed like power generation. This is already included in the 10-point agenda that his economic team has announced middle of this month. This needs serious implementation and not ningas-cogon, short-term practice.

Three, to reduce or remove various uncertainties that can discourage investments, even if foreign investments are liberalized tomorrow. These uncertainties include the agrarian reform program, which is always extended, and anti-mining, anti-coal power pronouncements.

And four, to erase from the country the terrorist and extortionist groups engaged in kidnap for ransom activities. This is a big turn-off for foreign investors and visitors planning to come to the country.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET and President of Minimal Government Thinkers.