The First Hundred

As the first 100 days of the new administration rolls by, citizens of the Philippines watch their President struggle with natural catastrophes, the aftermath of a bungled hostage crisis and some not so major but equally distressing miscues from his chosen appointees. To top it off, PNoy has to act as referee in the midst of petty squabbling from within his highly fractured cabinet. Small wonder that one senses in him an almost dogged determination to hold on to friends.

One hundred days and it’s very hard to point to any ground breaking government initiative which will bring about meaningful change or even a single clear policy that will realize the LP campaign promises in a concrete manner.

I look at the first 100 days and I see wasted opportunity.

Of his greatest mandate to fight corruption and initiate reform in government? I see a Truth Commission stopped dead in its tracks, an inability to disturb the status quo across all agencies and the same old payolas clogging up the bureaucracy. I suppose one should be thankful enough for “wang-wang” free streets.

Fiscal reform? Instead of spending his immense political capital to change fundamentally flawed budgetary policies,   I see the tax chief instead trying to justify a painful tax on a toll road.

Hacienda Luisita?  Please.

There are some bright spots to be sure. For one, the economy seems to be moving in the right direction (up not down). But whether this is real or attributable to something PNoy has done however is something else entirely.

The overarching strategy appears to hinge on the promotion of Public-Private Partnerships (or PPPs).  Other than the fact that this is by no means an innovation, infrastructure development by itself is not a recipe for bringing the country out of  its status as the perennial bridesmaid of Southeast Asia into the club of the sought after.  There are tough choices to be made regarding population control, balancing the budget, peace and order plus of course, the manner and degree of aggressiveness in fighting corruption.   Hard decisions require deft political handling and large political capital. While there is still hope, the President has to make these choices soon before his coin runs out.

PPPs and Risk, Part 1

In a speech delivered during the PPP conference last 18 November 2010, the President revealed that his administration’s approach to promoting partnerships between the public and private sector (PPPs) is to protect investors from “regulatory risk,” to wit –

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.

I am not certain how exactly the President wanted this to be received, given that for the most part, it represents a downgrade from previous approaches which guaranteed both commercial and regulatory risk.

Whatever he had in mind, it is not clear what  mechanism will allow “the government  … to ensure [contracted fees] are kept whole” in the event that “private investors are impeded from collecting contractually agreed fees – by regulators, courts, or the legislature.”   Indeed, it seems legally impossible to conceive of any sort of  indemnity clause which will survive the effects of a court mandated invalidation.

Finally, opening the floodgates to indiscriminate government guarantees is short-sighted and counter-productive.  At the end of the day, the increased cost of a government guaranty against regulatory risk will be borne by  tax payers not now but down the road.  Since most PPP contracts will outlive President Aquino’s administration, he should be wary about putting his signature on a piece of paper which will doom his successor (and the one after that) to additional fiscal  burdens, especially where the benefit is not clear or the need is not immediate.

In my view, the President would have been better off explaining  that the perceived risks of dealing with the Philippine government are not inherent to government per se. They are rather simply the just desserts of dealing with a corrupt Arroyo administration specifically.  You play with fire, you get burned.

Ultimately, the solution to the risk issue is a political one, rather than a legal one.  The so-called regulatory risk is a function of perception regarding government’s credibility from both sides of the rubicon — the consumers on one hand and the investors on the other.  Thus, to minimize regulatory risk, one has to first make the process supremely transparent to ensure that all possible stakeholders are given the opportunity to register their objections.  To this end, the jargon has to be simplified and contracts standardized (for there is comfort in the familiar after all). Finally, the selection process should be strengthened to weed out all but the determined and capable.

More in Part 2.

Noynoy, Gibo, Villar and the new EDSA Revo-lections

Throughout the campaign, former DND Secretary Gilbert (Gibo) Teodoro had been running on the claim that he was the most competent of the Presidential aspirants.  Touting top notch education (UP and Harvard) as well as  experience in both the Executive and Legislative departments, Gibo’s  credentials and overall delivery seem to back him up. The problem is that Gibo had no monopoly to the argument as  Senators Manny Villar of the Nacionalista Party and Richard Gordon of Bagumbayan both laid claim to the same altar of  competence that Gibo did; Villar  anchored on his ability to manage his private enterprises  and Gordon  supposedly evidenced by what he has done for Olongapo’s Subic Bay.

By contrast, Senator Benigno S. Aquino III ran on seemingly amorphous principles of change and clean government that were the hallmarks of his mother’s  legacy.  As the results of the latest COMELEC tallies would show however,   Noynoy Aquino is riding these principles all the way to Malacanang.

What Gibo, Villar and Dick have failed to recognize is that the Presidential election of 2010 is not really an election in the normal sense of the word but the present day iteration of the same People Power sentiment that fueled the 1986 EDSA revolution.  An 80 to 85% voter turnout despite  long cues  in record high temperatures, the sheer  number of volunteer groups eager to protect the vote as well as the zeal with which  people scrutinized and guarded  the conduct of the election are all evidence of this.

Yellow confetti falls for Noynoy

Critics bemoan the fact that many Filipinos are reduced to electing the “least corrupt”  rather than the “most competent” candidate for the highest post in the land.  But that assertion erroneously presupposes that the two concepts are mutually exclusive.  On the contrary, we cannot deny that it is precisely the sad state of  the country which calls for a comparison not of one’s track record of real and hyperbolic accomplishments but a demonstration of  what one has NOT done despite being surrounded by power.  In this, Noynoy is head and shoulders above everybody else. In the end, Noynoy has shown by his previous conduct that he is the most competent to wield the awful powers of the President by showing its grandest manifestation — that of RESTRAINT.