Aquino has last chance to get economy right.

by William Pesek

GIVE Benigno Aquino an A+ so far as Philippine president.

Last week, he announced three wise steps to fix the rickety economy:
There will be no new spending that’s not supported by revenue; an antitrust push will empower small businesses; and the private sector will be put on the spot to invest more in the nation’s future.

OK, stop giggling. Aquino, in office since June 30, seems sincere about righting an economy so neglected by past leaders that its per-capita income is, by some measures, lower than Iraq’s. To succeed, Aquino, 50, must negotiate his way through a Kafkaesque labyrinth of vested interests.

This gives you a sense of why few give Aquino a chance of succeeding. Yet he’s off to a good start and may turn to an underappreciated phenomenon to push the case for change: restlessness in global markets.

In the post-Greek-crisis world, muddling along just won’t do. Even wealthy Japan is worried that markets are losing tolerance with huge debt loads. As investors nose around for sovereign-debt risks, the Philippines may enjoy less patience. Meanwhile, China’s competitive threat is increasing by the day.

Time really is running out for the $160-billion Philippine economy. Aquino’s presidency may be the nation’s last hope of avoiding a bleak future, and it’s vitally important that he rolls up his sleeves.

Too hard on the Philippines? Not when you consider its vast potential. It has an extensive array of natural resources, a growing and largely English-speaking population, an ideal location to ride Asia’s boom, and a physical beauty that should be the envy of tourism officials the world over.

And yet the Philippines underperforms year after year. That cycle played out during Gloria Arroyo’s 2001-2010 tenure as president. She chose to stick any number of fingers in the nation’s leaky dike rather than implement reforms to empower her 100 million people.

Minor successes in reducing the budget deficit were spun as big victories. So was the fast-increasing number of Filipinos leaving the country and their families to work abroad; the dynamic is really a weakness. The Arroyo years were a lost period, a time when the nation should have tended to its weak foundations and didn’t.

Thanks to the handiwork of the central bank’s governor, Amando Tetangco, Jr., the government was able to sell debt and avoid a crisis. It’s no longer enough to rely on the fancy footwork of monetary-policy makers. It’s time for leaders to create jobs at home, improve competitiveness and increase economy efficiency.

If Franz Kafka designed an economy, the Philippines might well be it. A strong sense of disorientation and complexity confronts anyone who tries to fathom how to lead Filipinos to prosperity. Navigating past the wealthy elite to deliver the masses from poverty has confounded leaders for decades.

That goes, too, for Aquino’s late mother Corazon, who held power from 1986 to 1992. Granted, no single leader—never mind a reluctant one with no governing experience—could be expected to correct all of the wrongs that dictator Ferdinand Marcos perpetrated on the nation from 1965 to 1986. Corazon Aquino stepped up after her senator husband was assassinated. She ran for president and won.

If her son is to succeed, his immediate focus must be three things: corruption, corruption, corruption.

Transparency International ranks the Philippines behind Pakistan, Belarus and Bangladesh in its latest corruption perceptions index. And it’s no mystery why Indonesia sits 28 rungs higher. President Susilo Bambang Yudhoyono has convinced investors that Indonesia is serious about cleaning up its act. The overseas take on the Philippines is often the opposite.

Here, Aquino’s reform trifecta is most welcome. First, success in markedly reducing a budget deficit that’s heading for a record P325 billion this year, or about 4 percent of gross domestic product, will cheer markets. If the Philippines doesn’t waste too much servicing its debt, it will be able to invest in a population that’s growing faster than employment. Investing in workers is better than exporting them.

Aquino’s small-businesses initiative could bridge the gap. He wants to cut the time for registering a business to 15 minutes from multiple visits of up to eight hours. He plans to cut required documents to six from 30. That would make it harder for corrupt bureaucrats to shake down entrepreneurs.

Finally, tapping the private sector to help fund roads, railways, power grids and other infrastructure is a smart move.

Winning public-works projects often entails massive kickbacks, and that’s as true in Kafkaesque Manila as anywhere. Pulled off competently, public-private partnerships could reduce the incentives for corruption throughout the economy.

The odds aren’t with Aquino. Given how rigged the Philippine system is in favor of the well-connected, how entrenched the bureaucracy is and how jaded voters have become, many argue a generational shift to a new crop of leaders is needed to turn things around. Even the reluctant son of heroes won’t be enough, they say.

That transformational figure may already be here. Aquino understands what he needs to do. He just needs to get to work. Bloomberg

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