SPEECH

OF

SPEAKER FELICIANO BELMONTE, JR .
FOR THE

ARANGKADA PHILIPPINES FORUM: REALIZE THE POTENTIAL
26 FEBRUARY 2013

Good day to all! Congratulations to the Joint Foreign Chambers for putting together another successful Arangkada Philippines Anniversary Forum. It is a welcome privilege to once again, address all of you in this forum. Realizing the Potential I believe that today’s theme is inspired by the Philippine economy’s strong promise. “Realize the Potential” resonates the words of President Benigno Aquino at the World Economic Forum in Davos, Switzerland on “realizing the long-untapped potential” of the Philippines and his subsequent invitation for the global business community to join in riding the growth momentum. There is a growing recognition that the Philippines can be a growth leader among larger emerging economies. Truly, optimism abounds for the country’s economic prospects. Global economic strategic thinker Dr.
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Nouriel Roubini noted the country’s potential to hit a growth rate of close to 7 percent this year. Citing strong macroeconomic performance backed by good economic, fiscal, and governance policies, Dr. Roubini ventured that the Philippines deserves an investment grade rating this year. Praising the government for successfully implementing reforms, Philippine World Bank director Motoo Konishi said during the 2013 Philippine Development Forum that macroeconomic stability is now the new 'normal' for the Philippines. Moreover, Bloomberg Markets magazine named the Philippines as among the world's top 20 emerging markets. Moving Twice as Fast In January of 2012, the Joint Foreign Chambers held its First Anniversary Forum with the theme “Move Twice as Fast”. Indeed, that is exactly what the Philippine economy has been trying to do. Amidst a weak global economy in 2012, the Philippines registered a rapid economic growth of 6.6 percent, higher than the 3.9 percent GDP growth in 2011, and breaching the official economic growth target of 5 to 6 percent. Former Economic Planning Secretary Ciel Habito observed that the Philippine economic performance for 2010-2012 is a distinct break from its average performance from 2004 to 2009. Dr. Habito further singled out the growth in manufacturing and fixed domestic investment as a critical boost to positive structural change in our economy.
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Allow me to go over other indicators of our robust macroeconomy:

The annual inflation rate for 2012 is 3.2 percent. This is at the low end of the official inflation target range of 3 to 5 percent. The National Government deficit was reduced to only 2.0 percent of GDP in 2011, from 3.7 percent of GDP in 2009. The National Government deficit for 2012 was estimated at 2.6 percent of GDP. External debt to GDP ratio is on the downtrend from 32.6 percent in 2009 to 25.6 percent in the third quarter of 2012. Gross international reserves continue to improve, reaching $83.8 billion at the end of December 2012, and can now cover 12 months’ worth of imports and external payments. Past averages were enough to cover only 3 months’ worth of imports and payments. The ratio of non-performing loans to total loans of the banking sector continuously improved from 3.0 percent in 2009 to 2.0 percent in October 2012. Furthermore, the average capital adequacy ratio of universal and commercial banks remained strong at 16.85 percent in the first quarter of 2012, compared to the minimum of 10 percent imposed by BSP. Thus, our banks are in a reasonably healthy condition to service the funding needs of businesses and consumers.
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There is no doubt that the Philippines is back on the map. Sick man of Asia no more, with all the makings of a rising economic tiger. Further proofs are in the country’s steady improvement on various competitiveness and governance indicators:

With rank 65 in the 2012-2013 World Economic Forum Competitiveness Ranking, the Philippines has already climbed a total of 20 notches from its rank of 85 in 2010-2011. The key drivers for improvement in the rankings came in the areas of Institutions, Macroeconomic Environment and Financial Market Development. In the World Economic Forum’s surveys, the Philippines posted the highest improvement in rankings—up 31 notches-- in the area of Institutions which measures governance, security, private sector ethics, and accountability. Favorable observations include improved administration of property rights, less diversion of public funds, higher trust for politicians, less irregular payments or bribes, more fair awarding of contracts, less favoritism in government decisions, less wastefulness of government spending, more transparency in policy formulation, ethical behavior of firms, strong audit and reporting standards, and stronger minority shareholder interests. However, it was noted that judiciary and security situations continued to be rated low by investors.

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• In the area of Macroeconomic Environment, the Philippines jumped 32 spots to No. 36 worldwide. • In terms of Financial Market Development, significant gains were noted in the regulation of the exchanges and the already strong position in availability and affordability of financial services.

Commitment to Reform and Transformation I believe that the 15th Congress, together with the Joint Foreign Chambers and Philippine Business Groups, are very much a part of these positive developments happening in our country today. The regular dialogues over the past two years among the Joint Foreign Chambers, Philippine Business Groups, and the members of Congress, on the recommendations presented in Arangkada Philippines, did not only help draft and pass vital economic legislation. Our interactions fostered stronger trust between our sectors. To begin with, there were numerous common points in our legislative agenda and the legislative recommendations in the Arangkada. This made it easier to coordinate our reform efforts and pursue our common goals. I am pleased to note that many of the proposed legislation contained in the Arangkada are already enacted into law. As of February 6, 2013, the 15th Congress has passed 213 laws.

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Among these are:
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• • • •

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The GOCC Governance Act, The Extension of the Implementation of the Lifeline Rate, Repeal of Nightwork Prohibition for Women, The Institutionalization of Kindergarten Education, Anti Money Laundering Act Amendments, The Terrorism Financing Prevention and Suppression Act, The Data Privacy Act, The Cybercrime Prevention Act, The People’s Survival Fund Restructuring of the Excise Tax on Alcohol, Cigarette and Tobacco Products, and Anti-trafficking Act Amedments

Among those approved by both houses of Congress and soon to be signed by the President are:
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• • • • • • •

The Rationalization of Taxes on International Air Carriers Operating in the Philippines, The Strengthening Conciliation-Mediation as a Voluntary Mode of Dispute Settlement of Labor Cases, The Enhanced Basic Education Act or K-to-12 Act, The Law on Strengthening Tripartism, The Law Allowing Foreign Equity in Rural Banks, Amendments to the Anti-Money Laundering Law, The Law Strengthening the Insurance Industry, Universal Health Care Coverage, Strengthening the National Electrification Administration,
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• Intellectual Property Code Amendments, and • Philippine Design Competitiveness Act The House of Representatives has also approved on third reading the following : • Strengthening of the Witness Protection, Security and Benefit Program, • Whistleblowers Protection, • Direct Remmittance of Local Government Share in National Wealth Taxes • National Land Use Policy, • Lemon Law, and • Amemdments to several laws on professions to allow foreign reciprocity Aiming for Inclusive growth Let me emphasize, however, that our work is far from over. Although the current macroeconomic conditions are laudable, structural impediments to investments and job creation still persist. Unemployment and underemployment remain a big hurdle, thus, the persistence of inequality and poverty. Indeed, the present is an opportune time to reflect on our journey and affirm our commitment to the pursuit of continuing structural reforms towards sustained and inclusive growth. A key element of inclusive growth is job creation and improvement in the quality of employment. But how do we boost employment? Basic economics dictate that to increase jobs we must boost investments. There is no going around that.
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With investments, I do not mean the hot money that has been pouring in. Rather, I refer to direct concrete investments that go, for instance, into the manufacturing sector. Multilateral agencies are of the consensus that the Philippines needs to focus investments on modernizing agriculture, reviving manufacturing, and developing tourism, considering these sectors’ high labor absorption and high multiplier effects. How can we increase direct investments? To my mind there are three tasks that we should prioritize in the days ahead. I am confident about these because they are supported by Arangkada Philippines. The first is to enhance firm competitiveness. We should seriously review the EPIRA Law and its implementation. A stable power supply and competitive power rates are important to the growth of local manufacturing industries, which we look to for providing opportunities for majority of unskilled and rural workers. We should also allow a more liberalized commercial aviation industry and increase tourist arrivals through an Open Skies Policy. We should rationalize the charters of the Philippine Ports Authority, MARINA, and the Civil Aeronautics Board to avoid regulatory capture and conflict of interest in the operation and management of public utilities, all leading to lower transportation costs. The foregoing should be complemented by the Customs Modernization and Tariffs Act to upgrade our customs facilities and

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processes in line with envisioned for 2015.

the

ASEAN

integration

The second is to improve the business environment and regulatory governance. In the 2013 Doing Business (DB) report of the International Financial Corporation (IFC), the Philippines ranked 138th out of 185 countries, lower compared to the last year’s 136th place out of 183 countries. The Philippines posted lower scores in seven of the ten indicators. These include starting a business (161st from 158th), registering a property (122nd from 120th) and protecting investors (128th from 124th). While it takes 16 procedures and 36 days in starting a business in the Philippines, it takes up to only 3 procedures in Malaysia and only 4 days in Indonesia. Delays in registering a property in the country is mainly due to the lengthy administrative procedures which take about 39 days, while it takes only 2 days in Thailand. The process of resolving insolvency in the Philippines is also one of the slowest and most expensive in the world (165th of 185 countries). The Philippines was ranked the fourth most difficult based on recovery rate (how many cents on the dollar creditors recover from an insolvent firm), as well as most expensive with costs reaching 38 percent of the estate value.
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Ultimately, we cannot discuss boosting investments without confronting the economic restrictions of the Constitution. Senate President Enrile and I have been advocating for the relaxation of the restrictive economic provisions of our Constitution to allow Congress to enact the laws that would define foreign participation and nationality requirements in strategic sectors of our economy. Outside of the Constitutional restrictions, there are a number of legal and regulatory restrictions such as Foreign Investment Negative List, that discourages foreign investment. Congress should be able to exercise its power to review and amend these laws to make the country attractive for foreign investments with genuine national interest in mind. Also, the passage of a Competition Policy or AntiTrust Act is a must for leveling the playing field among firms and to effectively reduce transaction costs and risks. The Build-Operate-Transfer Law should also be amended to encourage more private sector investments in infrastructure. And if not passed into law by June 2013, a Land Use Policy is needed to rationalize the use of lands and make land markets work. Finally, the third task macroeconomic stability. is to sustain

This involves further improving economic fundamentals by maintaining fiscal space and enhancing the efficiency of public spending. We have to put our acts together in rationalizing fiscal incentives that have been costing the government
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around 2 percent of GDP and yet, have very little to show in terms of actual investments. Likewise, we have to seriously consider the institutionalization of a fiscal responsibility framework that imposes expenditure caps, full accounting of contingent liabilities, and establishes revenue rules, such as the non-passage of bills without certified corresponding revenue sources. th Although the 15 Congress is about to close, many of these vital reform measures are already in the advanced stages of the legislative process, and therefore could be strongly reconsidered by the th incoming 16 Congress. For my fellow legislators who will be re-elected, I believe that it would make for good sense to stay on the “daang matuwid” and pursue these reforms. We cannot waste the opportunity that sustained economic growth is presenting to us. It is imperative that we reach the country’s full potential because we need to uplift the living conditions and raise the dignity of every Filipino. In closing, let me extend my deepest thanks to you – the Joint Foreign Chambers – for your support and cooperation. It is my fervent hope that our cooperation will extend well into the next Congress. Let us not waver on our focus and resolve to effect meaningful reforms. The reform process that we have started working on together should continue, and the seeds of change that we planted should be nurtured to their fruition.

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Again, on behalf of the House of Representatives, I would like to express my gratitude to the members of the JFC and the Philippine Business Groups. Thank you all for the trust, encouragement, and support.

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