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Roadblocks
A7
Tax reform is the best example of a ‘matuwid na daan’ change Ernesto M. Hilario
ABOUT TOWN
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ou would think that with the private sector now actively helping the government in building better road infrastructure through the Public-Private Partnership Program, both commuters and motorists would now be enjoying fast and safe travel to their destinations. Banish the thought. The stark reality is that even if we now have more expressways running the length and breadth of the main island of Luzon, we have yet to achieve the goal of seamless travel since there are many roadblocks along the way. What is taking place now is that the toll-road operators—Manila North Tollways Corp. (MNTC) for North Luzon Expressway (Nlex) and Subic-Clark-Tarlac Expressway (SCTEx); San Miguel Corp.-Private Infra Development Corp. for TarlacPangasinan-La Union Expressway; San Miguel Corp.-Citra Metro Manila Tollway Corp. (SMC-Citra) for the South Luzon Expressway (Slex); Cavite Infrastructure Corp. (CIC) for the Cavite Expressway (Cavitex); and Star Infrastructure Development Corp. (SIDC) for the Southern Tagalog Arterial Road (STAR)—have been unable to do much to improve driving conditions and integrate the expressways, because government agencies overseeing public transport seem to be erecting one barrier after another in improving the road infrastructure. Take the case of SCTEx, the country’s longest toll road with a span of 94 kilometers. Built at a cost of P28 billion through a loan from the Japan International Cooperation Agency, it opened in April 2008. Since then, SCTEx has shown marks of wear and tear and requires heavy repair work, the inevitable result of failure by MNTC and its partner, Egis Projects S.A. of France, to formally take over the operation and maintenance (O&M) work for almost six years after MNTC was already supposed to do so. MNTC’s O&M contract for SCTEx was approved under the Arroyo administration in 2009, but the Aquino administration deemed it fit to renegotiate the deal. After the renegotiations, President Aquino directed the Bases Conversion and Development Authority (BCDA) in November 2014 to stage a price challenge or competitive bidding for SCTEx’s O&M contract. MNTC won the price challenge in the absence of any rival bidder. Up till now, however, the government has yet to award the O&M contract to MNTC, seven months after the toll operator won the price challenge and already deposited the P3.5-billion cash in an escrow account. The BCDA issued a Notice of Award to MNTC on February 4, but the official O&M contract is not yet in this toll operator’s hands because the Supplemental Toll Operation Agreement, though already approved by Toll Regulatory Board (TRB), is still pending at the Office of the President. Work on the C-5 Link Expressway, a P9-billion, 7.6-km road project connecting C-5 Road in Taguig City to the R-1 (Coastal) Expressway, is also on hold as the TRB has yet to issue a Notice to Proceed, pending a certification from an independent consulting firm on the availability of the right-of-way (ROW) for the alignment already approved by the Department of Public Works and Highways (DPWH), the approval of a final engineering design now undergoing final review, and construction schedules and costs. This Cavitex extension project has been favorably endorsed by Parañaque City residents, and has already been issued the required Environmental Compliance Certificate by the Department of Environment and Natural Resources. Once completed, the project is expected to relieve traffic congestion in Parañaque City and assure safe, fast and convenient expressway travel for other users in the
Tuesday, September 1, 2015
Cavite, Las Piñas, Taguig and Makati areas. But, despite the readiness of CIC to commence construction as soon as possible, a big obstacle is the lack of the TRB’s Notice to Proceed. The snags do not end there. The P25.6-billion Metro Manila Skyway 3 of the SMC-Citra consortium and the Nlex-Slex Connector Road project of Metro Pacific Investments Corp. are also delayed because of the need to redesign both alignments, as the National Economic and Development Authority (Neda) Board has approved the North-South Railway Project, which will use the same railroad tracks of`the Philippine National Railways. SMC-Citra has begun construction of Skyway 3, but has moved back its target completion to 2017. MPIC’s Nlex-Connector Road, on the other hand, has yet to start as government agencies tarried in making a decision to hold a Swiss Challenge after mulling over a joint venture with the Philippine National Construction Corp. that holds the franchise to both Nlex and Slex. It is only after the Neda Board has confirmed the Swiss Challenge that interested parties can submit counteroffers. The Neda Board will still schedule a meeting to approve the Swiss Challenge process. The P15.8-billion Ninoy Aquino International Airport Expressway, a four-lane, 7-km elevated expressway and 2.2-km at-grade feeder road that will provide access to Naia Terminals 1, 2, 3 and 4 and connect to the Skyway system and Cavitex, is already a year behind schedule due to the failure of the DPWH to secure the ROW for the project. It was originally scheduled to be completed in November to facilitate traffic during the Asia-Pacific Economic Conference summit in Manila. ROW issues are, likewise, behind the delay in the start of the P35.42billion Cavite-Laguna Expressway. ROW delivery could be completed in two years, or in 2017. Calax is a 44.6km, four-lane expressway connecting Cavitex in Kawit, Cavite, and the Slex-Mamplasan Interchange in Biñan, Laguna. MPIC formally signed the Calax concession deal on July 10 and made a down payment of P5.4 billion that same day—representing 20 percent of the P27.3-billion premium that it had offered to win the second public bidding. ROW problems also hound MNTC’s Nlex Harbor Link project and the extension of Nlex from Mindanao Avenue to Commonwealth Avenue in Quezon City. If the government is able to deliver full ROW acquisition within the year, the construction of Segments 9 and 10 of the Nlex Harbor Link is expected to be completed by MNTC in December 2016. Finally, the failure of the TRB to approve petitions for toll increases by the operators and concessionaires of Nlex, Slex, Cavitex and STAR has stymied the implementation of road improvements. The TRB even pressed SIDC to expand STAR’s Phase 2 expansion without waiting for the toll-fee adjustment, which the latter did, but the firm is now worried whether it can still recover its additional investment in STAR, amounting to P2.3 billion. The 22-km STAR Tollway 1 starts from Santo Tomas, Batangas, to Lipa City, while its 20km expansion project extended the expressway from Lipa City to Batangas City. Amid all this, wonder no more that the traffic situation in and out of Metro Manila is in shambles. E-mail: ernhil@yahoo.com.
Edgardo J. Angara
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ep. Romero S. Quimbo, chairman of the House Committee on Ways and Means, recently called on President Aquino to convene the Legislative-Executive Development Advisory Council (Ledac) to tackle the growing clamor for income-tax reform. As it’s a matter of taxation, the proposal was put forward by the House from where tax legislation must originate. The Ledac was established in 1992 through Republic Act 7640 during the 9th Congress. It was authored by Sen. Neptali Gonzales, a noted political and law expert, and myself. The council was set up as a consultative and advisory body in which the country’s policy-reform agenda was drafted. The council serves as the mechanism to achieve cooperation between the President and Congress. It’s the medium to break political gridlock between a President and a Congress belonging to opposing political parties. Chaired by the President, the council includes the Vice President, the Senate President, the Speaker of the House, seven members from the Cabinet, three senators, three members of the House of Representatives
and three representatives appointed by the President, coming from local government units, the youth and the private sector. At the time the Ledac was first established, the country was going through a tumultuous period, suffering a negative gross domestic product growth rate, high poverty incidence, a huge deficit and a paralyzing power crisis. Broad and deep structural changes were needed. And the Ledac became the indispensable mechanism for galvanizing support and achieving the reform agenda. The Ledac ushered in a politics of consensus. It flourished because the political leadership fostered a culture of collaboration rather than confrontation. Some political ana-
lysts consider the 9th Congress one of the most productive of the postEdsa Congress because of the structural reforms it had enacted. Today the country is in a similar juncture. It needs to undertake deep reforms and structural overhaul again—this time, in particular, of its outdated tax system that marginalizes many Filipinos, while enriching a few. Currently, our income-tax rates are among the highest in Asean. These rates affect our global competitiveness and dampen our attractiveness to foreign investment, especially when Asean economic integration comes in full effect next year. Sen. Sonny Angara, chairman of the Senate Committee on Ways and Means, sounded off this problem as early as the first quarter of 2014 as he filed Senate Bill 2149, which adjusts income-tax brackets and proposes a staggered decrease of tax rates over three years (for instance, from 32 percent to 25 percent). Revenue agencies sent mixed signals on their openness to the proposal, saying that income-tax reform should coincide with revenue-generating measures. Recently, the Department of Finance endorsed to the President a so-called comprehensive tax-reform package, which included a reduction of income-tax rates (32 percent to 25 percent over six years) and an
increase of value-added tax from 12 percent to 14 percent. The President reportedly thumbed down the proposal and asked for other revenuegenerating or -neutral measures to be found. Several analysts and groups, such as the Tax Management Association of the Philippines, have already proposed their own comprehensive tax-reform packages. A Ledac meeting is the most appropriate forum for such proposals to be vetted and discussed. With broad consensus, a reform agenda could be crafted and then implemented with deliberate speed. Under past administrations, Ledac meetings were fairly regular given the council is mandated to meet at least once every quarter. Malacañan Palace assures that coordination between the Executive and Legislative branches remains vibrant, though since 2010, only two Ledac meetings have been convened. Comprehensive tax reform— aimed at striking an equitable balance between collecting revenues for government coffers and putting more into the pockets of Filipino families—should be an “all-handson-deck” affair. There is broad consensus that such reforms are urgent. A Ledac meeting should be convened. E-mail: angara.ed@gmail.com.
Two big winners from China’s big slowdown William Pesek
BLOOMBERG VIEW
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ow panicked were investors last week about China’s stockmarket plunge? Enough to treat the Korean peninsula, a place that was teetering on the brink of war, as a safe haven. Even as policy-makers braced for renewed military confrontation between North and South Korea, the won staged a rally. That has made South Korean assets one of the few bright spots in a dark time for emerging markets. On August 24 alone, investors yanked $2.7 trillion out of developing nations, with Indonesia, Malaysia and Thailand especially hard-hit. It matched the violent September 2008 sell-off after Lehman Brothers collapsed. Back then, Korea was battered so hard that pundits were calling it the “next Iceland” and the “Bear Stearns economy.” Now, together with the Philippines, it’s one of Asia’s only refuges from chaos. It’s not hard to explain why many Asian economies are suffering from China’s slowdown. Exporters of commodities, who depended on a humming Chinese market, have especially suffered. But why are there such big outliers among battered emerging markets? The answer is that investors are finally basing their decisions less
on herd mentality than nuanced, case-by-case analyses. “Emergingmarket investors have become a lot savvier,” economist Frederic Neumann of HSBC in Hong Kong says. “Gone are the days where emerging markets were all lumped into one bucket. Today countries with stronger fundamentals are able to resist the spread of contagion washing over global financial markets.” Along with South Korea and the Philippines, Neumann notes that even some frontier economies, like Vietnam, “have weathered global financial turmoil with apparent ease.” The common link among the success stories is they’ve gotten the basics right since Asia’s 1997 financial meltdown: They have healthier financial systems, greater transparency, stronger banks, sober national balance sheets and reasonable current-account deficits. Malaysia’s reckoning, by contrast, is long overdue. The ringgit is trading
near 17-year lows because scandalplagued Prime Minister Najib Razak cares more about staying in power than modernizing the country’s unproductive economy. Meanwhile, Thailand’s military junta is undoing much of the progress Bangkok made since the late 1990s in strengthening the rule of law. And for all its gripes that Indonesia is being unfairly lumped in with Asia’s laggards, President Joko Widodo’s administration is rapidly losing the trust of investors. While there’s still time to win it back, Widodo’s first 315 days in office have been a case study in timidity, drift and lost opportunities. Korea, by contrast, is on the “more credible side of the spectrum,” economist Marc Chandler of Brown Brothers Harriman says. Even though China’s downshift and US interest rate hikes will eventually make a dent, the won was Asia’s top performer last week. Its 2.7-percent gain almost matched the drop in the Chinese yuan since August 11. Meanwhile, Korean bond yields are falling. It turns out that the world’s central banks had it right last year when they boosted their Korean debt holdings. In 2014 they made up 45.4 percent of the foreign-held portion of Korea Treasury bonds, up from 41.8 percent a year earlier. It may be time to start counting Korea as a developed nation, rather than an emerging market. Korea still faces many challenges, not least of which are its rogue family-run conglomerates. But its macroeconomic
performance deserves the recognition it’s receiving from investors. The same goes for the Philippines. Since 2010 President Aquino has steadily improved his nation’s debt position (winning investmentgrade ratings in the process), attacked graft and drawn in waves of foreign-direct investment. Last month reporters asked Philippine central bank Governor Amando M. Tetangco Jr. if he’s worried about the specter of economic crisis haunting Asia at the moment. “There’s a herd mentality,” he said, “but there’ll be differentiation.” So far, he’s been proven right. The country formerly derided as the “sick man of Asia” has been standing its ground amid market chaos. Risks abound, of course. While South Korea’s economic fundamentals are stable—it’s growing at a rate of 2.2 percent with a 3.7-percent jobless rate—its high household debt of $458 billion is a concern. Manila, for its part, faces an uncertain 2016 election, in which Ferdinand Marcos Jr., son of the dictator who ravaged the nation in the 1970s and 1980s, may make a bid for the presidency. History has shown that emerging markets are often just one bad leader away from relapsing into chaos. For now, the relative stability washing over Korea and the Philippines underscores that steady leadership and long-term thinking matter. It also shows that global investors are getting better at identifying those factors in Asia.
Fiorina may find center stage uncomfortable By Albert R. Hunt Bloomberg View
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here is a strong desire in Republican circles for Carly Fiorina to be on the main stage in the next presidential debate. Few in the party say the former Hewlett-Packard (HP) chief executive has any chance of winning the nomination or even think she is the best candidate. Instead, they argue that a party that has a problem with female voters can ill afford a sizable top-tier field that’s exclusively middle-aged or older men. Moreover, they love her slashing attacks on Hillary Clinton, whom Fiorina frequently calls a liar. Fiorina obviously would relish greater visibility, and her supporters anticipate that unlike the first presidential debate, on August 6, when she was on the undercard, she’ll be part of the main event on September 16. If so, there will be a new level of scrutiny that she may not find altogether welcome.
There are two basic rationales for the Fiorina candidacy: She’s not a politician, and she was a successful business executive who knows how to run the economy and has dealt with world leaders. The trouble is, she was a politician. She ran for the Senate in California in 2010 and lost by more than 1 million votes to the incumbent, Barbara Boxer. True, California is a Democratic state, but that was a banner year for Republicans, and Boxer never has been as popular a vote-getter as the state’s other Democratic senator, Dianne Feinstein. During that campaign, Fiorina was seen as smart but politically naïve. She displayed a tendency, that remains evident in her presidential quest, to go into attack mode, which created sympathy, even some Republicans acknowledge, for the hard-edged Boxer. But her central liability in that campaign was the qualification she held up as her chief asset: her experience as a high-level business executive. Starting as a receptionist, she climbed the corporate ranks. In 1999 she was named
CEO of HP, the renowned global technology company. She was No. 1 in Fortune magazine’s first list of the most powerful women in business. Not long after arriving at HP, she engineered the deal of the year, a huge acquisition of Compaq, the personal computer company. That soon went south. Profits disappointed, the stock plummeted, she alienated the families of HP’s fabled founders, along with many employees, and she lost the confidence of the board of directors. In 2005 she was fired. She walked away with a package worth $42 million, which could be hard to explain to voters struggling with jobs and stagnant wages. Fiorina still insists she was a victim of a “boardroom brawl” and dismisses criticism of her record. She says the company doubled in size and added jobs on her watch. That’s true, but only as a result of the Compaq acquisition, which many analysts consider a catastrophe. The company now is splitting into two
divisions. Fiorina usually dismisses criticism of her claims of success as partisan or politically motivated. She also boasts of her international experience, claiming she has dealt with more heads of state than any candidate other than former Secretary of State Clinton, and that she understands President Vladimir Putin of Russia. Yet many of her international meetings were with business groups; she had one rather short one-on-one session with Putin in 2001. The 60-year-old candidate has an appealing story beyond her rise in business. She’s a breast cancer survivor, and is admirably transparent about the death of her stepdaughter from drug abuse and has committed herself to fighting this scourge. And if she gets on the big stage, she might be the one to go toe-to-toe with Donald Trump, who often disparages women, including Fiorina. Nonetheless, her two chief calling cards, as a successful business executive and a non-politician, may create more problems than opportunities.