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O 040923Z DEC 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4146
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UNCLAS SECTION 01 OF 02 MANILA 004878
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SIPDIS
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E.O. 12958: N/A
TAGS: ETRD EINV ECON RP
SUBJECT: GOVERNMENT COMMITS TO BOOST COMPETITIVENESS
1. Summary. President Arroyo convened a "Summit on Competitiveness"
at which GRP and business leaders committed to a broad and
impressive agenda of economic reforms developed in prior preparatory
meetings. President Arroyo and five Cabinet officials, along with
business and labor leaders, presented initiatives in education,
public and private sector management, access to financing,
transaction costs, infrastructure, and energy to improve the
Philippines' competitiveness. The Summit demonstrated that Arroyo
and her cabinet know what needs to be done and want to do it.
However, despite the strong, concerted call for action, it will be
difficult for the Philippines to achieve many of these ambitious
goals. End Summary.
GRP ADDRESSES FALL IN COMPETITIVENESS
-------------------------------------
2. In her 2006 State of the Nation speech on July 24, President
Arroyo announced a "comprehensive strategy for global
competitiveness." Following two months of preparatory work on the
part of her economic team, in conjunction with the private sector,
Arroyo convoked a "National Competitiveness Summit" with
representatives from the public and private sectors on October 6.
Arroyo's initiative was sparked by the low competitiveness ranking
the Philippines received in recent years from many organizations.
The 2006 World Competitiveness Yearbook of the International
Institute for Management Development ranked the Philippines 49th out
of 61 economies; the World Bank ranked the country 126th out of 175
countries in its "Doing Business 2007" report; and the World
Economic Forum put it 77th out of 117 countries in its most recent
Global Competitiveness Report. Summit presenters called for
improving the RP's position in these rankings as their most
important indicator of success, and Ambassador Cesar Bautista,
former Secretary of Trade and Industry and co-chair of the summit,
declared a national goal of securing rankings in the top third of
these surveys by 2010. President Arroyo delivered the keynote
address after receiving the list of recommendations prepared in
preparation for the summit in six areas of competitiveness: human
resources, management, finance, transaction costs, infrastructure
and energy.
HUMAN RESOURCES: RAISING EDUCATION STANDARDS AND SKILLS
--------------------------------------------- ----------
3. Representatives of the Employers' Confederation and the Trade
Union Congress blamed the country's high unemployment and
underemployment on the lack to appropriate worker training. In
particular, they said the decline in English proficiency had damaged
the Philippines' comparative advantage for investments in call
centers and business process outsourcing. They also pointed to a
decline in the study of mathematics and engineering in the
educational system. Education Secretary Jesli Lapus said the GRP
showed its commitment to improve education by proposing double digit
increases in the budget for both 2006 and 2007. He also announced
the government's intention to extend public schooling to 12 years
from the present 10 years but did not announce a timetable or
indicate whether secondary school would be compulsory for all
students.
MANAGEMENT: REACHING FOR ISO
----------------------------
4. Private sector presenters announced plans for creation of a
"roadmap" and a monitoring body to promote more efficient management
in the private and public sectors, with a focus on improving
management skills in municipal governments. They called for wider
adoption of ISO-aligned management standards, and set a goal of
implementation of ISO 9000 by 50 Philippine municipal governments by
2008.
FINANCING: SME ACCESS NEEDED
----------------------------
5. Central Bank (BSP) Governor Armando Tetangko said shortcomings
in financial laws and markets made it difficult for small and
medium-sized enterprises (SME) to access bank loans. Sergio
Ortiz-Luis, President of the Philippine Exporters? Confederation,
called for a credit bureau system that would facilitate credit
checks on loan applicants. The Finance Core Group called for
revised banking regulations that would encourage government
financial institutions to loan directly to SME's.
TRANSACTION COSTS: REDUCING RED TAPE
-------------------------------------
6. Trade Secretary Favila announced policy changes that he said
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would reduce the time it takes to open a business from 48 days to 24
days. Favila said the Bureau of Customs would fully computerize its
procedures to speed up customs clearance and reduce opportunities
for corruption. The Bureau of Immigration drew applause from the
business community for promising to simplify the process of
procuring an Alien Certificate of Registration, and the Department
of Foreign Affairs promised to introduce machine-readable
passports.
INFRASTRUCTURE: PRIORITIZING INCREASES IN SPENDING
--------------------------------------------- -----
7. Meneleo Carlos, Chairman of the Federation of Philippine
Industries, announced the GRP's commitment to increase spending on
infrastructure from below 3% of GDP to above 5%, and unveiled a list
of twenty priority infrastructure projects for completion by the end
of 2007. These projects include five airport projects (including the
opening of the mothballed new terminal at the Ninoy Aquino
International Airport in Manila), four seaport projects, seven
highway projects, six light rail projects, two water projects, and
two telecommunications projects.
ENERGY ISSUES
-------------
8. Business association leaders urged the government to take prompt
steps to reduce the cost of electricity. The private sector asked
for a combination of immediate tax relief measures and longer-term
action to hasten an open electricity market. Among its many
proposals, the speakers sought reduction in the VAT on power from
12% to 5%, passage of the renewable energy bill to diversify energy
sources and promote investment, and accelerated divestment of
state-owned generating assets, which they noted was far behind the
schedule dictated in the Electric Power Industry Reform Act (EPIRA)
of 2001 of 70% privatization by the end of 2005.
COMMENT
-------
9. The concerted high-level public-private focus on improving
Philippine competitiveness is encouraging. International financial
institutions applauded the reform pledges and said adoption of
short-term measures would likely raise the country's rankings.
Business leaders appreciated reducing the time needed to obtain
licenses, but expressed skepticism the government will follow
through on most of its commitments. Lasting improvements on complex
problems like the electricity prices will require hard work over
many years and significant political will.
Kenney