1. Dr. Roberto F. de Ocampo, OBE
Former Finance Secretary
Co-Vice Chairman, Makati Business Club
2nd Anniversary Forum of Arangkada Philippines: “Realize the Potential”
Rizal Ballroom, Makati Shangri-La Hotel
9:10-9:30 AM, February 26, 2013
Ladies and gentlemen,
Good morning.
How many of you remember the song “What a Difference a Day Makes”? It goes a little
like this
“What a difference a day makes
Twenty-four little hours
Brought the sun and the flowers
Where there used to be rain. . .”
I’d rather refrain from singing the entire song as I do not want to risk breaking my
contract with Universal/ Sony Records. On the other hand considering what I said last year,
many of you might think that I should shift from being an economic commentator to a singer.
If I recall in connection with last year’s theme, “Moving Twice as Fast”, I said that the
economy would not move that fast. I said then that “if we take the lowest actual growth rate of
3.2 per cent of 2011 and multiply it by two, this would give us a 6.4 per cent minimum growth
rate for 2012 in order to reflect an economy that has moved twice as fast”.
Considering that the 2012 full year growth was 6.6 per cent over last year’s 3.9 per cent,
should I eat crow or turn singer instead? Or both? But I started with a song to highlight an
important point which is: what a difference a year makes. If the growth rate in many previous
years were close to what it was last year, we may not be here asking ourselves how can the
economy grow twice as fast.
Fortunately, I don’t really have to eat crow since you will recall that I also said I would be
happy to be proven wrong. I’m sure I’m not the only one happy. How many of you are enjoying
the benefits of that impressive growth performance in your businesses and stock market
transactions? I am sure many of you in this ballroom would raise your hands.
There is indeed much to be happy about. And I don’t need to dwell on them at length.
They have been repeated with glee in various publications both here and abroad. But let me tick
off a few highlights.

2.  The 6.6per cent growth not only exceeded the Government’s target of 5-6 per
cent, but was broad based. The Industry Sector grew by 6.5 per cent which was
more than twice its growth rate in 2011 at 2.3 per cent. The decline in Mining
from 7.0 to negative 3.7 per cent was more than compensated by Construction
that zoomed from negative 7.3 to 14.4 per cent.
 Manufacturing likewise grew from 4.7 to 5.4 per cent and Utilities from 0.6 to 5.1
per cent. The Service Sector was also a major driver growing at 7.4 from 5.1 per
cent with contributions from Trade, Transport, Communications and Real Estate.
Even the Agricultural Sector performed relatively well at 2.7 per cent considering
the several weather disturbances that hit many parts of the country especially the
rural areas.
 Government expenditure grew 11.8 per cent which was in fact the key element in
the economy’s performance as it started from a very low base of 1.0 per cent in
2011. On the demand side, government spending growth accelerated to 12.6 per
cent.
 The Philippine Stock Market expanded 33 per cent last year as the composite
index broke record highs 38 times. It is viewed as one of the most dynamic stock
exchanges in Asia. Last February 19, the main Philippine Stock Exchange Index
(PSEi) broke the 6,600 level for the first time, and some expect it to hit 7,000 this
year.
 The country’s gross international reserves reached a historic level of US$84.2
billion, which can finance a full year’s worth of imports of goods and payments of
services and income.
 Registered portfolio investments inflows into the country last year reached
US$18.5 billion, the highest in ten years.
 Overseas Filipino Workers’ (OFW) remittances also rose to a record level of
US$21.4 Billion which is 27% GDP. This, in spite of political unrest in the Middle
East and economic downturn in Europe where a large number of OFWs are.
 The Philippines is now #1 in voice services and #2 in non-voice services within
the BPO industry. Already employing some 700,000 Filipinos the BPO sector
was expected to add 100,000 new jobs.
 After eight credit rating actions, the country is now poised to attain an investment
grade credit standing from Fitch, Moody’s and Standard and Poor’s this year
from its rating of one notch below investment grade.
 Transparency International reported an improvement in the country’s anti-
corruption drive as it improved its ranking on the list of the most corrupt
countries, ranking 105th out of 176 countries. Still low in ranking, but a significant
improvement.

3.  The Global Competitiveness Report of the World Economic Forum ranked the
Philippines 65 th among 144 countries in its 2012 survey, a significant ju
75 th last year.
Clearly, the favourable perception in both the domestic and international arenas towards
the administration’s anti-corruption campaign has had its effect. However, even the Government
realistically admits that much more has to be done. It would be important for the Arangkada
Forum to maintain a posture of positive criticism rather than joining in an unquestioning chorus
of praises that have the pitfall of being self-congratulatory. After all, true friends should not be
shy about telling the truth particularly if it may be helpful towards the realization of a common
cause.
In this light, the question I wish to address is precisely whether we can rest on the
laurels of recent successes or look upon these successes as a platform for the vital reforms still
needed to realize the country’s potential as the theme of this forum indicates. Not a few have
voiced the opinion that the recent successes are mainly reflective of the financial economy, and
not as much of the real economy.
How many of you in this room are market vendors or tricycle drivers? I’m sure there
would not be that many if any at all. When I earlier asked how many of you were happy, most of
you were. Of course, that may not be the same response in different economic strata, largely
unrepresented here, who may not even know what the stock market is but try to make ends
meet to be able to buy and sell at the wet market and survive day to day.
Perhaps to put some perspective, let me mention the major concerns.
 While the country posted the highest growth rate of 6.6 per cent in Southeast
Asia last year, we also account for the highest unemployment rate in the region
at 7.20 per cent. That is not counting underemployment in both the urban and
rural areas of the country. This raises the question of how inclusive is our
growth. Poverty reduction has not kept up with the GDP growth rate as it did not
result in any increase in mass employment.
 We continue to lag behind our neighbours in Foreign Direct Investments. We
registered a growth rate of 10.6 per cent in FDIs which is a far third behind
Thailand and Cambodia at 62.1 and 165.7 per cent, respectively. And while
Malaysia, Indonesia and Singapore registered negative growth rates, the
Philippines with its positive growth rate is just at par with Cambodia in absolute
amount of FDIs at US$ 900 Million. The updated statistics for the period January
to November 2012 shows that Foreign Direct Investment in the Philippines
reached $1.2 Billion. I believe this is the first time we breach the $1 billion level.
But $1B is nothing to breast beat about compared to say Indonesia’s $18B.
 While government infrastructure spending surged last year, the overall state of
Philippine infrastructure still lags far behind neighboring countries whose citizens
used to come to the Philippines to learn from us.

4. Even some of the elements of success have their downside. For instance, the stock
market boom may also be an indicator of hot money growing at such a rate that may make it too
hot to handle. Not only has its benefit not reached much of the real economy but it is always
prudent to remember the adage that a bubble is not seen as a bubble until it bursts.
What reforms are needed? The most important of the reforms should be those that
would target the three most important priorities to enable sustainable and inclusive growth to
take place namely, job creation, job creation, and job creation. The financial economy by itself
despite the stellar performance of the stock market and the prospect of an investment grade
credit rating cannot pull that off. The Arangkada Philippines has been at the forefront of
advocating such specific reforms in vital sectors of the economy.
Let us revisit some of the key Arankada ones:
1. Agriculture - The key to improving this sector remains our ability to transform it
towards higher productivity and a more agro-industry based configuration. That
will not happen unless we revisit our land Reform paradigm that focuses on
ownership much more than productivity to the point of near romanticizing of
subsistence farming and placing much of the blame and burden on credit
policies. The present Land Reform Act expires in 2014. Perhaps inputs towards
generating important amendments to it should begin to be gathered rather than
just allow the present law to lapse or just automatically be extended another 5
years.
2. Infrastructure - The government’s, particularly the DPWH’s, great leap forward in
spending here last year accounted for a large part of the impressive growth rate
but that level of spending, by nature, cannot be expected to double year by year.
At the same time, infrastructure relating to other than roads has not experienced
the same boost. There is some concern, for instance, that the Energy Sector
needs closer watching and a more energetic push particularly in Mindanao.
Clearly, we continue to wait with baited breath for a more vigorous
implementation of the PPP.
3. Manufacturing - We should all be delighted to learn of the marked increase
particularly in Japanese and Korean investments in this sector but the relatively
low FDI translates into relatively low new manufacturing plant. And we continue
to suffer from a poor rating as among the countries most difficult to do business
in(with the outstanding exception of PEZA). More than most other sectors,
Manufacturing, is a generator of jobs. Bureaucratic processing, a skewed labor
policy, including a so-called profit sharing bill being presently deliberated in
Congress, and poor level of infrastructure still hinder our ability to be a preferred
investment destination in this sector.
4. Mining - I should not belabour the point here since the issues are familiar to you
but efforts by government to bring a workable compromise between
environmental protection and reaping the economic benefits of mining may need
further tweaking. Among others, the present moratorium on new mining activity
and the blurred division of jurisdiction and responsibility between national and
local governments still leaves many prospective investors confused, to say the
least.

5. 5. Tourism - I applaud the gains made by the Department of Tourism that has
resulted in an increase of tourists by a million since the start of the administration
from 3.5 million in 2010 to 4.3 in 2012. But this pales in comparison with the 25
million tourists in Malaysia and the 7 million in Vietnam. I am confident that more
can have more fun in the Philippines but DOT can’t do it alone. Again,
infrastructure looms as the bottleneck.
I am encouraged that we at least seem to have a government that listens. I’m realistic
enough, having been in the Cabinet myself, to realize that it cannot do all things all at once
without rushing into too many false starts and too little real accomplishment.
May I suggest therefore focus on the following priorities.
1. NAIA. This is a no brainer. With the DOT’s tourism program doing well, the sad
state of NAIA continues to be a major drag. Clearly, the present single runway
international airport is primitive compared to almost any other international airport
in ASEAN. Clark is the obvious choice. Yet, we are spending funds to have
consultants to tell us what we had ourselves already studied and concluded as
early as 1996 - that a two airport set-up (similar to that in Washington DC) with
Clark as the International gateway and NAIA for domestic flights), would be best.
2. PPP. I said last year that the continuing central problems are infrastructure,
infrastructure and infrastructure. They still are. The PPP as the government’s
flagship program in this regard, has actually begun to move but ever so slowly as
some projects have been awarded and started. But a short, few kilometer road
like Daang Hari and a school building program do not a vigorous PPP program
make. We should be heartened by recent announcements from NEDA of many
more approvals for PPP projects for this year. But again, bear in mind that
approval is not the same as implementation and there is, by its very nature, a
minimum 2-year gestation period between breaking ground on a significant PPP
project and its actual commissioning.
3. Smuggling. The value of smuggled petroleum, fertilizers, rice and other
commodities is estimated at almost US$ 20 Billion annually. This cuts deep into
the government’s import duties, and puts local industries and manufacturing at a
big disadvantage, if not totally driving them out of business. This is the big hole in
the drive for a better fiscal situation. BIR can’t go it alone inspite of its dedicated
tax collection mindset.
4. Competition Policy. It is not enough to say that our system is a democracy when
much of its social and business structure still reflects oligarchy. The essence of a
truly democratic, free-enterprise system is competition. I understand that the
government is presently crafting a competition policy and there is, coming
through Congress, a so-called Anti-Trust bill. We should do what we can to not
only keep watch on these developments but bring our inputs to bear to help
ensure that these twin efforts are effectively synchronized and that the laudable
objectives of increasing competition, diminishing oligarchy, and widening
opportunity in a truly free-enterprise economy are realized.

6. 5. Finally, and for a more serious consideration, amendments to the constitution to
encourage foreign investment. I understand there is some reluctance on the part
of the Executive. The questions in our minds though are: if not now, when? Isn’t
this the best time to make the move with a President in office who is trusted not
to make constitutional change an avenue for extending his term? Reluctance in
the context of conservatism may be understandable but we are lagging behind,
and a leapfrog, a bold move, may be the order of the day.
There is one part of the President’s inaugural address that I remember - that he would
want to introduce change that could not be easily reversed even after his administration. I, like
many of you here, would hope that he does not run out of time to do that.
But bear in mind that one half of this year is likely distracted by politics and 2016, when
the President’s term ends, lasts only half of that year, and most of that will be devoted to
Presidential election politics. That leaves about two full years to go for this administration to
institutionalize the needed reforms.
Institutionalizing reforms is not the responsibility of the government alone. We need to
do our part. This year, the most important aspect of our responsibility lies with the forthcoming
elections. Many have observed that this is the most confusing elections with respect to political
alignments - as well as the most dynastic elections we’ve had. It may be too late to change the
political configurations as we know them today but it is still our vote and all the processes
involved in helping ensure its protection that needs to be brought to bear by us. We can resign
ourselves to an attitude that the system is too impaired to be changed or we can join those in
various NGO’s or media establishments, or expand our network of internet interaction to help
towards as honest an election as possible and eventually, true electoral reform.
Finally, the world will not be standing still while we race to improve our lot. We need to
be alert to global game changers that could negatively or positively affect our economy. On the
potential negative side, the possibility of currency wars looms, an offshoot of which may be the
strengthening of the peso to a point disadvantageous to our present two pillars of the economy-
remittances and the BPO industry. So far, the BSP has managed the situation well and can still
count on a few more monetary tools at its disposal. But fiscal policy is the complimentary side of
this exercise. I am glad to learn that the government is shifting its proportion of borrowing more
towards local sourcing, but I believe more of this may have to be done. Also, while I support the
dedication to tax collection compliance I would caution that this should be balanced by a
strategy of growing the tax base as well and not focusing on squeezing more juice from the
existing one.
On the positive side, 2015 will be the year of moving to deepened ASEAN economic
cooperation. This could prove beneficial to us in many ways. But we have to put on our thinking
caps now and identify our position in this new environment rather than be caught flatfooted
when its reality is already upon us.
I am told by Feung Shui experts that the year of the snake can slither hither and thither and may
bring treacherous pitfalls. But bear in mind that the snake is also the symbol of the medical
profession and the right economic medicine in the right doses could give us a halfway mark in
this administration that could produce a winning margin for better long term economic
prospects.
Thank you.