President Arroyo's Vision for the Philippines
She tells Businessweek.com about her plans to privatize, invest in infrastructure, and make the archipelago a top player in business process outsourcing
The Philippines has long been labeled East Asia's economic laggard. Political turmoil, failed military coups, security concerns, and perennial economic crises seem a regular feature of this Southeast Asian archipelago. In January, 2001, Gloria Macapagal Arroyo, 59, took the reins of the country from the disgraced former actor Joseph Estrada following weeks of street protests. In June, 2004, she narrowly won reelection as president, though her political opponents have raised allegations that voter fraud played a role.
Nonetheless, Arroyo is remaking the Philippines. Last year, courts ruled to allow her government to boost revenues from sales taxes to drastically cut a yawning budget deficit. Now her government is rolling out an impressive array of infrastructure projects to kick-start the economy. After attending the two-day APEC summit in Hanoi, Arroyo made a brief investment-promotion stop in Singapore where she spoke to BusinessWeek.com. Excerpts from the 35 minute interview:
Not long ago, the Philippines was in political turmoil, suffering from a huge budget deficit, weak currency and worries the country couldn't compete with China or India. Today the International Monetary Fund praises the country. What has changed?
I am glad that people are seeing that we've finally arrived. There is no looking back from here. Clearly, because of the steps we took, the days of huge deficits are gone. Gone, too, are the days of stagnation and poor economic growth. We fought hard for economic reforms. The first phase was to raise the revenues needed to invest in our infrastructure and our people so that Philippines is a more competitive place to do business and have a better standard of living. Those first battles have been won.
The budget deficit is under control, we are on our way to having a balanced budget by 2008, the stock market is up, the peso is strong, poverty rate is down, per capita income is up, investors are coming in again, growth is robust, new revenues can now be invested in long-overdue repair and rebuilding of our infrastructure, education, health, and job creation. The IMF and credit-rating agencies recognize this and so we are getting constant upgrades. We believe we are now in a virtuous cycle where one good thing leads to another.
Still, the Philippines has an image problem. How do you counter this image issue and tell investors this time it's for real?
Well, they can see the difficult economic reforms that we've undertaken. They can see the revenues that we've raised in order to make investments in infrastructure and education. They can also see that I was even willing to pay a political cost to get these through. Now the results are coming in. I am happy the investors are more forthcoming.
The IMF and credit rating agencies reflect the image that we have in the world and we are getting accolades from them for the improvements we have made. Investments are coming in a range of sectors from business process outsourcing to mining. We've made it clear that we only encourage mining investments that are ecologically responsible so that there is sustainable development.
Because we now have money to invest, I have announced a trillion peso (nearly $20 billion) infrastructure program for the medium term. The money will come from our new revenues, from government corporations as well as the private sector. A lot of private-sector companies and foreign investors have shown interest and we are now trying to move on the infrastructure projects.
With China becoming the factory to the world and India becoming the back office to the world, where is Philippines' place in the sun?
Yes, we all have our place in the sun, our niche. China may be growing very fast, but China's needs and wants are also growing very fast. They can't do everything themselves. Our trade with China has risen tremendously in the past few years and the balance of trade is still in our favor which means as China grows it is buying more from us than it is selling to us. We are selling electronics components to China which go into things that China exports to the rest of the world.
We are exporting minerals and mining products that China needs. We are also selling agricultural and food products to China including coconut oil and tropical fruits. So the more China grows, the more it buys from us. China has also started investing in the Philippines. There is a $1 billion mining project investment that they are considering now and there other mining ventures with China.
With India, we have a similar symbiotic relationship. India is very strong in software and in business process outsourcing. But even Indian companies are investing in Philippines today to grow their call centers and BPO operations. There are already many Indian-owned BPOs in the Philippines, some wholly owned, some joint ventures. More are coming in. The growing prosperity in China and India has been good for the Philippines.
This is not a zero sum game. The rise of China and India has created jobs in the Philippines and is not taking jobs from the Philippines or investments away from us. As I mentioned, Chinese and Indian companies are actually investing in the Philippines.
What do you see as the biggest growth drivers for the Philippines over the next 5 to 10 years?
Way back in 2001, I said the growth areas will be our labor-intensive and skills-intensive service sectors like tourism and information technology. Five years later, that projection is coming true. The business process outsourcing industry had perhaps 2,000 or so people employed in early 2001 when I took over. Today our BPO industry has over 200,000 people employed.
There are some projections that show we could have nearly one million people working in the BPO industry in five years. In fact, almost every company we talk to tells us that they are looking to at least double their workforce over the next two or three years. BPO is a microcosm of the dynamism of our investment climate. We've had a100-fold increase in BPO in five years. Our tourism sector has been growing at a double-digit rate for six years now and we expect the pace of growth to increase. These are people- and skills-intensive sectors.
What does the Philippines have to do to remain an attractive place for business process outsourcing?
To continue growing our service sectors like the BPO, we need to invest in our people. We need to invest in training and education. We need to have a strong English-speaking workforce with a proper accent that foreigners can understand. For call centers, sometimes, the right education or ability to speak English is not enough. You need to be very patient and kind because you are taking calls of complaints.
We are also moving up the value chain in the BPO sector. We have our strength in accounting and legal services. Our accounting standards are similar to the U.S. as is our legal system so this is where we have some advantage over India. We are also moving into medical records and the transcription area.
You have advocated the need to amend the constitution and switch from a presidential to a parliamentary form of government? Why expend so much political capital on charter change or Cha-Cha as you call it in the Philippines?
Let me clarify. President Aquino changed the constitution and President Ramos and President Estrada both advocated constitutional reforms. I have been saying that the remaining reform that we need in our economy is, move to a parliamentary form of government. We need a constitution that is more accountable and nimble with regard to the needs of a modern economy.
This is part of the reforms that I have been promoting to make our country a more attractive and competitive place to do business and I'll continue to advocate for it. Ultimately it's for the people to decide whether they want constitutional changes.
Critics say the Philippines has dragged its feet over privatization. True?
I agree with you that the privatization of the power sector should move faster. I am happier with the pace of our energy independence agenda like biofuels and solar energy which are taking off, but as far as privatization of power assets are concerned, it is true that we need to move faster on privatization as well as encourage more private sector and foreign participation.
We are reorganizing the bureaucracy in the power sector now and I have instructed the cabinet this has to be a priority. We are looking at legislation and regulatory framework as well to make sectors like energy and power more conducive and more attractive to investors.
Assif Shameen covers Southeast Asia for BusinessWeek.com from Singapore.
