Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the Nineteenth Philippine Business Conference

[Delivered at the Philippine International Convention Center, December 13, 1993]

Economic recovery
has begun

IN GOOD TIMES and in bad, it has been customary for the President of the Republic to address the opening of this annual Philippine Business Conference, organized by the Philippine Chamber of Commerce and Industry.

Some of you will probably say that most of these conferences have taken place during bad times in our country. If so, then we meet for this nineteenth conference in more auspicious and promising circumstances than in previous years.

But I say that guardedly. Although we have moved some way during the past 17 months and we are looking forward to a Christmas season literally brighter than the last, these are still difficult times we live in.

National economic performance

We are not yet over the hump. There are still many obstacles to hurdle. This is the nature of the continuing challenge we face—to lift up an economy that has long been in crisis.

We do well to begin this conference by taking stock of where we are today.

Perhaps the most striking thing about the national economic performance today is that Government’s claims of success are coinciding with what expert observers are saying. In the past, the twain had seldom met.

In its latest credit update on the Philippines, dated December 6, 1993, Salomon Brothers reports:

Over the past 18 months,. . . the Philippines has made enormous progress toward setting the foundation for longer-term economic and political stability. The country has finalized a Brady debt-reduction agreement, returned to the international capital markets and liberalized foreign exchange regulations which have led to higher levels of private capital flows. At the same time, economic growth is recovering. GNP growth was reported at 2.8 percent in the third quarter, inflation remains in the single-digit levels, and foreign exchange reserves remain high at over US$5 billion.

The Government of Fidel Ramos is supported by greater political stability and a foundation of macroeconomic reforms already in place. . . . the level of political support for implementing economic reforms is better than at any time since 1986

Macroeconomic indicators for the Philippines compare favorably with . . . a number of investment-grade countries. GDP growth in the Philippines has been high and stable compared with countries such as Argentina and Brazil; inflation has been lower and less volatile, while external debt reduction has been faster. The conditions for achieving sustainable growth are now firmly in place.

Significantly, the 12 key economic indicators cited by the Salomon Brothers’ report are the same ones that the Ramos Administration also considers its major tests for effecting an economic turnaround. The indicators are:

1. Commitment to economic reforms: The determination to attract foreign investments, end the power shortage, raise exports and achieve an annual GNP growth of 6 percent to 8 percent by 1998 and a per-capita GNP of at least US$1,000 by that time.

2. Solid and rising economic growth rates: GNP will grow by 2.5 percent this year and will likely attain 4.5 to 5 percent in 1994.

3. Relatively low inflation: Inflation is projected to remain no higher than 8 percent by year-end.

4. Improved management of public finances: Tax revenues should reach about 14.9 percent of GNP this year. The budget deficit is estimated to be 3.0 percent to 3.5 percent of GNP. The current-account deficit will remain stable at approximately US$1 billion, but net capital inflows are expected to improve this situation soon.

5. High level of foreign-exchange reserves: Foreign-exchange reserves are expected be at about US$5 billion by year-end.

6. Reduced debt burden: Commercial bank debt has been reduced by more than US$6 billion. The debt-service ratio has declined from 37 percent of export earnings in 1984 to 18 percent in 1992, lower than those of Turkey and all of the Latin-American countries.

7. Performance of the agricultural sector: This sector, which composes 22.8 percent of GDP, grew by 3.3 percent during the first semester.

8. Growth of exports: Export growth is expected to reach 14 percent this year, exceeding the 11.5 percent average from 1983 to 1992.

9. Decline in domestic interest rates: These rates will average about 13 percent this year, down from about double the rates three years ago.

10. Return to the international capital markets: The success of five Eurobond issuances totaling US$670 million by public- and private-sector entities marks a significant step forward in the normalization of the country’s access to world capital markets.

11. Record growth of equity market: The stock market has shattered records many times this year. The returns in the equity market as of the end of November 1993 were at about 65 percent, one of the highest in the Asia-Pacific region. Portfolio investment from investors abroad rose to more than US$250 million in the first half of 1993, compared with only US$23 million during the same period last year.

12. Privatization initiatives continue: Reduction of the State sector in the economy through privatization and Government divestiture is moving apace, and will accelerate in 1994.

These are the incontrovertible signs that economic recovery is now in full swing.

Vindicating our democracy

When I addressed your eighteenth conference last year, you were in deep debate over whether we could achieve our development goals, given our democratic system of government. We have given proof since then, and are giving proof, that we can have both democracy and development, that in fact, democracy is not a handicap, but an asset, with sustainable and enduring development as our long-term goal.

True, the executive does not always get what it wants from Congress and the judiciary—even on matters we consider critical to our medium-term and long-range strategy.

But even the occasional obstacles have their virtues. The process of debate serves to refine proposals and programs. And once enshrined as policy, they are easier to carry out because of the political support behind them.

I take this occasion to call upon our partners in Congress and the judiciary to keep pace with us in the executive in the removal of gridlocks and in opening up the economy, because at stake is no less than the uplift of the entire nation from its perennial state of inadequacy and poverty.

During my recent visit to the United States, our meetings with many business groups in seven cities confirmed my belief that our functioning and authentic democracy constitutes a competitive edge for our beloved Philippines.

Foreign investors are attracted, I do believe, where a favorable investment environment is created by democratic consensus and therefore predictability and where there is real stability they can depend on.

This was the point of Ambassador Elliot Richardson during his recent visit to Manila as the head of a U.S. investment mission when he declared: “I think, objectively, as of today, the Philippines should be rated ahead of the others. If you look directly at the factors that should influence investment decisions, I think the Philippines comes ahead of the competition.”

He cited among these factors our democratic government, our educated and skilled workforce, our widespread use of English, and our sophisticated financial system. This kind of sophistication and easiness in dealing with the world is a consequence of our being a free and open society.

We can stretch this point farther. In today’s world, where countries must think and compete globally, the open societies—if they are dynamic enough— have the advantage.

Alliance for modernization

But these perceived advantages constitute only part of what we must guarantee to really be competitive with our vigorous neighbors. We must work double time—the executive, Congress, the judiciary and the private sector together—to speed up the reform process and modernize the national economy, and we must optimize our limited resources that do not allow for delay, waste and mistakes.

To get to the next stage in the development effort—to move from economic recovery to sustained development—we need a strategic alliance among all the key sectors in the economy. This involves:

First, informal but close cooperation among Government, business and labor as well as non-Government and people’s organizations, anchored by a shared vision of our national future.

Second, a corporate approach to development, by the setting of clear targets and priorities and the adoption of problem-solving attitudes, and;

Third, maximum use of information in order to respond proactively to opportunities, risks and changes in the global marketplace.

For this alliance to be effective, the role of each sector must be clearly defined and respected, and it must cohere into a collective drive toward sustained growth.

In the case of our private sector, I see the important role that the Philippine Chamber of Commerce and Industry can play. Accordingly, I have instructed the Cabinet, all Government departments, agencies and instrumentalities concerned to extend to the Chamber cooperation and assistance, particularly on programs and matters calling for joint Government-private sector efforts for the attainment of “Philippines 2000.”

On the side of Government, I cannot overemphasize the need to transform the bureaucracy into an effective instrument for program implementation. Though we have made a start in streamlining the bureaucracy, we are still far from achieving a more responsive Government machinery that effectively discharges its responsibilities in the development effort. But I assure you that we will be unrelenting in pursuing this goal.

In national development, there is a clear link between actions and consequences. There is little point in knowing what must be done if we cannot carry out our goals.

Specific policy concerns

Consequently, we seek from Congress the legislation to effect a thoroughgoing reform of the bureaucracy. This must be onstream in 1994. Otherwise the entire development program will be vulnerable.

Similarly, we seek congressional support in the passage of specific policy reforms relating to the economy.

On the proposed antitrust legislation, we can no longer delay the framing of a law that will allow greater and fairer business competition. This is vital to avoid further misallocation of resources, inequalities in the distribution of income and centralization of onerous arbitrary power over consumers and workers.

An antitrust law that protects public interest without preventing the growth of companies through fair competition will be a useful tool in developing the economy. It will allow Government to respond more expeditiously to the dynamics of the economy, to our social responsibilities to our people, to the needs of consumers and to the challenges posed by our international competitors.

On the liberalization of the entry of foreign banks, we need to speedily harmonize differing approaches in bringing about such a basic policy change. I recognize the need for safeguards for Filipino banks; but let us keep in mind the incalculable benefits to be derived from size and capability which the entry of foreign banks makes possible.

Rationalizing tax concessions

On the rationalization of tax incentives, exemptions and concessions, we will continually seek policy reforms that will not only generate more revenue but also be consistent with the thrusts for more new investments and expansion of enterprises.

On the tax effort, steps are being taken not only to reorganize the Bureau of Internal Revenue and modernize the Bureau of Customs, but also to overhaul the entire tax system with the key objectives of providing for relatively lower tax rates and reasonably higher revenues.

We are also studying the possible shift from the home consumption value method of customs valuation to the Brussels definition of value, or the BDV. It is claimed by some that the manner in which dutiable rates are determined under the BDV method will result in enhanced trade and investments. But then there are also apprehensions that a shift to BDV will negatively affect Government’s revenue collection.

On the development of the capital market, we will not hesitate to continue taking measures to ensure efficient and effective long-term domestic resource mobilization. Once and for all, we must correct the present situation where there are weak savings mobilization (especially of medium-term and long-term funds), low domestic credit to the private sector, and credit bias against priority growth areas.

The underdeveloped state of the Philippine capital market makes it imperative now for us to look for ways and means to develop stronger and more efficient financial institutions, enhance the liquidity and reduce the risk of capital market instruments, and create an overall environment where the capital market can flourish.

All these gaping holes in the policy environment underlie how gravely decision making in our country has faltered and lagged in the past.

Need for foresight

In the race for development, it is now well recognized that governments must make policy decisions early, proactively and strategically. We must anticipate, and we must act with foresight—because if we only act when the need is clear, it is often already too late.

This is the challenge of statesmanship—especially in the democratic system whose processes often grind exceedingly slow.

Our ordeal with the power shortage is a humbling illustration of policy myopia. Our rising headaches in transportation, infrastructure and management of solid waste are another.

These problems should have been easy enough to recognize, since these are abiding responsibilities of Government.

We must not allow Government to be distracted by destructive political warfare, which used up much of our time, energy and resources in the past.

Today, we are in a better position to anticipate needs and address problems, in spite of the continued obsession of some with partisan politics. This should be relegated to the backseat owing to the national clamor to catch up with our neighbors and advance with them.

To me, this new pragmatism, this fresh spirit of competitiveness, is the greatest single change that has come upon the country during the past 17 months, and it should energize the entire national development effort.

In the past, comparing ourselves constantly with our more progressive neighbors merely seeded envy and frustration—because we were so down, and our prospects were dim.

Today, this pervasive awareness of the world around us—of being part of the fastest-growing region of the world—is fueling a different response. It is bringing out Filipino pride, a desire to excel, to move forward, to hold up our own virtues and talents as a nation.

This is exactly what we need to compete in an increasingly interdependent world and global economy.

Thinking globally

I have been criticized by some sectors for my foreign trips during my one and a half years in office. I have been told that there are many problems at home requiring my attention. I have been accused of junketing.

Let me say to them: I do my homework and I do my foreign work—all with the same gusto, using a problem-solving approach.

However, for the sake of argument, consider for a moment where we would be now had I followed their narrow counsel. Even leaving aside the investments that these visits have brought in, consider how others would be looking at us now had we desisted from these diplomatic and economic initiatives.

In all likelihood, they would still be talking of us today as “the basket case” of Asia.

I submit that we have succeeded in substantially changing Asian and North American perceptions and attitudes toward us. We have built new bridges with them that now enable us to conduct renewed relations with each and all of them on the basis of economic give-and-take.

But this is not just a matter of perception. It has also something to do with what has happened here at home—with the nation we are today.

The Mexican writer Carlos Fuentes has bitingly observed: “Only independent nations can be interdependent. You can only be a partner if first you have a certain degree of independence.”

We are that independent nation today in the eyes of the world. We are putting our house in order. We have contributed substantially to the building of ASEAN, and can now say with pride that we are doing our part for our Asia-Pacific community.

There are also those who fear that our new outward-looking policy will expose us only to the currents and dangers of a highly competitive world. There are those in this very forum who even now are unnerved by the prospects of our participation in the ASEAN Free Trade Area.

Cultures that perish

They say that we cannot cope with these challenges.

I will answer: “Remember the Aztecs of ancient Mexico. They did not know that other worlds existed outside the boundaries of their empire. When the Spaniards came, they died of fright.”

In history it is the cultures that live in isolation which perish.

In our interdependent world today it is the countries that cannot take part which will be left behind.

There is no other way. Our concern is not just national development but national survival. We must integrate our economy with the world’s. And we must learn to compete like the Asian dragons.

Timorous souls are already saying, this is easier said than done. Philippines 2000 is just wishful thinking. It is unattainable. We are not ready to compete.

I most certainly disagree. And there are now many in this country and also abroad who not only believe that the Philippines can compete but who also put their money behind their faith and confidence in the country.

When the Eighteenth Philippine Business Conference met in November 1992, the air was heavy with foreboding and pessimism. The outlook for the economy was indeed bleak.

But today we meet with positive and encouraging news about the economy’s more vigorous performance during the second semester, and reports that our reform programs are moving forward. This is to the credit of our business community, as much as to Government.

I congratulate and thank you for keeping faith with the national leadership and persevering through the times of difficulty.

Cutting edge of development

Since the beginning of my Presidency, I have been telling our businessmen that it would be a terrible irony if foreign investors should be able to cash in on our tremendous growth potentials, while our own businessmen are merely watching from the sidelines, afraid to commit themselves.

Well, ladies and gentlemen, the foreign businessmen are coming in—and in numbers we have never seen in this country before!

If I see one surpassing task for this Nineteenth Business Conference, it is to harness the full might of our business community to the development effort. This concentration of energy and resources on your part will be the cutting edge of development. It will help turn skeptics into a critical mass of believers. It will help elevate our national development program into new and crucial stages—from economic recovery to economic growth to sustained development.