Incoming president Ferdinand Marcos Jr. will have the full task of reviving the Philippine economy and bringing it back to a growth trajectory seen during the pre-pandemic years. His is not an easy one, nor is it punishing because he will be inheriting an economy that has turned around and one that has kept its macro-economic fundamentals intact.
Local businessmen and foreign investors alike are often wary of a new administration because of what they perceived as “unknown factors.” They fear business rules under the new government could change and undermine their profit calculations. They prefer policy continuity from the previous government, which focused on reinforcing the economy and built its fundamentals.
Outgoing Economic Planning Secretary Karl Kendrick Chua stressed the solid fundamentals of the economy that shielded it from the health crisis and its adverse impact. “It is very important at the outset to have a strong macroeconomy,” noted Chua, “so that you have enough buffers and enough resources to withstand any shocks, and you can concentrate on improving the welfare of the people.”
The fate of the Philippine economy in the next six years will hinge on the new team that will succeed President Rodrigo Duterte’s group, led by Finance Secretary Carlos Dominguez III. Philippine Chamber of Commerce and Industry president George Barcelon said choosing experienced Cabinet members for major economic posts would be crucial for the incoming Marcos administration in addressing challenges, like higher debt and inflation.
Mr. Marcos no doubt will carefully weigh his economic team to build on the gains of the outgoing administration. Mr Duterte introduced several economic reforms that will make the Philippines more business-friendly in the the six-year term of Mr. Marcos. These include amendments to the Retail Trade Liberalization Act, Foreign Investment Act and the Public Service Act, which will help relax foreign ownership restrictions and increase competition that can improve the quality of goods and services at lower prices.
The outgoing administration also enacted the Comprehensive Tax Reform Program, which helped fund more infrastructure and social services, and the Rice Tariffication Law in 2019, which supported rice farmers in improving their productivity and significantly lowering the price of rice in the Philippines.
Deviating from these economic reforms will send a wrong signal to businessmen and prospective investors.
Lower electricity rates
Lowering the cost of doing business in the Philippines is the objective of every administration because it will entice foreign investors, make local products competitive in the global market and create more jobs in the process.
Mr. Marcos and the incoming energy chief should take a more serious look at the prohibitive electricity rates in the Philippines. The high cost of energy has disheartened potential foreign investors and convinced them to locate their business elsewhere in Asia.
Energy Regulatory Commission (ERC) chairperson Agnes Devanadera, whose stint in the agency has honed her skills in balancing the interests of consumers and power generation companies, knows why electricity rates remain high in the Philippines. A lawyer by profession, Ms. Devandera thought the practice of collecting value added tax from more than one component of the electric bill should be stopped, calling it double taxation. All components of the electric bill, with the exception of the universal fees and feed-in-tariff allowance charges are subjected to VAT.
She says customers consuming an average of 200 kilowatt-hours and below, thus, can save as much as P100 on their monthly electric bill if the VAT imposition is rationalized..
“This should be considered because it has an immediate impact on customers, especially those with monthly consumption of 200 kilowatt-hours and below. It translates to a discount of as much as P100,” the ERC chief told a virtual media roundtable.
The ERC chief also wants the issuance of a law on nuclear energy within the year.
The ERC chief clearly realizes the importance and the inclusion of big-capacity nuclear power in the energy mix. Nuclear energy is 40 percent cheaper than power generated from other sources. Japan and Korea became economic powerhouses because of their nuclear power plants that offer much cheaper electricity rates.