Photographer: Jay Directo/AFP via Getty Images

Philippines Wants Spotlight on Building Boom, Not Drug War

  • Duterte to spend $180 billion on infrastructure through 2022
  • Villar says too much attention given to drug killings

President Rodrigo Duterte’s team wants investors to focus more on a plan to spend up to 9 trillion pesos ($180 billion) on infrastructure and less on a growing number of dead drug pushers.

The administration says too much attention is being focused on Duterte’s drugs war, which has claimed thousands of lives since he was sworn into office last June. It wants to shift the conversation toward a spending spree on roads, rail and other projects that the president’s spokesman dubbed a “golden age of infrastructure.”

“People want to talk about extra-judicial killings, but let’s talk about what’s really happening in this country, which is poised to boom,” Philippines Public Works Secretary Mark Villar said in an interview Wednesday. “If we succeed in this infrastructure program, Philippines will be a middle-class country and poverty will be half of what it is today.”

The Philippines, one of the world’s fastest growing economies, has long been been plagued by inadequate infrastructure. The World Economic Forum last year scored the Philippines 106th out of 140 countries on infrastructure. Greater investment will help buoy an economic expansion that the Organisation for Economic Co-operation and Development expects at 6.1 percent annually through 2021.

The Philippines growth story continues to be positive despite the negative publicity surrounding accusations of human-rights abuses in the drugs war, according to Eugenia Victorino, an economist at the Australia & New Zealand Banking Group in Singapore. Duterte’s government needs to focus on implementation of spending plans just as much as generating revenue to pay for the infrastructure, she said.

Spending Boost

Duterte’s administration plans to lift infrastructure spending from 5.3 percent of gross domestic product this year to 6.7 percent next year, and more than 7 percent by 2019, Budget Secretary Benjamin Diokno told a forum on Tuesday. He said this would help reduce the incidence of poverty from the current 21.6 percent of the population, to 14 percent by the end of Duterte’s six-year term in 2022.

Infrastructure spending would be financed mainly through increased government borrowings, boosting the budget deficit to 3 percent of GDP until 2022, with 80 percent of the money to be raised locally and 20 percent to come from abroad, Diokno said.

Diokno said the administration’s spending forecasts were based in part on the passing of legislation still before Congress that aims to raise tax revenues from about 14 percent of GDP to 17.7 percent by 2022. Diokno acknowledged that while the tax reform package still faced delays, he was optimistic that it could pass later this year.

“The numbers are big,” said Bob Herrera-Lim, a Manila-based managing director with Teneo Strategy. “And we need more clarity on how much is being borrowed, the terms, the local counterpart funding, and whether those terms will be affordable.”

Not Just Talk

“If you look across the region, the Philippines has one of the better-looking fiscal profiles,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “The economy is growing and debt levels have been falling. Just from that standpoint, there’s scope to finance via the usual means of issuing debt through market channels.”

Villar said his Public Works Department would receive a little more than half of the total pot, and would use the money to reduce flooding and congestion in major cities. That includes at least three new bridges in the capital Manila, and more than 200 bypass roads nationally.

“This is not just talk, talk, talk,” Villar said of the administration’s plan. “We’re putting ourselves on the line for this.”

Villar said the administration would rely less on public-private partnerships and more on cheap loans from China and Japan. It would also look for other concessional financing from agencies such as the Asian Development Bank and the World Bank, and then outsource operations and maintenance to the private sector.

Villar said that public-private infrastructure partnerships, preferred by Duterte’s predecessor Benigno Aquino, led to higher tolls for citizens.

‘Happy Problem’

“Why put that burden on consumers,” Villar said. “Just give them cheaper toll rates. The projects also get done faster.”

Private companies will be encouraged to offer unsolicited proposals for projects not currently included in any government plans, a practice Villar said was frowned upon by the previous regime.

Carlos Dominguez.

Photographer: Anthony Kwan/Bloomberg

“We’re in discussions with some funds like the China Investment Corp.,” Finance Secretary Carlos Dominguez told the Dutertenomics forum on Tuesday. “These guys want to come in when the construction risk has passed.”

In an effort to curb corrupt practices such as “ghost projects,” Villar said the administration was using drones and satellite images to track the status of various public works programs. The status of the infrastructure rollout plan will also be updated on a government website, he said.

While other problems with public infrastructure remained, such as the messy process associated with acquiring right-of-way, Villar said that “so far, there are no red flags” in meeting the government’s targets. He also said foreign contractors could boost the work force.

“If it reaches a point where we have problems getting workers and labor costs go up, then that’s a happy problem,” Villar said.

Read Next: Get Ready for the Southeast Asian Infrastructure Boom

— With assistance by Siegfrid Alegado

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