Risk and uncertainty of ‘Build, Build, Build’ program

Edwin Santiago, Executive Director of the Stratbase ADR Institute

For many years, the state of infrastructure development in the Philippines has been described as pitiful—generally, inhibited by government underspending, hampered by inefficiency and sub-optimal absorptive capacity, bogged down by politics and patronage, and riddled with corruption.

The gold standard for infrastructure spending is widely-accepted to be 5 percent of the Gross Domestic Product. The country’s average infrastructure spending, by presidential term, did not go beyond 2.5 percent of GDP—or half of the international benchmark—during the time of Cory Aquino, of Fidel Ramos and of Joseph Estrada, even dipping to less than 2.0 percent during the Arroyo years.

The situation slightly improved during the Benigno Aquino III administration at 2.9 percent. It is also interesting to note that the 21 years of Marcos were nominally better with an average of 3.2 percent, but still nowhere near the 5 percent mark.

Amid this backdrop and with a seemingly messianic complex, Duterte, like a knight in shining armor, mustering all the political bravado that he could–and marshaling all the political support he could procure—launched the “Build, Build, Build” program, an ambitious P8-trillion infrastructure development program that, by his description, will usher in the “golden age of infrastructure” in the country.

And the economy is supposed to pick up its beat because of it. After all, infrastructure development has been touted by the president’s economic managers as our road towards economic progress and the bridge to a brighter future for the country.

This story promises to pan out this way: with the increased spending on infrastructure, the country will see a general improvement in our facilities that will attract foreign investments into the country, which in turn, would bring employment and business opportunities to Filipinos, emancipating them from poverty.

In short, the narrative is—build, build, build and the Filipinos will, eventually, be rich, rich, rich. Sounds like a plan.

The Department of Finance has already been trumpeting the success of the program, announcing the 4 percent of GDP infrastructure spending by the end of 2018. According to the administration, the plan is for infrastructure spending to reach 7 percent of GDP, a level comparable to our neighbors.

But it is not that straightforward. There is more—a lot more—to this than meets the eye.

How are we paying for it? Partly through the proceeds from the TRAIN Law, and partly through financing using loans from foreign governments, like China. The TRAIN Law—promoted as a tax relief by lowering income tax rates and thereby generating higher disposable incomes for people—is seen as the culprit behind the higher prices in goods and services because of the higher taxes imposed on fuel, plunging poor families deeper into economic hardships.

So, the TRAIN Law—together with all its untoward effects—appears to be a necessary evil to make the promised effects of the “Build, Build, Build” program materialize. Are the people willing to give our economic managers the benefit of the doubt on this economic direction—that we need to suffer first before things get better? For our country’s sake, we should expect that this decision is based on patriotic and altruistic considerations, and not due to some blind obedience to a person with delusions of grandeur.

As it turns out, “build, build, build” means “borrow, borrow, borrow.” This, in turn, creates “debt, debt, debt” and causes us to “pay, pay, pay.” But what if we cannot? International news sites are replete with stories of poorer countries that have lost their financing battle with China, such as the case of Sri Lanka—where the government handed its Hambantota port to China in 2017 for a lease period of 99 years after being unable to repay its debt amounting to at least $1 billion.

Very recently, there are news reports that Uganda is at risk of losing its main state assets to China over unpaid loans. Similar scenarios of a Chinese take-over are also feared for such assets as the Mombasa port in Kenya, the state power company, the Kenneth Kaunda International Airport in Zambia and others.

Time and again, we read about the assurances made by the economic managers of the government that we will be able to pay for these loans and that we will not fall into a so-called debt trap with China. I have often wondered how these assurances work. I suppose their assurances are limited in nature. It would be reckless for them to assume full responsibilities for these projects, when the full course of the loans runs 20 years or so.

And, even if by chance, they do take full responsibility for their decisions, where would they be by the time of reckoning? And, if we are fortunate enough to find them lucid—what happens then? Can they be charged and arrested for crimes against the people? And, if China comes barging—knocking would be too polite—at our doors, “repossessing” the projects they funded, our very optimistic economic managers can always defend themselves by saying that the economic times have changed.

One Department of Finance official said the speculations regarding the debt trap is purely “hypothetical.” True, but that does not mean they are wrong. In the end, all these assurances about not falling into a debt-trap with China may be false bravado, possibly misleading and patently deceptive.

The narrative of the “build, build, build” program seems to be hinged on the idea that if we build the infrastructure, the investors will come. Our economic managers must have heard the same mysterious voice that the character of Kevin Costner did in the movie “Field of Dreams” where he builds a baseball diamond in his cornfield for ghostly players. Levity aside, the phrase has been widely-understood to mean that building something will create a demand for it.

Conventional economic wisdom tends to support an infrastructure-led development strategy. But there are also dissenting voices. The case of the Marcos years having higher-than-usual infrastructure spending but not leading to economic development is a classic example that the effects are not automatic.

Definitely, it would have been more accurate and truthful to say that the investors will come given the right business conditions—including, but not entirely, infrastructure—in the country. Therefore, to peg better employment and business opportunities for the Filipinos on higher infrastructure spending is incomplete and, again, possibly misleading.

And, while we are on the subject of employment opportunities, is the situation getting rosy for the Filipinos? With the backdrop of a gaping unemployment problem for Filipinos, against the unrelenting and unregulated influx of Chinese workers in the country—resulting from employment preference provisions bundled into the loans—all evidence seems to point to the contrary.

In the end, when the promises of this infrastructure development program are uncertain, at best, and the possible implications to the country threaten our sovereignty, at worst, with no clear rules on accountability, it is not outrageous nor out of line to ask if the “Build, Build, Build” program is actually building the economy, or is it merely building castles in the sky?



This article was originally published in philstar.com.

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