OBG talks to Cesar Purisima, Secretary, Department of Finance

Interview: Cesar Purisima

What reforms are needed for the country’s credit rating to be raised to investment grade?

CESAR PURISIMA: Credit rating agencies continue to undervalue the Philippines, but we are confident that our rating across the major agencies will soon be upgraded to investment grade. For the most part, the markets are treating the country as though it is already investment grade. In January 2012 we issued $1.5bn in 25-year bonds at about 5.5% – far below what certain EU countries are currently paying. The issue was nearly eight times oversubscribed, showing the market’s confidence in the current administration and its policies.

This administration will continue to focus on maintaining sound economic fundamentals and making sure the country’s long-term trajectory is fiscally sustainable. Part of the government’s programme is to limit and sustain the annual budget deficit to at most 2% of GDP. This will be accomplished in part by widening the tax base via the reform and optimisation of tax laws, as well as by cracking down on those who avoid paying their fair share. We generated over P70bn ($1.59bn) in tax efficiency improvements from such efforts in 2011, a figure that should only grow in the years to come.

Essentially, we think that investors will realise the country’s potential if we continue our current course. We cannot control the global economic situation, but we can continue to attract investment by focusing on that which we can control. This includes ensuring economic fundamentals, making it easier to do business, continuing to invest in our people, and making adequate investments in infrastructure and education.

How can bureaucracy and red tape be further reduced to boost local and foreign investment?

PURISIMA: The government, especially the Department of Trade and Industry (DTI), is working to make doing business in the country easier and more attractive. We must all work together and continue to pursue macroeconomic stability and institute policies that support economic growth. Reducing red tape is a main focus of the current administration. The DTI’s Philippine Business Registry, which was launched in early 2012, is meant to align policies and processes across the many local government units and regional governments, thereby simplifying the investment process. This year, the country also plans to launch its National Single Window through the Bureau of Customs, an initiative that will allow importers to communicate with 40 different agencies through one portal.

What role will increased infrastructure spending play in the country’s future economic growth?

PURISIMA: Many have criticised the government’s progress with infrastructure projects thus far, but we have done our best with what resources we have had available. In 2011 we successfully bid out the first public-private partnership, and many more can be expected in 2012 as they become ready.

Until now these projects were not sufficiently prepared for bidding, and it would have been unwise to open projects to be bid out just for the sake of doing so. It is the administration’s responsibility to rebuild trust and confidence in this process so that the projects will be sustainable over the long term. If we were to succumb to pressure and bid out projects before they were truly understood, we would be doing both the country as well as investors a huge disservice.

By planning and preparing for these projects adequately, we can ensure those that are completed will unlock the most value possible. They will be designed in a way that minimises leakage and eliminates opportunities for corruption, in turn maximising their effects on the country’s economic growth.

Within this wider infrastructure agenda, we will specifically push the development of tourism infrastructure.

Tourism presents a good opportunity to boost economic growth in the countryside and the multiplier effects of developments in the sector could potentially be enormous. This is important given the need for industry and entrepreneurial support in rural areas.