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Duterte prodded on economic reforms

Economists say President must harness political capital to attract more foreign investors
/ 05:11 AM May 21, 2019

A group of prominent economists has urged President Duterte—who recently consolidated power with the sweeping electoral victory of legislative allies—to harness his political capital to pursue structural reforms that could bring onshore more global industrial giants.

In a statement on Monday, the Foundation for Economic Freedom (FEF) called for the passage of the second phase of the tax reform program (Tax Reform for Acceleration and Inclusion package 2 or TRAIN 2) and the liberalization of foreign investment in transportation and telecommunications alongside the implementation of the framework to ease doing business and ramp up the “Build, Build, Build” infrastructure agenda using the public-private partnership (PPP) scheme.

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On the other hand, FEF voiced out opposition to the Security of Tenure bill or the Ending Endo (End of Contract) Act, which is now pending in the Senate.

“The Security of Tenure bill will hamper the flexibility of firms especially in dealing with disruptive changes to businesses caused by technology. Passage of the Security of Tenure bill will not only deter China-based factories from relocating here, it will also scare away existing investors who will flee to other countries such as Vietnam and Indonesia,” FEF said.

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Punitive tariffs

The escalating US-China trade war, the FEF said, was an opportunity for the Philippines to lure companies that might decide to relocate out of China to avoid punitive tariffs on its exports to the United States. The Philippines could become an alternative destination for thousands of foreign factories given its highly skilled and English-speaking workforce, in turn creating relatively higher-paying jobs, resulting in much needed technology transfer and increasing and diversifying the country’s exports, FEF said.

However, FEF said the Duterte administration, the Senate and House of Representatives must immediately pass the TRAIN 2 or Trabaho bill “to remove the uncertainty about the tax regime on fiscal incentives and corporate income taxes.”

Anti-Red Tape Authority
“We support the rationalization of fiscal incentives and the lowering of corporate income taxes under Trabaho but we also support the retention of incentives for foot-loose and labor-intensive industries,” FEF said.

FEF also underscored the importance of the Public Service Act Amendment to liberalize foreign investment in transportation and telecommunications. “The quality, cost and efficiency of transportation and telecommunications are inputs to the decision of companies whether to relocate here. Therefore, we need more foreign investment in the strategic sectors of transportation and telecommunications to bring more competition, improve services and lower prices,” it said.

The group also called for the swift implementation of the Ease of Doing Business Act, whose implementing rules and regulations have yet to be issued a year after its passage. This law, which includes the organization of the Anti-Red Tape Authority, is seen to simplify procedures and establish timelines in securing permits and other transactions with government.

‘Creaky infrastructure’

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Finally, FEF urged the government to “seriously and quickly” implement its infrastructure-building program.

“Our creaky infrastructure, from ports to roads, make doing business in the Philippines costly and inefficient. We recommend that the government shift to public-private partnership (PPP) where feasible but undertake projects under official development assistance (ODA) or General Appropriations Act (GAA) whenever there is no incentive for private participation. The government should also quickly make a decision on the rehabilitation and expansion of the Ninoy Aquino International Airport and the Davao airport by private companies,” FEF said.

FEF noted that the Philippines was facing stiff competition from other countries that were moving aggressively and offering lots of incentives and less onerous labor regulations to attract industrial locators. Vietnam was cited as one example.

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TAGS: Business, Duterte, Economic reforms
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