Gov’t urged to focus on investment climate

THE WORLD Bank has reiterated the need for the Philippines to focus on improving its investment climate so that short-term funds available in the economy could result in long-term and job-generating investments.

Bert Hofman, country director of the World Bank for the Philippines, yesterday noted that there were foreign funds coming into the Philippines, but that these were mostly short-term, portfolio investments.

Speaking during a forum organized by the Economic Journalists Association of the Philippines (Ejap), Hofman said investors would be willing to invest in the country for the long term if issues confronting the investment climate and competitiveness would be addressed.

“Flows are predominantly short term. Declining competitiveness [of the Philippines] in the region are, in part, due to weak institutions and infrastructure,” Hofman said.

Since the funds were mostly short term in nature, he said, the benefits to the economy were minimal. He said long-term investments were what the country needed to boost job creation and sustain a robust growth rate for the economy.

He said some of the key measures needed to improve the investment climate included the need to spend more on education and social services, noting that doing so would help improve the country’s labor resources needed by investors.

Hofman added the need to ensure consistency of policies that affected the way investors do business in the country.

He said measures to improve tax administration were necessary so that the government could generate more revenues to finance projects that would improve the investment climate.

Data from the central bank showed that in the first four months of the year, net inflows of foreign direct investments into the country amounted to only $552 million, down 15 percent from $650 million in the same period last year.

The decline in FDIs, which are usually long-term funds, has made the Philippines lag behind its Asian neighbors as far as enticing long-term funds was concerned.

On the contrary, short-term funds, particularly foreign portfolio investments, have been growing substantially.

Net inflows of foreign portfolio investments amounted to $2 billion in the first five months of the year, up 160 percent from only $772 million in the same period last year, latest data from the BSP showed.

Economists said the steep rise in foreign portfolio investments indicated that there was optimism among investors favoring the Philippines, but that their optimism was limited to the short term.

They said the decline in FDIs showed that the Philippines have yet to address a lot of issues regarding its investment climate and competitiveness.