Investors await word on PPP, fiscal policy

When President Aquino delivers his State of the Nation Address on Monday, he is expected to trumpet macroeconomic gains, but whether he will move financial markets will depend on what he has to say about infrastructure-building under the public-private partnership (PPP) program, foreign investments and fiscal policy, according to analysts interviewed by the Inquirer.

Jose Mari Lacson, research head at local stockbrokerage Campos Lanuza and Co., said the President would likely brag about the better fiscal performance and the recent credit rating upgrades. He noted that the government has been achieving fiscal surpluses since the start of the year on the back of a pullback in infrastructure spending and was able to extend the maturities of its debts through bond swaps.

Lacson said he also expected the President to discuss the impact on poverty alleviation of the voluntary cash transfer program of the Department of Social Welfare and Development (DWSD) that was initiated during the previous administration.

Infrastructure-building through the PPP framework, which was one of the highlights of the previous SONA, is one thorny issue that financial markets would want to hear about. “He may choose to admit that the PPP program has not taken off as scheduled. This has been one source of frustration in the government since the 2010 SONA so many investors are waiting to hear more about it,” Lacson said in a research note.

“The biggest disappointment thus far has been the failure of the centerpiece PPP thrust to take off,” said Justino Calaycay Jr., a dealer at Accord Capital Equities Corp.

“He is expected to talk about the progress made by his leadership in terms of transparency in government, addressing graft and corruption and fiscal discipline, among other things. The market, however, will keep a close watch over the President’s words, looking for clearer direction for the broad economy compared to the broad strokes he painted last year,” Calaycay said in a research note.

Calaycay said the perceived lack of a definite plan was one of the strongest criticisms about the first year of Aquino’s term, noting that through the first 12 months or so at the Palace, his ratings have consistently dropped.

ING Philippines economist Joey Cuyegkeng said that using only the benchmark on the fiscal management side, he could give Aquino’s first year in office a grade of 90 percent, citing gains in fiscal consolidation from a combination of revenue growth and belt-tightening.

Cuyegkeng also commended the administration’s progress in improving governance. “I could give them almost A-grade with cases being filed [against tax evaders, smugglers and corrupt officials],” he said.

Cuyegkeng said he expected the country’s trend growth under this administration improving to 5.2 percent from 4.7 percent in the last regime.

But moving forward, the economist said the government must increase its spending to help perk up growth.

“We expect that at the start of the second year, while not removing focus on good governance, the government could provide additional spending on infrastructure and social services,” Cuyegkeng said.

The economist was not counting on the PPP to make a substantial contribution to the economy immediately and has not factored this in his trend growth outlook. Based on the experience of other countries, Cuyegkeng said PPPs were difficult to roll out.