by:Ricardo G Barcelona[1]
[1] Corresponding author by email: Ricardo.Barcelona@cranfield.ac.uk
With nine candidates contesting the Philippine presidency, voters for May 10, 2010 elections are spoilt for choice. If opinion polls prove accurate, the contest points to a very close two horse race – Senator Benigno Cojuangco Aquino III of the Liberal party (i.e. yellow army) and Senator Manuel B Villar Jr of Nacionalista party (i.e. orange legion). With Aquino and Villar accounting for 70% of voters´ preferences by March 2010, we see the chances of the remaining seven candidates looking increasingly remote. Hence, our focus on Aquino and Villar´s programs of government.
Both candidates´ backgrounds, ideologies and politics stand in sharp contrast: Aquino as prince against Villar as pauper-prince; heir to a hero´s legacy versus an ambition to empower the poor as Villar´s lasting legacy; and opposing visions of the presidency as manifest destiny, and as a matter of merit and honor.
Aquino comes with upper class pedigree as an accidental candidate. After his mother´s death, former president Corazon Cojuangco Aquino, or “Cory”, Aquino declared his candidacy amidst a groundswell of popular sympathy[1]. As a consequence, Senator Manuel Roxas III, another son of a former president, sacrificed his quest for the presidency to give way to Aquino.
Aquino´s claim to the presidency hinges on protecting the legacy of his iconic parents, martyred Senator Benigno Aquino Jr and late president Corazon Cojuangco Aquino. Hence, in absence of any significant executive or political achievements, his alleged integrity and a promise of honest governance defines his ideology and politics. In Aquino´s mind, he sees the contest as a fight between good and evil, and a struggle of integrity against corruption.
Villar on the other hand was born in the slums of Tondo, Manila. Through hard work, marriage into a landed middle class Aguilar family, and investments that paid off, he built a real estate business catering to middle and low income families. Over the past thirty years, on the back of a successful business with its difficult moments, Villar was named by Fortune magazine as the 9th richest man in the Philippines. Subsequent entry into politics saw him elected as Speaker of the House, and later as Senate President. As an outsider to traditional wealth, Villar is regarded with admiration, envy and ambivalence by some among the upper class. In contrast, the poor sees Villar´s rise to wealth as an inspiring role model who identifies with their quest for a better life.
For investors looking into opportunities, what can the next Philippine presidency offer?
What ails the Philippines?
To understand what the Philippines can offer, it is important to see beyond what ails the country. In turn, what an Aquino or a Villar presidency means to investors require us to examine what ails the Philippines that turn the country from Asia´s best during the 1960s into Asia´s laggard at the dawn of the twenty first century.
IESE Business School´s[2] ranking of private equity and venture capital markets provides guidance on what the next president faces. The research highlights the following Philippines´ weaknesses:
1. Investor protection and corporate governance: Property rights, regulation, ease in seeking legal recourse, and disclosures keep the system honest and transparent.
2. Human and social environment: Literacy, labor market policies, crime, rigidity of labor market, degree of corruption and bribery influence the cost of doing business.
3. Entrepreneurial culture and opportunities: Ease of starting and doing business, innovation, bureaucracy and degree of administrative burdens influence the rewards that entrepreneurs can reap from their honest labor.
Consistent with results of surveys on transparency, such as Transparency International and Heritage Foundation, the Philippines consistently ranked less favorably to its Asian neighbors. With its distinction as Asia´s fourth most corrupt country in 2010, does Philippine revival rely solely on honest leadership, with experience, competence and sound policies of secondary importance?
What remedies are offered?
Aquino believes that with honest leadership, the ills that beset the Philippines are resolved. His Social Contract with the Filipino People proposes to combat corruption by bringing back “integrity, trustworthiness and humility in public leadership”. This is anchored on his parents´ “legacy of change through the ways of democracy”, thereby achieving “rapid expansion of the economy through a government dedicated to honing and mobilizing people´s skills and energies as well as the responsible harnessing of natural resources”. Personal transformation and rebuilding public institutions based on the “strong solidarity of society and its communities” become the foundation of such transformational leadership.
From these lofty ideals, Aquino tried to provide some details to his program of government in his speech to Makati Business Club, a local business group in the Philippines. To the delight of business, he promised no tax increases and instead emphasizes improving tax collection efficiency. The latter is achieved by plugging leakages from tax evasion and smuggling. To bring the tax effort from the present 13% to its high of 17%, Aquino pitched his integrity rather than his experience in achieving this objective. No sooner had the cheers of business subsided, Aquino reversed himself on his no tax pledge in his subsequent speech.
He sees infrastructure as a means to pump prime the economy and create employment. Advocating private sector involvement, “objective criteria for different types of projects will be set and develop a scorecard that will assess various projects against benchmarks transparent to the public”. He went on to summarize what a transformed Philippines would look like in six years: “One where traffic flows well, garbage is collected efficiently, crimes are solved, justice is served, and our kids are educated properly. It works in the sense that you do not have to flee the country to move up in the world, improve your lot in life, and rise to the highest level your personal merits can achieve”.
While Aquino sees a country that is broken, requiring a transforming government to fix what he sees as the ills of the Philippines, Villar places his trust on the capabilities of his people. By espousing entrepreneurship and private initiative, he believes that being pro-poor is consistent with adopting business friendly policies. He sees business as a partner with government, because “business needs to grow for the economy to move forward and to provide employment”. Philippines´ ninety four million people are seen as assets, rather than as a burden that an Aquino presidency wants to control if not reduce.
Graft and corruption are recognized as serious ills. Unlike Aquino, Villar sees the need to combine public integrity with transparent practices and bureaucratic processes. Hence, during his first hundred days, Villar propose televised bidding for all large contracts. By allowing the public to validate accountability through transparent rules and judicious implementation, public integrity does not rely solely on the continuing honesty (or otherwise) of public officials in the face of great temptations for graft.
So what does a Villar presidency sees as their focus that investors can participate in?
Public – private partnership is deeply rooted in personal initiative, responsibility and work. By providing the policy framework that makes doing business worthwhile endeavors, people including the poor must “strive and work towards” success. Specifically:
1. Overseas workers acquire skills that can be redeployed for Philippine development. Through enhanced education, better deployment of remittances into savings and investments, and support for small and medium sized enterprises, new industries such as business process outsourcing, can create multiple motors for growth.
2. To accelerate the pace of infrastructure investments, private funding will be tapped using a variety of funding structures such as the proven build-operate-transfer schemes (BOTs), to more novel public – private ventures that were tested successfully in other countries.
3. Safety nets for the less fortunate such as more access to health care. This extends to assisting OFWs by creating a system that is responsive to their needs when they encounter problems overseas. With OFWs remittances a major inflow, now close to $20 billion p.a., a means of channeling cash to investments form part of the entrepreneurship thrust through education and access to opportunities.
4. Education is the key to building internationally competitive skills and capabilities. By re-instituting English as the medium of instruction, combined with greater emphasis on use of technology and inclusion of entrepreneurship in the curriculum, education aims to create generations of Filipinos that are well equipped to compete with their global peers.
5. Market friendly policies seek to attract investments to ensure secure energy supply from conventional and renewable technologies; and ensure food self sufficiency through trade and agribusiness.
In Villar´s vision, government supports private sector initiatives with laws that are predictable and coherent. By encouraging private investments, growth is driven by sharp rise in capital inflows from 15% to 30% of GDP – level last seen during Fidel V Ramos´ presidency. This is where government actions are focused on by a) simplifying government bureaucratic processes to reduce opportunities for corruption; b) improving industrial relations to enhance productivity; c) streamlining regulatory and fiscal requirements by reducing the bureaucratic processes while strengthening prudential oversight.
What does this mean to investors?
Protecting Cory´s legacy may yield some insights into what a yellow revolution II may mean to Philippine investments. As an icon of democracy, Cory´s legacy is secured as the visible symbol of a people´s struggle against the twenty years of Marcos dictatorship. Given Aquino´s mantra of continuing Cory´s unfinished business, what was her presidency´s legacy in the first place?
As president, Cory´s record is at best mixed – better known for its political instability, power outages, and corruption of Kamag-Anak Inc. (i.e. her relatives). She instituted her version of a comprehensive land reform that generously gave away other people´s land, while retaining her family´s holdings in Hacienda Luisita.
On balance, she did attract initial enthusiasm for investments that quickly fizzled with the onset of power outages and political instability. By the time Cory stepped down in 1992, incoming president Fidel V Ramos inherited a stagnant economy at the risk of collapse.
Aquino´s lack of executive experience and lackluster political performance raise questions about his fitness for the presidency. Despite nine years in Congress and three years in the Senate, he has never passed a single bill into law. In response, Aquino´s supporters argue that his alleged integrity more than compensates for his lack of achievements. With the benefit of good advisers, Aquino hopes to learn the ropes of governance quickly enough to assert his leadership.
Unfortunately, this approach was tried by President Joseph Estrada in 1998. He lasted less than three years as president before he was impeached, thrown out by popular revolt, convicted and imprisoned, although subsequently pardoned by his successor President Gloria Macapagal Arroyo.
Aquino´s alleged integrity comes under question by his critics. Aside from Cory´s effort to exempt Hacienda Luisita, the family´s sugar plantation, with her comprehensive land reform act, subsequent massacres of farm workers during Aquino´s term as Congressman take away the luster on his claims. In addition, questions on Aquino´s involvement in P32 billion road project – Subic-Clark-Tarlac Expressway (SCTEX) is the subject of an ongoing investigation by Congress. A Supreme Court ruling on Hacienda Luisita´s ownership remains pending after several years.
Dr Jose A Abueva, a member of the Constitutional Commission under Cory´s presidency and former president of University of the Philippines, argued in his March 2010 blog that: “no other presidential candidate can match Villar's ability and credibility as a forceful national leader. Among his rival candidates Villar is the only one who became the Speaker of the House, and then the President of the Senate. As Speaker he led the House in the impeachment of a sitting President, the only one ever impeached. Because the Senate impeachment trial failed, Cabinet members dispersed, and people power and the withdrawal of support from the military and police forced the president's resignation”.
Abueva added that “Manny Villar's leading rival is banking mainly on the heroism of his parents and his potential for honest leadership. But given the state of the nation and the weaknesses of our democracy, we need much more than the assurance of honest leadership. Our revered President Cory was indubitably honest and religious”.
Villar is not short of critics and detractors. For a number of business persons, his rise from poverty to immense wealth is suspected as a result of abusing his political clout. This unease is similar to the reaction of similar groups to the rise of the Filipino Chinese Taipans in the 1970s – with similar suspicions of corruption, smuggling and bribery leveled at them without proofs. After thirty years as a successful realtor, followed by periods in Congress and the Senate, Villar is yet to face a single serious lawsuit – in spite of numerous allegations that spiral in numbers during an election year.
In essence, the contrast between Aquino and Villar remains stark. While both espouse market oriented approaches to economic management, their capabilities differ in successfully steering the economy towards a safe harbor. Philippines is now suffering from increasing power outages, agricultural decline because of drought, and overseas workers´ remittances affected by global recession.
Aquino represents hope that his parents´ legacy will produce an honest president albeit untested. If Aquino is a stock, his valuation resembles that of the internet start-ups in 2000. High on promise, low on substance, will Aquino be another one of the thousands of forgotten dot.com companies that prove to be worthless to investors?
In contrast, Villar represents a real life Cinderella, only that reality is less romantic than the fairy tale. Through hard work, luck and ability to rebound from distress, Villar represents a poor boy that did well. Yet, success does not always make him popular with those that see themselves as the guardians of the established order. For this reason, Abueva considers Villar as possessing the capacity to “upset the status quo of mass poverty, injustice, perennial conflict, including violent conflict, and high population growth. He has also the capacity to unite our fractious society and politics, and bring about effective and accountable leadership, governance, and the reform of our political institutions”.
If the stars are to be relied upon, Chinese feng shui analysts have this to say:
Benigno Cojuangco Aquino III - born February 8, 1960 (Year of the Metal Rat). For 2010 Metal Rat persons generally have very poor health and very poor success and luck. If ever he wins in 2010, the metal rat person faces a lot of conflict in 2011 and a threat to health in 2012.
Manuel B Villar Jr - born December 13, 1949 (Year of the Earth Ox). For 2010 Earth Ox persons generally have excellent health and excellent success and luck. If ever he wins in 2010, the earth ox person faces very good prospects in the next three years as the following auspicious numbers visit his home direction of Northeast - Winner star number one in 2011, multiplying and expanding star number nine in2012, and the most auspicious number eight in 2013.
Whether or not 2010 will turn out to be an orange empowerment … or a yellow revolution, version II, Filipinos will not have a shortage of choices for their president. Given the choices between Aquino and Villar, alleged integrity alone is unlikely to raise the Philippines to the league of global leaders. Honest leaders need sound policies, transparent rules and competent bureaucracy to transform the Philippines from bust to boom.
With dark horses lurking in the background – Joseph Estrada, Gilbert Teodoro or Richard Gordon – a twist of fate may turn the election outcome into unchartered territories. After all, neither Aquino nor Villar has any monopoly on integrity, passion and hope.
When it comes to competence, empowering the people and fitness for the presidency, the choices narrow significantly … who they choose is likely to determine the Philippines´ prospects and pace of joining the league of global leaders in Asia.
[1] Cory was known to oppose her son´s entry into the 2010 presidential race prior to her death in August 2009.
[2] Refer to my article on Asian Private Capital that was published in Asian Tigers Investor Report, February 2010, which drew on the research of IESE Business School, Spain. http: \\vcpeindex.iese.us/
