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Mon, Nov 01, 2004 - Page 12 News List

Poor investment climate hampering Philippines

POOR ENVIRONMENT The problems range from a Constitution which bans foreigners from owning real estate, corruption and a biased court system to looming power cuts

AFP , MANILA

As incoming aircraft line up to land at Manila's international airport, passengers often catch a glimpse of a gleaming new terminal building.

But first impressions are soon dispelled as passengers are offloaded at an older building that has seen better days.

Built by a group led by Germany's Fraport AG, the US$650 million new international terminal has been in mothballs for two years after President Gloria Arroyo tore up the contract, citing irregularities in the document's terms negotiated by her deposed predecessor Joseph Estrada.

This is just one example of the difficulties foreign investors face when investing in the Philippines, especially in desperately needed infrastructure projects.

Poor contracts, a Constitution which bans foreigners from owning real estate and shuts them out of certain industries, corruption at all levels, a biased court system, looming power cuts, an education system in decay and an impending fiscal crisis all add up to a poor investment environment.

With government debts rising to 5.39 trillion pesos (US$95.9 billion), or 137 percent of the GDP last year, the core budget for social services and infrastructure has shrunk to 2.65 percent of the gross national product last year compared to 6.17 percent in 1997.

Officials predict electricity demand will top available generating capacity sometime in 2008, but no new generating plants have been built for years.

The government would like to sell-off its debt ridden power assets but no one is showing much interest in them.

The shrinking social service and infrastructure budget is "seriously jeopardizing our capacity for growth that in turn produces our future revenues," said House of Representatives economic affairs committee chief Joey Salceda.

The budget crunch however is only one side of the issue, analysts say.

"The main issue at the moment confronting foreign investors is the question of sanctity of contracts on the one hand, the fear of government interference, the fear of shifting goalposts and the prob-lems of overall policy directions," Manila-based business consultant Michael Clancy said.

He said the Philippines compared "badly" with other Asian countries, because "over the last three years there's certainly been a lot of flip-flopping."

Clancy cited the airport terminal case, now under international arbitration, as the most famous example.

Loss-making National Power Corp, which drains billions of dollars from state coffers in the form of subsidies, is scheduled to be privatized. But interest has flagged with Congress dragging its feet on passing a franchise that would allow the winning bidder to operate the nationwide transmission system.

Peter Wallace, another Manila-based business consultant, noted that power plants took up to five years to put up, with the government usually taking three more years to approve such projects.

But months before the May presidential election Arroyo put a cap on the amount that the utility can charge customers for power sold to it by private generating companies.

"If you can't make a profit, how can you get anyone to invest?" Wallace asked.

This conundrum weighs on the mind of Jose de Jesus, a former public works minister and now the chief executive of a Filipino-Australian-French consortium behind the US$371 million rehabilitation of an 84km toll road that is Manila's main link with industrial provinces to the north.

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