On the BBB fix: Why do you build me up?
In its recent pre-SONA forum, the economic team spent the most time talking about four years of infrastructure accomplishments. On the other hand, there was next to nothing about the government’s plans for economic recovery from the serious crisis brought on by the pandemic. The misplaced emphasis on infrastructure during the pre-SONA forum only reflects the misplaced emphasis on infrastructure as some kind of magic bullet for the country’s development.
The Philippine economy has a basic problem – it is dependent on external and temporary drivers of growth. These include overseas remittances and foreign investments especially for business process outsourcing (BPOs) and manufacturing. Yet COVID-19 wreaked havoc on these. Overseas remittances fell by 5% in March as thousands of OFWs were repatriated back to the Philippines. BPO investments are slowing down more than ever and export demand is weakening from a sluggish global economy.
The economy lacks substantial and sustainable internal drivers of growth such as from developing the core productive sectors of agriculture and manufacturing. Yet, instead of developing these, the government is looking to infrastructure spending to spur growth even if this is superficial and short- term.
More than any other government since the Marcos era, the Duterte administration is extremely dependent on public infrastructure spending to boost growth. It has been relying on infrastructure as a major economic stimulus long before COVID-19. The longest lockdown in the world delayed implementation of various infrastructure projects around the country.
Yet the government is still hell-bent on pursuing a grand infrastructure program amid the pandemic and despite its actually bleak accomplishments so far. The government says it will revise its list of infrastructure projects to adapt to COVID-19. But does it really have the will to shift the focus of its infrastructure program, or even the capacity to fully implement this?
2 out of 75
The Philippines was said to lag behind its neighboring Asian countries in terms of infrastructure. The Duterte government dreamed of building high-impact infrastructure projects through the Build, Build, Build (BBB) program. BBB aims to build more railways, urban mass transport, airports and seaports, more bridges and roads, and new and better cities. The program is estimated to cost Php8 to 9 trillion from 2017-2022.
The BBB program originally had 75 infrastructure flagship projects (IFPs) composed of transportation (53), water resources (15), power/energy (4), and social infrastructure (3). The government said these projects would facilitate efficient movement of goods and help bring down production costs in the country. They would also improve the income of rural families, encourage countryside development, and create 1.7 million jobs by 2022. These are grand claims considering that the 75 IFPs were mainly concentrated in the National Capital Region (NCR), Region III, and Region IV-A and IV-B which are the trading centers of the country.
Altogether, the 75 IFPs were estimated to cost around Php2.1 trillion. The government planned to tap official development assistance (ODA) and the private sector to fund these. Of the 75 IFPs, ODA would fund 57 worth Php2 trillion, public private partnerships or PPP would fund 6 worth Php23.3 billion, and government budget would be allocated for 12 IFPs worth Php138.5 billion. This means that most of the 75 IFPs would be funded with loans from various countries.
The status of the projects was telling of its progress. Data from the National Economic and Development Authority (NEDA) shows that only two out of the 75 IFPs were completed in November 2018. These were improvements along the Pasig River from Delpan Bridge to Napindan Channel (Phase IV) and the selective dredging of the Pulangi River. It is also worth noting that the Pasig-Marikina River Channel Improvement Project has three other phases that started as early as 2009. Only Phase IV was constructed during the Duterte administration. NEDA’s last update on the status of the 75 IFPs on July 2019 reported the same two projects as being completed.
38 out of 100 before Duterte steps down?
In November 2019, the Duterte government announced that it revised the list of IFPs from 75 to 100 in order to ‘streamline’ the list and make it ‘more feasible’. This was due to the slow rate at which projects were going. With their new list, the Bases Conversion and Development Authority (BCDA) expects only 38 of the 100 IFPs to be completed by the time Pres. Duterte steps down.
The 100 IFPs are composed of projects for transport and mobility (73), water resources (10), urban development (9), information and communication technology or ICT (6), and power and energy (2). The list is primarily composed of economic infrastructure to make the country more palatable to investors, which has basically been the basis of infrastructure planning for a long time. Noticeably, the current infrastructure program lacks social infrastructure, which is much needed by Filipinos to live humanely and decently.
The 100 IFPs are worth around Php4.3 trillion and ODA is the biggest funding source. There will be Php2.4 trillion funded with ODA, followed by Php1.2 trillion through PPP, and Php172 billion funded solely from the General Appropriations Act (GAA). The glaring over-reliance on loans and private sector funding reflects the sore absence of government capacity for these.
Leading the ODA funders for the 100 IFPs is Japan with a total of around Php1.3 trillion in loans, China with Php700 billion, and the Asian Development Bank (ADB) with Php273 billion. Data from NEDA as of June 2019 show that the Philippines has already received US$8.1 billion worth of ODA loans from Japan, US$2.8 billion from ADB, and US$273 million from China.
The short-sightedness of the government’s infrastructure program was really highlighted during the outset of the COVID-19 pandemic. The government had to scramble to convert evacuation centers into quarantine facilities to absorb the rising number of COVID-19 cases. More alarming is how just recently 11 hospitals in Metro Manila have reached full capacity for their COVID-19 dedicated beds.
The government announced a few weeks ago that construction of some road projects under the 100 IFPs will resume. Still, COVID-19 has to a certain extent compelled government to announce that it will come up with a revised list of the 100 IFPs to cater to the country’s health needs.
In line with reviewing the current list of 100 IFPs, the government could reconsider large projects such as the Metro Manila Subway Projects Phase 1 and the Safe Philippines Project Phase 1. Instead of spending on these import- and capital-intensive projects, the budget could instead be used for subsidizing jeepney modernization. This would benefit more Filipino commuters as well as support the employment of thousands of jeepney drivers.
The controversial Kaliwa Dam should also be reconsidered for the environmental and community impacts combined with the nature of the onerous loan agreement. Another project that could be shelved is the Bataan-Cavite Interlink Bridge. The huge amount spent to shorten travel time may not deliver commensurate returns, and the money is likely spent better on more urgent pandemic-related needs. Additionally, the Safe Philippines Project Phase 1, a CCTV surveillance system project, may just make Filipinos more unsafe especially in the current repressive political environment.
The ODA loans are specifically for these projects but the government can negotiate with Japan, China and the ADB to realign these towards the country’s more urgent needs. These lenders say they are focused on promoting development so the Philippine government should not be afraid to hold them up to that intent.
The government has not yet released its supposedly revised list of projects because of the pandemic. The public is waiting to see how much of the revised list includes health, housing, and education-related infrastructure. COVID-19 may also have pushed the implementation of some projects back, and the public deserves to know about delays and how many would be completed before President Duterte steps down.
Complementing the New Normal
The BBB program gives the impression that building more infrastructure per se is the key to sustained long-term economic growth. This notion is reinforced by the visible short-term stimulus that large-scale construction provides. New bridges, roads, airports, and railways also seem to give palpable gains. The real economic question however is not just whether there are benefits but if these benefits are worth the costs.
Improving mobility around the country, which comprises majority of BBB projects, is not in itself enough to improve the country’s economy. Without active promotion of agriculture and manufacturing, the improved infrastructure will mainly benefit just the service- and trading-oriented sectors that dominate our shallow economy.
Infrastructure can contribute to long-term economic growth if it helps push the country’s agricultural and manufacturing potential. Policy changes are needed for this to happen. The government has to protect and support agriculture which unfortunately has been backsliding especially with rice liberalization. Additionally, the Filipino manufacturing sector is waning due to investment liberalization that favors foreign investors at the expense of nurturing domestic capital. The country’s policies are even more misguided amid increasing protectionism and departures from liberalization globally.
The government should release the revised infrastructure list immediately. As healthcare has become the priority, the government should add more social infrastructure like hospitals to help deal with congested health facilities. More socialized housing units could also help decongest urban settlements in the country and help prevent the spread of the coronavirus.
Moreover, policy reforms such as protecting agriculture and the manufacturing sector to complement the country’s revised infrastructure plan can result in long-term economic growth to benefit Filipinos. Dealing with the COVID-19 pandemic in a way that prioritizes the people’s well-being should be the present challenge and government should realign its infrastructure program to complement this. #