Reuters Breakingviews

Building cache

2 January 2018

By William Pesek

Philippines President Rodrigo Duterte is doing something constructive. A tax overhaul bill he signed in December marks the first big reform win for his 18-month-old administration. A projected $1.8 billion of additional revenue, equivalent to about 0.6 percent of gross domestic product, in the first year alone will jumpstart a “Build, Build, Build” infrastructure scheme vital to raising competitiveness and creating jobs.

The bill hikes levies on automobiles, petroleum products, sugar-sweetened beverages, and other goods. About 70 percent of new revenues are expected to go toward financing roads, bridges, ports, and power grids to complement Duterte’s push for a bigger share of Asia’s manufacturing and tourism businesses. At present, foreign investors are put off by excessive power prices, transport bottlenecks, and gridlocked traffic in major cities.

Duterte’s vision is to get Manila’s infrastructure outlay above 7 percent of GDP, putting the Philippines past China’s 6.8 percent ratio. This month’s tax bill is just the beginning, though. It’s the first of five tax packages Duterte is pushing that will ultimately pay for his planned $180 billion building boom. The next levies will focus largely on industry.

But the heavy lifting has only just begun. To efficiently deploy that capital and usher in the “golden age of infrastructure” Duterte promised, Manila must address a labyrinthine regulatory environment, endemic corruption, legal uncertainties, and the dominance of a handful of dynastic families.

Confusion abounds about Duterte’s hybrid approach to public-private partnerships, whereby the government does the building and later bids out the operations and maintenance to private interests. Putting politicians in the driver’s seat increases opportunities for corruption and cronyism.

Public debt might also skyrocket anew, saddling future generations. Questions of who’s liable for shoddy construction work have yet to be addressed. The same goes for Duterte’s aggressive push to woo Chinese bids, a policy that bristles with the interests of local businessmen.

Still, Duterte finding his reformist mojo has already scored Manila an upgrade on its sovereign credit from Fitch Ratings and more external endorsements can follow. So far, the vision to build is a welcome distraction from the firebrand’s bloody war on drugs.

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