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Wednesday, June 16, 2021

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

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

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

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

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.

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