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O 040923Z DEC 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4146
INFO RUEHZS/ASEAN COLLECTIVE IMMEDIATE
RHHMUNA/USPACOM HONOLULU HI IMMEDIATE
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UNCLAS SECTION 01 OF 02 MANILA 004878 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EAP/EX AND EAP/MTS 
STATE PASS USTR DKATZ 
STATE PASS USAID AND MCC 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON RP
SUBJECT:  GOVERNMENT COMMITS TO BOOST COMPETITIVENESS 
 
 
¶1. Summary.  President Arroyo convened a "Summit on Competitiveness" 
at which GRP and business leaders committed to a broad and 
impressive agenda of economic reforms developed in prior preparatory 
meetings.  President Arroyo and five Cabinet officials, along with 
business and labor leaders, presented initiatives in education, 
public and private sector management, access to financing, 
transaction costs, infrastructure, and energy to improve the 
Philippines' competitiveness.  The Summit demonstrated that Arroyo 
and her cabinet know what needs to be done and want to do it. 
However, despite the strong, concerted call for action, it will be 
difficult for the Philippines to achieve many of these ambitious 
goals.  End Summary. 
 
GRP ADDRESSES FALL IN COMPETITIVENESS 
------------------------------------- 
 
¶2.  In her 2006 State of the Nation speech on July 24, President 
Arroyo announced a "comprehensive strategy for global 
competitiveness."  Following two months of preparatory work on the 
part of her economic team, in conjunction with the private sector, 
Arroyo convoked a "National Competitiveness Summit" with 
representatives from the public and private sectors on October 6. 
Arroyo's initiative was sparked by the low competitiveness ranking 
the Philippines received in recent years from many organizations. 
The 2006 World Competitiveness Yearbook of the International 
Institute for Management Development ranked the Philippines 49th out 
of 61 economies; the World Bank ranked the country 126th out of 175 
countries in its "Doing Business 2007" report; and the World 
Economic Forum put it 77th out of 117 countries in its most recent 
Global Competitiveness Report.  Summit presenters called for 
improving the RP's position in these rankings as their most 
important indicator of success, and Ambassador Cesar Bautista, 
former Secretary of Trade and Industry and co-chair of the summit, 
declared a national goal of securing rankings in the top third of 
these surveys by 2010.  President Arroyo delivered the keynote 
address after receiving the list of recommendations prepared in 
preparation for the summit in six areas of competitiveness:  human 
resources, management, finance, transaction costs, infrastructure 
and energy. 
 
HUMAN RESOURCES: RAISING EDUCATION STANDARDS AND SKILLS 
--------------------------------------------- ---------- 
 
¶3.  Representatives of the Employers' Confederation and the Trade 
Union Congress blamed the country's high unemployment and 
underemployment on the lack to appropriate worker training.  In 
particular, they said the decline in English proficiency had damaged 
the Philippines' comparative advantage for investments in call 
centers and business process outsourcing.  They also pointed to a 
decline in the study of mathematics and engineering in the 
educational system.  Education Secretary Jesli Lapus said the GRP 
showed its commitment to improve education by proposing double digit 
increases in the budget for both 2006 and 2007.  He also announced 
the government's intention to extend public schooling to 12 years 
from the present 10 years but did not announce a timetable or 
indicate whether secondary school would be compulsory for all 
students. 
 
MANAGEMENT: REACHING FOR ISO 
---------------------------- 
 
¶4. Private sector presenters announced plans for creation of a 
"roadmap" and a monitoring body to promote more efficient management 
in the private and public sectors, with a focus on improving 
management skills in municipal governments.  They called for wider 
adoption of ISO-aligned management standards, and set a goal of 
implementation of ISO 9000 by 50 Philippine municipal governments by 
¶2008. 
 
FINANCING: SME ACCESS NEEDED 
---------------------------- 
 
¶5.  Central Bank (BSP) Governor Armando Tetangko said shortcomings 
in financial laws and markets made it difficult for small and 
medium-sized enterprises (SME) to access bank loans.  Sergio 
Ortiz-Luis, President of the Philippine Exporters? Confederation, 
called for a credit bureau system that would facilitate credit 
checks on loan applicants.  The Finance Core Group called for 
revised banking regulations that would encourage government 
financial institutions to loan directly to SME's. 
 
TRANSACTION COSTS:  REDUCING RED TAPE 
------------------------------------- 
 
¶6.  Trade Secretary Favila announced policy changes that he said 
 
MANILA 00004878  002 OF 002 
 
 
would reduce the time it takes to open a business from 48 days to 24 
days.  Favila said the Bureau of Customs would fully computerize its 
procedures to speed up customs clearance and reduce opportunities 
for corruption.  The Bureau of Immigration drew applause from the 
business community for promising to simplify the process of 
procuring an Alien Certificate of Registration, and the Department 
of Foreign Affairs promised to introduce machine-readable 
passports. 
 
INFRASTRUCTURE: PRIORITIZING INCREASES IN SPENDING 
--------------------------------------------- ----- 
 
¶7.  Meneleo Carlos, Chairman of the Federation of Philippine 
Industries, announced the GRP's commitment to increase spending on 
infrastructure from below 3% of GDP to above 5%, and unveiled a list 
of twenty priority infrastructure projects for completion by the end 
of 2007. These projects include five airport projects (including the 
opening of the mothballed new terminal at the Ninoy Aquino 
International Airport in Manila), four seaport projects, seven 
highway projects, six light rail projects, two water projects, and 
two telecommunications projects. 
 
ENERGY ISSUES 
------------- 
 
¶8.  Business association leaders urged the government to take prompt 
steps to reduce the cost of electricity.  The private sector asked 
for a combination of immediate tax relief measures and longer-term 
action to hasten an open electricity market.  Among its many 
proposals, the speakers sought reduction in the VAT on power from 
12% to 5%, passage of the renewable energy bill to diversify energy 
sources and promote investment, and accelerated divestment of 
state-owned generating assets, which they noted was far behind the 
schedule dictated in the Electric Power Industry Reform Act (EPIRA) 
of 2001 of 70% privatization by the end of 2005. 
 
COMMENT 
------- 
 
¶9.  The concerted high-level public-private focus on improving 
Philippine competitiveness is encouraging.  International financial 
institutions applauded the reform pledges and said adoption of 
short-term measures would likely raise the country's rankings. 
Business leaders appreciated reducing the time needed to obtain 
licenses, but expressed skepticism the government will follow 
through on most of its commitments.  Lasting improvements on complex 
problems like the electricity prices will require hard work over 
many years and significant political will. 
 
Kenney