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OO RUEHCHI RUEHDT RUEHHM
DE RUEHML #0473/01 0430019
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O 120019Z FEB 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5157
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEAWJB/USDOJ WASHDC
RUEHNE/AMEMBASSY NEW DELHI 2282
RUEHZS/ASEAN COLLECTIVE

UNCLAS SECTION 01 OF 02 MANILA 000473 
 
SIPDIS 
 
STATE FOR EAP/EP, EB/TPP/TPA 
STATE PASS USTR FOR DKATZ 
STATE PASS USAID 
TREASURY FOR OASIA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KIPR RP
SUBJECT:  Congressman Salceda on Politics and Economic Policy 
 
Sensitive but unclassified.  Please handle accordingly. 
 
¶1. (U) Summary:  Over dinner on February 5, Representative Joey 
Salceda, a close advisor to President Arroyo, predicted the passage 
of the Roxas bill on pharmaceuticals and the eventual presidency of 
its sponsor, Senator Manuel Roxas.  Salceda argued that the GRP has 
done what was necessary to stabilize the economy, and will now 
benefit from several years of high growth rates, but that the 
fundamental structural weakness of the economy will eventually 
re-assert itself.  He expressed his support for a FTA with the U.S., 
but said the Philippines will not be able to make the constitutional 
changes which would be necessary to reach such an agreement. 
Salceda let slip that he expected to take over as Chief of Staff for 
President Arroyo, which was publicly confirmed by the president two 
days after the meeting.  End summary. 
 
¶2. (U) Economic Counselor and Philip Ingeneri, EAP/MTS desk officer 
for Philippine economic issues, dined with Salceda and three of his 
staffers.  Salceda is a three-term congressman who will be stepping 
down at the end of his term in July, since term limits prevent him 
from seeking reelection.  Salceda is one of the most informed 
economic thinkers in Philippine politics.  His background includes 
periods spent in Europe as a financial fund manager for SBGC Warburg 
and Barings Securities, and he is one of the leading economic 
advisers to President Arroyo. 
 
FTA Needed, but Unlikely 
------------------------ 
 
¶3. (U) The discussion was wide-ranging, covering numerous economic 
and political themes.  Questioned about the prospects for continued 
economic liberalization, Salceda argued vigorously for a greater 
opening of the economy, but expressed disappointment with what had 
been accomplished so far.  He said he had had much higher hopes for 
the Arroyo administration, but its poor relationship with the Senate 
had limited its effectiveness.  He expressed the hope that the GRP 
and USG would be able to negotiate a bilateral free trade agreement 
before the end of Arroyo's term in 2010.  When we noted that 
negotiations for an FTA would require liberalization of 
constitutional provisions that limit foreign investment in large 
parts of the economy, Salceda replied that such changes would be 
politically impossible. 
 
The Roxas Bill 
-------------- 
 
¶4. (SBU) Salceda confirmed that Senator Manuel "Mar" Roxas' bill 
restricting the rights of pharmaceutical patent holders was headed 
for passage, but noted that only an inability to obtain a quorum 
could stop the bill.  (Note:  This is precisely what transpired on 
February 8 and 9, originally the last days of the congressional 
session.  On February 9, however, President Arroyo called a special 
two-day session for February 19 and 20 to bring several pieces of 
pending legislation, including the Roxas bill, to final votes.  End 
note.)  Even in that event, Salceda thought it likely the bill would 
pass in the lame duck session the first week of June.  Salceda noted 
the bad blood between Senator Roxas and the pharmaceutical companies 
dating back some years.  He said the companies had made a serious 
mistake tangling with the likely next president of the Philippines. 
He put at 60% the likelihood that Roxas would be elected to the 
presidency in the 2010 elections. 
 
Economic Growth to Increase, but Only Temporarily 
--------------------------------------------- ---- 
 
¶5. (U) Salceda said that he expects economic growth to spike over 
the next two years as a result of fiscal reforms and the increased 
ability of the government to spend.  Stronger pubic sector finances 
have brought down interest rates and improved confidence, with 
several banks now competing to provide fixed-rate 10%-11% 
twenty-five year loans.  New revenue measures, a re-enacted 2006 
budget that resulted in restrained spending, and significant savings 
from a stronger peso and lower-than-expected interest rates have 
created substantial fiscal space to expand spending on 
infrastructure and basic social services such as education over the 
rest of Arroyo's term.  The 2007 budget, recently ratified by both 
houses of Congress, envisions expanding education spending from 119 
billion pesos to 135 billion pesos (13.5%) and doubling 
infrastructure investments from 75 billion pesos to 157 billion 
pesos. 
 
¶6.  However, according to Salceda, after a short burst of growth the 
country would return to its usual "muddling through."  The 
 
MANILA 00000473  002 OF 002 
 
 
structural problems of the Philippine economy had not been dealt 
with and would continue to constrain growth.  Salceda noted that 
recent research has shown that in other Southeast Asian countries 
90% of poverty reduction has resulted from GDP growth and only 10% 
from state intervention. 
 
But Corruption Remains a Problem 
-------------------------------- 
 
¶7. (U) The growth of revenues and resulting expanded spending will 
increase opportunities for corruption, Salceda cautioned.  He 
estimated that 80% of corruption in the fiscal sector translates 
into reduced revenues while the 20% represents diverted expenditure. 
 Increased spending, though, would increase corruption on the 
expenditure side.  Monitoring and oversight will be critical to 
ensuring that taxpayer funds deliver infrastructure, growth, and 
jobs. 
 
Salceda's Future Becomes Clearer 
-------------------------------- 
 
¶8. (SBU) After three terms in office, term limits do not allow 
Salceda another.  He said he resisted entreaties to run for the 
Senate in this year's elections, and would instead join the 
administration.  He confirmed that he has been one of Arroyo's 
closest economic advisers, and has a strong personal relationship 
with the president.  He claimed to be among the few who can get on 
the President?s good side and "make her laugh" - usually with his 
biting cynical wit.  Salceda said he would limit his stint in the 
administration to 18 months and then go to Wall Street "where the 
money is."  One of his staffers confirmed later that Salceda had 
accepted President Arroyo's offer of the position of Chief of Staff 
being vacated by Michael Defensor, who is running for the Senate. 
The President's office publicly announced Salceda's appointment on 
February 9. 
 
Kenney