The government is pushing through its plan for a company to undertake public works development — an urgent task as poor infrastructure has been a major deterrent to foreign investment.
Trade and Industry Secretary Cesar Purisima told Dow Jones Newswires recently the company, Philippine Infrastructure Corp., will be set up and become operational next month. It will be capitalized at
P20 billion, and is expected to receive further funds when the government securitizes the proceeds from the sale of idle state assets next year.
Purisima said that the government is also hoping that the infrastructure projects will add to economic growth, and in turn, raise tax revenues which will help fund the government budget deficit.
"The key point here is that for every peso of government spending in public infrastructure, it creates a minimum multiplier effect of 10 times," said Purisima. "Every P1 (spent on) infrastructure creates P10 (worth of) GDP (gross domestic product)."
"For every peso of infrastructure spending, you recover it in full in taxes," he added.
Government spending in recent years has been hamstrung by a burgeoning budget deficit and failure to raise tax revenues substantially. Government consumption rose to P498.44 billion in 2003 from P488.74 billion in 2002, up just 2 percent. In 2002, spending was 9.9 percent higher over the year.
One reason for the failure of growth to take off, said multilateral lenders like the Asian Development Bank and businesses, is the Philippines’ poor infrastructure. Poor roads and other forms of communications mean that the total time needed to produce something tends to be longer here than in other countries, increasing costs.
The government has relied heavily on the private sector to build infrastructure, but these projects have delayed by administrative problems.
Purisima said a private firm interested in a certain infrastructure project requires at least two years before it can break ground. "Whereas if it’s the government (undertaking the project), we can actually start immediately," he said.
Under the plan, the government will set up a new company to be called Philippine Infrastructure Corp. to fund an expected 10 projects, yet to be identified. The completed projects will be eventually sold to the private sector, after which the company will be dissolved. This should take no more than 10 years, Purisima said.
"It will not operate the infrastructure, it will just jump start the infrastructure funding," Purisima said.
The plan has been approved by President Gloria Macapagal Arroyo and this is likely to kick off next month, he added.
The government will put in an initial capital of R5 billion in the company, a contribution from the National Development Co. Another P10 billion to P15 billion will be added through a project finance loan from state-owned Development Bank of the Philippines, he said.
Development Bank of the Philippines will also act as the government’s financial adviser, Purisima said.
The company will receive further funds next year when the government securitizes the proceeds from the sale of idle government assets.
Purisima said shares in companies like Manila Electric Co. and San Miguel Corp., which are held by the National Development Corp. and the Privatization Management Office, will be transferred to the new infrastructure company. The assets will then be packaged as asset-backed securities, which will then be sold.
"We’re still in the process of doing an inventory of these assets and determining what is leverageable, and what is necessary to make them ready for leveraging," said Purisima. "Once we do a project, it will be packaged so that it becomes viable, then it will be privatized and sold to interested parties under a scheme that will allow private entities to ultimately own and operate this," he said.
The government is targeting GDP growth of 4.9 percent to 5.8 percent this year, up from 4.6 percent last year. (Dow Jones)
