Evaluating Mar Roxas on his Own Merits

Today, just a few days from the 2016 Philippine presidential elections, the candidates’ identities have crystallized and become widely known. Grace Poe has the most nebulous platform with the most mysterious persona: nobody has any idea why she is running or what for, other than both (i) to continue the Daang Matuwid of the Aquino Administration and (ii) to discontinue the policies adopted by the same Administration. That this comically schizophrenic platform has not collapsed of its own weight is due solely to the limitless wealth of her famous (or infamous) benefactor. She is not worthy of further discussion. Jejomar Binay has been universally acknowledged to be just a corrupt thief out to sauté the illiterate masses in their own lard, and has accordingly fallen far behind in surveys and in the esteem of his peers. He is now a nonentity. The election is therefore now down to Mar Roxas, former Senator and former Secretary of the Interior and Local Government, and Rodrigo Duterte, incumbent Mayor and former Congressman of Davao.

Because of all the muckraking, it is rewarding to make an attempt to elucidate what distinguishes the two presidential candidates. Supporters of Mr. Roxas try to shout down the supporters of Mr. Duterte by a two-pronged strategy. The first prong is expressed in the positive: Mar Roxas is “good” for the country. The second prong is the negative message: Duterte is bad. By contrast, supporters of Mr. Duterte cry out for change—in Filipino, “tunay na pagbabago.” By fleshing out their arguments, the nature of each candidate emerges independently of the identity that each one professes—and so does a modicum of truth: whom should Filipinos vote for?

A.    Roxas is Good for the Philippines

Before examining the positive message of Mr. Roxas being good for the Philippines, a word of caution should be said. Typhoon Yolanda (international name: Haiyan) hit the central Philippines on 8 November 2013 and Tacloban City, Leyte, was hit the hardest. Tens of thousands of people died. Mar Roxas was there before, during, and after the typhoon made landfall, but that made no difference: he was, and is currently being, blamed for the government’s perceived inefficiency in delivering aid to the victims. (Mr. Duterte went to Tacloban to deliver help from his city—his current term as Mayor started on 1 July 2013 and will end on 30 June 2016. His comment on Mr. Roxas’s leadership: “puro meeting”.) TheEconomizer defers to other people’s judgment on Mr. Roxas regarding Yolanda—the food aid rotting in warehouses, the billions of pesos in financial aid that went missing, etc.—because TheEconomizer was not there. Other people, maybe including Mr. Duterte, who know a thing or two about what the Government achieved or failed to achieve in the aftermath of the typhoon, will be able to give a better assessment of Mr. Roxas’s ability in a time of severe stress. This blog post, therefore, will omit mention of Mr. Roxas’s performance as regards Yolanda.

Instead, Mr. Roxas will be evaluated only on his own merits. His positive message comprises six areas, and each of these are examined here in turn.

1.      The Aquino Administration, of which Mr. Roxas is an influential member and is the standard-bearer, adopted sound financial policies which led to the macroeconomic stability that the Philippines currently enjoys. A Roxas Presidency will continue this good fortune.

2.    Mar Roxas as Secretary of Trade and Industry launched “Make I.T. Philippines,” which aimed to attract IT and call-center companies to the country. As a result, Mr. Roxas is deemed the “Father of the BPO Industry” in the Philippines.

3.    The Aquino Administration launched the Daang Matuwid, espoused good governance, and represents clean and honest government. Mr. Roxas will continue this policy.

4.    Mar Roxas as Secretary of the Interior and Local Government, with authority over the Philippine National Police, initiated and implemented Oplan Lambat-Sibat—which resulted in the capture of the most wanted criminals. From 900 most wanted criminals, only 350 remain at large due to this program.

5.    Mar Roxas as Senator authored the Cheaper Medicines Law, which led to the creation of the generic medicines market in the Philippines, affording less-expensive but critical drugs to the poor.

6.    Mar Roxas is the “disente” candidate, or “decent” in the sense of being well-spoken and dignified, in contrast to the earthy and rough personality of the Mayor of Davao. The Philippines would be proud to present him to other countries as its President.

A1. Macroeconomic Stability

The macroeconomic stability here refers to the low volatility in price levels and the US dollar – Philippine peso exchange rate—in other words, when speaking of ‘macroeconomic stability’, one refers to low inflation and stable exchange rate. Unfortunately for the Roxas campaign, macroeconomic stability in the Philippines traces its roots to 2005.

Below is a graph of the USD/PHP exchange rate. One sees the tremendous and sustained appreciation of the peso’s value starting from January 2005 until January 2008, from PhP56 to the dollar to almost just PhP40 to the dollar—an increase of almost 40 per cent. The exchange rate started to move up from March 2008 until settles in mid-to-high 40’s in November that year. It does not move away from that band until 2012, when it started falling again to the levels of 2007 (five years before). Finally, from 2013, the exchange rate has started to rise again to mid-to-high 40’s.

The absolute low reached by the USD/PHP was on 27 February 2008, when it touched 40.27. It did not reach that low again until 30 March 2013, when it was 40.555. The fall of the Peso in 2008 was due to the rise in global oil prices, when a barrel of oil reached $147 at the peak. Despite this, however, and despite the Great Recession started by the collapse of Lehman Brothers in September 2008, the Peso never broke the PhP50-to-the-dollar barrier. What explains the resilience of the Peso?

Strength gained by the peso is one of the positive effects of Republic Act No. 9337 or most commonly known as the Expanded Value-Added Tax law (EVAT/RVAT Law). EVAT Law raised the VAT rate from 10% - 12% for goods and services previously exempted from VAT – to name a few, domestic transport of passenger by air and sea, generation and transmission of electricity and petroleum products  were now subjected to VAT. In addition, the law increase corporate income tax from 32% to 35% but later reduced to 30%.

As a result of this measure, government revenue jumped 20% in 2006 vs 2005, narrowing the fiscal deficit to 1.0% of GDP from 5.3% in 2002.[1]

Chart A-1. Philippine Government Fiscal Balance[2]

 

Because of the government’s improved fiscal position, it was able to borrow less, and most importantly, change the borrowing mix from foreign to domestic. In Chart A-2, we see that total government debt leveled off starting in 2005 and it was the reduction in foreign debt that was driving the shift.

This resulted in lower interest rates, as the supply of bonds dried up. At the same time, lower interest rates increased the present value of bonds and stocks, making them attractive to foreign investors. This led to increased foreign portfolio investment (Chart A-3), which was ultimately responsible for the fall in the exchange rate (and the appreciation of the Peso).

Chart A-2. Philippine National Government Debt[3]

    

At the same time as the foreign portfolio investments were coming in, remittances from OFWs also started to boom in 2004. Significantly, a third significant source of foreign exchange started to show itself: the business-process outsourcing (BPO) industry.

Chart A-3. Foreign Inflows and OFW Remittances

 

The emergence of the BPO industry also played an important role in the peso appreciation. In 2000, the industry only accounted for 0.075% of GDP, but the sector’s contribution jumped to 2.4% and 5.4% through 2005 and 2006 respectively. The BPO industry has been a key employment generating sector which has employed approximately 163,000 workers by end-2005 (Magtibay-Ramos et al. 2007). Revenues grew by 46% a year between 2004 and 2006, capturing 5% of the global market in 2006.[4] The total BPO investment projects registered under the Philippine Board of Investment and the Philippine Economic Zone Authority reached Php 43.2 billion or 420 projects. Government expressed support through investing more on IT programs, spending on infrastructure, and reforming policies to improve, maintain and develop our competitive edge against other leading and emerging BPO providers. It is also interesting to note that the sector offers above-average salaries.

All these allowed the BSP’s gross international reserves to balloon (Chart A-4), thus sustaining the strength of the Peso throughout these past 10 years.

Chart A-4. BOP and Forex Reserves at the BSP

Of course, some would say that this was due mostly to the low interest rates in the developed economies. But if the Philippines were a basket case, that yield-seeking money would not be aiming for the country. There are Indonesia, Thailand, the BRICS countries, and others, who would have been worthier targets. The fact is that investors flocked to the Philippines for the mixture of high yield and appreciating currency, which could only have been sustained by a healthy public fisc. 

As a result, the Philippines' international credit rating has been upgraded several times, from junk to investment-grade. Since “Fitch Ratings and Standard & Poor’s conferred investment grade status (BBB-) to the country on March 27, 2013 and May 2, 2013, respectively,” and not before 2010, the Aquino Administration has claimed this success as its own. Unfortunately for this claim, these upgrades were just a continuation of what Moody's did on 23 July 2009, when it first upgraded the Philippines to Ba3 from B1, with a stable outlook. It was the first credit rating upgrade for the country in twelve years, and it came in the middle of a world recession. THAT was an achievement.

By contrast, what is the equivalent achievement of the Aquino Administration? Is there a counterpart to the EVAT law that was pushed for, and signed, by PNoy? The President knows how to campaign for a law he likes: witness the bitter battles over the Reproductive Health Law. He carried the fight to the bitter end, and won. The fight over the Sin Tax Law was less bitter, but … did it raise the same amount?

The Sin Tax Reform Act of 2012 stipulated that 85% of the additional revenue raised will be allocated to health programs (Department of Health). The table below shows that PHP 44.72 billion was allocated in 2013 and PHP 42.86 billion in 2014 (ibid.). This means that, dividing each number by 85%, additional revenue raised was about PHP 52.6 billion in 2013 and PHP 50.4 billion in 2014.

By contrast, the eVAT law raised hundreds of billions of pesos in additional revenue, such that VAT collections jumped to 30% of total tax revenue in 2006 from only 22% in 2005 (NTRC Tax Research Journal).

The Sin Tax Reform Act simply did not have the same effect on the currency as the earlier VAT law.

Can we trace therefore the Philippines’ macroeconomic stability to the Aquino Administration? By not plundering the national coffers, by not exhausting the Treasury on pro-poor programs that benefit only the incumbent administration, PNoy can at least claim to continue the virtuous path of the previous Administration.

But it is a very different claim from being the men and women responsible for the stability in the first place. Supposing the extra revenue had not been resistant to “exhaustion”, suppose that the previous administration had not enacted the EVAT law, or suppose that the opponents of the law (and there were very many and powerful) had succeeded in blocking it—what would the Aquino Administration continue?

Above all, since the topic is the elections, what role did Mar Roxas play in passing the Sin Tax Reform Law?

A2. Fatherhood of the BPO Industry

As seen in the previous section, the BPO Industry is one of the two legs supporting the Peso and the general fiscal position of the Philippines. Since Mr. Roxas claims to be the father of the BPO Industry, he will have a direct hand in restructuring the country’s external financial position. It would be one of his signal achievements.

Unfortunately, this achievement rests on a slogan. Mr. Roxas, when he was Secretary of Trade and Industry, was responsible for launching the “Make I.T. Philippines”, a campaign that ranged from “trade missions to outsourcing exhibitions” (Digital Filipino) to attract a larger share of the outsourcing market in the U.S., Europe, and other neighboring countries such as India. The campaign “packaged the country as ‘E-Services Hub of Asia’” (ibid.).

If that were all it took for the BPO revenues to skyrocket, Mr. Roxas’s claim of Fatherhood of the BPO Industry would be credible. In the year 2000, when Mr. Roxas first headed the DTI, “the BPO industry accounted for 0.075% of the country’s GDP” (Rappler). In 2001 and 2003, the last year Mr. Roxas was Secretary, the historical timeline of the BPO industry can be contained in two sentences from the Inquirer and Rappler:

2001 – PeopleSupport, a US-Based outsourcing center, restructured their business, and moved their operations to the Philippines, providing 8,400 jobs

2003 – The Convergys Corp. opened up two call centres in the Philippines. The Philippines, along with India, was chosen by then president of the company, Jack Freker, as part of the company’s global expansion and revenue generation plan

It looks like Mr. Roxas did indeed succeed in getting PeopleSupport and Convergys to set up shop in the Philippines during his time as Secretary. However, a study published in 2014 by the Lee Kuan Yew School of Public Policy noted that the first-ever call centre in the Philippines was set up in 1997 when “Sykes Enterprises acquired Scotland-based McQueen Group” (LKY). Perhaps Mr. Roxas meant animation outsourcing? This was started by SPi Global “in the 1980s” (ibid.). In fact, “1988 saw the establishment of Fil-Cartoons, a fully-owned subsidiary of Hanna Barbera” (ibid.). How about the specifically IT-based outsourcing industry? Here is the study again: “Andersen Consulting (now Accenture) established the first captive centre in the Philippines in 1985” (ibid.).

Does all this make him the “Father of the BPO Industry”?

But Mr. Roxas’s assertions should be taken seriously in another sense: he may just be responsible for the phenomenal growth of the BPO industry in the 2000s, after he left the DOTC to become Senator. In other words, his actions in the DOTC, the programs he institutionalized, and the policies he implemented may account for the growth of the BPO industry. Do they?

It seems that Mr. Roxas is an absentee father, if he indeed sired the BPO industry. The real reason the BPO industry took off is the policy package enacted by the Arroyo Administration to develop and promote the IT and BPO sectors. This package included the following, but there may be more:

a.    Commission on Information and Communications Technology (CICT) – Created on 12 January 2004 through Executive Order No. 269, “was the primary policy, planning, coordinating, implementing, regulating, and administrative entity of the executive branch of the Philippine Government that would promote, develop, and regulate integrated and strategic information and communications technology (ICT) systems and reliable and cost-efficient communication facilities and services” (Wikipedia). The Arroyo Administration pushed for the creation of a Department of ICT (DICT) to replace the CICT, but the bill died in the Senate after being approved by the Committee on Science and Technology in August 2008. Did Senator Roxas support this bill? There is no record.

b.    Establishment of the Philippine Cyber Corridor – This was “a virtual ICT channel stretching over 600 miles from Baguio City to Davao City designed to provide a variety of Business Processing at par with global standards, supported by a $20 billion high band width fiber back bone digital network. . . . In December 2007, the National Outsourcing Association (NOA) of the United Kingdom awarded ‘Best Offshoring Destination of the Year’ to the Philippines” (source). This particular program “provided an ICT belt across the country and reduced bandwidth costs by 85%” (DLSU). This Cyber Corridor was established, along with other “super regions”, by Executive Order No. 561 signed in 2006 by President Gloria Macapagal Arroyo (Official Gazette).

c.     Strong industry associations – Although the Contact Center Association of the Philippines (CCAP) was founded in 2001, it was the Business Processing Association of the Philippines (BPAP, now ITBPAP), which in 2006 established a “Roadmap 2010” to plan the growth of the industry and to professionalize it. “In 2009, ITBPAP launched its Next Wave Cities ranking, promoting and assessing second- and third-tier cities as potential industry locations” (LKY). And this ranking and awards system is still continuing: on 30 March 2016, for example, Baguio made it to the country’s Top Ten Next Wave Cities list (Baguio Midland Courier). The BPAP was founded with support from the Arroyo Administration.

d.    Government support – Featured in the case study by the LKY School of Public Policy is Davao. It is worthwhile to quote at length from this 2014 study:

“The government has played a major role in attracting BPO firms, to add to its existing agriculture and tourism sectors. The Duterte family’s political dynasty in the city ensures a level of continuity in policy, with Mayor Rodrigo Duterte and his daughter Sara Duterte alternating in office since the early 2000s. Mayor Duterte has kept a strong and firm hand on the city of Davao, not being afraid to use strong-arm tactics to keep drug smugglers and other social problems at bay. The foundation of peace and stability over more than a decade has led to a unique combination of low political risk in an otherwise highly volatile province, complemented by relatively low wages in Davao compared to Manila and a young, educated population eager to learn” (ibid.).

e.    Training with TESDA – The study should speak for itself:

“In 2006, President Gloria Macapagal Arroyo’s initiative launched the Industry-based Training for Work Scholarship (I-TWSP) managed by the Technical Education and Skills Development Authority (TESDA). The program invested P1.3 billion (USD 30.6 million) by 2014, and trained 65,000 BPO “near hires”, 70.7% of whom are now employed in the industry” (ibid.).

Did or did not the Aquino Administration have a hand in the BPO industry? Yes—in a reprehensible way. On 23 June 2011, President Aquino dissolved the CICT through Executive Order No. 47, moving all its functions and attached agencies to the Department of Science and Technology. Unfortunately, two days before, the President had already appointed a CICT Chairman, Oliver Chato, son of former Internal Revenue Commissioner Liwayway Vinzons Chato. As a news report put it, “Aquino appointed the new commissioner and then abolished the post 48 hours later” (GMA News).

In summary, not only did the Aquino Administration not help the BPO industry at all, it worked deliberately to undermine the government agencies working in support of it. There is no record of Senator Roxas supporting the bill to create the DICT, as he was a member of the Senate Committee on Trade and Commerce—not of the Committee on Science and Technology, which approved it. The Executive Order abolishing the CICT looked to be done out of spite at the former Administration to belittle its most significant achievement. By claiming the title “Father of the BPO Industry” on the strength of the “Make IT Philippines” slogan, Mr. Roxas is simply being ridiculous, deceiving the people of the Philippines on how they got their “oversized lattes” (Carlos Celdran).

A3. Daang Matuwid

The central claim to fame of the Aquino Administration is “Daang Matuwid”, or “Straight Path”. This is a pledge that the government under President Aquino is a clean government, not corrupt, and unforgiving to the corrupt. Mr. Roxas has promised to continue this clean government, and it behooves us to examine it whether it is really clean.

The Napoles scandal showed that corruption did not stop in 2010. On this score, the Aquino Administration already has failed to stop corruption despite its pledge. But is it clean itself?

Mr. Roxas was the Secretary of Transport and Communications until 18 October 2012 (Wikipedia), but

“THE TRANSPORTATION department on Friday named a temporary maintenance service provider for Metro Rail Transit Line 3 (MRT-3), replacing Sumitomo Corp., whose 12-year contract ended on Oct. 19” (BusinessWorld, 19 October 2012).

“Friday”, in BusinessWorld’s news article, means 19 October 2012. Mr. Roxas did not sign the said contract; instead, it was his successor, Joseph Emilio Aguinaldo Abaya, who executed it as his first official act as Secretary. If the MRT’s trains subsequently failed, who is to blame?

In December 2015, the Sandiganbayan found probable cause to indict ex-MRT General Manager Al Vitangcol and executives of PH Trams for the anomalous 2012 contract (BusinessWorld). PH Trams is the company that was granted the temporary maintenance contract, as the partner of CB&T, which is already the maintenance contractor of LRT Line 1. PH Trams is interesting because its controlling shareholder is Marlo de la Cruz, a Liberal Party fund-raiser based in Tarlac (Tiglao).

This is enough to illustrate the cleanliness of Daang Matuwid.

A4. Oplan Lambat Sibat

This is a brainchild of Mr. Roxas, and any success this program encounters will be legitimately his. Unfortunately, it will also be of the police officers who are currently implementing it. Reliable data are not readily available, but the Chief of the Philippine National Police, General Magalong, admits in a Senate hearing in August 2015 that crime statistics are routinely faked to give the impression of lower crime volume, in response to pressure from the authorities (InterAksyon). Therefore, any claim to success in crime prevention or solution from the Secretary of the Interior and Local Government does not rest on any reliable “scientific” data. Here is the quote from Gen. Magalong:

“Magalong acknowledged that certain instances of inaccuracy of the crime volume statistics report in particular precincts may be attributed to ‘under-reporting, doctored reports and most of the time, no reporting at all.’“‘This was reported by our red teams sent at random to different police stations to check the accuracy of their blotter-based crime report, against the statistics submitted at the provincial and regional levels,’ Magalong said.“Magalong said the institution of OPLAN Lambat-Sibat, initiated by the Department of Interior and Local Government (DILG) in Metro Manila and now cascading to Regions 3 and 4.“Magalong disclosed that, among the modus operandi carried out by local police stations are: non recording of complaints, refusal to investigate reports and doctored statistics in precinct levels where they have two separate blotter books, one for the true volumes and another for altered recordings.“‘We have seen that ... instances of cheating or playing fast,’ Magalong said, in Filipino.”  

A5. Cheaper Medicines Law

The Cheaper Medicines Act of 2008 is one of the accomplishments of Senator Roxas as Chairman of the Senate Committee on Trade and Commerce. But he was not the original proponent—that honor belongs to Iloilo Representative Ferjenel Biron. In fact, wrangling between the two, Messrs. Biron and Roxas, was the chief cause why the Act took so long to pass (The Daily Guardian).

Mr. Biron’s version in the House of Representatives pushed for mandatory drug price regulation, but Mr. Roxas advocated parallel importation, creating competition between generic and patented drugs to bring down their prices. This is what President Arroyo refers to in her last SONA, when she said:

“I supported the tough version of the House of the Cheaper Medicine Law. I supported it over the weak version of my critics. The result: the drug companies volunteered to bring down drug prices, slashing by half the prices of 16 drugs. Thank you, Congressman Cua, Alvarez, Biron and Locsin.”

But the more interesting development is revealed by Wikileaks. Cables from the US Embassy stated that Mr. Roxas discussed the status of the legislation with various US Government officials, who lobbied for the economic interests of US drug firms. The cables do not say that Mr. Roxas opposed the American policy proposals, but it is clear that Mr. Biron does not like the end-result.

Mr. Roxas several times is quoted in the cables as fighting for the side of the ordinary Filipino, but it is also clear that US interests on data protection, particularly “data exclusivity”, were upheld under his auspices. In fact, the only reasonable conclusion from the cables is that Mr. Roxas was the vehicle through which the US Government conducted its lobbying efforts as regards generic drugs in the Philippines--and what a cooperative vehicle he was.

A6. Public Decency

Mr. Roxas says that he is the decent alternative to Mayor Duterte, who speaks foul language and curses the Pope. But on 12 December 2008, he infamously uttered “P.I.” in public, cursing President Gloria Macapagal Arroyo during a political rally. A video of that can be found on YouTube.

To say that he is more decent on account of Mr. Duterte’s foul mouth is just simply hypocritical. 

To sum up this very long post, these are the conclusions that can be drawn from Mr. Roxas’s positive claims:

A1. Macroeconomic Stability – due to Arroyo Administration

A2. Fatherhood of the BPO Industry – BPOs in the Philippines started in 1980s, call center in 1997; success due to Arroyo Administration

A3. Daang Matuwid – disproved by PH Trams and MRT3

A4. Oplan Lambat Sibat – unreliable data

A5. Cheaper Medicines Law – not the original proponent, conduit for US lobbying

A6. Public Decency - hypocritical

Therefore, Mr. Roxas has no claim to be a good candidate, having merely appropriated the achievements of others as his own or having unreliable data to back up his claims; and because of this, he does not earn the Presidency on his own merits.  

(Note: The next post will be about Duterte's alleged unsuitability to be President.)

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[1] Asian Development Bank, 2008. Asian Development Outlook 2008. Manila, Philippines. Graphs are also sourced from the Asian Development Outlook series.

[2] Asian Development Bank, 2008. Asian Development Outlook 2008, p. 217. Manila, Philippines.

[3] Asian Development Bank, 2007. Asian Development Outlook 2007, p. 227. Manila, Philippines.

[4] Asian Development Bank, 2008. Asian Development Outlook 2008, p. 218. Manila, Philippines.