There is a dangerous fallacy being promoted that the Philippines can weather this spiraling tornado of financial destruction in the world because of the strong economic reforms that have been put in place.

We cannot find those reforms. Except for EVAT and a badly mangled sin tax, there?s nothing of consequence that?s been introduced in the past few years that would justify the claim of reforms creating a strong economy.

It?s the social disaster, the national shame of eight million plus Filipinos breaking up their families to scrabble a living for their families by fleeing overseas. That $16 billion (plus another three or four informally) that comes in every year is a major stabilizer for the economy. Without it, the Philippines would be in very serious trouble today.

It?s also the weakness of the economy. The Philippines has failed to take off. Its exports, as a percent of GDP, are the lowest in Asia. The lack of competitiveness, the political uncertainties, and the too frequent policy changes have deterred foreign and local investment into the export sector. And that too is one of the lowest among the countries in Asia? total foreign direct investment into the Philippines over the past eight years (2001 to 2008) was only $13 billion versus the $35 billion into Malaysia or $37.5 billion into Thailand.

Now, how can you tell me that that indicates a strong economy that one can be proud of?

But it gets worse. The low level of exports is overstated because the bulk of that export figure is provided from?imports. Electronics exports, which were 58 percent of total exports, were $28.5 billion last year BUT out of that $28.5 billion, only about $4.5 billion is added to the Philippine economy.

So these weak exports mean that even if they fall dramatically, they have little effect on the economy because the percent contributed to GDP is small. If that $4.5 billion of net electronics sales is halved, that is only 1.3 percent of GDP that is lost.

The Philippines is less affected because the Philippines is less involved.

The banking sector is strong because of reforms put in place in the late 1990s in reaction to the Asian financial crisis of 1997 coupled with the conservative policies of bank managements (have you ever tried to get a loan? It?s a tough job). That conservatism is now proven as sound policy. Few banks had investments in the overseas groups that have collapsed.

So a weak economy is today its strength.

Nonetheless, the Philippines will be hit, already is as the closure of many furniture exporters and garment manufacturers and the closing or reduction of electronics companies show.

Yet the Philippines can weather this storm better if it: 1) admits the above facts and acts in fear, not relaxes in false complacency; 2) acts swiftly to genuinely stimulate the economy.

I don?t see either as likely unless there?s a 180 degree change in the attitude of the political leaders of the country.

Money must pour into the economy now. Since late last year, the President has said that she will front load spending in the first half of 2009. But half of the first half is already over and the budget hasn?t even been signed into law yet.

Is the administration geared up to pump billions of pesos into infrastructure on the day the budget gets approved? Can the system handle it? It never has before. The inability to mobilize funds committed has been a continuing weakness of government. Last year, the government?s disbursement level for all ODA loans declined 40 percent as compared to 2007 because it failed to disburse funds for four program loans and 22 project loans while disbursement rates for 21 of the 115 programs and project loans fell below 50 percent. And the causes for this are the same since time immemorial?delays in project approval (due to problems in processing of contracts, preparation and bidding of consultants to undertake preliminary studies), pre-construction problems (bidding of builders, right of way, and modifications in the project design), and budgetary issues (delays in the release of budget due to lack of counterpart funding and project cost increases due inflation). I?m not aware of any changes that have been made to improve any of these.

Then, of course, there?s the theft that occurs or funds misappropriated on projects that aren?t a priority in this time of crisis.

This is a time when radical change could be effected. The President has the perfect excuse?a worldwide crisis of unimaginable proportions?to do radical things. But will she? The Philippines can in fact get out of this crisis fairly well if it plays its cards right as business is going to be looking for where?s a lower cost, safe haven. The Philippines could be it.

Companies are closing plants all over the place at the moment but they have to still stay in business. Sales are less but they aren?t zero. And even though there?ll be resistance to moving to a new location if the numbers look better and there?s some assurance of success they?ll move.

It?s why I suggested many weeks ago that government guarantee a minimum return on investment for new investments. I believe such a subsidy will have far greater beneficial value than handing out cash to the disadvantaged. Think of it, what company will be able to ignore a chance to make money with little risk? The beauty of it is that once the crisis is over, the guarantee is removed but the company, now comfortably ensconced, stays. Jobs are created, products or services produced. And it?s not just the direct benefit it?s the leverage effect, all the other businesses that are positively affected?from the suppliers to the company to the tricycle drivers bringing the staff to work.

It?s a concept nobody?s ever tried which makes it another good reason to do it. The dramatic impact will make people sit up and take notice. Today, no one takes notice of the Philippines as the miserable $1.5 billion of FDI last year proves. This could reverse that. It?s at least worth some serious thinking.

Without this, or things like it, we too end up in the hole.

* * *

What idiot (and I use the term advisedly) decided to block all but two of the lanes of the South Luzon Expressway on a Monday morning.

Normally, I leave Alabang at 6:30 a.m., I?m in Makati by 7 at the latest. On Monday it was 7:50?almost an hour of extra travel time, wasted gas, frayed nerves. It?s hard enough wanting to go to work on a Monday anyway, but also suffering this makes it worse. My guest for breakfast took over two hours, he missed the investor I was to introduce to him. A side ?benefit? of this screw up. Construction for the Phase 2 of the Skyway Project is 24 months. Are we to quietly suffer for two years? Just one small point, more careful location of the equipment could free up one lane which would make a huge difference to traffic flow.

I?ve complained before at the chaos on the SLEX widening and rehabilitation to Calamba, so I?ve looked into it a bit more. That expansion is being done by a minor sub-contractor on the NLEX. They don?t have the experience or expertise for this job, so why did they get it?

It?s the same on the almost-completed viaduct at Alabang, there was no traffic management. And do you know why, the government wouldn?t pay for it. ?A waste of money,? it said. And it?s true, the money, not the waste. It requires an expert on traffic management that you need to pay for, it?s a special expertise, not an occasional afterthought. Since the reconstruction of SLEX started, last year alone there were about 15 major accidents which injured 40 people and killed five. After the heartless reaction to the deaths at Hanjin, I?m not at all surprised at the lack of concern for traffic management on SLEX. It costs money to properly manage traffic, it?s an essential cost. Government must amend the contract to include it.

Incidentally, I note there are still signs banning trucks weighing over 20 tons from using the viaduct. This was one of the two principal reasons for its rehabilitation. The other was to widen it. Well it?s widened but what a lousy job, corrugated GI sheet is smoother. Perhaps the 20 ton limit is temporary while the cement fully sets. It would be nice to know if that?s the case, otherwise why invest in a factory in Calabarzon when it?s so costly and time-consuming to get your goods to and from the port. A major reason for the viaduct upgrade.

The proposed stimulus package to mitigate the damage the world financial crisis is inflicting is supposed to revolve around infrastructure. I sure hope it?s going to be better managed than these examples. The construction of NLEX by the Lopez Group with Aussie company Leighton was a good example of how a project can be properly done. Choose reputable companies with a proven record and pay them to do a complete job, no scrimping, no bribes. NLEX shows it can be done, SLEX shows how not to do it.

Which model will the government choose to get us out of this crisis?

Or should I say, which department will do it? Don?t ask me why but believe it or not, the toll roads come under the DOTC. That stands for: Department of Transportation and Communications. Last I heard, roads didn?t move or talk. There?s a thing called the Department of Public Works and Highways. SLEX, last I looked, was a highway. Surely they sshould be the one to bring Citra to heel, to do a proper job. But someone had better if the south isn?t to rise up in rebellion?in this case Southern Luzon, not Southern Philippines.

I hope you?ll join me in complaining.

Comments to my columns can be sent to plw@mydestiny.net