The Duterte government is allotting Php158.2 billion in 2021 for 16 infrastructure flagship projects (IFP). The government is prioritizing IFPs in the belief that this will stimulate economic growth.
The government recently unveiled its updated IFPs list as of August 2020. But are these projects really what will bring economic recovery while the nation grapples with a crisis-stricken public health system and economic decline?
Php158 billion for IFPs
The government is allocating Php158.2 billion of the proposed 2021 budget for IFPs. This is for 16 infrastructure projects under the Department of Public Works and Highways (DPWH), Department of Transportation (DOTr), Department of Information Communications and Technology (DICT) and the Philippine Statistics Authority (PSA).
The biggest IFP project in the 2021 budget is the North-South Commuter Railway System which will be funded with official development assistance (ODA) from the Japan International Cooperation Agency (JICA). In 2021, the North-South Commuter Railway will get Php58.6 billion, Php51.5 billion of which is from JICA with the remaining Php7.1 billon from the Philippine government.
The government is also allotting Php34.6 billion in 2021 for Phase 1 of the Metro Manila Subway which is another ODA project from Japan. The subway is projected to run three stations from Quirino highway, Tandang Sora and North Avenue by 2022. The line is some 5.9 kilometers long which is around a 15-minute drive or a 30-minute bus commute.
The third largest IFP in the 2021 proposed budget is the Ambal-Simuay River and Rio Grande de Mindanao River Flood Control Project worth Php16.8 billion and funded by ODA from China. Php5.1 billion of the project cost will come from the Philippine government.
The considerably huge ODA funding for these projects are actually tied loans. This means that the projects should contract companies that are linked to the donor country. These foreign corporations partner with local oligarchs. The contractor for the North-South Commuter Railway project is a consortium of the Consunjis’ DMCI Holdings and Taisei Corporation of Japan. The Metro Manila Subway Project Phase 1 is a joint venture of Shimizu Corp., Fujita Corp., Takenaka Civil Engineering Co. Ltd., with the Yuchengcos’ EEI Corp. as its contractor.
Contractors are not the only Japanese components of the Metro Manila Subway Project. The subway also needs Tunnel Boring Machines (TBM) to dig the underground route of the subway but the Philippines doesn’t have the technology for these. Hence, JIM Technology Corporation’s factory in Tsurumi Prefecture, Japan was contracted to manufacture the TBMs to be used.
The influence and interest of Japan in these huge transport projects is conspicuous. The Japanese government produced the Mega-Manila and Greater Capital Region (GCR) transport development plans in 2014 and 2015 that recommended these projects as well as produced the feasibility studies justifying them. Japan is providing the loans to finance them which will be spent on Japanese contractors building the projects as well as selling the machinery, equipment and materials that will be used.
Meanwhile, the China ODA-funded Ambal-Simuay Flood Control project has yet to name a contractor but it is expected to be a Chinese contractor. In recent China ODA-funded projects, the Philippine government waited for the Chinese government to submit a list of qualified Chinese contractors. ODA also comes with interest and commitment fees that add to the total cost of the projects. Of the Php152 billion worth of ODA projects, government’s counterpart is Php28.4 billion.
The government argues that these road infrastructures have a multiplier effect on the economy – they will generate jobs especially in construction and benefit people and businesses by transporting goods and services more efficiently, leading to improved returns and thus economic growth.
While these seem obvious, there are actually deeper considerations in play. The first is to ask if the benefits are really large enough to justify the cost of financing and deeper indebtedness. The second, especially with the pandemic at hand, is if these projects are really more socially urgent and necessary. There are good reasons to at least cast doubt on this.
It is plausible that expensive railway, subway, and flood control projects are not as important for social relief and economic recovery compared to more hospitals and medical facilities. Building the latter will be more crucial in ushering the country’s COVID and non-COVID-stricken workforce back to health. Especially amid the economic slowdown, much transport infrastructure is likely to have become secondary to pouring assistance into households and producers experiencing the shocks of economic stoppage. Such aid would more directly bring back people’s capacity to consume and of enterprises and farms to produce.
With more rational priorities in place, it is up to the government to negotiate with ODA funders like Japan and China about our country’s more urgent needs. If these ODA funders are really keen on ODA being for development then maybe the Philippines shouldn’t be so afraid to hold them up to that intent.
What is more important now
The government expects to pump prime the economy through IFPs, but it overlooks many important things that need to be prioritized in the face of a grave pandemic. While infrastructure spending may lend a few kicks for the economy to edge forward, the public health crisis first needs to be solved. Social protection for the most vulnerable sectors and support for small businesses also need to be ensured for the economy to genuinely gain momentum towards inclusive recovery.
The Philippines has breached 300,000 cases yet the Department of Health (DOH) has been reduced to tallying COVID cases instead of leading the fight against the pandemic. The proposed infrastructure budget in 2021 is worth Php1.1 trillion but the proposed budget for health is only Php212 billion. The IFPs list boasts of a Virology Institute under the Department of Science and Technology (DOST), but it is not yet included in the 2021 proposed budget of the said department.
The proposed infrastructure outlay for 2021 only includes Php 2.3 billion for hospitals and health centers compared to roads which get Php404 billion.
Moreover, social protection programs for the most affected Filipinos such as low-income families, workers especially in the informal sector, overseas workers and the elderly, also need to be continued as part of COVID-19 response. However, the government only gives Php454 billion for this in 2021 compared to Php534 billion in combined Bayanihan 1 and 2 and 2020 national budget funds. Support for small businesses or micro, small, and medium enterprises (MSME) is also urgently needed but the government only allocates Php5.2 billion for this.
The Duterte administration fails to acknowledge the magnitude of the health crisis and economic decline currently gripping the country. The 2021 budget affirms the government’s fixation on profit-driven non-solutions. Its priority is still to support the profit of transport contractors, foreign transport construction firms, and corporations in the service and trading-oriented sectors of the economy. Real estate developers in Congress also benefit as property values in and around the transport infrastructure projects soar, giving them huge windfall benefits.
Recovery for confidence
The Bangko Sentral ng Pilipinas’ (BSP) latest report on consumer confidence in the Philippines in the third quarter of 2020 showed the overall confidence index dropping to a record low -54.5%, reflecting how more Filipino families see their financial situation worsen amid COVID-19. The government should look after boosting consumer confidence to increase household consumption.
For this to happen, the Duterte administration must do everything so that Filipinos will: 1) feel prepared to go back to work without risking infection or fearing lack of medical attention due to an overwhelmed health system; 2) feel secure that they have enough to spend for their households’ most basic essentials; and 3) have stable jobs or livelihoods to return to.
In short, in the time of COVID, consumer confidence will emanate not from more roadworks and railways but from having adequate health care, sufficient incomes, and production support. These will steadily push the economy up instead of depending on IFPs that would contribute little in a pandemic-struck country.