Privatisation Delays Frustrate Investors
Eric Ellis In Manila

07/24/1987

The new Aquino Government's vow to encourage the private sector is proving easier said than done. Moves to privatise $2.8 billion of big government-owned corporations, including Philippine Airlines, the historic Manila Hotel and the national oil company, have foundered on backroom bickering within Manila's awesome bureaucracy.
Critics as influential as the Finance Secretary Ongpin believe delays in the privatisation program pose serious credibility questions of the Aquino administration and its ability to implement and sustain economic reforms.

The presidential commission has sequestered holdings in more than 200 Filipino companies, including such giants as San Miguel Corporation and Philippines Long Distance Telephone. Total assets seized are estimated at 50 billion pesos ($US2.5 billion, $A3.5 billion). This has prompted the observation that if the commission, too, was privatised, it would easily rank as the nation's biggest company.
Indeed, the Presidential Commission of Good Government has grown like a corporate raider cutting a swath through the sharemarket. Staff numbers have risen from five to 140.

As Australian companies Elders IXL, Bond Corporation and Ariadne Australia, and the US brewing giant Anheuser-Busch, have learned with bids for San Miguel, the presidential commission has been as slow, and in some cases as reluctant, to release sequestered holdings as the Government has been to privatise. Some business people even believe the Government's involvement in business under Aquino is greater than it was under Marcos. Others think the presidential commission serves a more useful political purpose than simply to expose cronyism and return assets to the economy. One is Harvard-educated Dr Bernardo Villegas, head of the independent economic research unit CRC, known in Manila for his upbeat economic forecasts.

Villegas says: "Some people believe the return of the Marcos money will immediately remedy the economic situation. It will help, but the real drive has to come from inside. The public image that the PCGG is Cory's way of stamping out corruption serves a useful public relations purpose."

Presidential commission chairman Ramon Diaz says sequestration and disposal is a long and tedious process. "We will always have our critics because we are working in a very sensitive area. Marcos still has influence in Manila," he says.

Diaz denies suggestions that he and other four commission members are dragging out the sequestration process to further their private political aspirations. "Completely false. I have no political ambitions. We try to be as non-political as possible. Mrs Aquino has put her trust in us, she supports us but she doesn't get involved in the day-to-day workings," he says.

The presidential commission has lifted sequestration orders on some companies and argues its actions have helped business confidence. Diaz points to the sharemarket performance of San Miguel as evidence that the commission is welcomed by business. San Miguel shares have moved from 30 pesos to about 130 pesos since sequestration more than a year ago.

However, there is little argument in Manila that the Government's delay in implementing its privatisation program has been frustrating. Promises to privatise are nothing new to Manila. Marcos made token efforts to sell government businesses in the early eighties, largely to fend off the International Monetary Fund and the World Bank, both concerned about the nation's rising foreign debt and economic decline. But it was empty talk.

The new Aquino Government promised sweeping economic reforms. We've had enough of government meddling in business; let the private sector be our economic locomotive," Aquino said. She set up bodies such as the Asset Privatisation Trust to sell enterprises owned by big government banks and financial institutions.

Details of prime government-owned bodies, including Philippine Airlines and the Manila Hotel, accompanied Aquino and Ongpin on banking and aid missions abroad, with invitations to foreign investors to bid for them. Big US bank Citicorp was even hired to advise on privatisation. But a year down the track privatisation is still at the planning stage.

Another stumbling block is the confusion over foreign investment guidelines. An omnibus investment code states foreign companies can wholly own a Philippines-based business as long as it is export-oriented, a rule Australia's Pacific Dunlop has exploited to great effect by basing some of its manufacturing and rubber processing plant in the Philippines.

However, the newly enacted constitution states foreign interest in Philippines companies must be restricted to a non-controlling 40 per cent.

Asset Privatisation trustee Leopoldo de Guzman says foreign interest is measured on its merits. "A foreign company is free to bid for anything we have for sale. They can take it out of the Philippines if they wish. We assume they understand the ground rules first."

But as the foreign bidders for San Miguel have discovered, there are bigger obstacles to overcome. Filipinos are almost xenophobic over attempts by foreigners to buy into San Miguel, a group strongly identified with Philippines nationalism (despite the fact its chairman chooses to hold a US passport). Bidders are no closer to success today than they were a year ago.

Risk analysis agency Business International highlights privatisation in its June statement on the Philippines. It warns: "The Governement's privatisation policy, as it is being practised, is sending the wrong signals to potential investors about government economic policy.

"The policy appears to be in question as President Aquino has begun to question whether it is in the national interest that profitable companies be sold, failing to realise the importance of selling some profitable companies to get the ball rolling.

"Inability to recognise this and act firmly to divest even the successful companies will further deter investor interest, erode government credibility and pose a setback to the announced policy of less government in business."

No comment was as blunt as that from Aquino's Finance Secretary Ongpin after the on-again, off-again sale of the Philippine National Oil Corporation was called off again. A frustrated Ongpin, facing foreign debt of $39 billion, said in a letter to Aquino: "The credibility of privatistion and the Aquino Government is on the line."

There were some signals last month when the sale of the Commercial Bank of Manila to the Bank of Boston was finally approved after long delays. Negotiations on other government banks are expectd to be completed soon, a condition of a $420 million aid package by the World Bank.

But the day when the chic Manila Hotel and other famous Philippines businesses fall into private sector hands seems a long way off.