Credibility key to Philippines luring investors - ADB

By Karen Lema, Reuters

Posted at Oct 15 2010 07:38 PM | Updated as of Oct 16 2010 03:38 AM

MANILA, Philippines - The government must provide a predictable and secure business environment if it wants investors to commit billions of dollars to its planned infrastructure projects, the Asian Development Bank (ADB) said.

The poor Southeast Asian nation is trying to attract private funds for long-term infrastructure projects, but corruption, red tape, procedural hassles and regulatory uncertainties are significant deterrents for potential investors.

"It needs to go that extra mile and create that credibility that I am taking the right actions, I am addressing taxation issues, I am assuring you, as the investor, that my policies are predictable... my judicial system will uphold your contractual rights," Neeraj Jain, the ADB's country director for the Philippines, told Reuters on Friday.

Constrained by a budget deficit forecast at 3.9% of gross domestic product this year and pressing social spending needs, the government is banking on public-private partnerships (PPP) to fund infrastructure investments that it hopes will lift economic growth to 7% to 8% in 2011 and beyond.

"I encourage you to participate in the building of airports, roads and rail projects, transport terminals, water supply, and agriculture support facilities, among others," President Benigno Aquino said at a business conference in Manila on Friday.

Last month, the government identified 10 priority PPP projects, including 7 worth nearly P128 billion ($3 billion), and Aquino said the plan would be launched next month.

"We are simplifying the process of establishing a business... stamping out red tape, as well as in improving infrastructure, and relaxing regulations on air travel to and from the country," he said.

Foreign funds are pouring into the Philippines but in favor of the more volatile portfolio investment rather than longer-term investment, such as in factories.

This year's foreign direct investment up to July totalled $954 million, an average of $136 million a month, while net portfolio inflows up to September were $1.42 billion, an average of $157 million a month.

FDI is lower than the same year-earlier period, while portfolio investment is more than six times greater.

The stock market hit a record high this week and is up 38% this year. The peso has gained about 7% against the dollar and risen to its strongest in 2-½ years.

"The new administration has set the right tone, is taking the right actions, it has set its sights in the right direction, it is inspiring confidence of the investors... it needs now to take action on the promises that it is making," the ADB's Jain said.