Emerging Markets: Cesar Purisima, finance minister of the year

Emerging Markets, September 2011

Cesar Purisima is an optimist; it comes through whenever the Finance Secretary of the Philippines is talking about his own country. On paper, the trick he believes the Philippines can pull off –slashing the heavy national deficit while simultaneously promoting growth and fostering foreign investment, all without any new taxes – seems unmanageable no matter how cheerfully he puts the case across. But over the last year, the Philippines has been delivering on some of those ambitions while giving reason for hope on the others.

The deficit is the headline improvement. “I think our biggest achievement is that we have charted a path towards fiscal consolidation and sustainability,” he says. When incoming president Benigno Aquino appointed Purisima in June 2010, the deficit was well over its projected program and was expected to end the fiscal year at Ps345 billion. Purisima targeted Ps325 billion and beat it, coming in at around Ps315 billion. While that was welcome progress, it still represented 3.7% of GDP; the target now is to get below 2% of GDP by the end of 2013.

The other significant fiscal step Purisima, and Amando Tetangco at the central bank, have presided over concerns local currency debt. The Philippines has successfully issued global peso bonds twice, and in local markets has been able to issue successfully at maturities as long as 25 years. The globals, Purisima says, “resulted not only in extended maturities, but also reduced our exposure to foreign exchange risks.” And the long-dated local bonds could prove vital in creating funding for desperately needed infrastructure development. The proportion of foreign funding compared to local currencies continues to drop by the month, and will prove an important part of efforts to reduce overall indebtedness. “We continue to focus on our goals,” Purisima says. “We hope to bring our external debt below 20% of GDP, from a high of 50% back in the 1990s.”

A third area of success – although more will be needed – concerns tax collection. The Aquino government pledged no new taxes, severely limiting methods of increasing revenue, but instead the focus has been on improving tax collection. “This is another area where we have made substantial improvements in terms of efficiency,” Purisima says. He believes around Ps75 billion in extra revenue has been generated already, with year on year tax revenues up 14%, though he says “there is still room for improvement” and is investing heavily in technology to improve tax collection processes. “What’s important here is we are building a foundation for sustainability.”

One area where the jury is still out is in infrastructure development. The Philippines has developed a new platform for public-private partnership (PPP) structures, which would help to spur development; it has in mind a pipeline of over 70 projects already. But foreign investors would like to see some evidence of improvement in processes, efficiency and corruption; after all, this administration is far from the first to believe it can get infrastructure development underway. Purisima says the first project is already being bid on, “and we are confident it will be awarded within the year,” but admits “we are behind our target” on getting bidding underway in other projects. But then, that optimism again: “The good thing is we have developed a clear policy framework within which bidders can operate.”