Steering the Philippines through a Storm

Violence and corruption have plagued the Philippines for years, but a recent spate of terrorist bombings have left investors and tourists more skittish than usual, while a yawning fiscal deficit poses a serious challenge to the economy.

Finance Secretary Jose Isidro Camacho, a former country manager for Deutschebank who has been in his government post for 20 months, recently spoke with BusinessWeek Asia Correspondent Frederik Balfour in Manila about the attacks, the economy, and other challenges facing President Gloria Macapagal-Arroyo. Edited excerpts follow:

Q: The Philippines was recently ranked as the 11th most-corrupt country by anti-corruption group Transparency International. Is the President dealing with corruption?

A: Of course it exists, that cannot be denied, but President Arroyo has set up an internal affairs monitoring unit in the Ministry of Finance specifically to address this issue.

The Bureau of Revenues and Bureau of Customs are the two agencies with the worst reputation, but the two commissioners now heading them are very competent. Slowly and surely, we will be able to reduce this corruption. Also, that survey was based on 2000 results, when Joseph Estrada was still President.

Q: Haven't the country's security problems distracted President Arroyo from her economic programs?

A: Peace and order are fundamental for economic development. We can't have a healthy investment climate without peace.

Focusing on security doesn't mean she can't attend to other things -- she's very involved. The Special Asset Management Vehicle Bill has progressed [which would make it possible for banks to sell off bad loans]. Also, the President has been able to push along the Transco Franchise Bill [which would pave the way for privatization of the National Power Corp.].

Q: How's the Philippine economy doing overall?

A: Our export growth came as a pleasant surprise, [especially] within Asia, and China in particular. We were expecting zero growth [this year,] and have raised that to 4% at midyear.

Q: What would you say to claims that the President isn't in control and doesn't have the full cooperation of the police and the military?

A: That's not a fair comment. She's working with the military and police in a more systematic way. If anything, the President has established a very healthy relationship with the military and police. I know. I sit next to [Defense Secretary] Angelo Reyes at Cabinet meetings, and they have an excellent working relationship.

But even if you can improve peace and order, there is still kidnapping. Unless it's completely eliminated, the problem still exists.... However, you have to put it in perspective.... I was talking to a Filipino-Chinese businessman who said that the perception is that kidnapping has been reduced, [and] the general feeling is that [the situation is] improving.

Q: But kidnapping has been going on for years in the Philippines. What about the latest wave of terrorist attacks?

A: The world is now faced with a threat of terrorism that is new in nature. It's widespread [and affects] the Philippines, the U.S., and Indonesia, and the threat will continue. The Philippines has not been exempted. What has happened here [reflects that].

We've had more experience [with terrorism than other countries], and we will be in a better position to address this as we have done with [Islamic terrorist group] Abu Sayyaf. They have been significantly neutralized.

We've had terrorism before...and given that its ugly head has emerged in the region, it's not a surprise that it would emerge in the Philippines. The President is handling it as intelligently and as competently as any leader can. She understands the problem and the solution. I'm not sure anybody could have done better.

Q: What's the solution?

A: Focusing on intelligence. Next year's budget will allocate more spending on the police force and strengthening forces of intelligence. Jemaah Islamiya [a militant Muslim group that wants to create an pan-Southeast Asian Islamic state] poses new threats in the region, and we need to continue working with other countries. The President is taking the lead in trying to form alliances with other countries in the region that are affected, such as Indonesia, Malaysia, and Singapore, and also with the U.S., so we can all be efficient in combating this.

Q: Do you see China as a threat?

A: It may be a competitor for foreign direct investment, since there's no way you can compete with 1.2 billion people. But I expect opportunities for Chinese investment in the Philippines and for aid from China. The Philippines is still competitive for semiconductors and other related products, but over time it has to move into something else.

One of our big focuses is in services, especially in information technology, where we have the edge because of availability of culturally adaptable English speakers.

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