Purisima drives down the road to reform
The Philippines’ secretary of finance, Cesar Purisima, has a reputation for probity that has reached street level. And he is determined to rapidly advance economic growth through the encouragement of entrepreneurship, the development of capital markets and increased regional integration.
On learning that your correspondent’s wife is Irish, Raymond, a cab driver on a stormy night in Manila, bursts alarmingly into a lusty rendition of boy band Westlife’s 1999 hit "Flying Without Wings".
He proceeds to perform the entire song, even throwing in a few cheesy facial expressions and theatrical hand gestures to his increasingly uncomfortable back-seat audience of one. As he belts out the last line, and fearful that he is just getting warmed up, the subject changes abruptly to an upcoming interview with the Philippines’ secretary of finance. "Ahh- Purisima," he pants, still slightly out of breath from his warbling. "Purisima good. Clean. Good."
To this man on the street, the corruption that has long been damagingly associated with the politics of the Philippines is not something to worry about when dealing with Cesar Purisima, formerly the 37th and now the 39th secretary of finance of the Philippines.
Raymond’s quick character assessment, delivered while rashly overtaking the rushing Jeepneys and swerving rickshaws of downtown Manila, seems appropriate given the secretary’s recent background. Purisima returned to government under president Benigno ‘Noynoy’ Aquino, having previously resigned from the same role in the last administration under president Gloria Macapagal-Arroyo. This followed the infamous Hello Garci election scandal of 2005, which centred on allegations of vote rigging during the presidential election.
In the campaign of 2009 and 2010, Aquino ran on a ticket preaching the benefits of good governance and a crackdown on corruption. This proved enough to lure Purisima back into the fray of public office and a second stint as secretary of finance as part of Aquino’s new administration, which took office in June 2010.
The Department of Finance is a slightly sinister-looking building that sits back from the eight lanes of traffic on Roxas Boulevard alongside street vendors, gossiping old ladies, tired or lazy workers and coconut trees on the shores of the Bay of Manila. The armed guard at the gate fails to ask for any identification but ushers Euromoney up to the sixth floor where a smiling Purisima enters an old-fashioned boardroom wearing a crisp white barong.
For Purisima, president Aquino’s central message made perfect sense when he decided to return to lead the department of finance and the message continues to resonate with him more than two years into the presidential term. "Good governance is good economics," he says. "There are clearly barriers; I think there are vested interests and there will be losers in any process of change. But if you are going to change for the better, you must have enough political capital to be able to see it through. Fortunately for us we have a president who has the largest mandate ever of a Philippines president and who campaigned on good governance and who is walking his talk."
The development of the capital markets will be central to the success of the Philippine economy and Purisima is keen to drive progress across the board [in order] to sustain higher levels of growth. "The capital market is at the centre of savings mobilization, allocation of resources and therefore the deeper it is, the more efficient it will become," he says. "The more transparent it is the more people will participate both from the Philippines and other countries."
Encouraging entrepreneurship in the Philippines is at the heart of Purisima’s strategy. He repeatedly mentions it, pointing out that the challenges for entrepreneurs centre on getting access to resources and using the capital markets to achieve their goals. "The banking system has basically been the main provider of credit in the country and what we would like to see is for the bond market to grow and increase in its contribution. If this is properly balanced, the downside in down markets won’t just be in the form of non-performing loans, but also in asset prices, which can be less destructive for the banking industry."
Efforts in the credit markets are already beginning to bear fruit. The Philippines was the fastest-growing corporate bond market among emerging east Asian economies in the second quarter of this year as companies sold fixed-income securities in greater numbers to meet their funding requirements. According to figures from the Asian Development Bank, outstanding peso-denominated corporate bonds amounted to a dollar equivalent of $12 billion in the second quarter, up more than a fifth on the same period in 2011.
The Philippines is also one of Asia’s more active sovereign borrowers in the international debt markets, with past bond offerings attracting investors across the world. Efforts to broaden the country’s investor base continue apace.
Purisima says he would also like to bolster the equity markets by increasing the number of listings and increasing participation, especially by small investors. To that end, the Philippines is making efforts to align its disclosure requirements, accounting standards and listing requirements with the rest of the Asean region. This is not an entirely selfless move. "The fact is that even if we have maximum penetration in the Philippines, we are still going to be a small market and I think it is important that we are able to create an Asean class of financial instruments and an Asean capital market. This will create depth so that the recycling of the region’s reserves can be done through the region’s own capital markets," he says.
The establishment of an Asean capital market is part of a broader evolution of the economy in the Philippines and will enable the country to take greater control of its own destiny. Purisima points out that, at present, the country’s reserves are not being invested in its own capital markets, a situation he thinks takes control away.
|Purisima (c) with his finance counterparts from Singapore and Myanmar: “If we are successful in building a regional capital market, our reserves can be the natural funder of infrastructure requirements”|
"We invest the reserves somewhere else and it is the asset allocators in the other countries who make the decisions about where to invest it, sometimes ignoring our region. It should actually be people from within the region who are making those asset allocation decisions because they know what our needs are and, given that Asean alone needs $1.2 trillion in infrastructure investments, if we are successful in building a regional capital market our reserves can be the natural funder of these requirements."
On the subject of the problems in Europe, Purisima says the hope of all in the region is that Europe is able to get out of the situation sooner rather than later. "After all they are the world’s largest economic zone and it is to all our advantage that they get back on the growth track," he says. But [in order] to do so, he says, serious structural issues need to be dealt with. "If these structural issues were in a vacuum and were standalone it would be easy to solve. But this has to be intertwined with the politics. Our hope is that they would solve it faster than it is moving now, but the political structure is really very complicated."
He points to recent moves as reasons to be optimistic, in particular the European Central Bank’s assertion that it is part of its mandate to buy as many bonds as possible and the German constitutional court’s decision allowing the country’s participation in the European Stability Mechanism.
But he sounds a note of caution for those countries that are increasingly reliant on the support of Germany in particular. "What is missing in the calculations is asking how much benefit Germany has actually derived from European integration? If Germany still had the Deutschmark, in the current global environment, the currency would have appreciated through the roof in a similar way to the Swiss franc and would have made their exports far more expensive. From that standpoint, from the point of view of the German population and government, it is about finding a balance between the responsibility and cost of bailing out others."
On the wider financial crisis that has dogged the world’s markets with fluctuating levels of severity since 2008, Purisima is confident that Asia, given recent history, is at least as well placed to cope as other regions. "We already had our crisis in 1997 so that is why most of the countries in the region are already in better shape. The excesses – in terms of tapping foreign-currency markets for loans, the excesses in the banking system, the excesses on the fiscal side – have already been dealt with."
He points out that during the Asian crisis banks’ non-performing loan ratios were as high as 20% but are now down below 3%. And capital adequacy ratios of Philippine banks are now close to 18% – higher than levels required under Basle III and putting the country well ahead of the curve in terms of Basle III compliance.
He also notes that the country’s debt to GDP ratio has gone down dramatically, as has foreign debt to GDP. "If you compare the situation in 1997 with now, you can really see that we have learned a painful lesson about the dangers of overbuilding. We have learned that the model for growth that has been employed by so many needed to be revisited – to become less reliant on exports and more on internal growth while continuing to diversify trade."
Purisima is optimistic about the longer-term future of the economy and nation, not least because talented individuals are now turning in larger numbers than ever to the public sector. "We are beginning to see top graduates starting to come into government," he says. "Good governance allows us to attract idealistic young people."
His hope, he says, is that this will not necessarily become their career for life, but will equip them with an understanding of government that will be to their benefit if they decide to pursue private-sector careers. "The challenge for government institutions such as this is to align the interests of our people with that of the department and the country and the government," he says. "The way to do that is to position ourselves as a learning institution. They come here for training that they won’t get somewhere else. We provide them with the training and opportunities that should add value to them so that they become attractive to the private sector."
Purisima himself worked in the private sector before taking up public office, having reached senior management positions at Andersen Worldwide and Ernst & Young. Before that, he studied overseas, receiving a bachelor’s degree from La Salle University in 1978 and an MBA from the JL Kellogg Graduate School of Management at Chicago’s Northwestern University in 1983.
Given his own experience, Purisima does not discourage today’s ambitious youngsters from following this lead. However, he says he would strongly recommend that if they do decide to study abroad they eventually come back to the Philippines. "We are right in the middle of Asia, which will be the most dynamic economic region in the world for the next 50 years. The growth will be here, the opportunity will be here, the action will be here. In the case of the Philippines, we are also starting to see some of those who have lived abroad starting to come back here because they now see more opportunities to fulfil their dreams in this country."
He points out that overseas foreign workers from the Philippines, whose numbers stand at an estimated 12 million globally, provide a vital source of expertise when they do return home. "They come back with new skills, new attitude, more capital and confidence and it is going to pay a dividend for us as we try to attract new businesses into the country," he says.
A prime example is the shipbuilding industry, which has flourished in the Philippines despite the country’s lack of a steel industry. The Philippines is now the world’s fourth-largest shipbuilder, primarily because of the availability and capability of its welding workforce, whose skills were developed in Dubai and elsewhere in the Middle East during the building boom of recent years.
Asked if he himself always expected to work in the public sector, he shakes his head and says: "Life takes strange turns. I actually always saw myself in the private sector. But as I got higher up the corporate ladder, more of my work involved working with and meeting with government people. I had the opportunity to meet with the new breed who really wanted to effect change in the country and that is how I was lured into trying government service."
In spite of recent efforts by Aquino and his administration, which are clearly beginning to have an impact, the Philippines remains a work in progress with respect to solving its social problems and stamping out corruption. Against this backdrop, Purisima sees his role in simple terms. "It is all really about making a difference," he says. "We are not paid that much so we cannot find enjoyment from the financial reward; it is more the reward of being able to make a difference and I think that is what is driving us. We have a rare opportunity presented by having the right leader, with the right political capital and the right agenda, who wants to transform the country."
He likens government service to a relay race rather than a marathon or a sprint. "My goal is to run as fast as I can in government and then pass it on to someone else who can run even faster than me so that we not only keep moving faster but ensure we have the stamina to continue to do so.
"That is a challenge for president Aquino. He knows that in his six years, he won’t be able to solve all the problems but what he is trying to do is change people’s mindsets, make people believe that a Philippine government can be better again. He wants to increase people’s expectations so that when it is time for him to hand over, the person who takes his place will have no choice but to continue what he has done because the people will expect nothing less."