 We warmly welcome you to CSIS quite a day for the financial and banking leaders of the world to converge on Washington D.C. The markets are certainly reacting to the leaders appearing here. We're lucky to have one of the superstars of that group of finance ministers and finance secretaries from around the world, a good friend and terrific leader of the Philippines, Secretary Cesar Parísima. He served as, he assumed his office as Secretary of Finance in the Philippines about a year ago, last July, just over a year ago. And before that he served as Secretary of Trade and Industry from 2004-2005 and Secretary of Finance in 2005 and was reappointed as the Secretary of Finance again last year by President Aquino. Prior to resuming his responsibilities at the Department of Finance, he was the chair and member of the board of the National Power Corporation of the Philippines, the Land Bank of the Philippines and the Monetary Board. He's worked for any of you who know the Philippines well in the field of public accounting and is absolutely well known as one of the leaders in that field in the Philippines and actually globally. So where the money goes, I think Secretary Parísima has a very good handle on how to track that. He's a De La Salle man for undergrad and has an MBA from the Kellogg Graduate School of Management at Northwestern University in Chicago. So I guess he's born some cold winters as well as those hot summers in Manila. It's a great pleasure for me to introduce our guest speaker for today, Secretary Cesar Parísima. Thank you for joining us. Thank you, Ernie, for your very kind introduction. Good afternoon, everyone. I think I'm among friends here. I see an old friend from his U.S. Embassy days in Manila, Dan Martinez, who's back, I think, in Washington and several other phases we've seen the past few days. It's very hard to give a talk in Washington on the sidelines of the World Bank IMF and not talk about what's going on right now. So before I talk about the Philippines, let me share some of my thoughts on what's going on. I think we are in a period of transition. And just like when two big rivers meet, you know, there's turbulence and until the fundamental issues both in Europe and the U.S. are addressed, I think we're going to expect volatility. It will be like a roller coaster. In Europe, you have three interrelated problems, the sovereign debt problem, the banking problem that's very closely related to it, but more fundamentally the competitiveness issues especially of southern Europe, combined with a structural issue related to the Euro, the Monetary Union, without the fiscal union. And unless they deal with these fundamental issues, I think we cannot sweep this away. And this is going to be the challenge for the financial managers of the world for the next few years. In the case of the U.S., it is more solvable, but it will have to wait till political clarity comes after the elections next year. In the meantime, I think we have to get used to this very rough ride. When President Aquino took office last year, and if I were giving a talk at this time last year, we would have never have predicted what a year we've been through with what happened to Japan, the Middle East, and of course Europe and the U.S. But the best thing countries can do, and that's what we're doing, the Philippines, is really to focus on the fundamentals. And that's what President Aquino is doing in the Philippines. I fondly refer to it as economics, and there are four pillars to it. That's fiscal sustainability and macroeconomic stability, the area of infrastructure investments. Third is making doing business in the Philippines much easier and finally investment in people. In those four pillars, I'm proud to say that President Aquino's administration has made the major strides. In the area of fiscal sustainability, we've charted a path towards medium-term fiscal consolidation with a goal of having a deficit of 2 percent to GDP by the end of 2013. In fact, our August numbers was released yesterday, and we had a budget surplus. And people are criticizing us for underspending, a totally different problem. But President Aquino's policy is to make sure that every cent that we collect from the people is properly accounted for. And August was really principally a result of better revenues. Our revenues were up 15 percent year on year. But the challenge is not to achieve a surplus one month or the next. The challenge really is investing in the institutions so that the programs, the reforms that we've instituted can last beyond the Aquino administration. And that's what we are really focusing on. The program calls for improving administrative efficiency by investing in information technology, improving processes, better use of information, finding charges after tax evaders and tax smugglers. And really with the goal of reforming our tax structure so that it is more progressive and equitable. So this is an ongoing program. Our target this year is deficit of 3 percent, but I believe that we will be well within that target. Our goal next year is 2.6 percent of GDP. On the macroeconomic side, Grover Nottetanko is also here in Washington, has done a good job. In fact, the President has decided to give him another six-year term as a boat of confidence to what is done the past six years. We've improved the management of our banking system. Our reserves are historic highs. We're a balanced payment surplus country. In fact, our debt to GDP is down to 42 percent net of holdings of our GFIs and local government units. It's very close to our peers. In fact, I'd like to say confidently that we are underrated by the credit rating agencies. We borrow at investment grade rates, but we're not rated investment grade. In fact, I haven't looked at the rates now, but two weeks ago we were borrowing at a lower cost than Italy when they issued a $15 billion four-year or five-year bond. The point is the key in this era of turbulence and transition is really to continue to invest in the fundamentals. That's what we will focus on in the next few years, fiscal sustainability and macroeconomic stability. In the area of infrastructure, we need to make sure that the gap between us and our ASEAN neighbors in particular be removed in terms of infrastructure. This is key to our competitiveness, especially with the ASEAN integration coming in 2015. President Aquino has programmed to tap private sector capital, expertise, technology and management to help government in achieving this. We've revisited the PPP regime in the Philippines. We have one out already, a tollway of projects and several more in the pipeline. We will use a combination of PPP, ODA and budget space to improve our infrastructure. In fact, this is going to be the best use of the foreign exchange that's coming our way as a result of policies in the U.S. to use foreign exchange in a more productive manner. That's going to be the challenge for not only the Philippines, but the rest of Asia. The Asian Development Bank estimates that ASEAN alone will need at least $60 billion in infrastructure investment for the next five to eight years. As a result of this need, the ASEAN finance ministers have embarked on the creation of a fund to facilitate the recycling of these reserves within ASEAN. It is a modest amount to start with, but our goal is to make sure that this becomes rated AA at the very least so that the central banks of the region can invest in this fund to facilitate the recycling of our reserves into our infrastructure in ASEAN. In terms of improving the environment for businessmen in the Philippines, the President has made this a priority. In fact, in the latest World Economic Forum ranking, we've jumped ten notches, but we're still at 75. We'd like to be in the upper quartile. To do this, we really need to work on many areas. We've made the baby steps the past year in this regard. For example, the Land Bank of the Philippines and the Securities and Exchange Commission have agreed to cooperate in terms of incorporation of entities in the Philippines. Before, you can only do it in the eight offices of the Securities and Exchange Commission. With their agreement starting last September 15, you can now go to any of the Land Bank branches in the Philippines to incorporate companies and new companies. This is a palliative. We really need to invest in IT because the ideal situation is to create a portal that would allow you, even from here in Washington, D.C., to incorporate a company in the Philippines. The Philippine Business Registry is being developed by the Department of Trade and Industry. In the Bureau of Customs, we're finalizing the plans for implementation of our national single window that will make it easy for importers and exporters to get permits from over 40 agencies through one portal. If this works in the Philippines, then we can connect our national single window to the national single window of other countries, which again will facilitate trade between us and our trading partners. The Department of Local Governments, for example, has a program to harmonize forms and procedures in the 200 largest local government units. So we're investing in this area. Our goal is that by the time the President Aquino leaves office, we should be in the upper quartile in the surveys of competitive rankings of countries around the world. Now in terms of people, which is really the key asset of the Philippines, the source of our strength and our pride, our balance of payments surplus, for example, is due to our remittances, which has proven to be resilient, again due to the quality of our workforce, our BPO industry, which is growing 20% per year is now among the top three in the world. Again, it's due to the quality of our workforce. So is our electronics industry, our shipbuilding industry, and across many other sectors. But the key is really continuing to invest in our people. So, for example, in the 2012 budget, 33% will go towards investment in people from education, health services, and conditional cash transfers, which really is an investment in the children of the poorest of the poor. So that as we improve our economy, they can become productive participants. So this is a key strategy of the Philippines. Right now, when you compare the Philippines as a country with our neighbors, it is very hard to compare favorably. But when you compare a Filipino with neighboring citizens, then you have a chance to be compared favorably. And this is going to be our key strategy. But underlining all of this is good governance. The key strategy of President Aquino is to continue to invest in the institutions of government so that we can make it not only a catalyst for the flow of capital, but a partner of the business sector in building the Philippines. The past 12 years, we have continued to grow, but at very low rates. And as a result, poverty in the Philippines has continued to increase. And the reason, I think, is primarily the quality of governance. President Aquino believes that with better governance, private sector will have more confidence. And with more confidence, they will make more investments. And with more investments, they will create more jobs, and the consumers will have more buying power. And we get deeper into the virtuous cycle. And that really is at the heart of what he is trying to do. And his goal is that by the time his term ends, that he's done a lot of reforms in this area so that his successor will have no choice but to continue the reforms that he started. In his own words, yesterday he was at the World Bank. He said, and I quote, the goal is to percolate socioeconomic development to the greater majority. And it all begins with cleaning up government, instituting a culture of transparency and accountability. At the bottom line, a culture of trust in government. The strengthening of institutions levels the playing field and provides for an environment conducive to economic growth. Any gains that will be reaped from this growth are then channeled into vital social services, such as those in education, health, and poverty alleviation. People who are educated and healthy have the capability to exploit the livelihood opportunities provided to them by business. They are likewise empowered as consumers, which further spurts economic growth at the macro level. Good governance is at the heart of his administration's socioeconomic strategy, and the people are at the center of good governance. Governing with integrity, with honesty, with transparency, with accountability, not only heals a national psyche that has long been characterized by cynicism and mistrust of government. It also provides the foundation for equitable progress. Good governance is good economics. So that's what we're trying to do in the Philippines. It takes time to build institutions. It takes time to have reforms. It's not going to be a single event. It's not going to be a single policy. It's going to be a journey. But the past year, we've had the changes across the board from policies to programs to the way we do governance in the country. For example, we've opened up the skies outside Metro Manila, which should auger well for tourism in the Philippines, which we believe is the low-hanging opportunity for our country. We're going to align this by investing in infrastructure and by encouraging the private sector to build hotels and other services for tourism. So good governance hopefully will resonate across the seas and hopefully the question that's always in the mind of investors from outside the Philippines about the way things are done in the Philippines can be answered. And hopefully with that answer comes more investments into the Philippines, which should help us build our country. So I'd like to invite you to come for a visit so that we can show you New Philippines under new management. Thank you. Thank you very much, Cesar. It's a compelling case and you've laid out a great framework for reform in the Philippines. I also want to say thank you to Ambassador Quesha for his leadership here in the United States. He's bringing that message to us and to Congress and to investors and to Filipino Americans and others in civil society here, so we really appreciate his work. And I also would like to thank the congressmen who've joined you on this trip. And I know they were here with you and the President. But thank you for coming to CSIS today. We know that your work in the area of reform and transparency in the financial sector is very important in the Philippines. So thank you for coming. I'd like to open up the floor to questions. Easy format. We just asked that you let us know who you are and what your affiliation is. And I thought I would kick off, if I could, with an initial question. And that is, you mentioned Europe and the fact that they have economic union without fiscal union. Could you talk a little bit about what the ASEAN finance ministers might be learning from the current crisis, particularly maybe looking at Europe, because a lot of people talk about ASEAN integration and they say, would that be, eventually, would that look sort of like a European model? And I wonder what you're thinking about that now. We often refer to what we try to do in ASEAN as the ASEAN way. In fact, in terms of bringing together the 10 countries, we are very mindful of the stages of development those 10 countries are in. We have, on one extreme, one of the richest countries in Asia. And on the other extreme, probably one of the poorest countries in Asia. The idea is to bring in the 10 at their own pace and take advantage where there are opportunities. For example, even before the 2015 integration, we've integrated 13 industries that we thought were already ready for integration. Among them are electronics, garments, some automotive parts. And what we've seen is that in the 13 industries that we've integrated, they've become more sustainable because the cluster is now more complete. So moving goods from one ASEAN country to another is like moving it from one US state to another. So you get the benefits of a larger market that should attract investments with scale that will have the efficiencies to be competitive in a very global market. That also improves the ability of ASEAN to become the alternative to China or even India. The vision of ASEAN is to be the hub of Asia trade. We have never talked about monetary union. I think at best, probably, we will aim for common customs border. Personally, that is something that I think would be necessary so that you cut all this arbitrage place that is going to happen if we don't try and reduce some of the disparities still that's present in our customs rates and rules. So I think we're watching carefully what's happening in Europe, but one thing is clear. Globalization is here to stay and countries will have to be part of it to flourish. And to be part of it, you must have the scale. You must build the islands of excellence that can become part of global supply chains. And that's what we're trying to do in the Philippines and the rest of ASEAN. That's why the key theme of ASEAN now is connectivity. Within ASEAN, with its dialogue partners, China, Korea, Japan, and we're trying to add India and the rest. And I think if this works, this would be good for the whole world because the solution really for the world now is for intra-Asia trade to increase with Asia as the ultimate consumer. This is I think going to be the challenge for all of us to try and shift our strategy from export to the West model to one that's export within Asia, consume within Asia. And this is where I think harmonization of policies among countries would be crucial, especially in terms of exchange rates. Because we cannot continue to use exchange rate as a tool for competitiveness, especially with what's happening now. So we're watching carefully what's happening and trying to learn from it. Okay. I thought you would have one, Nick. I knew this was a friendly. First of all, I'm Nick Small from Crown Agents. My question is, Secretary, you mentioned ease of doing business and working towards simplifying processes across the Philippines. You mentioned the National Single Window and understand there's already been great success in the Philippines with this. And I heard a number recently of close to half a million transactions already going through the Philippines National Single Window. Do you envision that the Philippines may in fact bring some of its expertise now out to ASEAN where some of the other member countries may be struggling in this area and could benefit from the experiences of the Philippines? Well, in areas where we're the center of excellence, definitely. But in areas where we have a lot of problems, I'd rather not. It's like spreading a virus and we don't want to do that. But clearly, we are working on use of technology so that we can have better information as a tool for performance measurement, which I think is key to creating meritocracy and institutionalizing the reforms that the President is trying to do. I think ultimately that's going to be the challenge for us. And I think this will take time because you have to convince everyone that they're going to be winners in this change process. And I think a lot of those that benefit from the current situation may not want that to happen. And that's ultimately the challenge for us. Mr. Secretary, Chuck Westrup from Peregrine, we've talked before about this. And I just wanted to see if you could give us an update on where we stand on the harmonization and equalization of incentives at the different free port zones and in the different areas within the Philippines. I know there was some kind of legislation going on a few months ago. And I just wondered if you could give us an update on that. In terms of people investing in the country, you go to different locations and you get different incentives. So I just would like to see if you have an update on that, of course. Well, the bill is now with the Senate and we're working with the Senate so that we can go to Baikam and ultimately have a bill ready for signature of the President. The idea is to be smart with incentives. We accept that we need incentives, but at the same time we believe that incentives have sunset provisions and that we use it to really develop industries that would not go to the Philippines without those incentives. And we're working closely with the Senate on this and we hope to finish it within the next 12 months. We have two congressmen here who've done their job already. So the Senate now is doing their job and hopefully can get back to the conference committee so that they can agree on a common bill for signing of the President. That sounds actually pretty functional. Could maybe you should transfer technology to Capitol Hill. Yes, Mr. Secretary. I'm Al Santoli, Asia America Initiative. And my question is two related components. One of which is that we talk a lot about industry and technology, but one of the greatest needs in the world and it will be increasing is food. Food, agriculture, food and water are absolutely essential. Also for investor confidence it's about stability and a sense of coherency within the 7,000 islands and the major regions of the country. Zeroing in on Mindanao which has the best potential of agriculture and also gas and oil between the Linguansan swamp and the offshore area of Palawan which also is a flashpoint for instability and conflict. It would seem that where people are more concerned in thinking about the more industrial sector that these areas like for instance environmental reclamation for the peace process to work and for the natural gas to be able to be utilized that central Mindanao area is critical. And I'm curious as to whether within the developmental plans you're thinking of tying in good governance, tying in peace process, tying in foreign investment. There are plans being made to stabilize that area by revitalizing that particular place because it's the centerpiece of climate, agriculture and energy. And then secondly tied into this, we're entering the next stage of this international economic crisis. I think it's beyond a doubt that 2012 and probably 2013 are going to be very tough years with the kind of needs that are there in terms of human development. And I agree that the Philippines best resource is its human resource is the people. And rather than so many Filipinos with their golden life to go someplace else in the world to utilize their skills to be developing it right at home so the Philippines can benefit from that. The non-governmental sector needs to have a more prominent role and what gets in the way is that when people want to be helpful far too often they get caught up in customs and that you know for you can't rely on charity but especially during the next couple of years the non-governmental sector is going to have to have a key role with education, social welfare and all these things that are important in stabilizing the Aquino administration in building trust in government. I know Ambassador Quezia's and formerly Secretary Del Rosario when he was ambassador here is very concerned about that. Are there plans being made to help streamline the process so that the non-governmental sector will not be as difficult in getting materials, resources, supplies into the country to help health, education and social welfare at the same time that you're doing the development of infrastructure and those things that would increase peace and investment? Your question has many parts now. The first part, I mean the now, the president has sent a very clear signal that he wants to resolve the conflict there as quickly as possible. In fact he flew to Japan to meet with the leader of MILF and sent a message that if they want to have peace we should have it before 2013 before the election when he is at his political peak and that's what we're trying to accomplish. On agriculture we cannot agree more. In fact we're quite pleased to announce that the agriculture actually led the growth in the Philippines the first half grew by 7.1 percent in the second quarter 5.6 for the first half but the key really is investing again in infrastructure in agriculture, investing in financial inclusivity, giving them access to financing, organizing them so that they are more bankable and to bring in business, the large business in particular to that area and that's what we're trying to do and Mindanao wants peace can be established is certainly going to play a very big role. In the budget for 2012 the president increased the budget of the Department of Agriculture dramatically with the support of Congress to build irrigation system with the goal of improving our productivity. In terms of NGOs helping out there is customs modernization act that was passed already by the lower house it's now with the senate that's one area we're looking into except that in the Philippines they take advantage of this as a conduit for smuggling so we have to find a way the right balance so that those who really want to help are allowed to do so but at the same time those who take advantage will be caught so these are all being addressed. Good afternoon Secretary Parishima I'm Mitsy Picard of Asia Society and I have two short questions. My first one is you talked about investing in people yesterday when I heard President Aquino speak at the World Bank he talked about a shortage of I believe 66,000 classrooms times 50 students. So if you have there's a problem of education in the Philippines in terms of infrastructure and school books and supplies how are you going to invest in the people? My second question is you may have answered this but I arrived late. Could you give us some prime examples of what your department has done in terms of slashing waste school spending on the macroeconomic? On the school classroom shortage we plan to use the resources of the private sector in fact the first tranche of 10,000 classrooms would probably be visited out in the next few weeks. This will be in regions 1, 3 and 14 I think about close to 10,000 classrooms and the idea is to build all of the 66,000 classrooms by the end of next year both in partnership with the private sector as well as the government doing their part. We are also looking at various models to use the capacity of private schools. The Glass Bay program has been quite successful actually in helping reduce the backlog. What's the other part of the question? The president day one asked us to implement the civil based project and we're starting to see the impact of that and we're really we change the way we utilize our resources not only in the allocation of the resources because the bulk of it is really going to the priorities of the president plus the dividend of better ratings which means lower interest cost has created more fiscal space for us to do social services as well as infrastructure. We've also had savings in terms of less corruption and less wastage for example in the part of public works we've noticed that they are saving in 10 to 20 percent initially in terms of wastage with stock projects that we believe did not make sense which has gotten us into trouble with some European countries but we are holding our ground here to send a clear message that we want projects to really make a difference and not be built for its own sake. Anjali Kodero from Down Jones and the Wall Street Journal you just referred to you know the turmoil in financial markets and you know we've seen emerging market currencies come across the world come under a lot of pressure because of the last couple days are you concerned about the drop in the Philippine peso and will you intervene to prevent the currency from falling too much? So I guess this is your two minutes already so she asked for two minutes after this. Well the central bank of the Philippines which is an independent agency headed by a monetary board allows the market to determine the exchange rate of the Philippine peso and monitors the exchange rate of the peso vis-a-vis a certain set of peer countries and making sure that the movements are not disruptive and when the movements are disruptive that's probably when they tend to make certain moves to smoothen these changes but outside of that the best thing we can do as I said earlier in my talk is really invest in fundamentals to try to invest in infrastructure and align policies so that our businesses can be more competitive that is the best way we can help our businessmen rather than play around with currency because once you do that it can lead to trade issues which we all do not want so the best thing is really to leave it up to the marketplace. I don't have a question but an offer Mr. Secretary I just came from San Francisco for the APAC meetings I was at the APAC innovation technology and trade conference one of the things that APAC after five years of hard work the subgroup on privacy has done is set up a privacy benchmark and the reason I wanted to mention this to you and I'll tell you more it's because of the BPO sector in the Philippines which as you said grows 20% today is third in the world and we have the potential of growing even further and creating a true competitive advantage if the Philippines focuses on the privacy law that's even higher than the baseline established at APAC last Sunday and we believe that it could even capture a significant part of market share from India which is nowhere near the Philippines in terms of its commitment in that area whether it's privacy or security and our chief privacy officer was one who was involved in this for the last five years at APAC and I'd like to offer HPE's assistance to the Philippines to come up with a law that will be very strong and create that competitive advantage. We'll certainly have these discussions with officials from ICD and Congress but with your support I think highlighting the impact it can have in growing this to attract the trust of consumers especially those in the financial services sector that are our customers in the BPO space but also as per technology innovation that will allow the Philippines BPO sector to move up in the value chain so that's my offer to to you. I think the two congressmen here have volunteered to sponsor your draft bill. It's striking that right to that fine balance but what's interesting is if you can position it higher than the baseline benchmark that our other APAC economists are at right now I think that would create a true commitment. I knew if I invited Elizabeth there would be deals cut in the middle of the in the middle of a seminar. Thank you. It's good to see that. Secretary before we let you go I guess there's two questions that sort of came in from the from our constituents some of whom couldn't be here because of the other the other meetings going on in town. Two questions were they're not new questions for you but the questions were on trade could the Philippines get in the game on the Trans-Pacific Partnership eventually and how do you think about that also relative to ASEAN plus three and the second question was on infrastructure earlier I think you you came last year and we talked a little bit about how you were going to structure infrastructure projects and I think at one point the plan was that the government would actually structure opportunities and offer it to the market instead of instead of the old way of you know sort of hearing what the market wanted to do and coming in although you are open to both have you had any success in that sort of structuring infrastructure deals and offering it to the market. Those are the two questions. On TPP you know the message I gave to the US trade rep is that they should try and use TPP as a way to help ASEAN integrate rather than divide divide ASEAN by just including a few members that's the first point and secondly they must be they must recognize the different situations of the different countries. Now for example in the Philippines we must divide into three categories the changes that would probably be required if we become part of TPP. First category with those that would just require executive action which should be easy. Second category would be those that require a change in law which can also be done given the coalition that the president has but there is a third category that requires constitutional change and that should be discussed but must not be a condition to becoming part of TPP because if you do that it's like saying you're not welcome to be part of TPP because of the current political situation in the Philippines we're not ready to make to have a discussion on constitutional changes but we'll certainly consider that once we have the that discussion. So and I think that should be the framework of discussion in terms of items that may need to be adjusted for us to become part of TPP but certainly President Aquino believes in globalization in free markets in the fact that the way forward is to further integrate the country into the global economy and you know we would like to work closely with the US on this. On infrastructure as I mentioned earlier we're in the process of building the first one which is a tall way south of Metro Manila and the school houses, school rooms is probably going to be the second that will be bidded out. So the trust will be biased towards solicited projects but of course we will also consider unsolicited projects provided that they are going to be it's going to be win-win for the country that it is going to be taken up in a transparent and fair manner not in a back room. The challenge for us is to make sure that the first few projects that we launch would stand scrutiny and remove the suspicions of our people so that this program can continue without problem because we will need this program to continue even beyond the Aquino administration that the the needs is so great that we won't be able to build everything within the six years of the Aquino administration. The best thing we can do is establish the right framework give it the track record so that it can be sustained beyond our time. Thank you very much sir and I'd like to ask the the group to thank me or join me and please thank me. I've always wanted to say that. Join me in thanking Secretary Parisma for his great comments today. Thank you very much.