I SPENT last weekend in Manila, attending the 45th anniversary festivities of the Genting Group, including the opening of Resorts World Manila and the senior managers meeting of Genting Malaysia.

The celebration culminated with a performance by Philippines' finest world-renowned artist Lea Salonga.

The presence of the President of the Philippines was not conspicuous, while his senior ministers passionately promoted their case at Invest Philippines.

I was pleasantly surprised at the effective manner this forum was managed by senior officials and international bankers who truly believed that the time has come for the Philippines to be noticed as a global investment destination. I should share with you the impressive case put together on: why invest in the Philippines. No doubt, there are valuable lessons to take on board.

New broom, new strategies

The Aquino Administration's social contract with the Filipinos involves inclusive growth strategies to actively promote an enabling environment for private investment and entrepreneurship; equal access to development opportunities; and effective and responsive social safety nets leading towards high and sustained growth of real GNP of 7-8% in '10 and 9-10% in '11-'16.

To make this happen, President Aquino pledged to repair and make good what had troubled investors during previous administrations, viz. (i) enforcing the rule of law for a peaceful and orderly society; (ii) instituting effective anti-corruption measures; (iii) promoting a stable macroeconomic environment; (iv) implementing sound and consistent public policies; (v) providing adequate investment infrastructure; and (vi) putting into place efficient investment programming processes.

These are bold promises. After all, the Philippines was ranked not so long ago in the World Economic Forum's bottom quartiles for organised crime, cronyism and bureaucracy.

Landing in Manila, the still unfinished international airport is visible, mired in disputes for the past eight years. Continuing budget deficits mean the government is in no position to increase investment on its own, even with sovereign bond yields at record lows. Corruption and widespread bureaucracy discourage overseas investors who have simply shied away. Of late, foreign direct investment has begun to improve; still it's on course to reach only 0.3% of GDP, much below the average for the past 40 years.

Realistically, this is what the new President has to reckon with since he took office in June, as he plots to turn the ship around.

As Aquino begins his charm offensive, there is good news. GDP growth in the first 9 months of 2010, at 7.5%, was the highest honeymoon growth in 20 years.

The economy contracted by 0.7% in the first 3 months of the Ramos administration; grew by 1.3% during Estrada's debut, and by 5.6% when it was Gloria Arroyo's turn.

Growth of 6.5% in 3Q'10 compares with 7.9% in 2Q'10 and 6.7% in 1Q'10. That's something when growth was 3.7% for 2008 and only 1.1% in 2009. Inflation has been kept low. It recorded a 10-month low of 2.8% in October and indications are that it will be below 2.9% in November.

The average for the first 11 months will be around 3.8%. For the full year, it's likely to settle at the lower end of the Central Bank's cap of between 3.5% and 5.5%. The appreciation of the peso helped. It certainly made imports cheaper.

In early November, the peso hit 42-to-a-dollar territory the strongest in 2 years, on the back of a surge in inflows of foreign portfolio investment.

A benign inflation environment is expected over the next two years. With interest rates kept low, investors have turned bullish.

The stock market soared to all time highs reached 4,397 on Nov. 4, '10 (last historical high was on Oct 8, '07 at 3,873). That's up 44% since the beginning of the year, with 3/4s of the gain happening since June 30.

Why has growth stalled

Since Cory Aquino's yellow revolution in the mid-80s, the Philippines has been marred by political uncertainty with generally unpopular Presidents, especially in the 2000s.

Politics has since become a structural constraint, joining other equally serious constraints to stall growth, including (i) deteriorating budgetary positions with high debt to GDP ratios (exceeding 100% in the early 2000s; between 70%-80% since then); debt servicing (interest payments) as a ratio of the budget exceeding 35% (now about 28%); dysfunctional government; and lack of funds to do anything significant.

Growth was essentially consumption driven, rising 3%-5% a year in the 2000s.

Glaringly absent was demand from government spending and from private investment.

In the 2000s, government output and private investment rose at a cumulative average growth rate of less than 1% a year thus denying the economy of any stimulus from two otherwise strong pillars of any vibrant economy.

In addition, bank lending was anaemic; total bank lending accounted for only 38% of GDP in '09, against ratios between 100%-120% in China and Malaysia. Lots of pent-up demand awaiting to be satisfied.

Growth framework

President Aquino is bent on turning the tables and unleashing this pent-up demand.

He intends to push the macro-drivers real hard, viz. ensuring political stability, improving fiscal affairs, pushing bank lending, getting the government to begin to pump prime, and incentivise private investment and entrepreneurship.

He has a reasonable chance of success as the economy is in a sweet spot, characterised by strong stable growth, low inflation, a still undervalued peso, an increasingly diversified export base, and a rather robust outlook on its basic balance of payments position, reflecting possibilities of a further rising peso.

Unlike its peers, the Philippines enjoy two sweet spots which underlie its stability.

First, less external exposure. For Malaysia and Singapore, net exports account for about 15% of GDP; China, India and Taiwan, 5%-6%; Thailand and Korea, 3%.

For the Philippines, its net exports is a negative 3%, not unlike India (-6%).

Second, its benign inflation trajectory places it at an advantage of not being compelled to tighten monetary conditions anytime soon (as Korea, India, Thailand and Indonesia had to).

Adding stability are another two reliable sources of growth which are stable and recession proof, viz, remittances which should bring-in close to US$20bil in '10 and its US$9bil business process outsourcing (BPO) industry, second only to India.

Consequently, its external reserves strengthened to a all-time high of US$57bil at the end of October '10, close to 10 times its imports and 5 times its short-term foreign debt.

That's a far cry from what it used to be. A key element of its growth strategy is to promote investments. The focus is on (a) creating a better business environment; and (b) promoting key priority industries.

The centre piece is to improve infrastructure through public-private partnerships. Also included are new efforts at cutting red-tape and reducing corruption. Priority industries being actively promoted include BPO/call centres, electronics and tourism.

A decade ago, the BPO/call centre services barely existed. By '11, total revenues could reach US$12bil (US$9.4bil in '10) employing 750,000 full time personnel (560,000 in '10). Big names include IBM, Accenture and Convergys. Electronics is also relatively new.

Today, the Philippines is home to some of the world's top electronic firms, including top chip-makers and four of the world's largest HDD companies (Hitachi, Toshiba, Fujitsu and NEC). Their exports accounted for 58% of total exports in '09.

I well recall the Philippines was one of Asia's top tourist destinations in the 60s and 70s. They were so successful then that ADB (Asian Development Bank) decided to site its head-quarters in Manila. Today, Thailand attracts 1.4-1.5 million tourists a month. Indonesia 600,000. Monthly tourist arrivals in the Philippines totalled less than 300,000. Asia is expected to represent 32% of global travel spending by 2020; up from 21% at present.

The Philippines plans to position itself to capture a significant part of this business.

Think out of the box

For President Aquino, public-private partnerships (PPPs) hold great promise of lifting his country from the yoke of poverty.

He realised that the government simply does not have the resources to build or to upgrade infrastructures like highways, airports and power plants so essential to propel the economy.

So, he invited private investors to provide the funding and expertise.

This pro-investor stance is vital because of the delays in the negotiation and execution (and payment) of high value contracts or worse, investors spending loads of money on research, going through bureaucratic maze of consultations and submissions, participating in long winded bidding and, after winning the contract, are unable to proceed due to some legal challenge.

These have hounded most big ticket projects undertaken by past administrations.

To resolve this, the President took the bold step to assure participants of PPPs that the government will give their money back if the regulators, congress or the courts stop their projects due to questions regarding their contracts or worse, ordered them cancelled by judicial fiat. To resolve this and get PPPs moving, he now promises reasonable returns and protection from regulatory risks.

Aquino explains: if private investors are impeded from collecting, contractually agreed fees by the regulators, courts or legislators then our government will use our resources to insure that they are kept whole.

He added that investors cannot deal with a government where the right hand is offering a handshake and the left hand is trying to pick (their) pocket.

This bold approach reflects, I think, the President's committed resolve to move forward, even if it meant being harrumphed as heretical in protecting investors from duplicities. It's an eye opener.

The President's first test comes as he lures US$17bil worth of PPPs to upgrade infrastructure and build new ones.

His new assurances to investors has to work. He badly needs to re-build credibility in fiscal affairs. In spite of persistent fiscal deficits, the Philippines remains a reputable borrower. It helps that S&P gave it its first upgrade in 13 years this November, with a stable outlook. This simply means the rating will stay unchanged for at least a year.

It's positive that spreads on Philippines debt paper have since fallen to 261 basis points, below the global average of 337bps.

I am told that external debt markets are already treating Philippines a notch or two higher in ratings.

Of course, Aquino still faces many risks, not least a possible prolonged global recession and political vested interests determined to thwart his many bold initiatives.

In the end, the proof of the pudding is in the eating. As Lex (Financial Times) noted recently: Even so, the challenge for Noynoy' is daunting, at best.