Foreign investments: For denationalization and privatization

EN PI
Resize text: A+ A- Reset

Last year, the Aquino regime allocated an additional `142 billion for infrastructure projects under its Public-Private Partnership (PPP) scheme to entice foreign investors into entering joint ventures for these projects. Aquino and his economists claim that foreign capital will jumpstart the local economy, develop the corresponding industries and create demand for new industries and new employment.

Nonetheless, decades of such practice have proven that foreign investments will not bail out the bankrupt local economy. They promote the denationalization of the economy and the privatization of social services. They perpetuate the backward and non-industrial state of the local economy as a base for cheap labor and natural resources. Therefore, foreign investments are clearly not the solution that would lead to economic development. They are, in fact, the problem.

Privatization of income

The PPP scheme is one of the programs designed by the World Bank and International Monetary Fund to push for the privatization of public utilities and services. Technocrats from the International Finance Institute, a corporation under the IMF, serve as consultants and provide credit to fund these projects.

Under this scheme, local bureaucrats enter into joint ventures with foreign businesses to subsume under the latter’s control the rehabilitation and operation of public utilities such as roads, mass transportation and hospitals, among others. Foreign companies involved in the PPP do not bring in any new capital to the country. The type of investments they bring in to these projects have to do with changes in management and sourcing of funds.

In the case of public utilities where it is the public that primarily avails of the services provided, “foreign investments” are raised using funds from the national government and insurance institutions like the GSIS. These come in the form of investments in public institutions, various subsidies, providing collateral, guarantees or direct credit to special consortiums handling all aspects of the project through securities and other financial instruments. When the foreign and local companies default on their payments or in the case of “failed” projects, the private companies’ debts are assumed by the government and the public that uses the service and utility in the form of higher fees. Worse, the government will pay the local and private corporations for their production capacity and not for the services actually consumed by the public. A striking example are the independent power producers which have been promised state subsidies for the energy they produce, whether such is utilized or not.

Foreign companies join the PPP scheme only when there is low financial risk and they are assured of income from the public’s long-term use of their utilities and services. In reality, they rake in huge incomes for an indefinite period from these projects.

Denationalization of local industries

Contrary to the regime’s claims, neither will foreign capital breathe life into the country’s moribund and flimsy industrial base. According to the Board of Investments, a large portion (75% in 2011) of foreign capital goes to special economic zones, special enclaves focused on the local operations of foreign businesses. Most of these enclaves, however, end up in the hands of enterprises engaged in business process outsourcing. Out of more than 200 enclaves in the country today, 134 are information technology parks/centers or call centers and offices for medical transcription and other clerical work, with only 69 export-processing zones devoted to manufacturing.

Factories and offices in the special economic zones are dependent on foreign businesses and imported materials. Except for cheap labor, local industries hardly contribute anything in most of these zones. Call centers specialize in providing clerical services to overseas clients. Factories in export-processing zones are merely part of a long assembly line of products manufactured in other countries (currently, China). Spare parts assembled in the Philippines are cheap, do not need high levels of technology and therefore have low value added.

There is none or hardly any processing being done by foreign companies to the raw materials they export from the country. They are able to export natural resources such as agricultural products, minerals, logs and natural gas without any obstacle. The process of manufacturing and transforming minerals and natural gas to products and energy is done in their own country or elsewhere. It is in these countries that significant employment is generated, including those needing high levels of skills, and it is also here where there is high value added.

On the other hand, foreign companies enjoy tremendous benefits in the special economic zones. They are able to take advantage of cheap and docile labor due to the sheer number of the unemployed and the relatively low cost of public utilities (compared to other countries). With the help of reactionary labor laws, workers are further squeezed, and their rights and interests suppressed.

The companies enjoy so many financial and commercial incentives from the reactionary government. Among these are exemptions from all tariffs and other taxes on imported materials, machinery and spare parts aside from exemption from all national and local taxes (up to ten years on income and corporate taxes, wharf and export taxes and VAT on their local needs). For the past several years, the reactionary government has been exacting more taxes from the masses of workers and salaried employees compared to the combined taxes of all foreign businesses.