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Edwin Tuyay for Asiaweek
SM Department Store will spend over $200 million to compete better

Liberalization, Part Two
Finally, the Philippines is opening up again

Among the legacies of former president Fidel Ramos was the opening up of key sectors like telephones, transport and banking. He left more reform bills to his successor Joseph Estrada, who cited them as priority measures in his June 1998 inaugural speech. But the bills languished, as Estrada tried to liberalize by constitutional amendment instead. His tack proved unpopular, so he has gone back to Congress to further open up the economy. Estrada has certified five major reform bills as urgent, covering retail, power generation, the stock market, banking and e-commerce. Now, these measures look set to finally transform the economy.

The Retail Trade Act is already law, and some of the world's major retailers are beating a path to the Philippines, a highly Westernized market of 75 million people growing 2.3% a year, one of the fastest rates in the world. By mid-April, the Securities Regulation and Enforcement Act, the Power Sector Reform Bill and the banking amendments law may already have been enacted. Then Congress is expected to pass the e-commerce legislation in July.

"These laws will make the Philippines connected to the world economy and encourage foreign investments," declares President Estrada. And boost confidence in his administration, add Finance Secretary Jose Pardo and Trade and Industry Secretary Manuel Araneta "Mar" Roxas. Peter Wallace, president of AYC Consultants, agrees: along with the increasing clout of the Economic Coordination Council, which includes Pardo and Roxas, "the bills should help regain confidence." That has suffered due to Estrada's declining ratings and, of late, a new movement to press for his resignation (see NATIONS, page 23).

For businessman Roberto Romulo, the e-commerce bill is most important: "If we don't have it, nobody will do business with us." The law will establish a legal framework for doing e-business with digital signatures and a dispute arbitration mechanism. With automotive giants GM, Ford, and DaimlerChrysler buying components online, Romulo reckons, "that alone is a $500-billion-a-year business. If the Philippines is not on the Internet, it would be bypassed." Romulo, head of the e-ASEAN Task Force on information technology, says Malaysia and Singapore already have e-commerce laws while Thailand is about to enact one.

In terms of immediate benefit, Pardo says the Power Reform Bill is most important. The law will allow new electricity suppliers, while still regulating distribution. And, says the finance chief, "it will release $960 million in loans and grants" held up by lenders worried about subsidies for National Power Corp. That concern will disappear once the electricity law privatizes NPC and ends subsidies of more than $70 million a year. Estrada expects $250 million from the sale of 70% of NPC assets, though the government and consumers will need to fork out many times that to service the company's $12.5 billion in foreign debt.

Officials are looking to the Securities Regulation and Enforcement Act to shore up confidence in the Estrada administration. Perceptions of cronyism have driven away portfolio investment, amid allegations of interference in a stock-manipulation probe involving BW Resources, a firm controlled by Estrada's friend Dante Tan. The law aims to promote fair stock trading and strengthen protection for investors by increasing 100-fold the fines on insider dealing and price manipulation, among other changes. But implementation is key. After all, it was not poor rules that hit confidence in the market, but the perception of lax enforcement, particularly with BW.

Amending the Banking Act will allow full foreign ownership of ailing banks and up to 40% of other banks, improve transparency, tighten regulations on loans to related parties, and require prudential standards in sync with the global banking system. Congress had managed to wade through the ponderous 200-page tome. With a fine-toothed comb, adds its House sponsor Macario Laurel, "because banking is about economic power and economic power is political power."

If the four bills are passed, says Luz Lorenzo of ATR Kim Eng Securities, "there will be the sense of change for the better." Confidence was already apparent, says Pardo, with Manila's five-times-oversubscribed long-term bond issue of $1.6 billion. "It is a seal of good housekeeping by the lending and investor community," says the finance secretary. "They view us as having satisfied the requirements of openness, globalization and liberalization."

Multinationals are also voting with their dollars. The Retail Trade Law has lured France's No. 2 retailer Casino to buy the 11-store Uniwide chain for $100 million. Also showing interest in entering the Philippines are America's Wal-Mart, Price Club and Price Smart, and British retailer Boots. AYC's Wallace cites one problem with the retail law: the requirement that 30% of store merchandise be locally made. But he suggests a fix: counting purchases of Philippine exports by foreign retailers as part of their local-goods quota.

Will domestic firms suffer? "We will compete," assures Teresita Sy Coson, president of top retailer SM Department Stores. "We know the local market better." SM is spending nearly $200 million over the next three years on five new stores, each averaging 50,000 square meters, plus $7.5 million to upgrade its computer systems. Ultimately, she says, "the consumer will benefit from openness." Indeed, one wonders why the reforms have taken so long.

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