TRANSCRIPT: Finance Sec. Cesar V. Purisima in the Euromoney Conference, March 27, 2012. Purisima: 2015 is a very important year for us in the Philippines. Thats when we will integrate as one single economic community. In an integrated Asean, the Philippines will have the second largest population and the most mobile population, and this market of close to two trillion will be a very important opportunity for us. 2015 is also the year when the Philippines will be entering the demographic sweet spot where the majority of our population will be at working age. Countries that have gone through that in the past have seen an acceleration of their growth rate. The strength of the Philippines is really in its people. Thats why President Aquino has increased the investment in its people through bigger budgets for education, health care and conditional cash transfer. The Philippines would like to position itself as the northern gateway in an integrated Asean, as well as the pacific gateway. That is why the thrust of President Aquino is to invest in its infrastructure, both through PPP and as part of budget. Were excited about the future of the Philippines because finally, I think things are aligned. We have a leadership that has the mandate; that wants to do the right thing and has the support of the businessmen. Some refer to the program of the president as Aquinomics.

Aquinomics is really about governance as the basis for good economics. And were starting to see it. We have major groups in the Philippines committing large sums of capital to the future. Its all about building confidence, having a level playing field, and a transparent environment where everyone has the confidence that they will be treated fairly.

Just to pick up on the point of Sergio. Poverty alleviation is a focus of the president. In fact, he believes that education is the great equalizer for the poor. Thats why we planned to continue to expand the CCT program until all 4.8 million families in the 5th quintile in the Philippines is covered. The program gives stipends to parents so they keep their children in schools and bring their children to health centers. This is really crucial because if we are to reap the demographic dividend, its important that our people have the skills and can be employed productively in the future Philippine economy and the future Asean. The Department of Education is also working to cut the classroom and teacher gap to make sure that the subjects being taught to the students are what the industry needs. So, weve been meeting with the industries so we can supply them with the labor that they need. The people truly are the strength of the Philippines. The president mentioned earlier about us becoming the 4th largest ship-building country. We dont have a steel industry to speak of and we dont have the cluster, actually. But what we do have is the people with the welding skills. What weve discovered is that ship-building cannot be automated completely because its custom made, its large and it has to be done outdoors; we also have the climate for a 12-month ship building. The attitude of the government of President Aquino is to take advantage of the strength weve been given. Obviously, we want to move ultimately to more manufacturing focus and more value-adding industries but right now, we have to play with the strengths that we have to make sure that we have the resources to move on to where we want to go. What is going to be crucial is continued investment in people, continued investment in infrastructure – governance, I think this is what was missing in the past; not only making sure the playing field is level but more importantly, the policies are predictable and clear. With all of these, ultimately, we will be able to reduce poverty in the Philippines. Were working closely also with the micro-finance organizations, the NGOs such as Gawad Kalinga, and the large companies such as PCCI to modify the supply chain so that we can create more value especially from other culture.

That challenge in China is actually an opportunity in the Philippines. What many manufacturing companies are finding in China is that wage inflation is quite high. In fact, last year it increased about 20% and that jump of China into a middle-aged country is also an opportunity for us because we are the youngest country in Asia. Weve seen many companies that have left the Philippines about 15 years ago starting to come back. In the area of garments weve seen three or four major relocators back to the Philippines. In terms of electronics, were starting to see those affected by the supply chain disruptions in Japan as well as in Thailand start to look at facilities in the Philippines .They want to diversify their supply chain and I think these are opportunities that we should grab and not miss. This is a rare chance that is why I think we should work together to make sure that this happens. Alignment is the key; alignment of government policies example in tourism where we opened up the skies outside Metro Manila, also supporting the legislation by removing the common carriers tax; alignment in terms of investment of infrastructure, so new airports are being built and those that are being modernized; then incentives to those who are in making investments in tourist facilities. Then, training of people; TESDA is also making resources available for tourism workers. That is what President Aquino is focusing on: making sure that in these key areas, we have alignment, because the rest is really up to the business sector to do their part.

Were a blessed country. Were the fifth most mineralized country in the world. I think we ought to make sure that when we exploit these resources, that it actually benefits the people and the communities that host these minerals. What President Aquino wants to do is to make sure that we do mining responsibly in the country. He also wants to make sure that we make informed decisions when for example, choices have to be made. In particular, were pushing tourism as a key industry. Mining and tourism may not go together in a very small ecosystem. He wants to make sure that when we make decisions, a strategic choice will be made. Hes asked the cabinet to review the policy to make sure we identify the areas that are open for mining; the sharing of revenues between the government and the private sector and the communities is one that is fair and win-win; there is a plan to restore the environment where the minerals are depleted. Mining in the past has contributed to the Philippines. But at the same time weve had cases where we had irresponsible mining especially in 2006-2008 when the nickel and chromate prices went through the roof and you had so many gravel and sand type operations of mining where they just dig holes and ship the minerals out to other countries. President Aquino doesnt want that type of mining. He wants one that is sustainable, creates value that makes sure the community it operates in is properly treated and were working closely with the private sector to make sure we create this type of environment. Mining is going to be a strength of the Philippines but we have to do it responsibly.

The fight against corruption is not going to be a single event. Its going to be a journey and we have to be all part of this journey. The president has sent a very clear signal from the top that he doesnt tolerate any form of corruption. I think since he took over 21 months ago, weve sent very clear signals by filing cases against tax evaders, smugglers and corrupt government employees every week. The first one we actually sent to jail, this was something we filed in 2005 but thats how long it takes in our judicial system. But as we continue to do this, I think were going to hit the tipping point. And this ongoing impeachment process, whatever the result is going to be another strong signal that our democratic processes are working and that the system will deal with you no matter how high you are in the government organization. As you know, corruption is about sending the right signals to both the private sector and the government because after all, it takes two to enter into a corrupt transaction. We believe that weve reduced it dramatically but we still have a long way to go. The challenge for the Aquino administration and succeeding administrations is to build the institutions because we cannot make this fight dependent on personality, or administrations. This has to be embedded within the government. In the Department of Finance, were investing with people. Were working closely with Asian Institute of Management, including the IMF and World Bank. We want to invest in our people so that they can align their interests with that of the organization and see the organization not as a dead end position but as a pass through position where they build their careers and move on in the private sector. I think that is a sustainable way to fight corruption. At the lower levels, we can compete in terms of pay. But at the top, we cannot. And the only way is to give them the opportunity in the training and exposure and then move them out to the private sector; not to just stay there and be exposed to all the temptation. That is something that President Aquino wants to be his legacy: changing the tone of governance in the country; transforming the country so we have a chance at sustaining higher growth levels into the future.

The prices need not go up for farmers income to go up. Let me illustrate. The president mentioned rice earlier. There are about 4 million hectares planted to rice in the Philippines with an average yield of about 4 tons per hectare or a total production of about 16 million tons. The demand in the Philippines is about 17.3 million tons so we have a shortage of about 1.3 million tons. But if you analyze the rice supply chain, we lose about 30% from drying and storage. We dry it on the roads and we dont have storage facilities for rice. We also under-produce of about 30% on the front end by recycling the seeds, lack of use of fertilizer, and lack of irrigation. So, on both ends you have an opportunity for 30-60 percent additional production and thats what the government is focusing on. We believe that we can do this- increase farmers income and probably keep prices stable. The amount of investment weve done in irrigation has increased dramatically and were focusing on areas that are less typhoon prone. In the Palawan area, the Iwahig penal colony is now being devoted to rice production. Rice is just one example. Reforestation, we can use rubber plantation or plant palm to the forests. You achieve two birds with one stone. And I believe the private sector can really step in here to make agriculture again the engine for growth. Were looking forward to the opportunity of convergence between tourism and agriculture. Tourism is done all over the Philippines and as markets are created in the rural areas, then there will be incentive to people to actually invest in agriculture to support the tourism areas. Theres opportunity to build a souvenir industry. In the Philippines when we have guests I always have difficulty thinking what to give our guests. And I think this is where we can use our world-famous creativity. The president is really excited about making tourism one of the integrators for the growth of the country in the future.

Excerpts from the ambush interview

On Pacquiao vs BIR

I dont think the BIR will dare harass an 8-time World champion. I believe this is just the BIR doing their job. No one is exempted from being investigated by the BIR. Even myself, they ask for my files. I think theyre just doing their job. We love Mr. Pacquiao, we respect Mr. Pacquiao. At the same time, we have a duty to make sure weve reviewed everyones income tax return. I dont think Congressman Pacquaio should take this personally. Most BIR people are fans of his. But, BIRs only doing their job. I think what the BIRs doing is to ask for documents because thats a part of audit of any taxpayer. Theyre asking for the amount of taxes paid in the US, and then the revenue from the Philippines so they can determine whether taxes are due or not. There is no harassment; its just BIR doing their job. I bet you that BIR will not dare harass Mr. Pacquiao, hes a national icon, a national symbol, a national pride. I think just like any citizen of the Philippines, we should open our records when asked for by the bureau.

On possible partnerships PH may have w China

China is the 2nd largest economy in the world, and pretty soon, we will be the biggest economy in the world. Right now, its our source of over 60 million tourists and they project that to be a source of over a hundred million tourists in 2015. Wed like to have cooperation in tourism to get a good share of that hundred million tourists coming out of China to go to the Philippines. The good news, so far, last January the Chinese tourists have become the number two in the Philippines behind the Koreans and I think all bodes well for Philippines tourism. The other good development is that a major China hotel group, Xin Jiang, if I pronounce it right, has entered into a joint venture to build about 28 hotels throughout the country. So, tourism is a major area of opportunity of cooperation between the Philippines and China. Agriculture is also a major opportunity. Mining, once we resolve the policy issue. Infrastructure, as you know your infrastructure is very impressive and Im sure you can share your technology and your experience and capital with us in these areas.

On IMFs recommendation imposing excise tax on texting

We in the DOF take it one step at a time. Were in the midst of discussions for the amendment of the sin tax law and incentives law. Let us finish that first and then lets see what are the next steps.

On applying the attrition law for 2011 performance

The important thing about that is goal setting. To be fair to everyone in the Bureau of Internal Revenue and Customs, we need to set the right goals, and the goal setting must be one that is joint- with them and with us. The challenge to proper goal setting is the quality of information that were getting on a regional level and sector. Thats why were investing in information technology so we can get better information that will now be the basis for goal setting. And when you have that, thats when goal setting, incentives or disincentives will work. If you have unfair goal, it wont work to improve performance. We need to do fundamentals first. There may be those underperforming based on record but are actually over-performing except the goals were unrealistic. There may be those exceeding their targets but are underperforming because their goals were set too low. How do you know which is which? Thats why we need to make sure the goal setting is based on information and is done jointly.

On mining royalties

I really believe that the FTAA as currently structured is the model to start the discussions for the way forward. A 50-50 partnership as provided for under the FTAA or in service contracts such as Malampaya is a good way whether the process are down or up, its 50-50. Were doing consultations and dialogue with the private sector. Initially we in the government would need to agree within ourselves and eventually we need to discuss as one with the private sector and thats going on right now as we speak. Whats important is we hear their point of view. Remember, its the people who own the minerals. The government would like to insist on a fair sharing, what the definition of a fair sharing is the thing that were discussing. This is the hallmark of the Aquino administration. Were transparent, we dont favour anyone and we are partners with the private sector. We cannot do it on our own; the private sector cannot do it on their own. We have to work together to create an environment that is truly win-win. Its not just one-party laughing all the way to the bank; it must be the part laughing all the way to the BIR also. So, its more fun in the Philippines, we laugh both ways.

On World Bank nominations

We are focused on process. We believe that the process must be one that is inclusive rather than exclusive. Im really happy that there is a US candidate who is Korean-American. And there are other candidates from Columbia and other countries. I think this is a good process. Whoever wins, we will work with them, we will support them. World Bank has been a very good partner of the Philippines. Past presidents have been great. President Zoellick is a good friend of the Philippines, he increased the commitment of World Bank to the Philippines. I look forward to working with his successor. I think its time that the process is inclusive. Its time for the best candidate to win and the process must be inclusive to do so. I am very happy with whats going on.