The Wallace Business Forum | September 9, 2015


This is quite a negative report, but it is based on the facts of the cases covered. It is, therefore, a report the government should accept and take action to correct as it does not give a picture of a government that cares for investors and wishes to treat them well.


We have talked often of sanctity of contracts and the need for government to maintain consistency in what it does, particularly as it transits from one administration to the next, but also within an administration. And within this administration there have been too many very worrying violations of contracts.  Which, coupled with much delayed payments of VAT refunds and other financial obligations sends a disturbing message of a government whose word can’t be trusted, whose obligations can’t be expected to be met. One wonders if the President is aware of what’s going on under him.

The recent one we, and many, many others, have brought up was the mess that has been created at MRT-3 through cancelling a successful, working contract by the Department of Transportation and Communications (DOTC) to give to an unknown, untested newcomer for supposedly potential cash savings that will now cost hugely more. Then there’s the MWSS violating the agreements with Maynilad and Manila Water putting a hugely successful turnover at risk. Add to that the fight between the BCDA and its lessee, the Camp John Hay Dev’t Corp. (CJHDevCo).

Then there’s the court ordering PIATCO be paid – and the government ignoring the order, a court order. Earlier a critically important project, an air navigation system, was held up for 21 months for no valid reason. Then there’s the Poverty Eradication and Alleviation Certificates or PEACe bonds where the Bureau of Internal Revenue (BIR) reneged on its promise that the bonds would be tax free. Fortunately the Supreme Court recently ruled against the BIR and favored the financial institutions that invested in the bonds. But the attempt had been made when a responsible government never would. The very fact that it was attempted makes investors wonder when such an attempt might succeed. And they don’t invest.

Then there’s VAT refunds due to companies that were promised VAT free transactions that take months, even years to obtain. If they are refunded at all. No interest is paid on the overdue payment. But the damage to the government’s reputation had been done.

There seems to be an inability of Philippine governments to understand that contracts are inviolate. Only courts can cancel them, or unilaterally amend them and then only for valid legal reasons confirmed by a court of law after thorough evaluation.

Investors look for stability, a consistency and predictability of the business environment. Rules must not be changed on a whim, mid-game.

The Philippines is lagging behind in attracting investment. One of the reasons is changes of policy from one administration to the next, or even within an administration. This includes changes in contracts.

No question all these issues need swift resolution, and only the President can do it. He must order his government to go back to, and adhere to the intent of the original contracts in each case. Prove his government sticks to its word, and honors its commitments. It would be disappointing if he leaves office with such a poor record hanging over him.