A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Llanto, Gilberto M. Working Paper Infrastructure Development: Experience and Policy Options for the Future PIDS Discussion Paper Series, No. 2002-26 Provided in Cooperation with: Philippine Institute for Development Studies (PIDS), Philippines Suggested Citation: Llanto, Gilberto M. (2002) : Infrastructure Development: Experience and Policy Options for the Future, PIDS Discussion Paper Series, No. 2002-26, Philippine Institute for Development Studies (PIDS), Makati City This Version is available at: http://hdl.handle.net/10419/127799 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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The studies under the Series are unedited and unreviewed. The views and opinions expressed are those of the author(s) and do not neces- sarily reflect those of the Institute. Not for quotation without permission from the author(s) and the Institute. December 2002 For comments, suggestions or further inquiries please contact: The Research Information Staff, Philippine Institute for Development Studies 3rd Floor, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City, Philippines Tel Nos: 8924059 and 8935705; Fax No: 8939589; E-mail: [email protected] Or visit our website at http://www.pids.gov.ph ABSTRACT Global markets for goods and services have opened for countries that have made substantial investments in technological innovations in transportation, communications and production techniques, inventory management and the rapid rate of innovation in financial instruments, among others. This study presents in broad strokes a chronicle of infrastructure development in the Philippines in the last twenty-five years. It covers the infrastructure experience across the Marcos regime to the Estrada administration. The main objective of this paper is to flag those gaps and issues for future research, policy analysis and policy formulation. It calls particular attention to several constraints, e.g., large budget deficits faced by the national government, inefficient government implementation of infrastructure projects, unclear policy and regulatory framework for private participation in infrastructure. Among others, it brings attention to the design of the regulatory framework for infrastructure that would be necessary to motivate private sector participation. It is important to consider an appropriate regulatory framework to ensure fair competition, adequate returns to the private investor and consumer welfare. It is equally important to develop the appropriate incentives that should inform that regulatory framework. Keywords: infrastructure development, infrastructure policy, regulatory framework, private sector participation, incentive structure Revised 4/01/03 INFRASTRUCTURE DEVELOPMENT: EXPERIENCE AND POLICY OPTIONS FOR THE FUTURE Gilberto M. Llanto1 I. INTRODUCTION An economy that fails to adjust and become more competitive in today’s emerging world environment suffers the consequences of lost markets and investments, slower growth2 and higher unemployment levels (Llanto 2000). But if nimble adjustment and competitiveness are key to keeping and opening new markets, generating investments for more growth and a higher employment level in the future what can bring these about? What then, drives a country’s competitiveness in the emerging world environment characterized by highly mobile factors of production, trading rules drastically changed by global economic integration and fierce competition for investment capital? What shall make for a competitive Philippine economy in the global marketplace, a “harsher environment” (De Dios 1996) for business and just about everything else? Paderanga (2000) points out the realities: production and distribution processes are intertwined with cross-border suppliers and contractors defying the old, established rules; components of a product are sourced from different locations, assembled elsewhere and distributed by a product coordinator to web surfers in the cyber world; together with disaggregation in commodity trade comes a parallel disaggregation in the type of financial capital deployed. The answer seems to be that global markets for goods and services have opened for countries that have made substantial investments in technological innovations in transportation, communications and production techniques, inventory management and the rapid rate of innovation in financial instruments, among others. This presupposes a stable macroeconomic environment that encourages domestic resource mobilization. To do otherwise is to face the consequences of the “harsher environment.” Fabella (1997) citing the successful Taiwanese experience in economic development indicated the importance of upgrading the general economic environment. Upgrading 1 Deputy Director General, National Economic and Development Authority (NEDA) and Vice-President (on- leave), Philippine Institute for Development Studies. The author would like to thank the following staff members of the NEDA Infrastructure Staff for their invaluable assistance: Assistant Director General R. Reinoso, L. Quitoriano, L. Abellera, J. Solidum, R. Guinto, N. Prudente, A. Paglinawan, F. Medina and other staff members. G. Laviña (PIDS), L. Calima (PIDS) and R. Morales (NEDA) contributed to section 2 of the paper and provided excellent research assistance. The views expressed in the paper are solely the author’s and do not represent those of PIDS and NEDA. 2 Habito and Lanzona (2002) caution about the danger of “jobless growth.” consists of: (a) macroeconomic stability and (b) the provision of competitive infrastructure. Competitive infrastructure is of two types: hard and soft. The former refers to infrastructure in the form of roads, ports, telecommunications and shipping. Soft infrastructure consists of peace and order, that is, governance and human infrastructure in the form of skilled and educated labor force in a predictable labor market. Thus, Fabella’s hypothesis is that once international factor mobility is assumed, inter-country differences spelled out by soft and hard infrastructure determine where factors of production will choose to be employed. The implication is that the drive for competitiveness is motivated by the availability of “immobile factors with which mobile capital combines to produce value added” (Fabella 1996). The paper does not deal with “soft” infrastructure3 but focuses on the country’s experience in the last twenty-five years on infrastructure development and options for the future. An understanding of the experience helps identify directions for research and infrastructure policy and institutional responses in the future. The paper has four sections. After a brief introduction that lays down the motivation of the study, the paper discusses infrastructure development in three parts. Section II presents in broad strokes a brief chronicle of infrastructure development in the last twenty-five years. The main objective of this section is to flag those gaps and issues for future research, policy analysis and policy formulation. Using available data, it starts with the Marcos administration and ends with the report on infrastructure development in the Socio- Economic Report 2001 of the current Arroyo administration. It also provides an outline of the outstanding issues in each sub-sector. An obvious limitation of the section’s analysis is the non-availability of consistent time series data on the different sub-sectors of the infrastructure sector4. Where data are available, they are sometimes inconsistent, owing partly perhaps to change in definition, etc. Section III provides a summary assessment of the performance in the last twenty-five years. It calls attention to several constraints to infrastructure development, e.g., large budget deficits faced by the national government, inefficient government implementation of infrastructure projects, unclear