LET’S start by repeating the premise that the development of our local capital market is crucial to providing long-term funds needed both by business and the government to promote and maintain economic growth. Sourcing funds through the capital market is, we all recognize, the alternative to our over-reliance on bank financing which has its limitations.
Our policy-makers have acknowledged this and have therefore adopted a Capital Market Development Plan (CMDP): Blueprint for Growth and Expanded Contributions to the Philippine Economy covering the six years 2005 to 2010 of the Arroyo administration. This first CMDP was followed by the CMDP Blueprint Action Plan for 2013 to 2017. As this was being formulated, our policy-makers noted that “the Philippine capital markets, particularly those linked to the global markets, remain vulnerable to abrupt swings in global investor sentiments. In terms of size, the capital market remains thin, as evidenced among
others, by the limited number of listed companies. Broadening the investor base and improving bond market liquidity remain key policy challenges for deepening emerging local equity and bond markets. The Philippines needs to continue strengthening
macroeconomic management and macroprudential supervision to attract stable and long-term capital flows.” The need remains the same.
Now, is there a CMDP to cover the period beyond 2017? There should be. My understanding is that the Securities and Exchange Commission (SEC), which is the lead agency monitoring the CMDP implementation, is in the process of gathering inputs for the third CMDP from capital market practitioners and institutional participants. The Financial Executives Institute of the Philippines (Finex) proposes to assist in this effort as part of its capital market advocacy. Finex Research and Development Foundation, the Finex affiliate, has in fact provided a modest funding contribution to support the task of formulating a “Terms of Reference” or TOR that will provide the general and specific expectations of the new CMDP—the parameters for the plan and the work ahead. With the TOR establishing the guidelines, there shall be a clearer delineation of action responsibilities, between the government and private sector, among the various government agencies, and as well among the various private institutions and organizations who are major stakeholders in our capital market.
This Finex and Finex Foundation involvement is an offer of partnership with the SEC which is our central government champion for capital market development. The new CMDP will have to take into consideration and build on the accomplishments of the antecedent CMDPs. The failure to meet some targets would also have to be noted.
There’s a “CMDP Blueprint Narrative 2013-2017” publicly available on the Internet prepared by the SEC which gives the story of the first and second CMDPs in all of 33 pages. The objectives are well stated, with details of what have been achieved. But reading through the narrative, one can sense that more could have been done. I have heard the comment that the last CMDP looked more like a checklist than a plan. This is not to belittle the effort at capital market development planning which, we all acknowledge, is a most challenging joint all-encompassing effort of the government and private sectors.
In a McKinsey study, a McKinsey Asia Capital Markets Development Index was presented ranking Asian countries on how “deep” their local capital markets were. On a scale of 1 to 5, 1 meant very shallow; 2 meant shallow; 3 meant moderate; 4 meant deep; and 5 very deep. Japan ranked the highest at 4.00; followed by Australia, 3.95; and South Korea at 3.45. The other rankings: Fourth—Singapore at 3.40; Fifth—Malaysia at 3.25; Sixth—Thailand at 2.80; Seventh—China at 2.45; 8th —India at 2.30; and Ninth—Philippines at 2.25. 10th – Indonesia at 2.20; 11th —Pakistan at 1.30; and 12th—Vietnam at 1.20. The study note is by Nitin Jain, senior knowledge expert with McKinsey Knowledge Center’s Gurgaon office; Fumiaki Katsuku, partner with the Tokyo office; and Kristine Romano, partner with the Manila office. (Source: The Philippine Star, August 20, 2017. “Deepening Capital Markets in the Philippines.”)
Their concluding paragraph suggests: “Efficient allocation of funds is a key enabler of economic growth and social progress. Deepening capital markets in the Philippines should increase the flow of money to companies and public projects that can benefit society. Policy-makers can do much to help deepen capital markets. (Emphasis supplied.) By establishing pro-market policies along with supportive rules and institutions, they can enable investors to put more of their money to work in the Philippines.” When we talk of policy-makers, we must think of the Philippine SEC which rightfully is the lead government agency tasked with the formulation of our CMDP blueprint to cover the period 2018 to 2022 contemporaneous with the Duterte administration.
My understanding is that the SEC Commissioner Ephyro Luis B. Amatong is the SEC point person responsible for coordinating the joint public-private sector efforts at formulating the next CMDP for 2018 to 2022. There is urgency in these efforts. Amatong has remarked that the new CMDP must be more “sequenced” by which I think he means that certain actions need to be prioritized, whether by the government or private sector, and that priorities must also be defined by what is doable immediately. With this mind-set, we might avoid the criticism that the CMDP is just a checklist rather than a plan that is workable.
A third-party consultant will probably be hired to organize all the collated information, conduct more consultations with stakeholders, and infuse its own expertise and experience into a new CMDP for 2018 to 2022 to coincide with the Duterte administration.
What this article aims to do is simply to give notice to capital market development watchers that a new CMDP is forthcoming. Amatong met with a small group from Finex on April 23 on the process of developing the new CMDP. We shall keep you the readers posted, including how you might participate in the process.