Incubating PERA

YOU KNOW A PIECE OF LEGISLATION is truly great for the life of a nation if it takes an eternity to enact. It may be the mark of an immature body politic that the public benefit promised by a reform law is directly proportional to the voracity of vested interests gnawing away at it the way piranhas would dispatch a capybara. An alternative theory (one that's less uncharitable): the more noble the agenda, the less useful it can serve as a fulcrum for blue-ribbon grandstanders to elevate their prestige at their enemies’ expense. (Or, what is ANC for, but to give us continuous coverage of our government’s lurid absurdities?)

But once in a blue moon, lawmakers do actually come through. In August 2008, after nine arduous years in the cellar, the Personal Equity and Retirement Account (PERA) Law (R.A. 9505) was finally passed. This is the Philippines’ equivalent of the US ERISA law of 1974, which created the now-famous Individual Retirement Accounts (IRAs) – which in turn are now bemoaned to have halved in value since the start of this year. Altogether, IRAs have created a whole lot of good for US citizens. So if you feel the pain of the impoverished American, who now finds his IRA glass half full, spare a tear or two for Juan dela Cruz, whose PERA glass has yet to be created – because the myriad regulators are still struggling to cobble together the law’s implementing rules and regulations (IRRs).

Though I may sound wholly ungrateful, I am not blind to the heroic husbanding of the PERA law by the Philippine Stock Exchange (PSE), the Bangko Sentral ng Pilipinas, and other members of the Capital Markets Development Council. These folks' dedication reassures me that patriotism is alive and well, even among the suits and the bureaucrats. I’m sure it was more than just the prospect of a profitable “Big Bang” which kept them faithful to the cause during the years in the legislative wilderness. Let us be thankful for what we have achieved so far.

Yet much remains to be done. Banks, insurers, and other players in the financial markets may salivate at the forecast income from PERA, but many have made the observation that the devil is in the details. The coming PERA ecosystem will initially be messy and complex as a result of the wide range of investment instruments encompassed, a host of tax questions, and the need to quickly grow whole industries to fill key vacuums in the ecosystem. Overlaying all this nitty-gritty is the continued fragility of political will. (Surprise, surprise! And you thought PERA’s political chapter was all over.) If, hypothetically speaking, you’d like to close your term in Malacanang with a minimal deficit or even a balanced budget (global recession notwithstanding), wouldn’t it be tempting to defer PERA’s IRRs, thereby bequeathing the negative fiscal impact of PERA’s tax incentives to your successor?

Let’s hope it doesn’t take nearly another decade to produce the PERA IRRs. But maybe PSE President Francis Lim has the better prayer in that he wishes for a pragmatic, workable set of IRRs: palatable to both the participating financial institutions and the average Filipino investor, while sufficiently protective of the latter. Never mind another prolonged gestation, this school of thought goes – as long as PERA does not emerge stillborn. For it would be tragic farce if, when PERA’s full framework is finally unveiled, nobody comes. To make the IRRs work, we’ll need everybody’s voices. The market players will need to actively engage the regulators, and also to begin whetting the investing public’s appetite so as to create a groundswell of expectation and impatience.

I have a dream. I dream that one day Filipinos’ savings rates might approach those of our neighbors in East Asia, and that we might finally become the latest tiger economy. I dream that, thanks to a rising tide of long-term monies provided by PERA contributors, there will be patient capital available for longer-term purposes in infrastructure and other industries, and that domestic employment might blossom, thereby reversing OFW deployments and the hollowing-out of Filipino families. It is a captivating pipe dream. By itself, PERA will not magically bring this dream about and cure all ills, though it would be a great help in this. At a higher plane of analysis, better governance is really the chief key to improving the climate for both the propagation of capital and the retention of human talent.

Better governance is not a destination or a summit, but is instead a never-ending process, and a practice. One small way we as citizens can practice demanding better governance from our government is by pressuring our PERA regulators to design the IRRs reasonably well (not make them overprotective, restrictive, byzantine, and loophole-ridden) – and to please finish the job at least within our lifetimes, for God’s sake.