The President’s “sweet spot”

An interesting dinner with colleagues in media, upon the invitation of a foreign visitor affiliated with an overseas investment analysis firm.

Random notes from the freewheeling discussion:

1. The impeachment timeline

60 session days for the impeachment complaint to be resolved and then decided in plenary, equals 15 weeks. So that means the impeachment complaint wouldn’t be voted upon in plenary, or before the House of Representatives as a whole, until October. It could get further bogged down there, until say, November. By this time, Chief Justice Hilario Davide would have retired, and most likely replaced by Justice Artemio Panganiban.

During the 15 weeks the impeachment complaint is debated in the Committee on Justice, the President’s team has a chance to mount a dress rehearsal of the defense in the senate; the opposition, on the other hand, in undergoing the same process, perhaps hopes it will raise the political temperature. There is the risk, of course, people will get bored, and tune out. The majority seems inclined to push forward an interpretation of the rules that says failure to have reached 79 signatures on the day of filing means the impeachment complaint is stuck in the Committee on Justice for the full 15 week period. The process is full of inherent risks: a few good witnesses, too much legal maneuvering by the majority at the expense of the minority, bungling by the minority, could lead the process either way.

The Speaker is widely considered to be holding his troops in reserve, to continue pressuring the President to support charter change. But I personally doubted this, as it’s the kind of card the Speaker can only use if he wants to bring not only the President, but the system, crashing down. But say he says, “I will have my people sign the impeachment complaint to send it to the senate,” what will he gain? Well, the possibility that upon the President’s removal from office, her successor will be more amenable to really pushing for the Ramos plan. So perhaps it is something he’s using as a means to pressure the President.

2. The President’s “sweet spot”

The analyst suggests the President is in a “sweet spot,” economically, because of a sort of circular arrangement. Filipinos are not only still going abroad, but are increasing the percentage of better-paying jobs they’re holding overseas; they in turn, are sending remittances that keep increasing year after year; the majority of funds sent by remittances are immediately spent, which keeps the economy turning over; the money flows through banks and other channels, which in turn benefits the banks, both through surcharges and because, apparently, the amount that’s stuck in the banks grows by 10% every year; the banks, in turn, for lack of any better investments to make (that is, they lend out less and less to people), put their money in government bonds, which in turn, allows the government to keep itself afloat, financially. So overseas Filipinos, their families, the banks, and the bond market, are keeping the President buoyed up, the economy fairly in a good way (the analyst says the end of the year will provide the President numbers to crow about, such as our growth rate finally matching that of Malaysia while the numbers for Korea and other countries in the region begin to shrink).

The analyst says the recent Economist article comparing the Philippines to Argentina is “crap,” suggesting that the constant inflow of foreign exchange from Filipinos abroad, the relative stability of the Peso, and the distinction between foreign and local debt works more to the Philippines’ advantage. I must confess I got rather lost at this point, but he seemed fairly confident the country definitely doesn’t look like it’s going to undergo an Argentina meltdown anytime soon. Unless, of course, there are massive layoffs of Filipinos abroad, or if the political crisis is resolved in a messy way, such as a junta.

3. VAT is more necessary for patronage

The securities analyst suggests the President’s fiscal management isn’t so bad, actually, and that over the next few years, we’re actually headed towards a balanced budget. What would get us there sooner is to purge the civil service of thousands of redundant, incompetent, or politically-placed employees, but to do so would be political suicide. Hence, the budget deficit has to be eliminated very slowly. But it can be done, says the analyst, because it is already being done.

So what’s the VAT law for? The VAT law covers the need for patronage; that the funds sourced via the VAT are what would pay for the projects and pork barrel needed by politicians beginning the end of this year and accelerating next year, as they prepare to seek reelection in 2007. Now that the President is fighting for her political life, she needs to be prompt (though alone of recent presidents, she has actually been prompt and conscientious about the release of pork barrel funds to the provinces, which is why provincial leaders like her) with patronage funds, to keep everyone happy, and loyal.

4. The unfinished story of the tapes

So far, PCIJ traces the “Hello, Garci” tape to Agent Doble talking about it while drunk, leading to the opposition hearing about it and procuring the tape, through fair means or foul. But why did Doble only blab about it a year after the events? Could he have been deliberately assigned to leak the story? There remains much more to the story, including why the tape was leaked, and what other tapes there might be. Colleagues there hinted they are working on the story and have a suspect or a few suspects, in mind. Motivations are interesting, too, ranging from revenge, to boosting retirement funds, to any combination of these.

5. Where in the world is Garcillano?

ABS-CBN in advance of Newsbreak, released today a story on how it’s sources have confirmed that Commissioner Garcillano left for Singapore, and after an overnight stay, took a commercial flight to London (one journalist: how did he get a visa?). No news as to whether he stayed in London or went directly somewhere else -and why London, and where would he then go? And of course: doesn’t this mean he’s never coming back? What will be the consequences of his disappearance, involving, as it does, the connivance of government authorities in immigration and the airport? The House of Representatives will surely be ticked off.

6. Cha-cha

Two contending opinions on this. One, the President is half-heartedly proposing charter change to satisfy the demands of former president Ramos and Speaker de Venecia, so that, when the effort collapses, she can say, “well, it’s not my fault your idea failed,” leaving her as the only option until 2010. Or, the President will sincerely push it, and has her consultative commission as her ace in the hole, as people like Prof. Jose Abueva, suitably ego-massaged by being appointed to the commission, will then help sell the idea to the public. What of the Senate? Some say the Speaker is working on “sweeteners” that will ensure senators a seat in parliament for the duration of their existing terms, and some sort of gerrymandered solution to ensure them bailiwicks they can be elected to, afterwards. It might be enough to convince senators with regional bailiwicks (such as Lito Lapid, for example) so sign on. But opponents of charter change only need 6 senators to steadfastly resist the effort, for the effort to fail.

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Manuel L. Quezon III.

31 thoughts on “The President’s “sweet spot”

  1. Interesting discussion, loved to have been a fly on the wall. Just some comments on the economic issues raised. Well, the Philippines is next only to Japan in Asia for having the largest foreign debt. And if credit ratings sink further, servicing of current and future debt would be more strain on cash flow and the budget, possibly devalue the peso more, etc. So this is where the VAT comes in, as this is this is the one factor the international finance community regards positively, of course not to be used for pork barrel, but to help straighten out the country’s finances.

    By “increasing percentage of better-paying jobs” I’m sure that refers largely to Filipino nurses in the U.S., who are getting some of the best pay in the U.S. right now. A household with both spouses working as nurses easily earns a good six-figure income in U.S. dollars. Many of the newly minted nurses in the U.S. are Filipino doctors who left for “greener” pastures. This group on the average is better educated that your typical OFW and I suspect these folks are remitting some serious money back.

    It’s starting to look like our economic path is getting similar to India’s (the largest democracy in the world), which targets more service and intellectual jobs, rather than China’s, which is more manufacturing. As in India, call centers have cropped up in the Philippines, as well as in Russian, which is also keen on service/intellectual professions. but certainly not in China.

    I don’t think we’ll ever be as comepetitive as China, or Taiwan, Korea, and HK, in manufacturing, but in service and intellectual professions, I do think that Filipinos can compete against anyone. The key, of course, is to invest more in education, training, and research.

  2. Interesting discussion as always 🙂 It does sound a bit more hopeful than what I’m used to hearing these days, which is a welcome respite. Thanks, mlq3! Reading your blog has become a daily habit for me.

  3. I would agree with Alex that the VAT is more needed in order to satisfy the credit ratings agency, IMF, ADB and other international institutions. Plus as we really need to improve tax collection. And one of the economic strength of this seems to be in service and intellectual professions. There has been an increase in the numbers of OFW and the establishment of offshore centres and data factories in the Philippines. We still have to improve the education system or else. I

  4. mlq3, eureka! the solution to the country’s economic crisis is for all able filipinos to get out of this country and find a ‘safe’ job like nursing and caregiving and to leave this country peopled with no one but the beneficiaries of pork barrel and all the people (in the civil service) they have “politicially placed” (what a euphemism for palakasan!). great! bravo! long live filipinas! i am proud to be filipino!

  5. Galing! galing! You are doing your regular blog readers real great service when you “report” this types of meetings very comprehensively, mlq3.

    maraming salamt po

  6. hmmm cheesy discussions but not so sweet a future to pin my hopes for a better philippines but not necessarily mean that am about to leave the country. he he he

    i agree that the VAT is there for upscaling our credit ratings. and obviously, it is meant to generate more funds to buy-out political survival.

    i believe that the idea of consultative commission is not even the president’s idea just to make sure that the public will not perceived the entire chacha thing as the fvr-jdv plan. heard that commission before when the office of the special concerns under then norberto gonzales and then presidential adviser on constitution reform camilo sabio [who happens to replace haydee yorac at the PCGG] flaunted it way back. the two, i believe, wants the changes through conass.

    anyway, lagi na lang akong “i don’t believe” he he he.

    now i know kung bakit ang KALAYAAN COLLEGE unanymously support PGMA unlike U.P….scratch my back and i’ll scratch yours pala…

  7. Virgil Garcillano: International Man of Mystery!

    As you noted, the report was Garci escaped in a government aircraft from Subic to Singapore, where he boarded a commercial jetliner bound for London.

    Rumor has it that eyewitnesses saw Garci in first-class accompanied by a blond bombshell. They were both sipping Dom Perignon and exchanging sweet nothings. Garci, of course, was dressed totally incognito: red, low-waist bell-bottom trousers, matching white belt and chukka boots, and tight-fitting ruffled shirt with flower-power print unbottoned halfway to
    reveal his hairy chest.

    Like his colleague, Austin Powers, Garci will be cryo-frozen in a secret facility in London, to be thawed out in 2010 when his comelec services will be sought again. Bidding for his services is expected to be spirited. An obscene amount of jueteng money would have to be raised by interested parties, shall we say to the tune of One Billion Bollars! Believe it or not.

  8. I think Alex’s point that the Philippines will follow India rather than China in being oriented more to services than manufacturing, is an important one.

    Still there are services and there are services. India’s booming services sector is based on progressively adding value. When I first used India for typesesetting in the late 1980s, the firms we used were cheap but nasty. Over the last 15 years they have got better and better and are now able to compete on quality as well as price. as a result, publishers are sending their high-end work to India now (which is much more profitable for the typesetter). The same applies to software — companies began with the most basic sort of programming but now handle all kinds of sophisticated work.

    I don’t know much about call centers, but it seems to me that there are not the same opportunities to add value to this business. OK the Philipines can stick an English speaker at the end of a phone but then what? how do you build and add value to that? There may be ways, I really don’t know.

    Critically , a service-based economy specializing in so-called knowledge industries has to invest in its people. And that is where the Philippines may pay for the many years of neglect of its education sector.

  9. buying time… GMA has been quite successful so far, with the impeachment proceedings waiting to see the light by october or november (not surprised if moves on to 2006)the media being manipulated outright… it is anticipated the next media blitz would be mounted against the senators not in favor of Con-“ass”,from a pack of frenzied ass lickers of course.. but then christmas is just 5 months away imagine all those promises GMA would have to give until xmas day just to make sure she stays in office…ho ho ho…

  10. torn, Aside from call centres there are of course data processing centers medical and legal transcription services, abstracting & indexing services, even scanning and data formatting, technical support service, even acccounting services. Call Centres may be taking the limelight but there are also a lot of potential services than can be offered.

  11. The analyst’s views are sound. He is correct in saying that we are in a conundrum that the brain drain is in fact keeping the rest of the country afloat despite all of our politicians stupid shenanigans. Bizarre that not a single newspaper has pointed out the fact that we laud the USD7 billion in remittances from 7 million OFW’s abroad…sounds fishy??? Darn right…that’s only USD1,000 per worker or USD83.33 a month. Even the household workers in HK earning USD400 send on average half of that home. The same is true for seamen, nurses, computer workers, etc. What I am saying is that the real figure coming back is perhaps twice or thrice the USD7 billion coming through official remittances and banks. Without these remittances we are totally sunk. They are funding the vast majority of money swirling around malls, buying idiotically priced education plans that have mostly failed, purchasing houses that are sold for three times it cost to build them, on and on I could go for hours. Worse yet, global interest rates are extremely low and they would have to rise on the order of say 5-7% before real pain occurs on the interest side of the national budget. Further, weather has been wickedly good the past 3-4 years without major storms wiping out rice or other crops. Finally, our exchange rate is, in my opinion, outrageously overvalued so we continue to import items with all the money that workers send back. All of this is a recipe for long term disaster but short term wonder and surprise a la “Oh, aren’t we just poised for a bloody good takeoff…” more outrageous fecal matter material if you want my two cents worth. Unfortunately we treat Filipinos like dirt and don’t provide job opportunities so they do the gut-wrenching move of seeking work overseas only to inadvertedly sustain a rotten system back home. If the world had truly free trade that included free movement of labor this country would have about 200-300 people left… and all of them would have vehicles with plate numbers 8 and less!

  12. Tourism could have been an option, with all the Filipinos abroad to be tapped. But we’re way behind Hong Kong, Macau, Thailand and Singapore. Those places already have plans and projects in place. Hong Kong and Macau are booming. Grabe the construction going on in those places. They are going to need lots of manpower. At least one thing’s for sure, they’ll be employing lots of Filipinos. Sayang, because we really have much more beautiful places to offer. Only we have not planned well. Oh well, we can still count on our balikbayans to make occasional forays back home, that’ll be about it.

    As for investing in education, it will have to be carried out by the private sector. The government has neither the funds nor the inclination. Since the private sector will be driven by profits, it won’t be cheap.

    Alex- The Republican Party may hire Garcillano for the 2008 Presidential elections. They have to think of new options. Bistado na yung gimmick nila sa chads in Florida and crowding the voting booths in Ohio to prevent minorities from voting. And they will pay any amount just to deprive Hillary Clinton of the White House! Are you Garcillano’s manager? You will make a fortune.

  13. As far as India vs Philippines in IT. Here is the advantage of India. Our IT workers leave the country as soon as they get 3 or 4 years experience. And it would appear our pool of talent never gets the critical mass.
    India has at least two mini-Microsofts doing billions in business a year– Wipro and Infosys. We could be doing what they are doing. Hopefully it is not too late to catch up.

  14. Carl. I know, I’m in the wrong profession. I wish I applied to Garci sooner. Si Chavit yata yung na-una.

  15. Someone told me the other day that what helped IT really turn the corner in India was the dot bomb collapse in the States in the late 1990s. Many Indian IT professionals were thrown out of work and returned to India with their expertise, capital to fund businesses, management experience, and contacts with American clients. The steady growth of the Indian IT sector changed to a dramatic upward curve from that point on. There is a lesson for the Philippines in that.

    Juned — you are right and I can see that the businesses you mention would have more potential for value added than call centers.

  16. Not to hijack the thread, but overhauling our education sector — which it badly needs — to put it at par with the rest of the world may mean putting in place politically unpalatable changes: increase in number of school years, curriculum revision, stricter teaching standards, stricter aptitude tests, etc. I don’t see any administration digging in its heels and throwing its support behind any of these. But I think we need to bite the bullet if we want to stay competitive in the service/intellectual industry.

    Oh, and are we the only country that had 3 (!) different commissions/agencies handling the various levels of education? My impression is sometimes they don’t seem to share a coordinated, cohesive strategy… instead they seem to create more bureacratic red tape.

    Okay, rambling done… back on topic… 🙂

  17. Carl, you are so right. Tourism is one very neglected area. This is one sector that could have provide needed employment in the countryside (and even reverse migration from urban centers, esp. from Manila). The popular beaches in the region- Bali (Indonesia), Phuket (Thailand), and Langkawi (Malaysia) are nowhere near as good as our Boracay, but their infrastructure and facilities are really good. They also seem to have a very cohesive tourism program with the tour operators also doing their share.

    There is hope yet for us… I pray.

  18. Marketman, you are on target on many things. The remittances could well be understated. Much of it goes to the gray economy. That’s why many people can’t understand why the country can support so many malls and maintain such a vibrant real estate market. As for the weather, it was good for Mindanao and the Visayas, but very wicked for Luzon. Please remember the floods in Quezon and Aurora laat year. As for the peso, it may be outrageously undervalued in relation to fundamentals. But a major devaluation will really devastate the middle and lower classes, who have already been hurt by the loss of income and purchasing power due to the low economic growth over the past six to seven years. In other countries, a recession this long could already qualify as a depression. It’s really difficult to put a finger on why the Philippine economy is so resilient, but you certainly make very valid obsrvations.

  19. mlq3 says: “So far, PCIJ traces the “Hello, Garci” tape to Agent Doble talking about it while drunk, leading to the opposition hearing about it and procuring the tape, through fair means or foul. But why did Doble only blab about it a year after the events? Could he have been deliberately assigned to leak the story? There remains much more to the story, including why the tape was leaked, and what other tapes there might be. Colleagues there hinted they are working on the story and have a suspect or a few suspects, in mind. Motivations are interesting, too, ranging from revenge, to boosting retirement funds, to any combination of these.”

    Please enlighten us on this. Is this a simple case of corruption and materialism, or is there some “higher” motive? So far, it seems a pathetic case of nothing more than a commercial transaction. A cheap sell-out by a flunky who wasn’t taken care of. Not that it mitigates the offense, but it makes the whole situation so vulgar and so ignoble. We have really sunk into the pits!

  20. “Not to hijack the thread, but overhauling our education sector — which it badly needs — to put it at par with the rest of the world may mean putting in place politically unpalatable changes: increase in number of school years, curriculum revision, stricter teaching standards, stricter aptitude tests, etc. I don’t see any administration digging in its heels and throwing its support behind any of these. But I think we need to bite the bullet if we want to stay competitive in the service/intellectual industry.”

    An upside to the shift towards a federal system of government is that education becomes a state responsibility. This is perfect for local authorities like ours which had been initiating education reform efforts which even the national leadership of the Department of Education has lately recognized.

    You may want to check my blogsite for some details of what we had been doing in Naga City.

  21. Someone told me the other day that what helped IT really turn the corner in India was the dot bomb collapse in the States in the late 1990s. Many Indian IT professionals were thrown out of work and returned to India with their expertise, capital to fund businesses, management experience, and contacts with American clients. The steady growth of the Indian IT sector changed to a dramatic upward curve from that point on.

    Torn: You’ve summarized the situation perfectly. This was widely reported in the US media at the time. One dimension not mentioned was the visa status of Indian IT workers. Having work-contingent visas, once they were thrown out of work, and not being able to find work in a slack labor market before the expiration of their H1B visas, they had no choice but to return to India with all the advantages you cited. Whoever told you that information was correct.

  22. jackryan. let’s fast track to the federal system then! more power to your education reform efforts in naga. hope other schools outside metro manila do the same. I’ll check your blog for more details.

  23. Carl, I agree a massive devaluation can be stiff medicine. But the poor will BENEFIT more than lose in the long run: first, they tend to consume goods with less imported content – think local rice, vegetables, basic manufactured goods and bloody texts. Yet they tend to grow rice, coconuts, basic goods whose prices will rise and bring them more revenues. On the other hand, all of the remittances would now be worth more and thus the families of those working abroad will be better off. If you assume 3-4 dependents per worker, that means 21-28 million folks will cheer a devaluation. A devaluation will also make us more competitive and more call centers (I hate these, not a long term solution) and service centers will blossom and more local jobs generated. Possibly tourism and manufacturing will benefit too as the “value” argument becomes clearer. The costs of an overvalued currency are not obvious but have much more long term damaging impact. If the currency finds its real level (not one oddly distorted by massive export of labor) then we wouldn’t be experiencing such a massive dislocation of brains and hearts, and a massive remainder of people just waiting for the income generated elsewhere — then wasting it on non-productive consumption like texts, beer, karaoke, housing we can’t yet really afford, white goods, fast food, educations with limited content, shampoo that makes your hair mysteriously wondrous, etc…

  24. it’s oonfusing on what gets or not gets controlled at the local level under federalism.

    someone should make a list of what remains nationally-controlled under federalsim and what gets controlled locally.

  25. Folks, I posted the series of summaries of a forum-cum-dialogue at De La Salle U. yesterday at the PCIJ website. But just in case you are one-blog site readers and won’t mind that a set of long summaries will come your way, I’d like to repost it here. Can I Manolo?

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