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Dec 20

Mystery of the nabbed businessmen

Will someone explain to me what the Meralco brouhaha is all about? There’s  Firms go after Meralco:Conversion of debt into equity demanded and then there’s Meralco downgraded to ‘hold’ from ‘long-term buy’-ATR. Does the government really have a case, and consumers? Or is this just a great corporate raid?

A curious link was sent me by The Horse’s Mouth: it says 145 Chinese businessmen released in Manila.

Instinctively, I assumed it was about 168, that multi-story emporium of everything low-priced that merchants claim is killing sales in the malls of Makati and Manila. There has been rejoicing among consumers and great depression among merchants because of 168. A typical story is the fellow who went there, saw a flashlight, saw a sign saying fifty Pesos, and said, “I’ll take it,” only to be promptly handed a box of flashlights. The fellow insisted, “only one,” and the Chinese merchant said, “fifty peso, one box.”

The vicious rumor which is unprovable and unprintable, is that someone intimately tied to the President has given his protection to 168, which places it off limits to the Bureaus of Immigration and Internal Revenue. One particularly awful bit of scuttlebutt insists that 168 is merely a dumping ground for cheap goods from China, that are placed in containers half-filled with crystal meth. The cheap goods are in front, so a cursory customs inspection shows the contents are harmless; the drugs are sold, and the goods sold at prices, customers insist, cheaper than on mainland China.

No newspaper has formally written up these rumors or, as far as I know, been able to prove they’re true (or perhaps even bothered to ask in the first place). A colleague in media, when I asked whether the Xinhua report did in fact have something to do with 168, was unable to verify the report.

Here’s backgrounder on 168, from the Inquirer, and here’s another article which tries to explain why the goods sold there are so cheap:

…Bureau of Customs officer-in-charge Alexander Arevalo was quoted as saying that “the goods coming from China, Taiwan, and South Korea would still end up cheaper compared to locally made products even if the government slaps a 100 percent tax on the imports.” As an example, he “cited a 20-piece pack of double AA batteries selling for only P40 or P2 each while a four-pack double AA batteries made in the Philippines costs close to P45 or about P11 each.”

First of all, would anyone import anything that is available locally at comparable prices and quality?…Question is, why should Philippine-made goods turn out to be more expensive? Is it because Filipino businessmen are more greedy that the mark-up on prices is so high while, on the other hand, their counterparts in China choose to earn only a small profit from every sale but make up in terms of volume? Is it because we import raw materials and raw parts at exorbitant prices in compliance with legal niceties like WTO policies?

See, the issue of smuggling has a dimension we rarely look into. We need to look into our own laws, policies and practices to understand why it becomes more profitable to sell imported goods locally. Smuggling cannot be eliminated unless we remove its inherent profitability. And that means locally producing and selling the same goods with comparable quality at comparable prices. Enforcement of antismuggling laws should only be a support mechanism.

Related to the above is Connie Veneracion,  who, in her column for today, tackles the question of taxes, tax evaders, and intellectual property law.

Big Mango ruminates on my column in yesterday’s Inquirer. He approaches the controversial proposals for amending the constitution with an open mind. I myself am open to parliamentary government and Federalism but I am absolutely insistent on the bicameral system for whatever legislature emerges, though I am unconvinced that the presidential system has to go. As the Philippines Free Press blog, which reproduces an editorial from 1994, Their baby? observed,

Abolishing the Senate will leave only the House of Turon to meet the problems of the nation. With what? A piece of the delicacy? The Constitution vests legislative power in the Senate and the House. Without the Senate, the people will be at the mercy of the House and its voracious appetite. The senate makes them more secure.

What are the problems of the nation? Mass poverty and unemployment; graft and corruption in the government; continuing violation of human rights; widespread rebellion; massive deforestation, which threatens to turn the country into a desert; mockery of justice: the rich few get away with robbery and murder while the poor feels its lash. And other evils too many to enumerate here. None of them is to be blamed on the Constitution.

If the senators were to agree to the scrapping of the Senate, they would become and insignificant minority of 24 against 180 and could do nothing to improve the performance of whatever the House would be called. They would be called the same as the company they kept. Good for nothing, if not crooks.

The Business Mirror begins a series: Mayhem before midnight: ConCom’s last few hours. A fine read.  Incidentally, the Daily Tribune says, apropos of the proposed charter report, that a switcheroo took place! Because of the switcheroo, Tony Abaya won’t support parliamentary government under the present circumstances (great column: best explanation of what I think, too, that the President won by a whisker, but that was voided by a conspiracy to pad the results):

By and large, the four sets of numbers validated each other. President Arroyo won, but by a slim majority. Using more or less the same methodology, Inquirer columnist Solita Monsod came to the same conclusion last October 2005.

Roberto Verzola, who also analyzed the incomplete Namfrel data, disregarding the tallies during the first six days of tabulation (when Namfrel deliberately tallied the votes from known GMA bailiwicks early on, to give the impression that she was enjoying a wide lead), focused on the tallies from Day 7 to Day 26 of Namfrel and came up with 18 scenarios on how the uncounted votes would have affected the final outcome.

In 17 of these 18 scenarios, GMA won, with margins ranging from as big as 351,661 and as small as 74,894 votes. In only one of these 18 scenarios did FPJ win, by only 19,990 votes.

Certainly PGMA won, but not by 1.2 million votes. That margin was manufactured in the certificates of canvass prepared in the municipal and provincial treasurers’ offices before being submitted to Comelec national headquarters. There was indeed massive cheating, to pad the winning margin from 250,000-300,000 to 1.2 million votes, but she would have won even if the count were honest, though by a thin margin.

It is possible that margin would have been shaved even thinner if four million voters had not been disenfranchised which, I suspect, was done deliberately by person or persons inside the Comelec who had access to the master list of voters. But there is no paper trail to expose this fraud, as there is for the election returns and the certificates of canvass.

Massive cheating is massive cheating, whether or not it materially affected the final outcome. With such a blatantly partisan management of the 2004 elections, the Abalos Comelec and the Concepcion-Luz Namfrel have lost all moral right to supervise and scrutinize, respectively, another electoral exercise.

In provincial news, recall my column on Palawan. Good news: courts rule the gas income is theirs!

Carlos Conde writes of the costs of having a remittance society, while The Unlawyer writes about where the big overseas bucks are going: land. This reminds me of cocktail chatter I had with some people recently. They were discussing the real estate market and the findings of some companies: 1. growth is being spurred by money from abroad, not money here at home; 2. Most overseas Filipino money comes from the USA, and not from Filipinos elsewhere, the disparity in income is massive; 3. Overseas Filipinos are not investing in their provinces of origin, but in swankier places or nearer Metro Manila, in part to avoid hordes of relatives descending on their vacation or retirement homes; 4. The Baby Boomer generation of Filipino migrants to the USA are retiring and have decided it’s more affordable to retire in the Philippines, and thus they’re buying property. Others in the conversation pointed out that this would have a trickle-down effect (hiring house help, for example), but was a sterile kind of business boom: after the condos and townhouses, built extensively from imported materials, are built, what then?

The President praises the retiring Chief Justice; the Business Mirror editorial says the country is approaching a constitutional crossroad and we’d better have a good Chief Justice.

Pajamas Media focuses on the potential public transport strike in New York City; Washington Note tackles George W. Bush’s latest Iraq speech; BuzzMachine begins a new series on how to remake newspapers in the era of the blog and online news (this series should make for interesting reading for anyone working for a newspaper).

Carlos Celdran and Jessica Zafra met David Byrne (wow!).

Dsc03574

Freakin’ Amazin’ department: From Carlos Celdran news that motel king Angelo King has begun closing down motels because, well, apparently, he thinks God doesn’t love ’em.

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  1. karl

    HVRDS or Carl

    Am I correct in assuming that government allowing smuggling and dumping of cheap goods

    is to stabilize inflation

    beofr our policy makers is guarding agri prices , since that is no longer possible they allow ways to lower inflation growth by allowing smuggling and dumping of goods

    please do correct me if I am wrong..I am easy to talk to
    no use in over reacting been there done that it just resulted to stress…

  2. Karl

    That debt equity swap

    we keep on playing with accounting principles

    why don’t we follow the current international accounting standards

    it is a first step to corporate governance….

  3. karl

    Teves to hire World bank/IMF to enhance tax collections

    Mr. Teves I know of brilliant proposals of your father

    implementing them is more cost effective

    re:interoperability of different institutions thru computerization

  4. dawin

    Manolo,

    The report of Carlos Celdran is not entirely correct. It is not Angelo King who closed it. It is the son and present owner, Wyden King, who is a born again Christian, who closed it and have been changing their policies to hew to his being a Christian. The old man Angelo King is no longer active in the motel industry.

  5. mlq3

    Dawin, that’s very interesting. So the new policy is to abolish short time visits?

  6. Carl

    The Meralco case has bothered investors enough to cause a dip in the local stock market in the past few days. It appears to be another case of government intruding into private enterprise. Putting the merits and demerits of the case aside, the Lopezes are also reaping the whirlwind from what they themselves have sown. The Lopez family has always used politics to promote their businesses. They acquired Meralco from the Americans through political connections and later lost it to the Marcoses and Romualdezes because of politics. They then used their clout with a politically and financially beholden Cory Aquino to reacquire Meralco and ABS-CBN for a song. They even had a Lopez scion marry an Erap daughter for political convenience, just in case Erap got funny ideas. Well, it seems that they aren’t buttering GMA right, abandoning her when they thought she was toast. After ABS-CBN helped to extrapolate and project GMA the winner in last year’s election, they slinked off like rats when they thought her ship was sunk. Now, under the mantle of “press freedom”, ABS-CBN has turned critical of GMA. Unfortunately, it is all too contrived and opportunistic. Now, the Lopezes are being held to the fire, partly as payback, partly as sacrificial lambs to those who resented their strong-arm tactics during the Cory and FVR days. Now who’s toast? Well, dont bet on it. As usual, Philippine politics involves give and take. This may only be a temporary inconvenience that may involve some change of heart and allegiances. It only illustrates how dependent big business is on the benevolence of the powers in government. Danding Cojuangco and San Miguel Corp., Manny Pangilinan and PLDT, and so many other big businesses can be undone should government policies turn hostile to them. And these can be done legally by, for example, raising taxes on alcohol and beverages or through tight regulation.

    As for the merits or demerits on the Meralco case, obviously government thinks it has a case. And obviously, Meralco has apprehensions that it could take a beating should it be brought to court. A huge amount of money is involved, P42 billion. So there’s enough to go around to make an “amicable settlement” possible.

  7. cvj

    Some laws just encourage criminal behavior, laws against
    smuggling is one example. If we had free trade with
    China (or any country for that matter), we can divert whatever limited police and administrative oversight we have to anti-drug and anti-terrorism efforts. The increased level of commerce with China would encourage a another wave of migration of enterprising individuals to our shores which will enrich our society in the long run.

  8. cvj

    mlq3, sounds like a case of finding a cloud in every silver lining. If the balikbayan/retiree-led housing boom does come, it’s premature to judge this as ‘sterile’. Investment-led growth, whether in IT or housing, follows a
    certain pattern. The important thing is to get the activity going and set the right expectations. Even economically successful countries like Singapore have to worry about sustainability. Under the market system, there’s no escaping this reality.

  9. Karl

    mlq3 wrote on December 20th, 2005 at 3:16 pm

    Dawin, that’s very interesting. So the new policy is to abolish short time visits?
    ………………………………………………….
    before I inquired in Victoria Court for price queries to their motel(what’s wrong with the term in the US there are lots of them)
    they corrected me and they emphatically said correction HOTEL

  10. karl

    Carl concerning Beaver and jackie(?)

    that is too much reading between the lines
    why not over simplify it to they were both in love

    AREN’T THEY???????????? 🙂

  11. Carl

    Karl, money and power are often the most potent aphrodisiacs.

  12. Paul

    Manolo, your friend is correct re income from USA.

    Nice sidebar ads. Where did you get them?

  13. Karl

    Atty. Lacierda,
    as to verification of marital status they take your word for it after showing your pesonality

    Tocayo,
    You are right money and power are the most potent aphhrodisiacs

    right now don’t have both but am still potent.

  14. karl

    For the green minded people
    it was my wife who wanted to try the feeling of the motel…
    curious lang po

    matching wedding rings nga pala aside from pesonality

  15. dodong

    Let us try to answer your question. Does the government have a case? The government’s position is anchored on the Napocor’s CSE, a contract for the sale of electricity in which Meralco is commited to buy electricity from Napocor in a 10 yr period since 2001. The contract itself has only created potential debt but not actual until Meralco uses electricity from Napocor. Meaning, the 42 billion contract is not translated into 42 billion debt because Meralco did not get the electricity from Napocor but from independent power producers. The government can compel compliance from Meralco since the 10 yr period is not over, or seek remedies which should have been stated in the contract. The big blow to government position is the arbitration clause. Arbitration is always about exhausting all remedies for the benefit of business which is favorable to Meralco.

  16. dodong

    Meralco is accurate that there is no recognized liability or actual debt because it did not buy electricity from Napocor (for the contracted amount). It is also accurate that debt-to-equity cannot be used since there is no actual debt. Actual debt has to exist first before it can be converted into equity.

    Meralco can always seek injunction from the court if the government start to act on its debt-to-equity scheme. It can also petition the court to force the government to follow arbitration. There is just a lot of legal remedies available to Meralco.

    Even how noble the government intention is in bringing the cost of electricity , announcing the debt-to-equity scheme is just a huge publicity stunt.

  17. hvrds

    Karl

    Unwittingly government is the proximate cause of smuggling. It would take too long to explain why! Trade operates on information arbitrage. Economic policies differ amongst nation states and this results in differing developmental stages amongst ourselves and our neighbors. Case in point is the Peoples Republic of China and other countries run on the same model. Rice costs Php 6 / kg in Vietnam while here it costs almost Php 18 /kg China and Vietnam are semi-command economies. Strategic Industries are owned by the nation state. Foreign exchange rates and capital costs are state managed. In command economies depreciation costs do not exist. There are no capitalists to pay back cost of their investment. It is collectively owned. The State simply creates jobs that produce the value. Labor value becomes the primary cost. Here one must understand Adam Smith and Karl Marx and their theories on the labor value of everything and property rights that flow from it. Money becomes simply an idea of value. No country can compete with that because the state determines price and wages to sustain domestic development. All indsustrial economies did this to devlop. Till today the State subsidizes mortgage rates in the United States to make cheap housing available to all.

    Here in Philippine Islands these are still concepts that have not been developed unlike in our neighbor’s economies. Our policy makers believe for their own benefit that the market solely determines the prices. The deep and mature division of labor has not occured in the Philippine setting. Industrial capitalism is still a dream. The Philippine Islands remain to be hundreds of little bayans in the countryside, towns and cities. There is still no collective unitary BAYAN in the Philippine consciousness. That is why our bananas and mangoes and our women are better than our neighbors until they figure out a way to grow them in their countries. That is why we always run out of dollars because we have in reality a trade deficit in merchandise that runs to close to $10B a year. In spite of all the dollars we aearn in exports and remittances we still have a foreign debt of $60 billion. The BSP often boasts that we have $15 billion + in official reserves and another $ 15B + private bank accounts. Do the math. If we earn close over $15 billion in dollars every year why are we in debt to ther world? That means we are simply consuming more than we produce. Thank God we have gorgeous women to staisfy the men in Japan. Otherwise no Toyotas, Sony’s etc.

  18. karl

    HVRDS,Dodong,Carl.Atty Edwin,cvj,Mlq who did I miss?

    As usual many thanks for the daily dose of knowledge
    happy Holidays to all!

  19. hvrds

    A very belssed Christmas to one and all! I hope in be in warm Negril on the hedonistic beaches of Jamaica or islands in the sun home of my Fathers land.

    Maybe in the New Year someone can figure out what money is so he can help out our favorite Central bank head Alan Greenspan.

    Cheers!!!!
    Moreover, on February 17 2000, In Congressional
    testimony Greenspan admitted to the basic cause of these errors, which is of
    such fundamental importance that we’ll quote it here:
    Congressman Ron Paul asked him why the Money measure – M3 – has been
    growing for the past several years. WHY, If Inflation, which Greenspan
    claims to be trying to control, is caused by growth in the Money Supply, why
    has the FED allowed M3 to grow unchecked since 1992?
    Greenspan replied, “… We have a problem trying to define exactly what
    MONEY is…the current definition of MONEY is not sufficient to give us a
    good means for controlling the Money Supply…”
    Congressman Paul asked “Well, if you can’t define Money, how can you
    control the Monetary System?”
    Greenspan replied “That’s the problem…”

  20. Carl

    dodong explains the Meralco debt-for-equity case very well. However, until all the facts are in, it’s rather difficult to pre-judge. Meralco has had a pretty bad run at the courts the past few years, so this one may just extend their streak of bad luck. Government may not have an airtight case, but knowledgeable people in the Department of Energy seem to think they have a case. And it’s certainly giving Meralco and the stock market the jitters.

  21. divi168

    another column dealing on 168 is worth reading.read up on BoChanco column on dec 21. Actually, everybody is missing the whole point. those people selling in 168 mall are illegal aliens. by the way those allegations by that chinoy are common knowledge in fact, open secret here in chinatown.

  22. divi168

    Dear MLQ,
    perhaps you would care to provide a link to Bo Chanco’s column in the Star dated dec21, thanks

  23. mlq3

    divi, the problem with the star is that you can’t link to articles the day after they come out 🙁

  24. Gordon

    Very interesting write-up, Manuel. I’ve been digesting it for a few days not, but I can’t say that I’m follow everything clearly. Particularly since I don’t follow a great deal of news coming out of the Philippines, with exception to what I pick up from your blog.

    I do take interest in Dongdong’s comments on this post, especially #19.

    Happy New Year!

    Gordon

  25. mlq3

    gordon, it’s confusing not least because people are nervous about poking into the subject (and, i’m convinced, people like the sweatshop version of wallmart, and would be sad to see it go). something definitely to look into harder next year!

  26. Edouard

    Hi, all. Nice site…I really like your site ! Good job man.+

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