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Mar 01

Danger of campaigning on the economy

I can only give you my view as to why I’m skeptical, or at the very least, not totally entranced by, the government’s claims of economic achievements. It’s a view based simply on what people tell me, not just in Metro Manila but in the provinces I’ve visited. What they tell me is this: the reason enrollment in the private schools is down isn’t always because the public schools are better. It’s because they’re almost free.

In his column yesterday, Manuel Buencamino clearly demonstrates why -to borrow a phrase used by Solita Monsod, who was referring to the government’s pleasure with the strong peso- campaigning on the economy can be a double-edged sword. Let’s assume that for most voters, economics is Quantum Physics -barely comprehensible. If you try to boil down the message for the masses -“the peso is strong, the stockmarket is high, investments are up,” then you are essentially asking people to believe you and trust in you.

But as Buencamino points out, if you get caught fudging the numbers (you can halve the number of classroom-less kids by simply stuffing in twice as many kids into existing classrooms), or tinkering with them (you can seriously reduce poverty by redefining who gets to be classified as poor), then the grounds for trust, the incentive for faith, gets eroded.

Thus, you trumpet the stock market going for strength to strength, and when news comes that’s suffered a reverse, the cognoscenti will know that every set back presents an opportunity, but in a society where activity in the market isn’t prevalent, how do you look anything but vulnerable?

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Yesterday’s plunge in the stock market –the biggest one-day drop in nine years (January 9, 1998 to be exact, and the biggest monthly decline since March 2005)- had the President making a point of being chirpy, while inspiring this curious quote from a trader:

“The sell-offs on the US and China markets have caused worldwide jitters. This is definitely a good reality check and for the Philippine market, it’s the major correction that we have been waiting for,” said Astro del Castillo at First Grade Holdings Inc.

So the question is this. Does this mean there was too much hype, and that the drop in the market reflects where the market should really be? Overseas, markets continue to “wobble” though bargain-hunting has begun in the local bourse. One thing though: the government unloaded its PLDT shares in the nick of time.

Joey Salceda’s instinct, to face the opposition’s claim that its statistics are either fabricated or misleading, was correct: let’s dispute the data in an open debate. The problem is, the Palace began waffling and dodging the challenge of a debate. Perhaps the Palace propagandists believe that the middle- and upper-class message of “everything’s hunky dory and it will eventually trickle down,” isn’t a good one when dealing with a mass audience. Jove Francisco in his blog shows one of the reasons why: a government that has the President roving neighborhoods handing out relief goods (just because there isn’t a calamity doesn’t mean handouts aren’t relief) obviously knows the trickle-down isn’t a function of the market, it’s still the job of the patronage politicians.

To be sure, we aren’t where we were in the Erap years, and for quite a few people, things are better now, than then. IT and construction are two industries that are pretty happy: jobs continue to be created, investments are being made, there’s a building boom, as Lucio Tan’s expansion into real estate proves. The malls and their owners seem pretty content. I’d add another group: smugglers are delighted with the situation and ironically, the consumer is probably happy with the cheap goods that get smuggled in. Add, too, drug dealers, who also do well when smuggling is widespread.

A minimum of professionalism, then, characterizes the administration of the government. But a tremendous opportunity is being lost by the President’s instinctive attitude to fixing problems: to buy support. The rattles she throws at the political class to keep it distracted -Charter Change, etc.- are very expensive and ultimately futile playthings.

Meanwhile, aside from coddling the big players (political and economic), and pandering to the masses while ultimately relying on the pandering to keep them quiet but not appreciably make them more independent or self-reliant, the middle and the opportunities that could be theirs gets the squeeze. A case in point is where government could do more for the furniture industry.

BusinessWorld, which unfortunately doesn’t have Monsod’s interesting column online (she argues the opposition is wrong in claiming there haven’t been any economic gains since the Estrada years, but that the administration has some explaining to do about its statistics), also has a report (p.6 S1) on the local furniture industry (“Furniture makers struggle to survive,” by Marites S. Villamor and Kristine L. Alave):

The local furniture industry does not expect to recover this year from the past six years of contracting revenues, amid a persisting strong peso, lack of industry cohesion, and increasing competition from neighbors which manufacture cheaper furniture copied from local designers…

CFIP data showed furniture export growth has dropped at least 7% yearly since 2000. The industry posted about $300 million in export revenues in 2005 from $420 in 2000 -quite small compared with new entrant Vietnam, which earned about $1 billion in 2005 alone….

The entire industry employs around 80,000 people directly and 140,000 indirectly…

First among industry woes is expensive inputs.. inputs sourced locally are 30% to 50% more expensive than those from China… more and more Philippine furniture makers have resorted to just importing raw materials from China like paint, abrasives, beads and fashion accessories, and wrought iron… “We can’t increase prices because the peso is stronger and our production cost is higher” [an industry member said]…

…[Also there’s a] “gap” between good Filipino designs and poor production efficiencies… Philippine furniture makers have to contend with inefficiencies in production, high electricity price and high wages…

To top it all, it does not help that industry efforts are disjointed.

But the opportunities for asking tough questions are narrowing, for now. If the Comelec proceeds by granting dominant minority party status to Kampi, a distinction traditionally given the leading opposition party (and not to a coalition partner of the administration of the day), I don’t know how anyone will be able to ignore the attractiveness of simply boycotting the elections.

My column for today is How it works.

In his column, Lito Banayo does a masterly analysis of the voter’s preference survey in Manila, extrapolating how it might reflect voter preferences in Mega and not just Metro, Manila (in crunching and interpreting the numbers, analysts like Banayo have to be pretty objective in identifying existing strengths, weaknesses, and opportunities for gain).

Gail Ilagan in her column, describes the pleasures and the value of academic conferences.

In the blogosphere, RG Cruz looks into emerging news on the local races. katataspulong also takes an interesting look at the dynamics surrounding the national vs. provincial campaigns. james cartmire thinks the opposition’s being too negative.

Behind the Clouds has something interesting to say about some popular attitudes towards politicians and politics.

[email protected] delves into opinion and political blogs, their inherent flaws and weaknesses. Blackshama thinks the Supreme Court should put together a booklet of its most influential decisions.

I wish I could read the entry in Meretas Pemekiran which quotes Sukarno quoting Quezon. Perhaps Visayan readers can tell me if Bahasa is easier for them to read?

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  1. cvj

    Ca t, baliktad yata. Ang dalawang milyon sa kuwento mo ay maituturing future value, dahil may halo na itong interest income. Ang present value ay ang orihinal na halaga ng salapi na dineposito ng na-coma, o sa madaling salita, ang principal (at the beginning of year 1). Para makuha uli ang present value, dapat ay tanggalin mo ang interest income, sa hakbangin na tinatawag na discounting. (Nakasaad sa wikipedia: “discounting is the process of finding the present value of an amount of cash at some future date“.)

  2. UPn student

    Headnote : Borrow money from pessimists — they don’t expect it back.
    ————————-
    cvj, to your original question of “What is it that needs to be corrected?”, examples were given by Krugman :
    “what makes Microsoft worth so much is the expectation that stockholders will at some future date either receive large dividends or have their stock bought back by the company at high prices.” What tools will an accountant use to determine the probability that in 7 years or less, there will be a company stock buyback? What tools will an accountant use to determine what that price will be?

    So to your question of “What is it that needs to be corrected?”, a key answer is “expectations”, which has already made-visible in the stock-price of a company (or the price of a basket of stocks). Stock-prices get corrected when expectations need to change, e.g. because of (rumors of) changes to the ground-rules. The rumor of new capital gains tax in China lowered the relative worth of stocks. Lowered expectations lowered the price.
    Ca t… ang hayop sa stock market.. mayroong bull, bear, at panda… mayroon ding pigs, at napakarami ng chicken. Pigs get slaughtered, while the chicken say they don’t play not knowing that their retirement funds are in play.

    –Ca t… ang hayop sa stock market.. mayroong bull, bear, at panda… mayroon ding pigs, at napakaraming chicken. Pigs get slaughtered, while the chicken say they don’t play not knowing their retirement funds are in play.

  3. watchful eye

    hahaha … looks like the longer this thread goes on, the more it’s known what’s in the bag is a cat (hmmm..pretty much like the economist in ate glue whose strategy for a strong economy ay mag-economiya ang naghihikahus na taong bayan.)hehe

  4. rego

    At ano naman ang ginagawa at nagawa na ng mga economist ng opposition. Aber?

  5. manuelbuencamino

    “Hindi naman tatapon ang fund managers sa stock market para lang pasayahin si Gloria.”

    Ang sinabi ko ay ang fund managers pumupusa ng konting pera sa long shot kc yan ang psychology ng investor or gamvler. Pumusta ng malaki sa llamado at konti sa dehado kc naka makchamba. .

    Ang pusta nila sa Pilipinas ay maliit na maliit relative sa total pportfolio nila,

    Ang hirap mong kausap. Aksaya lang ng panahon magpaliwanag sa iyo.

  6. Francis

    Ako din nga na werduhan dyan ke cat eh, masyado ata madami nakain na dark chocolate.

  7. watchful eye

    rego, I’m not a fan of the opposition either . i agree with you that they have to come around with some explicit economic agenda. apparently erap was never really given a fair change to work on his, if any he had) but ate has been glued there longer than anyone but Macoy, so why blame the opposition?

    anyway, sa palagay ko the opposition’s strategic priority is to return the piglet in the bag with The Ca t (or in the kitty litter sabi ni mb), that’s one big pseudo elfin of an economist and another phony stock analyst out of the picture. Then, maybe give the opposition mb’s cell ph no. That would be a good start.

  8. Francis

    Actually helpless naman ung opposition kasi it’s the Executive Branch jobs to think of economic policy and implement them.

    Pag opposition ka syempre di ka tatanungin nang President about your opinion except kung me magical powers ka to turn the economy around. The opposition are in the Legislative branch and I think they’ve done their job by (i hate this) approving the VAT and passing the Anti terror law (Executive branch ideas)

    Hindi ko lang alam gagawin nila pag nakuha nila Executive Branch. Eh d baliktad na sila na Admin iba na opposition.

    Basta I still vote straight GO para me people will watch evil GMA. 😉

  9. cvj

    “What is it that needs to be corrected?”, a key answer is “expectations”, which has already made-visible in the stock-price of a company (or the price of a basket of stocks). Stock-prices get corrected when expectations need to change, e.g. because of (rumors of) changes to the ground-rules. – UPn Student

    I agree, that what is being ‘corrected’ are expectations which are either adjusted downward or upward, but expectations with respect to what? The investors adjust their expectations, not only with respect to their perception of the outside world but also with respect to each other’s reactions and expectations (which accounts for their herd behavior). I imagine the process to be similar to a group of people playing with an ouija board.

    Given this, it’s hard to excuse the intellectual dishonesty of a trained economist such as Gloria Arroyo who should know better than to take credit for something she (or any other individual) can hardly control. In matters related to the stock market, government economists and central bankers usually get credit only if they are able to stop investors from panicking, or if they are able to detect the beginnings of, and consequently, prevent a bubble.

  10. UPn student

    You adjust your expectations of the net-cash received after you close the stock-trade. [Net-net when you sell after going long, or when you cover after going short.]

    You do it based on your expectations, using your chosen method. If you are a financial analyst, you do use sales-projections, balance-sheet numbers and tax-laws. If you are a chartist, you use EMA-lines, Williams-%R stochastics, Bollinger bands and other metrics.

    But with stock transactions, the object primarily is your pocketbook and your net worth.

    And when the herd moves in the same direction at the same time… the corrections become visible as huge changes in stock-market indices.

  11. cvj

    There are also the contrarians whose strategy is to deliberately go against expectations of the herd. Of course, we must not underestimate the element of randomness. It’s natural for people to look for reasons on why stocks go up or down, but oftentimes, there’s no particular reason, it’s just random movement. As Nicolas Taleb says “…when one throws the computer at data, looking for just about any relationship, it is certain that a spurious connection will emerge, such as the fate of the stock market being linked to the length of women’s skirts” [Source: Fooled By Randomness – Nicolas Taleb]

  12. Francis

    Nothing goes up forever…
    If you look for the number 23 you will likely find it…

    LOL kapapanood ko pa lang kasi nung The Number 23

  13. UPn student

    Francis,
    Number 23 is “Hard work pays off in the future. Laziness pays off now.”
    While Number 7 is : A clear conscience is usually the sign of a bad memory.

  14. jm

    The Danger of being deceived by Gloria Arroyo economics

    What’s right and what’s wrong with Gloria Arroyo’s economic policies that in spite of higher GDP growth more Filipinos are going hungry?

    While ‘positive’ economic indicators may show that the economy is stable and accelerating, ‘negative’ human development indicators are signs that the economy is on the wrong road, accelerating towards disaster.

    Gloria Arroyo’s ‘Dagdag-bawas’ economics: Borrow more, tax more to pay more debts; spend less for food, less for school, less for health.

    Gloria Arroyo’s ‘Pass-on’ Fiscal Crisis Management: Through more and higher taxes, the national government’s fiscal crisis is passed-on to family-households who now suffer from severe fiscal crises that they have less for food and education.

    Gloria Arroyo’s ‘Junk’ economics: Artificial economic-indicator enhancers, foreign-interest/monopoly status quo preservatives, attractively packaged but without real ‘nutritional value’.

    Gloria Arroyo’s ‘Fire sale’ economics: Patrimony at a bargain, opening up for grabs large-scale mining concessions, on-going gold/mineral mining operations at full-blast, tons of gold ores shipped out, unaccounted for, un-taxed.

    Gloria Arroyo’s ‘Red tide’ economics: China-Phil bilateral trade agreements – Communist China investments/loans/’grants’ for mining concessions, prime agricultural lands, control over strategic projects (Northrail, oil exploration, power gen, etc.)

    Gloria Arroyo’s ‘Toxic’ economics: The JPEPA – caregivers for toxic wastes exchange deal – best illustrates the hidden cost and harm of Gloria Arroyo’s multi/bilateral trade policies.

    Gloria Arroyo’s economic policies are unsustainable because they are inherently ‘toxic’ the long-term cumulative effect of which is fatal to many Filipinos and, if allowed to ‘succeed’, disastrous for the economy as a whole.

    May 2003, with a year to go, analysts speculate if GMA will survive until the 2004 elections. I suggested (broadcast-emailed to columnists) then that the bigger question was how would the country survive GMA, in what condition would the country be by then? Now we ask, “Will GMA survive until 2010?” Again, I suggest, the bigger question is, “Will the country, will the Filipinos survive GMA?” (btw How many Filipinos died due to hunger, sickness, man-made, human-induced and natural disasters, aside from common crimes and political killings, since GMA took over as acting-turned-cheating president? Record high? )

  15. The Ca t

    Ca t, baliktad yata. Ang dalawang milyon sa kuwento mo ay maituturing future value, dahil may halo na itong interest income. Ang present value ay ang orihinal na halaga ng salapi na dineposito ng na-coma, o sa madaling salita, ang principal (at the beginning of year 1).

    Akala ko ba accounting ka.

    Ang 2,000,000 ay ang future cash flow from the deposit na may kasama na ang interest pero hindi yon ang present value.

    Ang halaga ng 2 million ngayon ang present value ng future inflows considering yong interest at yong inflation rate.

    Kung ang deposit halimbawa ay 50,000 ngayon at ang present value ng 2,000,000 na diniscount sa rate ng 5 per cent ay
    mas mataas sa 50,000, siya ay tumubo.

    Pero kung ang resulta ay mas mababa sa 50,000 halimbawa
    ay 45,000 na lang, mabuting ilagay ito sa mas mataas na rate.

  16. The Ca t

    Ako din nga na werduhan dyan ke cat eh, masyado ata madami nakain na dark chocolate.

    Maw werdo naman ang nagsasuggest na pangaralan ang mga NPA na yakapin ang demokrasya. O di ba boy?

  17. The Ca t

    Ang hirap mong kausap. Aksaya lang ng panahon magpaliwanag sa iyo.

    Kasi nga nagtuturo ka ng medisina ang ginagamit mang salita ay hindi medical terminologies. Iwas kang mahalatang wala talagang alam. Kung gagamit ka ng paghahambing, at least yong malapit. penny stocks as against blue chips.

  18. The Ca t

    hahaha … looks like the longer this thread goes on, the more it’s known what’s in the bag is a cat (hmmm..pretty much like the economist in ate glue whose strategy for a strong economy ay mag-economiya ang naghihikahus na taong bayan.)

    Well among the commenters in this forum, only UPn had the same expalanation as mine about the China’s stock market.

    The rest ang about lang ng tanaw ay ang Malacanan.

    Hohoho, magsalamin naman kayo.

  19. jm

    The Ca T,

    The problem about Gloria’s ecomoics is not her technical skills, it’s her judgement. She has the technocratic skills to successfully do the wrong things. The JPEPA illustrates this. Does it take an ecomist to see something terribly wrong with this trade agreement?

  20. UPn student

    jm… Has the Senate approved the JPEPA?

  21. UPn student

    jm, The PCIJ-website had this entry:
    “Demetrio L. Ignacio, undersecretary at the Department of Environment and Natural Resources (DENR) : says that “it (JPEPA) will not violate our laws in the sense that they (toxic and hazardous waste) will not be coming in because they are banned in the first place.”
    … His sentence is corroborated by Article 83 of the Treaty which states both Japan and the Philippines are allowed to take whatever steps :
    (a) necessary to protect public morals or to maintain public order;
    (b) necessary to protect human, animal or plant life or health;

    This is not to say that Filipinos should not worry about toxic-waste importation. In fact, even without the treaty, Filipinos should always worry about toxic-waste importation (via smuggling routes), as well as Chinese or Japanese gangsters opening up their shabu-factories on Philippine soil.

    The wordings of the Treaty (as well as the wordings in the present constitution and in current laws) are adequate. The issue lies more in the ability of Filipino authorities (and general citizenry) to ENFORCE the laws and regulations, which includes protection of our borders.

  22. cvj

    Ang 2,000,000 ay ang future cash flow from the deposit na may kasama na ang interest pero hindi yon ang present value. – Ca T

    Inulit mo lang ang sinabi ko.

    Kung ang deposit halimbawa ay 50,000 ngayon at ang present value ng 2,000,000 na diniscount sa rate ng 5 per cent ay mas mataas sa 50,000, siya ay tumubo. – Ca T

    Kung ang 5 per cent ang gagamitin na discount rate, kahit anumang planeta, ay hindi maaaring mangyari ito. Ang 2,000,000 na diniscount sa rate ng 5 per Cent ay 1,227,826.507 na makukuha sa pamamagitan ng Present Value = 2,000,000 / (1.05^10 )= 2,000,000 / 1.628895 = 1,227,827). Malinaw na mas mataas ang halaga na ito sa 50,000.

    Ang discount rate na makakapagbigay ng present value na 50,000 ay 44.6126% na makukuha sa pamamagitan ng Present value = 2,000,000 / (1.446126^10) = 2,000,000 / 40 = 50,000.

    Sa madaling salita, kung gusto ng lalaking na-coma na tumubo ang 50,000 na deposito niya sa halagang mas higit pa sa 2,000,000 makalipas ang sampung taon, ang interest rate na ipinapataw ng bangko ay dapat mas higit pa sa 44.6126 porsiyento bawat taon.

  23. cvj

    UPn Student, for matters relating to JPEPA (and trade policy in general), you can visit http://paseoblur.blogspot.com. It was on that site where i first read about JPEPA and the issue of toxic wastes. On Usec Ignacio’s statement that you quoted above, this was his response:

    With all due respect, however, the logic they employed is simply wrong. And beside the point. As we have long pointed out, treaties under our jurisdiction are treated as part of Philippine law and are treated as the equal of legislative enactments. If this treaty becomes effective (and JPEPA, make no mistake, is a treaty), this will have the effect – by simple resort to statutory construction – of overriding previous legislation in conflict with it. To say that toxic wastes will not be allowed in because it’s banned is therefore simply not conclusively true because the JPEPA can be said to have overridden the ban. -Jemy at 25 October 2006

    However, in a later entry, he further clarifies that this issue does not necessarily have to be a fatal one for the treaty provided legal remedies are in place:

    I made a point that toxic wastes, while theoretically indeed a possible source of concern, could be easily resolved through a number of legal remedies either initiated by Congress or by the executive branch. After all, it must be pointed out that JPEPA doesn’t exactly say “toxic wastes please come on over!”. There is no provision in JPEPA that makes mention of hazardous substances and the legal possible concerns arise actually merely from the schedule alone. There are, however, a slew of provisions local and international that could serve as protective cover. As I previously pointed out and which I hope people had not misunderstood, JPEPA raised a question on wastes due to the chronology of the enactments related to the matter, nothing more. The waste concern is minimal and could be easily addressed. – Jemy at 27 November 2006

    On your question to JM above on the Senate’s action on this treaty, this is his entry:

    All is quiet on the JPEPA front. Or so it seems. The Senate has put the issue in the backburner and will decide on JPEPA when it reconvenes in June. – Jemy at 25 January 2007

  24. cvj

    Sorry, the link should be http://paseoblur.blogspot.com/

  25. Mita

    so much for economics…can someone tell me why there seems to be so many condo/residential developments – not only in Metro Manila or big cities but in the countryside too?

    this was not the case just 5 years ago…

  26. Mita

    mlq3, there’s this website that can translate bahasa indonesia to english and vice versa. they have a webpage translation but it’s not reliable. use the text translation instead… not perfect but it’ll do…

    http://www.toggletext.com/kataku_trial.php

  27. mlq3

    mita, one thing i heard from some real estate developers is that the generation that went to work in the states in the 70s is now retiring, and retirement is better at home, so it’s a good time to buy property with dollars.

    another interesting thing is that for that generation plus quite a few other ofw’s, once there’s money to buy property, they buy property not in their home tow/province, but elsewhere, usually around metro manila to avoid the hordes of relatives who would otherwise want to stay with them or use their property when they’re not there.

  28. UPn student

    cvj… my fearless forecast is that the Philippine Senate will ratify the JPEPA. As one may surmise by how Jemy had toned down his critique of the proposed treaty, especially that “…There are, however, a slew of provisions local and international…” that protects the Philippines. It is not that the treaty is flawed; it is that some Filipinos may choose to break some laws in order to make money from toxic-waste-trade, which they can as happens now with the shabu-factories on Philippine soil, fake meds flown into the Philippines from the Middle East or merchandise past their expiration-date from where-ever.

  29. cvj

    UPn Student, i concur with your forecast. As Jemy says, what is needed are the “legal remedies either initiated by Congress or by the executive branch.“. I think this will spell the difference on whether Article 83 of the treaty serves its purpose or remains dead letter.

  30. The Ca t

    Kung ang 5 per cent ang gagamitin na discount rate, kahit anumang planeta, ay hindi maaaring mangyari ito. Ang 2,000,000 na diniscount sa rate ng 5 per Cent ay 1,227,826.507 na makukuha sa pamamagitan ng Present Value = 2,000,000 / (1.05^10 )= 2,000,000 / 1.628895 = 1,227,827). Malinaw na mas mataas ang halaga na ito sa 50,000.

    Ang discount rate na makakapagbigay ng present value na 50,000 ay 44.6126% na makukuha sa pamamagitan ng Present value = 2,000,000 / (1.446126^10) = 2,000,000 / 40 = 50,000.

    As you can see I did not the rate because I am lazy to mke the long computations. But if I want to compute the PV, I can just make use of my my TI calcul.

    In your example, the present value of 2,000,000 is 1,227826.07. 2,000,000 is not the present value. It is the future inflows.

    Ang ibig sabihin ay ang halaga ng matatanggap mong 2,000,000 ay equivalent lang sa ngayon ay 1,22786.07.

    With an alternative business investment decision na magbibigay saiyo ng mababang future cash flows pero mas mataas na present value, ang decision ay para sa huli.

    It is a waste of time lecturing something that many people do not understand. If you are an accounting major as I thought you are, go back to Managerial Accounting. If you are an economist, go back to Managerial Economics. If you are a finance person, go back to your Financial Management. Sa ngayon, it is blessed to know what you do not know and try not pretending you know it.

    Trust me, this PV analysis is next to simplicity with payback period method and to DCFRR method which are investment analysis tools in the feasibility studies/business plans that I have prepared. (kain ng dark choc).

  31. cvj

    In your example, the present value of 2,000,000 is 1,227826.07. 2,000,000 is not the present value. It is the future inflows.

    Ang ibig sabihin ay ang halaga ng matatanggap mong 2,000,000 ay equivalent lang sa ngayon ay 1,22786.07. – Ca T

    Inulit mo lang uli ang sinabi ko.

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