Congressional Blind Man’s Bluff
February 4, 2009 by mlq3
Filed under Daily Dose
(Free Press editorial cartoon from 1940)
The President -and the Palace- is extremely pleased about wangling an invitation to attend the National Prayer Breakfast in Washington, D.C. on Thursday, thereby dispelling the conventional wisdom that it is in bad odor with the Obama administration, and that the President and her husband are in hot water concerning their financial transactions. To be sure, the ever-active rumor mill says the President enjoys diplomatic immunity and so, wouldn’t undergo any actual indignities going to, or while in, the United States; but that it’s an entirely different story for her husband (and so supposedly explains his sudden deplaning in Tokyo and his absence at the Pacquiao fight).
The Palace is being unusually tight-lipped about who, exactly, invited the President and who or how the invitation was wangled; it remains to be seen if the President actually gets any face time with the new American president or a superficial “photographed in the same room” Kodak moment. Still, the signal’s clear: reports of the President’s sinking status in Washington are greatly exaggerated.
Interestingly enough, a Filipino in Macao apparently texted a sighting at the international airport, of the President’s husband. No announcement has been made in the media of his having gone off overseas for what can only be a bit of R&R, since Macao is the last place one would go for cardiovascular convalescence or treatment (note that the President and her husband have been there quite often). What’s significant about this sighting, if true, is that it’s par for the course as far as the President’s husband and political issues heating up are concerned. The moment an issue starts pointing to him, he hies off overseas, beyond the clutches of media, the courts, or Congress. And the issue’s getting closer and closer to the President’s husband:
Right before him, “(They) first discussed bribes. They had a rough approach.†From that meeting, it was impressed on him that “(bribe) money was important to do business in the Philippines.â€
This was how the Japanese contractor described his meeting with First Gentleman Miguel “Mike†Arroyo and a former senator to World Bank
investigators who looked into alleged collusion and rigging in the Bank’s funded road projects.
On another occasion, the Japanese executive met the former senator and “it had been made clear to him that there would be no business in the Philippines without paying money,†the WB report, as prepared by its Integrity Vice Presidency (INT) unit, noted. He was also told “that money would have to be paid as high up as the president, senior government officials and politicians in order to do any further business in the country.”
The Japanese contractor, however, had no direct contact with the President.
The report further added: “To win a contract, it would also be necessary to pay the head of the bureau and politicians several million yen.â€
We obtained parts of the World Bank report but we are not disclosing the name of the Japanese contractor and other witnesses. The Japanese contractor has since left the country.
The Japanese contractor was among those interviewed by the INT in connection with its probe on bid rigging. His firm purportedly participated in two bid packages, which were later confirmed to be false. In fact, the company denied placing any bid and that the signatures of the company president were forged.
It was the only direct testimony in the WB inquiry alluding to the First Gentleman’s possible link to bid rigging controversy that has led to the blacklisting of seven firms and one individual for alleged collusion in WB funded road projects worth $33 million. Three other interviewees gave testimonial evidence that indirectly linked Mr. Arroyo to bid manipulation.
The pages mentioned above seem to have been obtained by Senator Panfilo Lacson, who released them in turn to the media. Click here to see scans.
The problems of the congressmen’s patrons aside, this is not a good time for the House of Representatives. While I was in the hospital, much as I try not to follow the news, I had the impression the whole World Bank contractor issue, combined with the Legacy Group’s collapse, could have been much worse.
Consider the situation of the Speaker of the House. Uniffors lays it out as follows:
Mikey Arroyo’s errand boy, putative Speaker Prospero Nograles, is in deep shit because of the collapse of rural banks owned by Celso de los Angeles Jr. His ever-changing stories about his relationship with the man whose classmates at the Ateneo called “Boy Kadena†have been the subject of an editorial by the Philippine Daily Inquirer. See “Prospero’s Legacy?â€
Also, a former president of the Philippine Deposit Insurance Corp revealed that Nograles tried to pressure him to go easy on de los Angeles. Nograles disputes the expose.
But here’s something Nograles admitted and Boy Kadena confirmed at the Senate hearing on the Legacy collapse. Nograles invested millions, around 18 to 20M, in the failed banks.
So the question is this: Was Nograles’ investment in the form of deposit accounts?
You see,according to a PDI news report “The rural banks held a combined P14.03 billion in insured deposits in 132,642 bank accounts that each held amounts at or below the P250,000 limit of Philippine Deposit Insurance Corp.â€
So the enticement behind the de los Angeles’ double your money ponzi scheme is that all your deposits are guaranteed because they are insured by the PDIC. Your capital is safe.
However, the maximum amount any one depositor can collect from the PDIC is P250,000. So, even if one has multiple accounts, those accounts will still be considered as one depositor account. In other words, the limit is on the depositor not on the account. So, to get around this limitation, depositors use fictitious names for their other accounts.
However, they still run the risk of getting caught by the PDIC and, if caught, if the PDIC finds out about the dummy accounts, those accounts will be counted as accounts in the name of one depositor and will be subjected to the P250,000 limit.
Now, Nograles had 18 to 20M in the Legacy banks.
Was he a depositor with a single account? Or were his deposits made under different names? If his deposits were made in his name then he will recover only 250K from PDIC. If his deposits were in different names, then Nograles knowingly participated in a scheme to defraud the PDIC, which incidentally, his brother now heads.
Now if Nograles has a brother in the PDIC, which has to bail out banks, like the ones Speaker Nograles invested in, that’s quite a big public relations pickle to be in. Worse, it plays straight into the hands for someone lusting for the Speakership or simply, to take Nograles down.
Personally, besides the long-standing mutual antipathy between Lakas Speaker Nograles and Kampi Grand Pooh-Bah Villafuerte, the Speaker is embattled on a front in which Villafuerte happens to have some experience -investment banking- and let no one forget Villafuerte’s wife sits in the Monetary Board, which has a say in the bailing out of the PDIC which has to bail out depositors; who wouldn’t put it past Villafuerte to have politically career-killing information on the Speaker now, thereby toppling him?
That would make two Lakas Speakers toppled for careless deal-making, and strengthen Kampi’s demand to be the dominant partner in the new Ruling Party.
But instead, it seems the full arsenal of administration crisis management’s been deployed.
Step I: Delay
The Palace and friends had months to digest the contents of the World Bank report and dot all the i’s and cross all the t’s with regards to a legal defense, as well as lobbying; after doing their bit to maneuver legislation that might be beneficial to the Legacy Group and other friends, and failing, the House still had time to maneuver things so that when the issue broke wide open, some sort of damage-control could be undertaken. Notice the length of time the Ombudsman’s been in possession of the WB Report, with no preliminary investigations taking place. But then, if pressure keeps up, they can use preliminary investigations as a way of buying time (remember the handling of ZTE?)
Step II: Dispute
The Senate wants to investigate contractors? The House will investigate, too -faster, and gentler, too (see Contractors in Congress). At the very least everything’s reduced to House-said, Senate-said.
Step III: Decamp
The President goes overseas. Her husband goes overseas. Out of sight, out of mind. No lightning rods.
Step IV: Divert
And so, after being so quiet as to make everyone think they were comatose, or resigned to the status quo, the Committee on Constitution Amendments of the House has announced that the Nograles Resolution has made it out the gate and can be sliced and diced in plenary, which will hog the headlines for a few weeks, making opposition and administration congressmen happy.
Richard Gordon’s given Congress another way to get what it wants (so long as enough of them get reelected… see, it’s all connected, somehow!):
Gordon… said that the Charter should be revised by the elected lawmakers of the Senate and the House of Representatives sitting as delegates of a Constitutional Convention.
He filed Senate Joint Resolution 20, which calls for a Constitutional Convention after the May 2010 elections with the newly-elected members of the 15th Congress as its delegates.
Meanwhile, get the 2010 Beauty Contest going, just to create buzz but no real political momentum. Take your pick:
A. Scuttlebutt on candidates, such as Bossman Eduardo Cojuangco anoints Escudero and not Teodoro; or Manuel Villar wooing Vice President de Castro to join the Nacionalista Party.
B. Ordering that long-delayed merger to proceed.
C. Additional efforts to muddle things by means of spectacles (see Pagcor chief launches 2010 Coalition) that give reform a bad name.
Message 1: don’t tread on us. Message 2: The Speaker’s a statesman. Message 3: We’re all in this together, nyah, nyah, nyah.
What’s happening is a whitewash on one hand, and juggling political balls in the air to help the whitewash. All these things carry a price, and they’re not of the opposition’s making. The two issues involve collusion between the private sector and officials firmly in the administration’s ranks. The ranks of the administration, meanwhile, have an election coming up and need to grease the wheels of governance through pork barrel spending. As Ricky Carandang recently pointed out in his blog,
The P50 billion in additional spending will be used for infrastructure and social services. Much of that will be funneled through administration friendly lawmakers districts.
The pork comes in two forms: first is the outright earmarks that have increased in the 2009 budget. The second is in te form of “hidden†pork. Outlays included in the budget of the Department of Public Works and Highways that must be spent “in consultation with lawmakers.â€
Mon Casiple, in his blog, apropos of the long-delayed Lakas-Kampi merger, describes the lay of the land:
The situation on the ground in the 2010 national and local elections is one wherein, in many places, it is Lakas and Kampi political dynasts who are vying for elective positions, including scheming at electoral cheating and, in some cases, at electoral violence. It’s a dog-eat-dog world out there, in the absence of a strong political party system.
The only attraction a GMA-brokered merger brings to the table is the political weight the presidential endorsement carries, including the financial resources and government network that goes along with it. Many, if not most, of those in the ruling coalition will definitely need it and thus will be expected to echo the merger call.
However, such an attraction will have to be tempered with the sobering fact of a hugely unpopular president. Her endorsement of a candidate–in many places–is the sole factor for a great many voters to drop the candidate. It is a kiss of death in national electoral contests and in many local contests.
The GMA endorsement will matter only in those contest areas where her popularity is not an issue. Ironically, there it will not matter much. The money and the government resources from the presidential deepwell will be the major reason if ever a candidate in these areas accepts the endorsement.
The merger likewise will actually weaken both parties in the coalition when a spurned Lakas or Kampi member who wants to run under the merged coalition bolts out and run as an independent or under other parties. As I said before, party affiliation is based on the interests of the candidate-member, not the party.
GMA’s motive in calling for a merger obviously has everything to do with her political situation and nothing to do with the 2010 prospects of Lakas or Kampi. She needs to fend off as long as possible–at least in appearance–the lameduck character of her post-Cha-cha administration. She also needs the leverage to maintain her influence over her chosen presidentiable and ensure the candidate’s victory. A merged ruling coalition (or the appearance thereof) is crucial.
Whichever way you put it -from the perspective of a President saddled with a mercenary political coalition, or the point of view of the mercenaries in that coalition, and the mercenaries in the opposition for whom election or re-election is as much an end-all and be-all imperative- this requires money. And you wonder why there are rumors of grand heists?
LPG shortage (?)–>justifies raising LPG prices. Rice price increase (again?) without any justified reason in sight. Power Lotto, on top of several megamillion Super Lotto and Mega Lotto prices recently. Buy-in in Meralco, Petron, Liberty Communications. New mining corporations. No land reform but million-hectare corporate farms carved out of public lands and land reform areas. Huge national budget, including funds for mega-infrastructures or (a new favorite) recession-proofing and poverty-alleviation. And, horrors, a jack-up in smuggling cars, rice, drugs, DVDs, and what have you. Also, “taxing†drug lords and jueting lords or arranging tax amnesties for tax evaders or laundering for a fee the infamous hoards of corrupt officials.
But now the whole cozy system’s been subjected to an unwelcome spotlight, arming political opponents (whether just as dirty or not) up and down the line with a juicy issue: squandering resources at a time when belt-tightening is in order. And pursuing a policy of shifting resources around. Today, Jarius Bondoc writes that half of the 50 billion stimulus plan will come from the Social Security System (and only revealed because the SSS Chief, Romulo Neri, Jr., was asked about it by the opposition).
As Abraham Lincoln famously said, “too many piglets, too few teats.”
Which may help explain news stories like Investors see RP defaulting:
ADB senior economist Dr. Cyn-Young Park said the widening credit default spreads lead many investors to think that the Philippine government may default on its debt, or not pay these when it becomes due.
“This is the investors’ assessment of the creditworthiness of the Philippine government,†Park said in a seminar organized by the Yuchengco Center and the De la Salle University.
“Generally, the market is more cautious in giving credit… that’s why sourcing funds overseas may be too costly at this [time],†she added.
A company’s credit-default swap spread is the cost per annum for protection against a default by the
company. Park, however, said that with the global economic crisis, the Philippines fares well compared with newly industrialized economies in Asia, such as Hong Kong, Singapore, South Korea and Taiwan.
She said most of these have been heavily affected since they have a “substantial financial market,†mainly being linked with the United States market.
It will be in the hands of the national governments in the region to spur the economy—such as what the Arroyo administration is doing—by providing stimulus packages to perk up market and consumer demand, she said.
Here are some readings on the issue. As far as the (reading, and specifically, On Line) public knows, what is floating around is pretty much an Executive Summary from the World Bank.
Much has been made of “collusion” being the main, provable, offense. To understand the process is to see where people like the President’s husband come in (see Newsbreak’s Bidders spill names, modus operandi in bid fixing):
But this time, it is now the politicians who set the rules. “Contractors engage in a sort of auction, where the contractor willing to pay the largest bribe can win the politician’s support,†one local contractor told WB probers…
Normally, one has to deal with politicians in both the national and local level—the former who controls the implementing agency and the latter, whose area is hosting the project…
At this point, word of honor is not honored. The one who has the money reigns supreme. Bribe, preferably, should be given at once to seal any agreement.
It is also crucial to be in the favor of the ‘facilitator’ of the bidding manipulation, which bidders say is contractor Eduardo de Luna, owner and proprietor of the now-blacklisted E.C de Luna Construction Corp. for public works projects. Contractors interviewed by WB says de Luna has connections in the public works department who are part of the cartel…
Several witnesses told WB probers that de Luna enjoys the backing of First Gentleman Miguel “Mike†Arroyo. De Luna, they say, acts as Mr. Arroyo’s go-between in foreign assisted projects.
One contractor said E.C de Luna is so powerful that it controls most of the bidding at the Department of Public Works and Highways. The WB source said it was through E.C. de Luna operations that China Geo Engineering Corp., China Road and Bridge Corp, and China Wu Yi Co. Ltd., three of the blacklisted firms by the WB, won the bidding for WB-funded projects. The source had predicted that these three Chinese would win the bids before the tender offers were opened.
Once the ‘winning’ firm has been identified with the blessing of the cartel, the sham bidding begins. Designated ‘losing’ bidders, in collusion with the syndicate, complete the charade.
The previous standard operating procedure (SOP) was for the ‘winning’ bidder’ to provide three percent of the advance payment for the project to the losing bidders. SOP to the politicians is also taken from the advance payment…
But recently, the practice is to split a percentage of the advance payment between the politicians and the intermediary. A lawmaker who acts as sponsor to the bidder gets 15-20 percent of the project value while local officials share between 2-3 percent. The intermediary is responsible for the share of the losing bidders…
The kickback is nothing to scoff at. Total payoff, according to the local contractor, ranges from 15-27 % of the total value of the contract. This does not include up to 20 percent in “unnecessary costs added to the project,†a former government official with intimate knowledge of bidding in the public works told the WB’s Integrity Vice Presidency unit. The “unnecessary costs†are mean to cover the costs incurred for the bribe.
Expectedly, all payments are in cash. “Company books do not reflect any of these payments in any event, because the books are faked to avoid taxes, †said a local contractor.
The former government official supported this assertion, adding that bribery extends to internal revenue officials to keep the company’s financial books above board.
For a report on how this process may have worked, see the PCIJ’s Special Report on the World Bank’s bidding findings (As for why the behavior of Congress can be said to constitute a whitewash, see the Inquirer editorial, Whitewash, from January 30, 2009.
You may want to visit The Legacy Group Watch blog, set up by a disgruntled investor.
For a broader perspective, see these papers:
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The EQualizer on Thu, 5th Feb 2009 12:47 am
We hope she finally meets President Barack Obama for that much esteemed and sought-after PHOTO OPPORTUNITY.
She needs that photo so badly to improve her image in the country.
We are sure her image makers will use that photo opportunity to show how “close” she is to the very popular American president.
Bert on Thu, 5th Feb 2009 3:13 am
I’m interested on what Senator Lacson might have up his sleeves yet. The game is barely heating up and surely the aces are still up very close to the senator’s chest given his reputation as an astute player of the game.
PhilwoSpEditor on Thu, 5th Feb 2009 7:43 am
Bert,
But Ping Lacson doesn’t necessarily know when to drop bombs, like Gordon with the pictures… Lack of tact, head-on attack. Very inadvisable and ineffective as usual…
And darn it, I need to see what the heck are the provisions about to be changed in the constitution… sigh
@the post,
I’m not sure that Gloria’s sinking reputation at the US is actually overestimated… Made me laugh to think about Obama’s inaugural speech. She fits the bill quite perfectly of those who are in the wrong side of history.
Nick Nichols on Thu, 5th Feb 2009 8:58 am
Re credit & government default: – does THIS Philippines yield curve look scary, or what.
Carl on Thu, 5th Feb 2009 9:48 am
Today’s Inquirer carries the following Editorial:
http://opinion.inquirer.net/inquireropinion/editorial/view/20090204-187458/Poor-blameless-Celso
The above Editorial mentions this interesting piece of information:
“…industry observers warn that the real scheme may lie with the insured deposits in the shuttered Legacy banks: from P4 billion in 2006, the total has ballooned to P14 billion in 132,642 accounts, each one safely at or under the Philippine Deposit Insurance Corp.’s limit of P250,000 per account. Sounds like a neat outlet.â€
If that amount of P14 billion is confirmed, the government will be left holding a pretty heavy bag for this scam.
By the way, Manolo mentions the possibility of accounts under fictitious names, particularly in relation to Speaker Nograles. That is certainly a possibility. But I don’t think too many people will go down that road when they can always put accounts in the names of wives, children, siblings, in-laws, or even househelp and employees. That’s what most of the ones I know have done. And, in the case of Nograles, if it is really true that he has money invested in that scam, I doubt he would do something like that when he has so many relatives and “alalays†who would be only too happy to accommodate him. But that shouldn’t make him less of an accomplice in a scheme to defraud the government. Especially because he should know better, being a lawyer, a legislator and the Speaker of the House.
mlq3 on Thu, 5th Feb 2009 9:51 am
What amazes me is how things like this can sneak in under the radar, are business reporters simply not up to scratch or following the news?
mlq3 on Thu, 5th Feb 2009 9:51 am
there’s a link above, to the Nograles Resolution that lists the precise amendments, as proposed by him (though the proposal can be amended in plenary).
J_AG on Thu, 5th Feb 2009 10:16 am
Fortunately or unfortunately for the Philippines (depending on which side one places ones bet on)The country will be able to service its foreign debts well into the next 4-5 years.
Most of our foreign debts are medium to long term. We also have currency default swap agreements with China, Japan and S. Korea.
How merchandise export receipts are going to suffer a hit. Since merchandise and service exports are a small part of the entire economy the degree of dislocation will be small.
The main problem in the banking system remains the overhang of the Asian Crisis. The SPAV’s that supposedly relieved the banking sector of their problem assets are themselves heavily leveraged.
The slowdown in economic consumption which includes business expenditures and personal expenditures will affect the price of the underlying assets that these SPAVS have taken over.
Celso Angeles the magician of the Legacy group is guilty of only one violation. Operating a universal bank without a license. Under a monetary system based on fiat currency, the state monetizes credit as currency. They also have the power to demonetize credit. It is actually a legalized form of a Ponzi scheme.
When you have a liquidity glut caused by falling interest rates you will have a blowout.
The entry of the formal banking institutions into micro finance has brought the rates down for micro finance from 3-4% a month to 1.5% -1.8%.
The supply of money went up rates come down. and those who borrowed money at high rates to lent out got caught with falling prices.
The Philippines is still mainly an informal economy more than it is formal. Micro and small enterprises is what keeps this domestic economy going. Even GRO’s can avail themselves of micro finance for their working capital.
http://opinion.inquirer.net/inquireropinion/columns/view/20090205-187470/Microfinance-in-these-hard-times
“CARD-MRI’s interest rate, which used to be like three percent per annum, is now down to 1.8 percent. Who needs the “Bombay†whose “five-six†scheme charges 182 percent (20 percent for 40 days)?”
The problem with micro finance is and will remain to be the administrative cost of maintaining the accounts. The shift to digital currency could alleviate this problem. Money is after all only a medium of communicating value for exchange purposes.
The basic systemic problem of the Philippines which has never been resolved by the simple expediency of kicking the can forward is the huge debt overhang over the entire economy. (private and public) and on top of that the debt overhang also due to foreign investments which are totally apart from the direct foreign loan obligations of the entire economy. Foreign investments are legal obligations due from the domestic economy.
There is no free ride.
J_AG on Thu, 5th Feb 2009 10:26 am
All this nonsense of a fiscal stimulus by the government is nothing but hot air. There is no fiscal stimulus simply because under a dollar reserve system countries cannot move to go into large enough deficit spending or quantitative easing since the dollar is not our currency.
Only the U.S. can do it. So debt dependent countries are stuck. The U.S. can go into huge deficit spending and be supported by their Central bank which can monetize government long term debt. That is the “in case of fire break glass” aspect of monetary policy. When businesses and people stop spending and simply save the government can come in and use those savings to spend.
We do not have that luxury here. The new BSP law restricts the BSP from monetizing government debt paper. Our “in case of fire break glass” is run to the IMF.
Tetangco does not have the power to print money here unlike Bernanke who does.
We do not have a sovereign Central Bank. Only three countries in Asia have. India, Japan, China and partially Taiwan.
We have never been a sovereign republic. Never!!!!!
J_AG on Thu, 5th Feb 2009 11:50 am
On deposit insurance. Major transnational corporations operate through hundreds and even thousands of on shore and/or off shore legal or juridical personalities. The same can be true with the legacy group.
The same with bank depositors. The law recognizes the property rights of each individual person and juridical persons (Partnerships and corporations) provided their registrations are valid.
The issue on the Legacy banks and other rural banks are the stories that even dead people were registered as depositors.
In this country dead people own properties and can vote.
Unfortunately the sanctity of official documents in this country has been perverted for so long that the trust in official documents is totally lacking. Even presidential pronouncements and appointments are faked.
It also matters if each rural bank allegedly owned by Legacy is a totally separate and distinct legal entity. Citigroup owns part of hundreds of distinct legal entities all around the world.
I am shocked after the Marcos era why everyone is still so dumb. Marcos had his own crew of brilliant technocrats. Mostly crooked starting with Roberto Ongpin who ran the Binondo Central Bank.
Marcos considered himself a lawyer technocrat. His brand of legal engineering still reverberates in this country.
Now we have a whole new generational breed of this animal.
PhilwoSpEditor on Thu, 5th Feb 2009 12:16 pm
Manolo,
Thanks for the link. Still escapes my mind on why foreign ownership has the main push, rather than strengthening and propagation of SMEs.
Karl Garcia on Thu, 5th Feb 2009 1:29 pm
Anybody considered that our procurement guidelines are stricter than the foreign financial institutions.
I may sound like a broken record, here I go again.
remember what I have been hammering on the IRR B
or the implementing rules for foreign funded projects.
The problem is this.
(from PCIJ)
http://www.pcij.org/stories/2008/oda6.html
It is the foreign lenders who does not want to put ceilings as it goes against their guidelines.
since we have no IRR B for our procurement act we follow section four of RA 9184.
even the Scorp recognizes that our foreign lenders does not recognize price ceilings.abaya vs Ebdane.
http://ph.news.yahoo.com/star/20090128/tph-world-bank-banned-p100-million-road-541dfb4.html
So that means we follow their guidelines?
Then if there are no ceilings talagang recipe for collusion talaga.
J_AG on Thu, 5th Feb 2009 2:35 pm
Their money their policies. They operate on the basis of he who has the gold rules. They also work on the theology that price caps are heresy. They are technocrats after all. Plus they get top dictate the terms to benefit their own.
So what is new? Self interest is the guiding belief system. That would mean the person who supplies the loan will most assuredly want to get the most benefit from the loan. Multilateral or bilateral institutions are funded by their own taxpayers.
They have to bring home most of the bacon.
Carl on Thu, 5th Feb 2009 4:52 pm
It’s true that Marcos spawned a new generation of crooks who have tried to emulate him. It’s actually on its third generation by now. Bobby Ongpin, Danding Cojuangco, JDV, FVR, Louie Villafuerte and others were the next generation after Marcos. Nograles, GMA & Co. are the third generation. And, after them, there is a new generation just waiting to take over.
It wasn’t strange that de los Angeles was greeted in Congress as a kindred soul. After all, they called him an “evil genius”. In Congressional parlance, that is the highest form of compliment. That sort of tribute was usually reserved for someone of the likes of . . . YES!!! . . . Ferdinand Marcos!
Mon Drian on Thu, 5th Feb 2009 5:12 pm
Any hidden agenda why you linked the Anointed One to a column that laid bare his direct connection to Marcos? That the Anointed One’s father attended the final inauguration even Tolentino skipped. Honestly, does anyone truly think there’s change coming with an Escudero-Cojuangco alliance that is nothing but a reprise of the old KBL days?
elmot on Thu, 5th Feb 2009 6:05 pm
nothing new about FG. He is really the man who mastered the art of corruption. Ateneo should take away from him his diploma bearing the ad majorem dei gloriam…for FG has lived up to his motto of “to have the money is the greatest glory”.
and yes it is true, when the eyes of everyone are prodding on some present hot issues, they are cooking some bad old medicine down the committee halls of the congress to surprise us like thieves in the night.
gloria will never get the reverence and respect that people has for obama for unlike the US president…first, she is not legitimate to rule, second, she does not have the moral authority, third, she is a big shame to the country, fourth, she is the country’s biggest joke, and last, her first gentleman is far from having the decency of obama’s wife.
…leaves a bad taste on the mouth…
UP n grad on Thu, 5th Feb 2009 10:14 pm
The Inquirer reports this. Would anybody even argue against his claim?
Mike on Thu, 5th Feb 2009 10:53 pm
Gordon’s Senate Joint Resolution 20 is stupid. Isn’t a Con-Ass composed of the Senate and the House. The only difference of Gordon’s Con-Con vs. a Con-Ass is the 12 members of the Senate that are not for re-election. All the members of the House will be “newly elected” members.
Constitution experts, correct me if I’m wrong.
cvj on Fri, 6th Feb 2009 2:58 am
In what way does the yield curve look scary?
Carlito on Fri, 6th Feb 2009 3:14 am
@ Karl Garcia
Generally, setting a ceiling price on a commodity creates price distortions. This has been the experience of communist-oriented economies where the State sets the price. Economists now know better precisely from the experience of communist China and Russia.
Besides, it is easy to imagine that setting a maximum contract price wouldn’t stop a moro-moro bidding: it simply narrows down the set of prices players could choose. It’s really pointless, isnt it?
Of course, the belief that free competition will set the correct (hence fair) price assumes that competitors act indepedently. That’s where the role of the government becomes relevant by ensuring that players do not talk among each other. For the inexperienced (like Ebdane), the bewildered response is “how the hell do you do that?”
Fact is, there are established methods of detecting collusion. The arsenal of methods is generally outlined in the 5-pager WB decision in this page. Hence, it is alarming to hear that the WB and the House of Reps can look at the same thing and conclude differently. Alarming because the House of Rep committees were either ignorant or essentially looked the other way.
Carlito on Fri, 6th Feb 2009 3:49 am
@ CVJ
The Philippine yield curve is the steepest among those surveyed. This means creditors are demanding more money for their buck the longer the term of the loan which is indicative of their uncertainty over the long-term outlook for the country. This result validates an earlier report that foreign creditors are predicting that the country will default.
UP n grad on Fri, 6th Feb 2009 4:12 am
There is also
For example, the double-your-returns-ultra-fast that LEGACY offers may not be attractive to a Fil-Am living in New Jersey because the pesos (from LEGACY) must later be converted back into US dollars, and changes in the value of Pinas currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back.
TonGuE-tWisTeD on Fri, 6th Feb 2009 10:04 am
Bid ceilings or none, colluding bidders will cluster just a tad below the limit with the pre-arranged winner far below the pack. I’ve frequently seen this happen even in private industrial projects.
Check this table from PCIJ (http://www.pcij.org/stories/2008/oda7.html) Amazing how losing bids vary by less than one percent and the “diver” wins by about 20%.
J_AG on Fri, 6th Feb 2009 10:44 am
Yield curves where the spread between short term and long term is steep is more an indication of inflationary expectations.
Interest rates are an indication of risk and future inflation.
The last 10 year ROP sold by the RP paid out a yield of 8%.
It was six percent over prevailing U.S. treasuries then. naturally it was healthy yield when dollars prices are deflating.
If there was a danger of default it would move higher.
Check out rates in the emerging markets of Europe and compare.
Indonesia is paying higher rates.
Check the rating agencies too. Yield curves are a measure of inflation and deflation. Hence you have inverted and flat yield curves too.
When spreads between short and long converge then you have the makings of a liquidity trap. That will signal deflation. Who would lend out money for 10 years at a 2% yield? One who is seeking protection of principal. Who do you lend it to? The U.S. treasury.
The BSP targets an inflation rate deliberately. I hope everyone understands the word deliberately. Their target is between 4-5%.
mlq3 on Fri, 6th Feb 2009 11:06 am
Gordon ought to recall voters rejected a similar proposal -to have Congress act as Convention- in 1967, which is why he ended up a Delegate in 1971.
Mike on Fri, 6th Feb 2009 12:39 pm
So Manolo, what’s the difference between his Proposal and a Con-Ass? A Con-Ass is already defined in our constitution. It seems similar to me, and trying to file this Joint Resolution would just involve “Legislation Costs”.
mlq3 on Fri, 6th Feb 2009 12:53 pm
Mike, same dog, different collar, sounds nicer than Constituent Assembly. Also, may make amendments easier, they can pass their own rules, I suppose instead of voting separately they can vote jointly wearing the hat of delegates and not just representatives/senators.
LoreleiFalfakdo on Fri, 6th Feb 2009 3:48 pm
thank god you got it wrong this time!
your report of the President’s NON-sinking status in Washington is greatly exaggerated after all.
no Obama meeting again! Not even a photo-op. Nada. Zilch. Wala man lang silip through the door to say “Hi, hello, kumusta ka…” Barack must have actually read the briefing papers on GMA and immediately noticed that Gloria stinks more than Blago.
J_AG on Fri, 6th Feb 2009 5:24 pm
I have it on very very reliable information that Mike Arroyo is believed to be a crook at the highest levels of the international community of multilateral institutions and transnational private institutions. In the world of public works development the community is very very small.
Little do these guys know that he is simply the pawn of the Queen.
Governments and governance is in. When money was easy it was different.
People are angry at governments failure in many parts of the world. Except here that is. Forget her she is history.
The utter loss of trust and confidence makes it very difficult for her to maneuver. She will soon be running out of options.
Apart from the regular General Appropriations Act she has no actual concrete policy plans for the probable incoming crisis except for more media events.
Let us all see who will be heir apparent amongst the next batch of presidential wannabes.
More of the same. If the crisis does bite here her administration could be mud by the time may 2010 comes along.
cvj on Fri, 6th Feb 2009 6:11 pm
Carlito and J_ag, thanks for the responses.
@Carlito, my understanding is similar to J_ag’s in that a positively sloping yield curve is a reflection of increasing inflationary expectations (which usually are a consequence of economic recovery).
Krugman, however, explains why this is not necessarily so in particular cases, such as of the United States.
mlq3 on Sat, 7th Feb 2009 12:56 am
benjpedro, not good for the country but a comeuppance for her. she could pursue restoring our formerly warm ties to indonesia since for some time now, the americans have looked more to indonesia than to the philippines as their reliable ally in the region. much more so now.
KLS on Sat, 7th Feb 2009 2:35 am
If I may venture somewhat of an analogy: ‘It is a recession if your neighbor loses his job and a depression if you loose yours’ …
We’re in deep depression, politically and morally. The worst kind. Even my own brothers are behaving like our greedy politicians. Nothing is sacred, they even cheat their own kin for a buck.
Paul Farol on Sat, 7th Feb 2009 3:38 am
Hi Manolo,
Senator “Dick” Gordon changed the abandoned Subic. He changed the automated election. He represents change that Filipinos badly needed.
Senator “Dick” Gordon for 2010 president!
UP n grad on Sat, 7th Feb 2009 4:46 am
To Paul: Between Gordon and Villar, I prefer Villar. [One of the reasons : Dick started with inherited money; Villar created his wealth. Villar personally knows the difficulties faced by the isang-kahig-isang-tuka sector.]
J_AG on Sat, 7th Feb 2009 10:29 am
Krugman is dead on in the case of deflationary expectations. Preserverance and precaution become the overwhelming consciousness of the broad consuming public which in turn will affect business investment plans.
That propelled the shift from classical economics – (supply side) to demand side management – Keynesian macroeconomics.
Rich people have very small marginal propensities to consume. You have to create demand by putting money in the most number of people working and create jobs for those who have lost it.
In basically agricultural based economies this cannot be applied. There is no existing overcapacity. Thus the stimulus will not so much create jobs but will stimulate imports.
UP n grad on Sat, 7th Feb 2009 12:37 pm
to mlq3 onn your comment 12:56 am about Indonesia.
Indonesia is the country with the largest Muslim population. Now go back to one of the major lessons of World Trade Center 09/11. The lesson (Afghanistan and Yemen the exhibits) —- radicalized Muslim countries can do great damage.
USA was not even thinking of the Philippines or that cute phrase “..reliable ally” when the US began to pay more attention to Indonesia. The US needs to assure that Indonesia’s population does not get radicalized.
UP n grad on Sat, 7th Feb 2009 1:12 pm
to Ja_g: did you just say that the Philippines with its horrendous unemployment even as far back as just a year ago does not have excess capacity?
cvj on Sat, 7th Feb 2009 3:43 pm
I beg to disagree as i believe that stimulus given to the poor majority can help. Back in 1983, it was the underground economy (or informal sector) that sustained us and this was during a time when Virata and Jobo were ‘mopping up excess liquidity’ (as per misguided IMF prescription which of course the US is not following today). A payroll tax cut (for middle income earners), universal taxation and subdidy program (aka negative income tax) coupled with import and capital controls (making an example a-la Lim Seng of those who violate such capital controls) can jumpstart domestic industry and mitigate the effects of the carnage outside. Now is the time to address inequality, putting money in the hands of the poor majority to build up our domestic consuming base and protect us from drop in demand from the US consumer.
UP n grad on Sun, 8th Feb 2009 1:35 am
A major-objective of stimulus-payments is “money velocity”, i.e. the multiplier-effect when a peso is introduced into the economy.
I have no idea what multiplier-effect ratios are for the Philippines. But but for the US, the multipliers are:
$1.00 tax rebate —> 1.02
$1.00 spending for highways, bridges, etc —> $1.59
$1.00 extra spending for food stamps —-> $1.73
UP n grad on Sun, 8th Feb 2009 3:18 am
(Using USA statistics, the multiplier for payroll-tax-cut ):
$1.00 Payroll tax holiday —-> 1.29
USA negative-income tax:
$1.00 Across the board tax cut 1.03
So if Philippines econometric-ratios conform to US ratios, then across-the-board tax cuts is not-good (unless GMA is odorifying herself for Con-Con and/or or for 2010-elections).
The top-three are:
– food-stamps (which Pinas does not have);
– highways,bridges,etc
– payroll-tax holiday
[Minor note: OFW's do not benefit from an across-the-board tax-cut. ]
UP n grad on Sun, 8th Feb 2009 4:13 am
And again to highlight that there may be a contrast between USA-stimulus goals (and problem-environment) and what is intended for Pinas, this paragraph:
[Additional note: a lot of Filipino families do not benefit from programs intended to provide partial- or across-board tax cuts. ]
GabbyD on Sun, 8th Feb 2009 5:10 am
@Carlito on Fri, 6th Feb 2009 3:14 am
hi! i know that ceiling prices can create distortions, BUT only if the market clearing price is above the ceiling price.
also, this is an auction, where the goal is for the auctioneer to extract as much value from the bidders. specifically, this means that the cost of having bidders do the project must be lower than if the govt (holder of the auction) does it themselves.
also, you say correctly:
“Besides, it is easy to imagine that setting a maximum contract price wouldn’t stop a moro-moro bidding: it simply narrows down the set of prices players could choose…”
i think so too, amd importantly, it narrows down the bids in the directions that is desireable — i.e. in a downwards direction
also, its very hard to determine cheating just by looking at bid data. i don’t think what WB has is enough. judging by the pcij article, what they have a witness, which i think is their smoking gun. if all they had is data analysis, they wouldve not banned anyone.
hvrds on Sun, 8th Feb 2009 7:12 am
CVJ, UPN it is nice to talk theoretical about the 83-84 crisis but before you look at the past and talk about overcapacity you must look at what overcapacity means.
First you cannot use money velocity to pump prime an agricultural economy simply because you do not have a standing industrial capacity that has thrown off millions of workers due to collapsing demand. Point to your unemployed millions that form the backbone of an industrial manufacturing sector.
We have structural unemployment and underemployment. The political correct words for underdevelopment. The major bulk of the population is still engaged in agriculture and a major part of the service sector is linked to agriculture.
When a country moves into a depression it is a structural downturn. Too much production and the excess production must be destroyed or shut down. Just take one example – the world car industry. Shut down in credit has shut down sales in cars and this has flowed back into the car makers and back down to the mining industry. (basic metals) Then back to the oil industry.
Then look at ripple effects to lay offs and personal consumption. The ripple effect has a lag time as the multiplier effect is going into reverse in a wave of destruction of businesses and jobs.
Now point out to me an industrial downturn in the Philippines. Our crisis here has always been a balance of payments blowout. We are a consumption based economy. always have been. Our labor capital factor of productivity is very low simply because we are not an industrialized society. Of a total labor force of almost 50 m only 2m pay income taxes. Labor force participation rate is at 60%.
Full time labor force including government workers amount to only 7M… Point out where you can pump prime. The stimulus package in the U.S. will be giving subsidies to buy cars and keep people in their homes. They will increase military expenditures to replace destroyed and aging equipment. They want to increase broadband use. All this will pump prime the manufacturing capacities that have been left idled by the downturn. They are all retreating into protectionism as Sarkozy himself wants French manufacturers to bring back their factories from Eastern Europe if they want to continue to sell to France.
Most of the consumer products we use at home are produced by foreign manufacturers. Very little of it is Filipino value added. The proof of the pudding is the horrendous foreign obligation against the domestic economy. The U.S. can get away with being a debtor country since their foreign obligations are denominated in their own currency. They can devalue their debts forward so in real terms they pay less.
The U.S. is doing it to the whole world and they can get away with it because the surplus countries have no choice but to continue to lend to the U.S. to protect what they have already lent.
China has lent close to $1 trillion to the U.S. government directly and indirectly. If she wants to move out of dollars she has to find someone to buy it from her. The dollars cannot be extinguished. It can be debased by printing more of it.
So all the countries that have surplus dollars have to sit with it even if the yields are so low.
Only one institution in the world can monetize dollar credits and demonetize them. The U.S. Federal Reserve.
They are now moving to debt restructuring on massive scale – home mortgages, credit card debts, car loans etc. That is what organized bankruptcy procedures are you lower the huge amounts of credit outstanding in an organized manner of credit destruction or demonetization of credit. It
simply disappears. But stockholders, lenders and workers take a shave.
A depression is a cleansing process. No matter what you have to work out the hangover. Government steps in to put in safety nets so society does not collapse. Having millions of men unemployed in an urban area is Marx’s recipe of an unemployed army of workers.
J_AG on Sun, 8th Feb 2009 9:31 am
Hvrds talks in economic terms. The term overcapacity is explained by Business Week published by McGraw-Hill the owners of S&P rating agency. They are business journalists who research business facts. Too much capacity too little buyers in the physical sectors of the economy. You cannot replace high paying jobs in the formal sector with low paying livelihoods in the informal sector.
It is the disease of capitalism…Falling prices based on overcapacity.
http://www.businessweek.com/magazine/content/09_07/b4119000357826.htm
http://www.businessweek.com/magazine/content/09_02/b4115040763998.htm
“Automakers’ Overcapacity Problem
Automakers have to cut factory overhang without losing their ability to ramp back up when people start buying cars again
By David Welch
With sales tanking from Beijing to Boston, automakers find themselves in an embarrassing position. Having indulged in a global orgy of factory-building in recent years, the industry has the capacity to make an astounding 94 million vehicles each year. That’s about 34 million too many based on current sales, according to researcher CSM Worldwide, or the output of about 100 plants.
In other industries, a cleansing wave of mergers and acquisitions often scrubs away the excess. It’s true that Chrysler may well vanish or be folded into GM or another major player. But other marriages are unlikely because even potential suitors like Renault-Nissan are in a holding pattern until global economies turn around and credit for deals loosens up. So, yes, over the next year or so carmakers will idle factories and lay off thousands—and U.S. and Chinese carmakers will absorb much of the pain.
The challenge will be to cut the production overhang without losing the ability to ramp up when people start buying cars again. On the one hand, Toyota and other Japanese automakers are whacking production at home, where sales have slipped. In November, Toyota slashed production in Japan by about 27%, the biggest cut in 30 years. Japanese automakers also are letting go thousands of temporary workers and not renewing their contracts. But in North America, where the industry has the capacity to build some 7 million more vehicles than the market is buying, Toyota, Honda, and Nissan are so far slicing on the margins. They are slowing production, cutting contract workers, and postponing plans to open more factories because they’re keen to grab share once the U.S. comes back.
The so-called Big Three don’t have that kind of wiggle room, and shrinking at home promises to be wrenching. To become profitable, according to Michelle Hill of consulting firm Oliver Wyman, U.S. automakers will need to close at least a dozen of their 53 factories in North America in the next few years. Demoralized factory hands are bracing themselves. “Someone has to go,” says a resigned Ray Johnson, who makes Chrysler sedans outside Detroit.
CHINA STRATEGY
“Nowhere is there greater overcapacity than in China. Much as the crash of 1929 reordered the U.S. auto industry, a sudden dearth of buyers will do the same in the People’s Republic. Industry watchers expect local companies to absorb much of the pain as the weakest players close and large state-owned companies gobble up the stronger ones.”
“That could be good news for foreign makers and their joint-venture partners. GM may be closing plants at home, but it is not retrenching in China, where it is much easier to furlough workers and rehire them when things pick up. Toyota is actually expanding its Chinese operations: In October it announced its sixth plant.”
“As in China, the global downturn has hammered automakers in Russia and Eastern Europe. Hardest hit: Russia’s top two car manufacturers, Avtovaz and GAZ, both of which began slowing production in October. Multinational car companies, which have grabbed about three-quarters of the Russian market, are hurting too but are reluctant to pull back for fear of losing out in the long run. Heidi McCormack, GM’s director of new business development in Moscow, calls Russia “our No. 1 growth market” and says the slowdown in sales has more to do with tight credit than consumer demand.”
“Many Western European governments are giving their carmakers financial assistance, but there’s a catch. They get the money only if they don’t close plants at home. Since the likes of Volks- wagen and Renault-Nissan don’t want to shut new, low-cost plants in the east, they’re eyeing cuts in places like Spain, Portugal, and Italy where there is less political pressure, says Jim Schmidt, a vice-president at Oliver Wyman.”
J_AG on Sun, 8th Feb 2009 9:54 am
These are not normal times….. Every national economic policy framework based on their self interest is on the table. The unemployed in national economies will pressure national governments.
Only in the Philippines we will beg from the U.S., Japan and China. We have no choice!!!!!
Paul Krugman – New York Times Blog
February 1, 2009, 4:47 pm
Protectionism and stimulus (wonkish)
Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.
The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.
But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.
And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.
And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.
Now ask, how would this change if each country adopted protectionist measures that “contained†the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy — and the world would get closer to full employment than it would have otherwise. Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced. And as the late James Tobin liked to say, it takes a lot of Harberger triangles to fill an Okun gap.
Let’s be clear: this isn’t an argument for beggaring thy neighbor, it’s an argument that protectionism can make the world as a whole better off. It’s a second-best argument — coordinated policy is the first-best answer. But it needs to be taken seriously.
What’s the counter-argument? Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics.
The right argument, I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again.
But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program.
Carl on Sun, 8th Feb 2009 10:32 am
The Philippines still hasn’t felt the full brutality of the worldwide economic downturn for pretty much the reasons that are cited here. Waning industrial exports and layoffs resulting from a slowdown in industrial exports, while not welcome developments, are not such a big part of the economy so as to cause a huge dislocation.
Fortunately, call centers are still doing well and expected to hold up for the rest of this year. This helps.
The main pillar of our economy remains the inward remittances from OFW’s and that, at least for the full year of 2008, has remained very resilient. Remittances have defied the rules of gravity, so far.
I do not know what 2009 remittances will be like. But if there is, as some foreign financial institutions calculate, as much as a 20% drop in foreign exchange remittances this year, that would hurt the Philippine economy tremendously. The Philippine peso will have its legs taken off from under it and we can expect consumption to decline.
UP n grad on Sun, 8th Feb 2009 12:32 pm
Tnose Paul Krugman blogpost-threads are interesting reading, but one must be aware of two things. One, that Krugman blogpost threads are focused on the USA economy. Then two, to remember what hvrds has again highlighted —- “different folks, different strokes” — USA economy and Pinas economy have different structures; the remedies for USA economic woes may be the wrong prescription for what ails Pinas economy.
It may be time for folks to identify, then start quoting China’s lead economists, since 43% of China’s labor-force is in agriculture (while 35% of Pinas-labor-force is in agriculture).
Karl Garcia on Sun, 8th Feb 2009 12:32 pm
Carlito,
Many thanks for the inputs!
Karl Garcia on Sun, 8th Feb 2009 7:48 pm
alarming but not surprising.
it is now public knowledge that many congressmen are contractors themselves.
Karl Garcia on Sun, 8th Feb 2009 7:59 pm
J_AG,
yeah, the Golden Rule.
UP n grad on Sun, 8th Feb 2009 9:24 pm
to hvrds: I’ve heard anecdotes of previously-owned Makati condo-prices sliding fast and new-condo sales looking unhealthy. True?
UP n grad on Sun, 8th Feb 2009 9:52 pm
and condolences to the citizenry of Australia’s Victoria state for the firestorm tragedy.
cvj on Sun, 8th Feb 2009 11:57 pm
The framework that i’m proposing is not aimed at reviving local industry which, as you rightly point out, is just not there. Rather, it is to give urban dwellers the means to purchase food which our agricultural workers can then produce for them. Once our people have enough to eat and once our farmers are earning beyond subsistence, then we start thinking about producing cars (and whatever) domestically since by then, we’ll have a healthy labor force and domestic consumer demand to support such manufacturing activity. (I’ve addressed the widening of the tax base as part of my proposed framework as well.)
Carl on Mon, 9th Feb 2009 9:38 am
While there are those who giddily proclaim that Philippine property prices have been unscathed by the subprime crisis, it cannot be denied that property prices have softened in the past few months.
Even Ayala Land has been experiencing delays in the schedule of payments in some of the condo units they sold. Especially those that were sold to Filipinos residing abroad.
It cannot also be denied that, in the building frenzy during the property boom of the past few years, a good number of condo units have been built shoddily. Not to mention that they look cheap and tacky, especially projects of Megaworld and Lucio Tan. I have heard complaints, from people who bought Ayala Land units in the Fort, that the units are well below Ayala’s vaunted standards. This may turn off buyers in the future.
The BPO sector remains stable, and this has so far propped up property. Also, since we don’t have a credit crisis, developers can sit out a temporary decline in demand and not dropping prices, hoping for an upturn in the near future.
While it is a source of relief that local property prices have not collapsed in the way that U.S. and European property prices have come down, we must also remind ourselves that there is some elasticity in this relationship, especially when it concerns property investments from abroad. The possibility of pricing ourselves out exists.
For example, Fil-Ams in California may defer property investments in the Philippines if they feel that property prices in their area have become affordable. And investors from China or Europe may prefer to invest in property in New York, London, Paris or Macau, if they think that prices in those areas have become reasonable enough. In an economic recovery, it can realistically be assumed that there is much more upside potential in those areas than there would be in the Philippines.
J_AG on Mon, 9th Feb 2009 10:01 am
CVJ when you propose going back to the classical model of development you forget that your model is inverted and you do not take into consideration the political economy on the ground. The bulk of the poor is in the rural areas and the urban poor in the squatter areas. you have to help them move out of their own subsistence level first and for them to produce a surplus with which they can trade with. That surplus will be their disposable income. They are the future middle class that still is non existent.
I have included Habitos take on the fact that the country is more informal than formal.
Only in the formal banking sector you will have the multiplier effect of credit creation. The more advanced economies have the same but for the futures market. Hvrds knows more about the formal banking issue. The reserve system and leverage. That can happen because of the implicit guarantee from the government. Just check the equity of the major banks compared to the amount of their deposits. They are all highly leveraged.
In the informal market you do not have the same effect….What will you stimulate when the economy is still growing but at a slower pace? The government has already killed the CARP. The problem in Mindanao is about land and who will control it.
Our food production is heavily dependent on inputs from abroad.
As you can see in the informal trade of imports and exports we are actually always in deficit.
So where are you going to get more taxes for government to intervene? I say let it rip and forget and abolish most of the government. It is more the problem than the solution.
At this time in the history of the country markets can work wonders. As you can see the informal sector is what is keeping everyone alive more than the formal sector.
The majority of pinoy families all have a small business. Even GRO’s help their families.
That is the beauty of markets. Go visit the squatter colonies and you will see. Go around the entire country. The country will slowly become more a country of slums coexisting beside the smaller and smaller enclaves of the formal economy.
Enclaves anchored by malls. For a city state like Singapore it is ok.
Inquirer Money / Columns
http://business.inquirer.net/money/columns/view/20090208-188156/Why-is-our-economy-still-growing
NO FREE LUNCH
No Free Lunch : Why is our economy still growing?
By Cielito Habito
Philippine Daily Inquirer
Posted date: February 08, 2009
IT SURPRISED MANY, INCLUDING government itself, that the economy still posted a respectable aggregate growth rate of 4.5 percent in the last quarter of last year. With the much larger industrialized economies including the US, Japan and Germany already shrinking in recent quarters, it seemed rather unlikely that much smaller economies like ours could continue growing, more so at the rate it did. Singapore, with an aggregate GDP roughly the same as ours but which is shared by only 1/20th as many people–and therefore a much larger economy than ours in relative terms–has also suffered a shrinking economy in recent quarters.
It would seem that we’re now in a situation where smaller is better, and largeness is a liability that brings greater vulnerability to the financial meltdown. Is it primarily our smallness that helps us withstand the repercussions of the financial collapse that began in Wall Street? To what can we trace our economy’s recent growth?
Underdevelopment
It’s actually not so much smallness per se, but the underdevelopment of our economy that has, ironically, become a saving grace for us in the current crisis. There are two aspects to this underdevelopment. First, we still do not export as much of our production as our erstwhile more dynamic neighbors have been doing. The numbers tell the story: Our total exports were 42 percent of total GDP in 2007, but this same ratio was 231 percent in Singapore, 110 percent in Malaysia, and 73 percent in Thailand. Only Indonesia (at 29 percent) had a smaller export/GDP ratio than the Philippines among the Asean-5.
But note this: If we subtract imports to get net exports, the ratio to GDP was 29 percent in Singapore, 20 percent in Malaysia, 7.6 percent in Thailand, and 4 percent in Indonesia, whereas in the Philippines, the ratio was a miniscule 0.46 percent! That is, while our total export sales as a percentage of GDP exceeded that of Indonesia, their exports had much higher domestic content (i.e., lower import content) than ours, and thus must have produced more jobs for Indonesians per dollar worth of exports.
What this all tells us is that compared to our Asean-5 neighbors, a much smaller part of our production has been affected by the drop in demand coming from foreigners hit by the financial meltdown. A bigger part of Philippine production is bought by Filipinos themselves, whether private households, government, or firms–and because Filipinos’ own spending continues to grow (we explain why further below), so does our economy.
Underfinanced
The other aspect of our underdevelopment that has been a blessing in disguise at this time is the underdevelopment of our financial capital markets. In more developed and vibrant economies, formal financial institutions and market mechanisms permeate the economy and propel most of the transactions in the so-called ‘real economy’ (i.e. the market for real goods and services) for large and small enterprises alike. And so, when the financial markets fail as has happened in the US and other large economies, the real economy grinds to a halt.
Not so in the Philippines. In the survey of Philippine enterprises done for the Global Entrepreneurship Monitor in 2006, one of the striking findings was that only one out of three (34 percent) Philippine enterprises make use of the banking system, whether for maintaining deposits or borrowing capital. In fact, only 5 percent of the surveyed firms sourced any financing from a bank, with the bulk preferring to use borrowings from friends and relatives (46 percent) and personal savings (41 percent) to run their business. With the bulk of Filipino productive enterprises having no dealings with the formal financial sector, it follows that problems in the latter will not have much impact on the former. And so, the financial sector may run into all sorts of difficulties with the Wall Street meltdown, but life will go on for the bulk of Philippine firms.
Local spending
We have been able to sell less of our products and services to foreigners through exports, but how could it be that Filipinos have still been spending more in the past year? There are three parts to this: household spending, investment spending, and government spending.
Aggregate household consumption spending continued to grow at a robust 4.5 percent because remittances continued to grow briskly at double-digit rates. This in itself has surprised many, as jobs of Filipinos abroad are widely expected to be imperiled by economic slowdown in their host countries. Growth in investment spending was boosted mainly by the 11.4-percent growth in construction (investment in equipment fell 7.4 percent, in fact), in turn fueled by brisk growth in real estate. We have explained before that as saving in financial instruments like stocks, trust accounts and mutual funds has become rather risky with the financial meltdown, people have rushed to put their money in tangibles, especially real property, thereby explaining the continuing double-digit growth in this industry. As for growth in government consumption, this was deliberate, with government bent on pump-priming the economy with its own spending stimulus.
The big question now is how long each such impetus for increased spending by Filipinos could last. Go figure.
J_AG on Mon, 9th Feb 2009 11:03 am
CVJ which comes first creating incomes in an income deprived country or increasing the tax base.
UPN-
Formal banks have a special license to create credit guaranteed by the taxpayer. No other formal business has that special privilege. Kaya Hari si Tetangco guaranteed by Juan de la Cruz.
However the Mafia and Triads have their own form of collection.
The 5/6 lenders have the high rates as an insurance premium for defaulters. Wala silang taxpayer guarantees like Nograles and Angeles.
The 5/6ers survive w/o guarantees. The banks fail even with guarantees. Bakit kaya?
UP n grad on Mon, 9th Feb 2009 11:53 am
It does not say it, but the Cielito Habito article also highlights that the export-content for Pinas economy consist of locally-sourced raw materials — minerals, lumber, fruits, and people.
Karl Garcia on Mon, 9th Feb 2009 12:51 pm
they can find new clients if a client suddenly for one reason or the other defaults.
and before that person defaults, he or she probably paid up more than half of what he/she owes.
Carl on Mon, 9th Feb 2009 3:46 pm
Middle and low-income housing will probably continue to expand at a healthy pace. The sheer size of our population will ensure that no slowdown occurs there.
However condos and other high-end property have softened. Here’s an article in today’s BusinessWorld that discusses this subject:
HIGH-END PROPERTY PRICES MAY EASE AMID DOWNTURN
PRICES of high-end residential property units in the country’s capital may go down this year with demand expected to soften due to the economic slump, industry analysts said.
Prince Christian R. Cruz, senior economist at Global Property Guide, said prices of luxury units in Manila could be affected, with fewer people expected to make purchases even as supply rises due to project completions.
“Demand from foreigners and expatriates, who are among the main markets for these products, may go down since they may be called back to their countries with the ongoing job cutbacks,” Mr. Cruz said in a telephone interview.
Colliers International research manager Ramon Jose E. Aguirre agreed there was pressure to adjust luxury unit prices downward.
“So far, prices are still flat. Developers are still holding on to current high prices. But when demand dries up during the latter part of the year because of the slowing economy, they would have to lower,” he said in another interview.
But Claro G. Cordero, Jr., head of research and consultancy at Jones Lang LaSalle Leechiu Philippines, said prices would likely remain stable since developers had anticipated weaker demand.
“As early as the third quarter, developers realized that they could not count on buyers from overseas so what they did was concentrate on the local market,” he said.
“[Local buyers] can carry the market [for the meantime].”
Messrs. Cordero and Aguirre also pointed out that high-end properties could benefit from the volatility of other investment products.
“People with the money to spare are not investing in financial instruments right now because those are too volatile. They are going back to basics such as property,” Mr. Aguirre said.
Eton Properties Philippines, Inc. President and Chief Operating Officer Danilo E. Ignacio said the firm was not planning to lower prices.
“We even had a price increase in some of our luxury projects, where demand continues to be strong,” he said in a text message.
Global Property Guide, in a survey released last week, ranked prices of high-end residential properties in Manila — estimated at $1,914 per square meter (sq.m.) — as the 87th most expensive out of 112 capitals monitored. Manila was ranked 36th last year, but that survey only involved 46 capitals.
The group ranked Manila’s high-end apartments fourth best in terms of yield, with properties offering a 10.9% return.
“Luxury units here were really marketed for ownership. With the dearth of supply of units for rent and no, yields will remain high,” Mr. Cruz said.
The group based its report on the 2008 average price of a 120 sq.m. high-end used apartment located in a country’s economic center where foreigners are most likely to buy. Global Property Guide used exchange rates as of January 27, 2009.
Monte Carlo ($47,578 per sq.m.), which was not included last year, replaced London ($20,756 per sq.m.) as the city where property is most expensive.
Among the six Southeast Asian capitals included, Manila was third most expensive, with Singapore the priciest ($9,701 per sq.m.) and Jakarta the cheapest ($1,102 per sq.m.).
Mr. Cruz noted that while local prices remained cheap relative to the region, constitutional restrictions on foreign ownership made neighboring countries more attractive.
Mr. Cordero said investors may also choose to invest in other Southeast Asian countries because they have advanced real estate investment trusts, which makes the markets there more transparent.
Mr. Aguirre, however, said foreigners may still prefer Manila due to the relative low cost of living and political stability.
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The relative low cost of living is, indeed, relative. That would depend on how we maintain infrastructures and carry out basic services.
And political stability is something not very predictable in this country.
J_AG on Mon, 9th Feb 2009 6:23 pm
Karl you started your statement with an if.
At interest rate of 20% you get income of Php 200 from a thousand spread out over ten people. All it takes for you to loose money is for three to default. 2 out of ten you break even.
Everyone looks at the yield but no ones know for sure the default rate.
You keep plugging as the odds are you might have more good weeks than bad weeks.
It is like playing the forex markets on margin. You have more good bets than bad ones. At the end of the you flatten out the yield.
cvj on Tue, 10th Feb 2009 12:51 am
That’s precisely the idea as i propose here.
J_AG on Tue, 10th Feb 2009 12:19 pm
CVJ when you look at government data there is one glaring problem.
Incomes or harvests or catch is not denominated in currencies in the rural areas.
Palay harvests are divided not in monetary terms but in actual commodity terms.
Traders (like in more modern future markets) own the produce or catch of so called farmers and fisherman. They keep what is for their own consumption and the surplus does not belong to them.
They are trapped in the more backward form of production. They are indentured or share croppers.
They are still in a pre-monetary system.
Factors of production are lent to them by traders who take ownership of their produce. Everyone talks of the feudal system and that is what it is. In the countryside the form of payment is with commodities.
I am astounded as to how you have monetized the estimates of incomes when the reality on the ground is different in practice.
The surplus labor then moves to the cities to augment the incomes of the families left in the countryside.
They comprise the slumification of the urban areas.
You live in Singapore where there is no countryside so to speak.
Pre-industrial societies operate with a semi barter and semi money system.
Hence the primary bills of exchange like warehouse receipts of harvests become also mediums of exchange.
In the slums everything is traded for money including sex and body organs.
Here in the Philippines a progressive income tax system will not help. Your income base in the formal economy is too small.
Smalls incomes mean small taxes and weak government.
For the Philippines it would be better to abolish income taxes and move simply to excise taxes except for large companies with a sizable asset base.
Reduce government as wealth will have to be created first.
Forget Marx as he is not in play in the Philippine context. Forget Keynes too. We are in a world more suitable for Adam Smith.
Government must be broken down to the smallest and affordable unit.
Stop dreaming…..
cvj on Wed, 11th Feb 2009 12:57 am
You are assuming that reducing government paves the way for Adam Smith. The experience of other countries show that this is not the case. In Somalia where there is no government, except for the pirates, people are generally poor. In Afghanistan, where the central government is weak, the Taliban has taken over the countryside and earns hundred and millions of dollars from th Opium trade. These are extreme examples but i hope you get the drift.
By contrast, our countries that have thriving economies have governments who actively participated in economic activities. These apply to both the Communist (China, Vietnam), Capitalist (Japan, South Korea, Taiwan) and mixed economies (like India). In more ways than one, Marx and Keynes complement Adam Smith.
Karl Garcia on Fri, 13th Feb 2009 9:43 am
thanks for explaining it further, J_AG.
Karl Garcia on Fri, 13th Feb 2009 11:25 am
CVJ,
I have looked at your framework and I want to comment on something.
On having enough to feed everyone:
I think you know that even if not everyone is fed, there are still lots of fruits and vegetables just rotting around,because they could not be sold.
This can be from Baguio or anywhere in the country.
I know this is a supply chain problem,where goods from Mindanao is more expensive than those imported from other countries.
On more social security taken out of your payslip than with holding tax.
The common gripe of the workers are that those who will immediately benefit from any increases would not be them but those who will retire or those who have already retired.
May sound selfish,but that is what is happening.
That is all, I hope you get to read this.
cvj on Sat, 14th Feb 2009 1:11 am
Yes, have read it Karl, thanks. Any suggestions on fixing the supply chain problem?
On Social Security, here in Singapore, the CPF (their equivalent to SSS contributions) can be used by the contributors to pay for their housing so it’s not just the retirees who benefit.
Karl Garcia on Sat, 14th Feb 2009 8:13 am
On the supply chain, matagal ng plano ang RORO, but would that makes stuff less expensive.
I guess another perennial problem would be smuggling.
Kasi if you go around kahit sa Benguet madaming pinababayaan na lang mabulok ang mga gulay nila, dahil di nila nabebenta.(siguro dahil sa mga gulay na galing china)
And when you go sa Southern luzon naman pare pareho makikita mo ang daming nagbebenta ng iisang klaseng prutas like dalandan for instance. Nabubulok lang dahil di lahat mabebenta.
Sa SSS, ang napapakinanabangan ng mga workers ay ang mga salary loans na ilan milyon o bilyon din ang nawawala sa pondo dahil sa mga di makabayad.
sa housing yung pag-ibig naman ang inaasahan kahit ng ibang mga middle class na pang finance sa binibili nilang mga bahay.
sige,you know all this stuff already.
jason born on Sat, 14th Feb 2009 10:36 pm
trial
cvj on Sun, 15th Feb 2009 2:19 am
Karl (at 8:13 am), if i restate what you mentioned in terms of my framework, i take it that the ‘market-based exchange’ portion between the food producers (rural poor) and the food consumers (urban poor) will not work because vegetables from China are cheaper. That means we either have to address the cost of production issue (whether it be cost of transportation or corruption) or we bypass this issue by subsidizing transportation for locally produced vegetables.
On SSS and Pag-ibig, yeah i know that since i worked in the Philippines for the majority of my professional life. That’s why i can compare it with Singapore where the CPF [aka Social Security] contributions is on par, or even bigger than the personal income tax, hence my proposal.
Karl Garcia on Sun, 15th Feb 2009 10:11 am
Ok CVJ!
continue with your observations and proposals!
J_AG on Tue, 17th Feb 2009 11:22 am
“By contrast, our countries that have thriving economies have governments who actively participated in economic activities. These apply to both the Communist (China, Vietnam), Capitalist (Japan, South Korea, Taiwan) and mixed economies (like India). In more ways than one, Marx and Keynes complement Adam Smith.”
Wrong again. China’s did not start their industrial process only recently. Mao succeeded in destroying the feudal system. Their feudal system was highly developed into organized communities with a certain degree of sophistication. They had already achieved the aspect of food surplus production as evidenced by their capacity to grow their population.
After his disastrous great leap forward and the cultural revolution they went to Adam Smith. They allowed the small communities of farmers alone to keep most of their surplus production. That surplus is what was converted into disposable income. They started the creation of their own mass market.
Adam Smith is about the agricultural revolution. Marx is about industrial capitalism and the societal framework built around it. . Keynes offered up a temporary solution to the basic flaw in capitalism – overproduction through a national fiscal and monetary system.
You cannot mix up the evolutionary process of economic evolution that is the basic building bloc of societal evolution.
Keynes is about macro economics. Adam Smith existed when there was no macro economy. He disdained the feudal system. Feudal societies also have governments. They also intervened in their economies.
The process of natural economic evolution was changed by human intervention.
The main issue is not government per se but governance.
Even the use of words like capitalist and capitalism are not understood by most.
Capitalism is a stage of societal development. It is marked by the mechanization and the use of technologies combined with the productive forces and unproductive forces to create value.
A capitalist is the owner of the mechanized means of production. It could be private individuals or the state.
Singapore is not a capitalist economy. They are simply a trading and banking enclave. They are also contractors for capitalist economies.
Saudi Arabia is not a capitalist economy. They are resource exporters of a strategic resource that is necessary to run machines.
On the surface you have the infrastructure of modern cities but the culture and societal framework are of a feudal tribal society. They simply traded their resource base for modern living but are still primitive relative to modern societies.
It is no wonder most Pinoys are dumb. They do not know where they are.
cvj on Tue, 17th Feb 2009 11:50 pm
…a description which incidentally fits the Philippines, don’t you think?
Nothwidthstanding your use of the phrase ‘went to Adam Smith’, i agree. I said the same thing last year.
Our positions are not that far apart.