Malakas at mahina


Blogger Imperfect Hush makes a unique comparison: says Winston Garcia’s like cartoon supervillain The Red Skull! o_O

While the corporate drama that played out last Tuesday was quite riveting (leaving reporters like Iris Cecila Gonzalez exhausted; for reportage, see When smallest to biggest owners become electric), it was the following blog entries were responsible for my column for today, which is ‘Malakas pa si Lopez‘. Blogger myclique, who works for a Lopez company, and LeNdl VicENciO’s UseLEss MuLtipLy , who features an extremely detailed rebuttal from his elder sister, a Meralco employee, got me thinking about how more than the big players are invested, emotionally and even financially, in the Meralco fight: there are the employees, each of which has a family, and most of whom constitutes part of our shrinking middle class; and there are also the stockholders.

Blogger Vicoyski’s Eye (a shareholder) gave an eyewitness account of the proxy battle at the Meralco Theater:

I saw firsthand, corporate drama in real life. Obvious, but savvy, corporate raiding moves, that some would interpret as an underhanded attempt to subvert the proxy nominations under the name of recognized Meralco management representatives. A director from the Securities Exchange Commission (SEC) coveniently coming out with an order to remove the Asst. Corporate Secretary, Atty. Tony Rosete, and invalidate all proxies under Meralco management supportive directors, at the exact moment that Mr. Garcia made a signal by pulling-out a manila envelope and flashing its content. An order that was subsequently junked by a majority of the board on the grounds that it was undated, was signed only by a SEC Officer-In-Charge, didn’t have the official seal of SEC, and doesn’t even have the necessary docket number to be considered a legal order.

What I believe is the funniest (others would say scariest) part of the whole proceeding was when Mr. Garcia began losing his composure due to the heckling of a number of Meralco employee-stockholders. He began stating, as I remember it, “…I have more shares than all the (Meralco) employees here combined!” It is indeed something that is true… However, his seemingly childish outburst showed great arrogance, considering that he doesn’t own, but only represent the shares of government employees who have very little say as to where he invests their GSIS retirement money.

Fernando G. Gagelonia in his blog At Midfield quantifies the cost of the government campaign and Garcia’s bravura performance as follows: for all shareholders in Meralco, the stock’s value has shrunk by 24 percent; and for the government itself, book losses for state institutions that “now exceed 6 billion pesos.”

Returning to the Meralco stockholder’s impressions of the proxy battle, something New Philippine Revolution said in his postmortem of the proxy fight-

That scene showing Garcia standing up and shouting at all those stockholders show you how a member of Gloria’s mafia gang thinks about himself as an overlord of this country.

Suggests to me that something interesting is going on that hasn’t been widely commented on. And that is, the posturing wasn’t aimed at one specific audience, but many audiences. You would think the Lopezes, having encountered Garcia up close and personal in the boardroom, would have known his propensity to come across as a boor, and welcomed the opportunity to have him do their work for them.
But perhaps they knew as well as Garcia does, that his bluster wasn’t meant to impress serious stockholders, much less potential foreign investors, but rather, the broader public. And that is what separates the present management of Meralco from Garcia’s gang: the management had specific shareholders and investors to keep happy, while Garcia and the President are playing to the gallery (which is not to pass judgment on either side: businessmen will obsess over calming investor and shareholders’ nerves while politicians can and must play to the gallery). [email protected] says that prior to the proxy showdown, other kinds of political proxies were being solicited by the government:

Last Sunday, I came from church, and my mother reported that a barangay kagawad (councilor) was making the rounds, asking people to sign a piece of paper. It was supposed to be a petition calling for lower electricity rates. But when my mom scanned the document, she found a list of reasons, and number one referred to the Lopez family. My mom refused to sign, knowing it was political in nature, most likely concocted by a local official allied with the current regime. My mom refused to be used by this regime for its political games.

Which brings me to one final extract from New Philippine Revolution’s entry:

This gambit of Gloria backfired. First, it showed how powerful the Lopezes are compared with the Garcias, the Aboitizes, the Alcantaras, and the Arroyos of this land. Second, it showed how teethless the SEC is. And third, it shows how inept and foolish government becomes when the people allow it to continually perpetuate its proto-dictatorial powers especially on businesses.

Pinoy Observer had a similar reaction:

At around 2 pm, GSIS President and “coup plotter” Winston Garcia went out of the Meralco building with his tail between his legs. He has been heckled and jeered at by Meralco employees. Last minute dilatory tactics by the government through the SEC has been rebuffed…

Garcia should blame his publicist for this image fiasco. He lost twice today. He lost his power because Meralco stockholders rebuffed him and he lost his dignity.

Or, as you might have heard from people following the news, “Ay, mahina pala si Garcia!”
This was the main theme of my column: the public posturing of both camps to prove to the public that one was more malakas than the other. This was a concept Filipino historian Mina Roces introduced in her book, Kinship Politics In Postwar Philippines: The Lopez Family 1946-2000.In many ways an effort that arose out of dissatisfaction with the anthology An Anarchy of Families: State and Family in the Philippines and Phoenix: The saga of the Lopez family, Roces puts forward two highly useful ideas for understanding politics and business:

One persistent theme in Philippine postwar political history had been the continuous charges of graft and corruption against an administration, foreshadowing its demise at the next election contest. Such fluctuations in Philippine politics have been an established pattern since independence was granted in 1946..How can one explain such “cycles” in Philippine postwar history?

This book proposes a framework for such an analysis. It argues that a contest between two competing discourses -traditional social idioms embedded in kinship politics or politica de famila and Western values (here interchangeably used with the term “modern”) inculcated in the colonial period- accounts for these political oscillations. Traditional, or pre-European, political organization is seen as being based on the politica de familia or kinship politics. This concept is used here to mean political process wherein kinship groups operate for their own interests interacting with other kinship groups as rivals or allies. Politica de famila thrives in a setting where elite family groups and their supporters compete with each other for political power. Once political power is gained by one family alliance, it is used relentlessly to accumulate family wealth and prominence, pragmatically bending the rules of the law to gain access to special privileges.

She then goes on to specify what these “Western idioms” are:

The colonial period introduced a number of Western idioms (the term Western idioms or Western institutions is used for lack of a better term to refer to non-indigenous influences introduced externally into the society from the West from the 16th century onwards) which were eventually incorporated into the cultural milieu and thus of political behavior. Some of these values were in direct conflict with the traditional elements of kinship politics. The set of Western idioms which penetrated and influenced Philippine political culture may be classified into three categories. First, a new set of ethics and morals, introduced in the Spanish period through the vehicle of Catholicism, provided a novel standard with which to conduct and judge behavior, often intruding into the established methods of comport. (This does not imply that there was no “morality” before the Spaniards arrived in the 16th century). Secondly, bureaucratic professionalism inculcated in the American colonial period emphasized a different method of participating in politics and business -that of utilizing impersonal norms, the assessment of people on the basis of achievement, and maintaining objectivity in major decisions involving personalities. Finally, the concept of loyalty to a nation-state, an entity far surpassing the specific confines of the family or village, began to emerge as nationalist ideas spread throughout the archipelago from about the second half of the 19th century to the movement for independence in the 20th century…

And then, how it comes together:

With independence, Filipinos assumed full political leadership and the tensions between these two opposing discursive practices surfaced. This unreconciled tension explains the peculiar behavior of postwar politics that saw the cyclical rise and fall of governments as each administration was voted out of office for graft and corruption. Families who operated in the traditional style found themselves exposed and criticized in the free press by rivals who used the rhetoric of Western values to attack those families in power. Having been shown to have neglected the national interest in favor of familial concerns, these families failed to retain their power beyond one administration. In this framework, the Marcos regime (1972-1986) represents the epitome of pure kinship politics as one family alliance alone had monopoly of political power and owning most of the country’s major corporations…

This book argues that this unresolved tension was responsible for the ambivalent behavior exhibited by Filipino families who have used political power for familial ends. On the one hand, these individuals families sincerely believe the rhetoric they imbibed from their education -that corruption is bad, that the modern discourses of professionalism, ethics, and morals, and the concern for the national interest should override the familial interests in the political sphere. While these families use the modern idioms to criticize other families who in their eyes use political power to build a business empire, at the same time they remain blind to the same faults in themselves -almost oblivious to their own practice of kinship politics. In this manner they continue to apply one set of values (Western/modern) to their rival families, and one set of discourses (kinship politics) to themselves.

Another concept Mina Roces puts forward as deserving of further exploration, is that of palakasan:

Another Tagalog concept also used as in idiom in the discourse of kinship politics yet unexplored by social scientists is palakasan. The word malakas literally means “strong” and the word mahina designates the opposite -“weak.” In a political sense, a person who is malakas is one who is in a position of power and uses that power unscrupulously to benefit his/her kinship group…

One who does not want to his/her position or power to help his/her kin group is “mahina.” And to be branded “mahina ka” (you are weak) is pejorative. In the cultural value system, “malakas” is a virtue. One who is malakas is looked at with awe and it would enhance once’s position to work for such a “malakas” person. Thus, one’s being malakas or mahina becomes a culturally-defined yardstick of a person’s prestige, power, or influence. If a family is malakas, many would want to work for it or desire an alliance with it. The unabashed ability to display how malakas one is by using one’s power to give one’s family special privileges and concessions in business is received with great admiration.

Palakasan is a system wherein those in power compete with each other in obtaining special privileges and exemptions from regulations and beding the rules of law for their kinship group. For the palakasan system to function, there must be various groups of family rivals all attempting to exercise power in the pursuit of family wealth and privilege. Each family then tries to outdo the other in being “malakas.”

And the assumptions on which such a system is based? A fundamental inequality among the people:

Malakas implies special status, blatantly stressing the inequalities in the social structure between those in power and those out of power. But malakas status is not dependent on social or economic class (although one could argue it represents the current political class, a position far from being static, as family alliances constantly move in and out of political office). Since the criterion for malakas status is solely political power, a wealthy person can lose out to a relatively poor but more influential family alliance. A group of squatters in a Manila slum area may be malakas because they have close ties with the mayor and therefore feel no threat of eviction. The person who owns the land illegally occupied by the squatters though wealthy, has no hope of retrieving his/her land or of evicting the squatters as long as these squatters maintain their malakas status vis-a-vis the mayor…

It is true that, generally, wealthy families have more chances of attaining malakas status: politicians are willing to receive financial assistance from a wealthy family at election time in exchange for ties of utang na loob. Wealthy families are also financially capable of employing someone who is malakas in order to speak in their favor. For example, rich families can pay influential malakas lawyers, or malakas judges to favor them in court. A poor person who is mahina would not have the financial materiel to approach a malakas person for help. But it is important to note that even families from low social classes, the poor peasants, may be malakas if they are close to the powers that be. Don Aflonso may be wealthy but he could be mahina in the municipality of Pasay City, whereas, Mang Pedro who is the bodyguard of Mayor Pablo Cuneta of Pasay City could be malakas in that municipality.

Because of this, Roces argues that being malakas isn’t always about the wallop of one’s wallet:

Malakas highlights inequalities not along socio-economic class lines but distinguishes between those who are exempted from all laws and rules that govern the rest of society (malakas) and those who have to follow the rules (mahina)… Those that follow the rules disadvantage themselves by sublimating themselves in a lower status while those who blatantly bend or break the rules of law gain prestige because they reveal their special status (they can break the rules without punishment, or they do not have to follow the rules that everyone else has to follow). And it is usually those who are in political positions who can exercise the malakas prerogative. An interesting point is that in order to show malakas status, one has to break the rules deliberately; one has to exercise status to show status.

Which brings me to suggest that Roces’s book provides a keen insight into what took place at the Meralco proxy battle. She pointed out that when it comes to powerful blocs duking it out, Western notions of the “rule of law” become a benchmark of success when one bloc manages to prove itself better at legal manipulation, in other words, malakas.
At the start, both the Lopezes and Winston Garcia had a default malakas position, the Lopezes by being the incumbent controlling interests and Garcia by being backed by the chief executive and having access to a big warchest; Blogger The Write Stuff zeroes in on what the potential political benefits for the President (and Garcia) going into the battle, were:

As a political move, this is probably the best time for Gloria’s administration to take over a highly unpopular power utility firm, or at least take it away from the Lopez family and earn pogi points from the public. Mind you, any Presidentiable making a statement of support to the Meralco Group right now would be taking a political suicide.

The showdown was in many ways reminiscent of the way datus retained or lost their authority by means of challenges from contending datu-wannabees. It seemed as if the fight -highly political because of the nature of both rivals as keen players of the power game (literally and figuratively)- would be old fashioned (think “politics is addition”).

The Inquirer editorial today says Garcia gets points for personal courage but zeroes in on the SEC’s attempt to stop the voting:

Above all, it depended on a master stroke and the element of surprise: an order from the Securities and Exchange Commission to exclude certain proxy votes solicited by the Lopezes from being counted.

The order, read before a stunned assembly by Hubert Guevara, director of compliance and enforcement at the SEC, could have handed Garcia either a strategic or a tactical victory: Either the Lopez proxy votes would have been invalidated or excluded, negating the Lopez family’s advantage, or the stockholders’ meeting would have been postponed, allowing Garcia more time to get more proxies.

Instead, after the board recessed and Meralco management consulted its battery of lawyers, the Lopezes and their business allies decided to ignore the SEC order. They gave a total of 10 reasons why they considered the order legally infirm – only one of which, the charge that GSIS was merely forum-shopping, could be considered invalid. (The GSIS petition for a temporary restraining order had already been withdrawn before the start of the meeting.) Not least, Meralco officer Monico Jacob, a former chairman of the SEC, emerged to explain to the public that intra-corporate disputes were not in fact within the jurisdiction of the SEC.

Indeed, of the many events that transpired Tuesday, it is the SEC order that provokes the most curiosity.

Was the order only the latest confirmation that the Arroyo administration was behind the GSIS attempt to shake up Meralco management? The timing of the order is suspect; it seems part of a script directed by someone in control of government resources.

But why was the order transparently flawed? Only one commissioner’s signature, no official seal of the SEC, no notice given: The list of errors goes on. It is as if the document was designed to be ignored.

It was after the board’s decision to ignore the order and resume the meeting that Garcia, a controversial man at the best of times, objected loudly and confronted members of the pro-Lopez audience.

Ricky Carandang on TV mentioned that one issue was that GSIS had accepted the validity of a quorum and so questioning the validity of proxies made no sense (if they were valid for determining a quorum, why would they suddenly be invalidated for the purpose of voting? Yet the Lopezes too, said Carandang, had contemplated postponing the election early on; it seems perhaps both sides were engaged in a real nail-biter as far as the proxy war was concerned), but like many observers steeped in Western idioms perhaps missed the point (something the editorial came closer to pointing out). The SEC order had nothing to do with law, or the rule of it; it had to do with palakasan and it was meant to be a coup de theatre for Garcia. See GSIS plan to lie low, spring surprise fails:

The Plan called for the GSIS to lie low and feign weakness in the days leading to the annual meeting, hoping that the Lopez family and its allies would lower their guard.

An official, who had knowledge of the plan to shake up the board of the country’s largest power distributor, said the “diversion” was important because the Lopez family was expecting a full frontal attack from the government led by the GSIS.

The plan coincided with recent pronouncements by Malacañang distancing itself from the boardroom brawl, and by leading industry observers that Garcia would back down without public Palace backing.

Also part of the plan was to float the idea that the GSIS would ask the courts to issue an injunction on Tuesday’s annual stockholders meeting, ostensibly because it had failed to gain access to “proxy votes” records…

The GSIS filed a motion to that effect on Friday in the Pasay City Regional Trial Court, but immediately withdrew it.

GSIS legal counsel Estrella Elamparo said the strategy was to divert the attention of the Lopezes away from guarding against requests for temporary restraining orders (TROs).

The Lopezes need not have looked far as the GSIS filed a complaint on Monday morning in the Securities and Exchange Commission (SEC) – only a few hundred meters from Meralco’s headquarters.

Despite filing the complaint earlier in the day, the GSIS called a press conference in the afternoon, where Elamparo denied having filed a petition for a TRO…

That very same day, SEC Commissioner Jesus Martinez signed the order favoring the GSIS motion to “set aside” the counting of all proxies gathered by the Lopez group. The order would be delivered by SEC representatives as a surprise during the Meralco stockholders’ meeting…

When SEC director Hubert Guevara read the “cease-and-desist order” on the floor, the entire assembly fell silent. The audience was clearly confused by its implications, and the Lopezes and their directors were stunned by Garcia’s deft maneuver.

“Without the Lopezes’ proxies, they would have only 33 percent [or Meralco’s total outstanding stock].” said another business ally of Garcia. “Winston has about 40 percent, including proxies. He will win.”

The plan – had it been successful – called for the GSIS to elect five board members, plus nominate one independent director who would be sympathetic to their side…

As it turned out, however, the Lopezes’ lawyers saved the day for the influential family, finding “infirmities” in the SEC order, including several technicalities like the absence of a docket number, date and official seal on the written order.

What looked like the SEC’s technical errors gave the Lopez group the courage to disregard the order and proceed with the stockholders’ meeting.

And so, the coup de theatre that failed added to the malakas reputation of the Lopezes -and again, let’s recognize that neither side was operating from the basis of subordinating themselves to the rule of law, but rather, tried to outfox each other in applying the law in as wily a manner as possible. What Garcia had hoped would produce shock and awe -the SEC order, incidentally widely-understood as being something of an unprecedented development- was blunted when the Lopezes survived the initial bombardment and sallied forth from their bunker.

So, if there’s one sector that’s unquestionably benefited from this fight, it’s corporate lawyers.

On to the point I first raised and the final point in my column. The administration’s skating on thin ice in playing the populist card but going after big businesses that have a reputation for cultivating their employees.

Think of the middle class, which has felt besieged for some time: subjected to the predations of politicians, and hostile to the masses because they’re viewed as land-grabbers, etc. When a government whips up mass sentiments, the instinct of the middle class is to throw its support behind the upper class, on which its own status is intertwined. the President, after reformist elements proved themselves powerless during Edsa Tres, realized that a combination of military support (generals, often having a subtantial net worth, have no real incentive to throw caution to the winds if regime change introduces more, and not fewer, variables into the political equation, for examply by possibly putting in power a fragmented opposition), and consolidating middle and upper class support by reassuring them the might of the state would mobilized to protect property, peace and order, etc: anyway, they’re “prepared to sacrifice their freedoms to move the country forward”, economically, etc.


But the President can’t ignore the broader public, which meant they had to be reassured things were really trickling down (“Ramdam na ramdam ko ang asenso!”) and if they didn’t feel it, well, tough luck, they would be denied avenues to express their dissatisfaction while those with a gift for organizing the discontented would be liquidated one by one. Meanwhile, those from the middle and upper classes inclined to show common cause with the broader public would be portrayed as hopelessly naive, dangerous class traitors -or simply, and most effectively, as possibly sincere but on the whole, mahina.

Much as the middle and upper classes express themselves in Western terms, in their breasts beat hearts that still palpitate to traditional notions. Hence the admiration for the President’s survival instincts and cat-like-grip on power. Hence the derision that greets her critics when they fail to dislodge her (after, mind you, initiial posturing when it seems they might just pull it off!). Hence the satisfaction with the arrests of anybody but themselves. Hence the relative tranquility with which big business greeted the events of 2005.

This only began to change when the President showed signs of wanting to stay in power, and of sending her cabinet to gun after certain corporations (remember Favila and his threats to the Makati Business Club), and how she’s gone beyond the usual saber-rattling all presidents indulge in: the attack on Meralco and possibly Smart, Globe and Sun (Pangilinan gave some cryptic criticisms of the President; the Palace mistrusts the Zobels; administration allies the Gokongweis have to wonder how they’ll wriggle out of this one) inspires the sort of instinctive panic that gets businessmen to mobilize faster than you can say “People Power.” As I mentioned in my column, Garcia’s saber-rattling against SGV might also antagonize another powerful bloc. And all these blocs have a big chunk of the middle class working for them, and in a sense, identifying with their bosses.

Meanwhile, as the news stories keep coming out, see Meralco shares face protracted beating and SEC intervention may scare away foreign investors and Garcia discloses gameplan when he takes over utility, there have been postmortems in the blogosphere:

Pilipinas, you need to work says if things drag out in court, it won’t help consumers. blackshama’s blog makes an interesting comparison to the dissolution of the monasteries in England:

It is not the first time that the King or in our case the Queen has tried to take over a private enterprise. Like Henry VIII who dissolved the Monasteries, Gloria I tried to “dissolve” Meralco by bringing up the spectre of high energy costs. While Henry had his Cromwell, Gloria has her Winston. The only similarities between them is that both royal subalterns are in their faces! But her Winston is no Churchill.

In a globalized economy, doing a Ferdinand I on the Lopezes is nigh impossible unless Gloria I declares martial law (which requires Congressional assent). So she had to do it by proxy. The stockholders saw through this and trooped to the meeting. When Winston queried if the people in the theatre were employees,not a few responded “I’m not an employee!”

And Ricelander’s Blog takes a karmic approach to the whole thing:

GMA’s decision to pick a fight with the Lopezes to score points from the public reeling from high power rates would be popular, but for her own past sins, it calls attention to herself. Like a mirror, it reflects. Take the issue of transparency. When Malacañang seconded Winston Garcia’s call for the Meralco management to be transparent with its records and transactions, it got sneered at instead: “look who’s talking?”. Look, indeed, who’s talking? The many scandals that have become her government’s trademark are known not just for their gravity but also for the groundbreaking lessons in naked cover ups and stonewalling that followed each. When Meralco management points its finger to ERC to justify corporate practices that at first glance appear unethical and immoral saying “hey guys, it’s legal says ERC”, you are at once reminded of the legalistic barrage popularized by Malacañang mostly by the frequency of their employment: “Respect the institutions!” “Go to the courts!” When the Lopez group went after proxy votes in a manner seemingly dubious, the Palace could have raised a howl in the name of fairness and goodness but how, without calling back to memory “Hello, Garci” and all the parallel backroom operations during the heat of her own series of crises.

She’s looking at a mirror; it’s herself she sees and it is ugly. Question is: is there any chance she’ll recognize the reflection?

As for the Lopezes, what’s the stuff this family made of exactly? Thanks to this ongoing power struggle, they’re out in the open finally for all to see, while being undressed. This family had successfully parlayed its “good guy” image as a victim of “bad guy” Marcos to earn sympathy and to get into the good side of society. It paid well; the Lopezes got their business empire back free, a compensation for the wrong done to the family by a “rapacious” dictator, supposedly. But now, it’s all coming back and people want to see documents to crosscheck with their claims of grieveous wrongs and if indeed sympathies were well-placed. Because if the Lopezes were/are indeed the “good guys”, some things here are in serious disconnect. Good guys don’t get this sneaky on people and their costumers. Good guys do not behave this way!

Review Roces’s book for a more detailed look at some of these allegations. But on a minor point, I don’t know that the younger are ever better than their elders, as Ricelander suggests; often the opposite; but the real point is, at a certain point one generation can’t be -or should be- held accountable for what their kids do. Parents, I think, should always get credit for whatever good things their kids do, but the blame, if they don’t do good, should stay with the kids, who are individuals and not clones.

And Pinoy Potter’s Chronicles reproduces a effort to trace back the Arroyo-Lopez konfrontasi to the 1920’s, but the real bad blood, if any, dates back to the Macapagal administration, but politicians on all sides are more pragmatic than to bear in mind old fights; it’s the new fights that interest them.

Manuel L. Quezon III.

118 thoughts on “Malakas at mahina

  1. Im all for Abe Margallo’s bayanihan partnership but how to achieve this between the government and the oligarchs is the problem. – Jeg

    Either the oligarchs voluntarily share power (ala Taiwan or India) or it is forcefully taken out of their hands (ala China via Mao’s revolution) or a combination of both (ala Japan during the Meiji restoration where a new breed of Oligarchs exterminated the Samurai). I prefer the voluntary option.

    We need a lucky break to break out of the circularity: a powerful state to enforce the bayanihan and then on its own decreases its own power afterwards. But as you have argued for the corrupting influence of power, this scenario doesnt look too good. – Jeg

    Shades of Marx’s withering away of the State. That’s one of the most utopian aspects of his theory.

    Minimal government and a network of NGO’s might work. – Jeg

    I agree.

    Im afraid Im not too familiar with India. Is it an exception to my Asian rule? – Jeg

    Yes and no. They followed the democratic model, but like the other East Asian states, their government was also highly involved in economic activities (in cooperation with their Oligarchs).

  2. “if power remains the last frontier for fabled riches -pretty quickly gained and so complicated as to be basically impregnable- then it’s all part and parcel of an effort to sink their money into an ipp-transco-etc.” – mlq3

    The energy and powers sector have recently been in vogue among investors because they are a hedge against high inflation, high oil prices and a possible downturn in the economy. They are not necessarily “the last frontier for fabled riches”, unless you strike oil, but they are a steady and safe investment in these very volatile times.

    The stocks of companies in the power sector, along with companies that produce necessities like food, potable water and medicines, are precisely known as “defensive” stocks because they produce or distribute goods and services that will be needed even when the economic cycle is down. They are also known as “non-cyclical” stocks, since they are usually immune to economic cycles. Adding to the present seductiveness of the power sector is the fact that studies point to a shortage of power for the entire country by 2010. When a commodity is in short supply, its value is likely to rise.

    Investor sentiment isn’t so upbeat about former darlings of the market. The banking sector is affected by the gloom emanating from the collateralized debt obligations (CDO) mess that has severely affected large multinational banks (even if I don’t think there is any cause to fear that Philippine banks will be dragged into the imbroglio). The real estate sector is spotty. While there are some bright spots, fears of an economic downturn dampen tendencies toward “irrational exuberance”. The mining sector has its adherents, but metals prices could be affected by a downturn in the U.S. housing market and gold, which is seen as a hedge against inflation, is too volatile for most investors. The telecommunications sector still seems like a good bet, but that, too, can be affected by tougher economic times ahead.

    By my standards, the “last frontier for fabled riches” lies in technology. But that’s very competitive, very risky. You really have to be brilliant and creative in order to succeed. It’s not for your average, everyday Joe.

  3. brianb,
    “Filipinos do not think they have a right to take control of their lives and leave others to take charge over their fates.”
    might be pessimistic in your part about our people. i might have to disagree with you. filipinos are hardworking people if given opportunity. i will agree with you in terms of management that very few filipino leaders are capable. all of us here are very aware of all the problems but i am also optimistic that in every problem there’s always a solution. we should start talking about solution, let’s input values and share our positive accomplishment to our economy.

    ” hedge against high inflation, high oil prices ”
    how could the energy and power sector be the only hedge against inflation where it could no longer be in a position to hedge if oil price continue to rise. hedging is good for short term not for long term. but let’s use the word for the sake of our economy. hedging against inflation is investing into something more solid. the only solid hedge is EMPLOYMENT.
    Is this Garcia’s strategy about hedging? then this term is not well understood.

    Connecting employment to BrainB’s comment qouted above: when people are employed, they will feel a sense of pride and thus understand their value to their community, family and to the corporation they work for. employment will make our people capable of taking control of their lives.

  4. filipinos are hardworking people if given opportunity

    There always has to be an “if” now, doesn’t there?

    What then if this “opportunity” is not “given”?

  5. “how could the energy and power sector be the only hedge against inflation where it could no longer be in a position to hedge if oil price continue to rise. hedging is good for short term not for long term. but let’s use the word for the sake of our economy. hedging against inflation is investing into something more solid. the only solid hedge is EMPLOYMENT.” – leytenian

    Poor chap is way over his head. Energy and power aren’t the ONLY hedge. As mentioned, there are other ways to hedge. Metals, gold, real estate are there. But they aren’t the choice Is this bozo a Meralco employee? If he is, then OK. I respect that. After all, recession is commonly defined as when your neighbor loses his job. Depression is defined as when YOU lose your job.

  6. “Depression is defined as when YOU lose your job.” jude

    maybe as applied to filipinos, in particular. but employment, i.e. working for an employer other than oneself, is not the only way to make a living. i have commented, time and again, in this blog about our penchant for working for somebody else as the be all and end all of economic existence. seldom, if ever, you hear a college graduate going into business for him/herself. the usual cop-out is “lack of capital” or “lack of connection” or “lack of government help” while an undocumented chinese or korean, who sneak into the country with barely a shirt on his back, soon becomes a successful entrepreneur (in many instances).

  7. mlq3, i’m not, by any means, a winston garcia apologist – i don’t know the man from adam, don’t know anything about him except his being a brother to that feisty, articulate and good-looking governor of cebu. i find your one-sided caricature of him – complete with a distorted photograph that shows a pockmarked, bloated face – and liberally sprinkled with a cacophony of acerbic commentaries and outright heckling from partisan bloggers and self-proclaimed “opinion-makers” kuno, a tad unfair. i know that you are somewhat connected to the lopezes but since when has fighting for principle (whether or not popular) been considered “arrogance”, boorishness, or evil? i don’t think by demonizing garcia, you make the lopez oligarchs a bunch of archangels.

    what the hell were the meralco employees doing at the shareholder’s meeting unless they were shareholders or proxies on their own right? weren’t they supposed to be working at their own jobs? were they “allowed” to be there to give aid and comfort to the lopezes and drown out garcia and his supporters? was it the idea to make the corporate meeting a virtual street protest action?

    if it’s true that meralco has been passing on to its customers it’s own losses and electric consumptions; that it is paying, and has paid in the past, to another lopez-owned entity, payments in billions of pesos for product it has not delivered or services it has not rendered or could not deliver/render promptly; if it is engaged in incestuous relationship with other lopez-owned or controlled enterprises resulting in unfair competition or combination in restraint of trade, then that’s where the focus of the discourse should be. for once, let’s not politicize these issues or sweep them under the rug, as we almost always do.

  8. to leytenian: One of the ways that companies hedge against inflation is with the power of the pen via a chapter of sentences in a legal contract. A sari-sari store owner can’t do this, nor an owner of twenty public utility/transport buses.

    A “guaranteed-rate-of-return” contract denominated in dollars or in euros should do it. This can be a contract which stipulates that Company-XYZ gets reimbursed for all the costs (submitted as US-dollars) it has incurred, plus 20%. Or this can be 2%-above-dollar-inflation-rate using Wall Street Journal (so the nominal rate of return can vary).

    A simpler version is cost-plus where a company gets reimbursed, say, USD$5Million after the company “performs a service”.

  9. collapse of giant corporations due to scandalous trade practices that bring untold grief to stockholders and consumers alike is nothing unusual in the business world. that goes with the territory and as long as greed thrives unchecked, every investor must learn to face the music. in the u.s., the self-inflicted destruction of several mammoth conglomerates, notably enron, worldcom, tyco and adelphia, among many others, come to mind. the story of enron is particularly striking considering the close similarity of the nature of its business and some of its ways of doing business with that of meralco. it was, arguably, a gigantic version of the latter.

    a possible drastic devaluation of meralco’s stocks as a result of the alleged anomalies, or its potential destruction, maybe good for the country and the people in the long run. if it leads to discontinuance of unfair monopoly, it could usher in the birth of free competition and/or enlightened management. as for possible “brownouts” or reduced service, well…, ‘no pain, no gain’.

  10. jude:
    I guess I have misunderstood you because you said Garcia and his bright boys are calculating that it’s ok to keep their share with meralco on your previous post. GSIS shares as well as Meralco is down 20%. I don’t work for meralco if you are trying to suggest that. Bozo does not need to be mentioned. It’s irrelevant and downgrading. In this case, Garcia only have few options for hedging. Agree with Up N student and as I also mentioned on previous blog, there are more solid stocks than meralco. Stocks in global market. This requires international experience and global sense.

    Breakdown of Meralco bill: “SA KATUNAYAN, ANG MGA PASS-THROUGH CHARGES AY BUMUBUO NG 87% NA SIYANG PINAKAMALAKING BAHAGI NG ELECTRIC BILL.Ang Meralco charges ay 13% ng inyong kabuuang bill.”

    even if meralco will charge 30% more than than its current 13% kono( might be bias) , still the government collects more.

    “After all, recession is commonly defined as when your neighbor loses his job. Depression is defined as when YOU lose your job”
    true, that’s why when majority of our people are unemployed, the whole country is depressed”.

    glad you’re back: What then if this “opportunity” is not “given”?”
    then the “vacuous minds” of our leaders will drag our people for another 100 years. On the positive side, many of our people are now looking for options, like opportunities to go overseas.

  11. Up N student:
    “companies hedge against inflation is with the power of the pen via a chapter of sentences in a legal contract”
    you got that right.

  12. bencard,
    “a possible drastic devaluation of meralco’s stocks as a result of the alleged anomalies, or its potential destruction, maybe good for the country and the people in the long run.”
    but bad for GSIS shares which is now assumed to lose 6 billion pesos.

    ” Once the Lopezes are out of the picture, Malacañang’s allies can easily step in to fill their shoes,” said Tinio. “This is the real agenda behind the Meralco takeover bid.”

    Tinio added that this will not be the first time that Garcia used GSIS funds to promote the business interests of an Arroyo crony. In 2004, Garcia withdrew the GSIS’s multibillion peso accounts from the state-owned Land Bank of the Philippines

    and designated Union Bank as its depository bank. Soon after, Garcia awarded the multimillion peso contract for the GSIS E-Card project to Union Bank as well. The Commission on Audit has declared the awarding of the E-Card contract to be “illegal and violative of law.” Union Bank is owned by the Aboitiz family. Aboitizes are not only Arroyo allies, but are close to Garcia’s own family, currently the reigning political clan in Cebu

  13. leytenian,

    Garcia awarded the multimillion peso contract for the GSIS E-Card project to Union Bank as well. The Commission on Audit has declared the awarding of the E-Card contract to be “illegal and violative of law.” Union Bank is owned by the Aboitiz family.

    This is one of the many sins of Garcia. Many GSIS members have complained about this, because Union Bank has very limited number of branches in the Philippines. They don’t understand why would GSIS subsidize this bank, when it was already in good working relations with Land Bank. Maybe, this is part of “crony capitalism” that refuses to die.

  14. Cut and paste on eCard anomaly, according to GSIS Employees Association president Albert Velasco (2005):

    “The first problem of eCard holders is finding ATMs,” … So they are often forced to resort to the old way where they have to go through the processing of papers. The purpose of the eCard system is thus defeated.”

    The depository bank for the eCard system, which involves P1 billion ($17.86 million based on a $1:P55.99 exchange rate) in GSIS funds, is the UnionBank of the Philippines (UBP) which has only 111 branches and 94 ATMs nationwide according to its own company website (

    In contrast, the LandBank of the Philippines (LBP), the former GSIS depository bank, has 503 ATMs nationwide based on the CoA report, and has interconnections with the ExpressLink and Megalink member banks. “Eighty percent (80%) of the national government agencies’ accounts are maintained with the LBP and it has proven its capability to serve their electronic-based banking needs,” the CoA report said.

    The designation of the UBP as GSIS depository bank is disadvantageous not only to the 1.6million GSIS members, but to the government itself, the CoA report stated. The government stands to lose an estimated income of P1.27 billion in seven years from the transfer of GSIS funds from the LBP to the UBP, the report also said.

    GSIS employees staged repeated strikes in protest against Garcia and his “corrupt” deals in GSIS, but to no avail.

    Right, Garcia is malakas to the powers that be. Like Abalos, Garci, Jocjoc, and the rest of the untouchables, they make this govt bleed and still get away with it.

  15. “They don’t understand why would GSIS subsidize this bank, when it was already in good working relations with Land Bank. Maybe, this is part of “crony capitalism” that refuses to die.”

    Union Bank:
    Aboitiz owned.

    tried in vain to aquire PNB even with almost double it’s size.Akala makakauha ng pondo pantapat ke Taipan Lucio.

    now interested in UCPB.

  16. pag me anomaly Garcia parang gusto palitan apelyido ko.

    Gen Carlos Garcia.
    Akala ng iba tatay ko, dahil meron me alam na general erpat ko , tinanong kung ako yung Carl Garcia na naipit sa customs na anak ni Garcia. sabi ko do the math (ka batch ko sa High school nagtanong e mas bata ng mahigit ten years yung anak ni Garcia)

    Winston Garcia.
    Nung me blog pa ako, paulit ulit nagpapadala ang mga GSIS employees (ata)ng spam tungkol ke Garcia(mga anomalya nya),kahit na sabihin ko
    Garcia namin taga Mulanay Quezon, padala pa din.

  17. “we should seriously think about how to manage our ‘leaders’.”

    Ano ito ,parang ang kasabihan na mahirap magpalaki ng magulang?

    why not just remove the word leader in the dictionary.


    Call me pessimistic,
    But “no government ” and anarchy/chaos often go hand in hand.
    Feel free to laugh at me when this no government succeeds in our country.

    You did mention something like minimal government surrounded by a lot of ngos, siguro ito pwede pa macontrol ang chaos.

    Sige tama na baka lumabas na naman ang pagka overly analytical ko(glorified version of slow at tanong ng tanong)

  18. So is GSIS moving on differing levels to short the shares of MERALCO to be able to get more shares of the corporation?

    The GOCC’s who are receipients of entitlement taxes have deep pockets.

    All this drumbeating about the mismanagment of MERALCO and their self dealing are all issues that are common in big corporations in the Philippines.

    Even banks that are also highly regulated have their own version of self dealing in DOSRI’s loans. Directors availing of loans from their banks.

    But this move on the part of GSIS is very clearly the Queen in waitng gambit. Armed with pension funds it looks legitimate. The form and character are different than during Marcos’s time but the substance is the same.

    MERALCO has already outsourced a lot of its internal business processes out to other corporations probably under Lopez’s control. They make extra income from that. But that is clearly a sign of the times.

    From Pedrosa’s column today she listed some of the companies that service MERALCO.

    “He also claimed that management had created “unregulated subsidiaries” to do business with Meralco: Corporate Information Solutions (e-transactions), Meralco Energy, Inc. (energy systems management), E-Meralco Ventures, Inc. (e-business development), Miescor and subsidiaries (engineering, construction and consulting), General Electric Philippines Meter and Instrument Co. (metering products/services), Republic Security and Insurance (self-insurance), Lighthouse Overseas Insurance Ltd. (described as a “bogus” insurance firm), Meralco Financial Services (financial services), Clark Electric Distribution Corp., First Private Power Corp. and subsidiary, and Soluziana (a joint venture for management and information technology).”

    Off course GSIS also has it’s won favorite companies that it deals with. Union Bank – Big Mike’s favorite bank.

    One thing about MERALCO is this, if you want to get a treasure torve of information of income levels based on electrical consumption for residential consumers one could have a clear emprirical picture more accurate than even the BIR.

  19. so guys, assuming all the bad things you are saying about garcia are true, or that the stockholders of both meralco and gsis will suffer paper loss as a result of the garcia-lopez struggle, so what? do we have to look the other way and just grin and bear it while meralco is having its way with its suffering customers? whatever you have against garcia has no bearing on the charges against the lopez oligarchy concerning its questionable business practices, more particularly on its management of meralco, has it?

  20. “So is GSIS moving on differing levels to short the shares of MERALCO to be able to get more shares of the corporation?” – hvrds

    In the words of Baron Rothschild, “buy when there’s blood in the streets”. So now that Meralco shares are down and there’s a kind of panic in the market in relation to its shares, it would be the most logical move for GSIS to accumulate more Meralco shares and shore up its holdings.

    Stock trading in the big leagues isn’t for the faint-hearted. It takes a well-crafted plan, access to lots of cash or credit, patience and foresight, a streak of opportunism and a lot of guts. If you have all those, chances are that, given a certain amount of time, you’ll walk away making a helluva lot of money. Unlike many talking airheads who babble on without any real grasp of the situation, Winston Garcia knows what he’s doing. And, as he has proven many times in the past, he’ll walk away with a windfall.

    As for idle chatter about the GSIS electronic card, it would be worthwhile for people to consult facts before indulging in gossip.

    It is true that, initially, there was much resistance to reforms instituted in GSIS. Anyone who is familiar with government institutions knows that these will always put up all kinds of objections about anything that may change the way they have been used to do things.

    However, after seeing that the changes have brought about savings and improvements in service, the initial skepticism has been overcome and there is now more praise than criticism. Of course, there will never be 100% conformity to change and there will always be a few holdouts and ne’er do wells who will grumble for its own sake.

    Here are some facts about the GSIS card:

    • GSIS processes P30 billion in loan and pension remittances, and P520 million in payroll annually. In the past, benefit proceeds were disbursed to recipients mostly by check.

    • This process was expensive for the government and was prone to fraud. In many cases, pensions for retired members who had died were still being paid because the GSIS database was not automated.

    • Legitimate recipients often received their benefits 30 days late because of the challenges of mailing checks to outlying islands.

    • Loan processing for present and former employees was extremely difficult because the process was paperbased. Loan approval could take up to three months, a delay that caused unnecessary difficulties for applicants who often needed the money for emergency assistance.

    • By replacing checks with electronic cards, GSIS saves not less than P250 million per year.

    GSIS embarked on a lengthy selection process, whereby proposals from several government and private banks were invited and reviewed. GSIS selected Union Bank of the Philippines in May 2004 because it offered a number of unique features:

    • First, Union Bank offered the government an innovative Visa prepaid card program that would completely automate the benefits distribution process for GSIS through a dedicated website. The card can also be used in ATM’s all over the country.

    • Second, Union Bank was able to use biometric technology to securely store the cardholder’s identity for future chip card use.

    • Third, Union Bank was able to launch the program in less than three months.

    • Fourth, Visa is the leading payments brand in the Philippines with 8 million cards and an annual sales volume of over P65 billion.

    • Fifth, Union Bank’s proposal surpassed GSIS’ expectations and the capabilities offered by other banks, and that includes Land Bank or any government-affiliated bank (is that surprising?).

    Other benefits of the Visa electronic card are:

    • The GSIS Visa card can conveniently be used as a national ID.

    • The card can be used to pay for purchases at over 60,000 Visa merchants all over the country.

    • The card can be used to withdraw cash not only from Union Bank branches, but from any of the 5,700, Megalink, Bancnet and Expressnet ATMs in the Philippines.

    • The card can also be used to access funds at millions of Visa merchants and Visa Plus ATMs internationally.

    GSIS has also put up a website from where members can check personal records and apply for benefits online. Loans and claims applications are approved in a matter of hours, compared to 15-30 days with the previous system.

    Today, the positive response to the improvements made in GSIS is overwhelming. Of course, there will always be a few who will resist change on any terms.

  21. One of the biggest challenges markets are facing in the world today is the emergence of sovereign wealth funds.

    In the U.S. social security funds are not allowed to be invested in private corporations. By law only the Federal government has access to the trust funds.

    The GSIS is a domestic fund manager of public funds. When it outsources part it’s functions or processes to private providers it has to be done in a manner to assure its members of transparency. The appointment of Union Bank would fall under that requirement.

    I do not know for sure if there was an open transparent process in the appointment of Union Bank as depository bank of GSIS. That is the issue and not the digitizing of part of the business process of GSIS with its members through a private entity.

    For publicly held private sector corporations it is a matter for their stockholders and regulators if the corporation is in a highly regulated enterprise.

    However for domestic sovereign wealth fund corporations, who is their regulator????????

    In a third world political/economic system it allows very wide opportunites for abuse and for private self dealing with public funds. (As has been the unfortunate experience of the Philippines.) NAPOCOR does not buy its fuel supplies through long term supply contracts but depends on short term spot markets exclusively. It should at a minimum buy long term for at least 60-80% of its requirements. leave a small part for the spot physcial market. (People should differentiate physical markets dealings in the spot market from speculative trades in the spot markets.)

    During the Erap time the pruchase by Equitable of a larger bank PCI was made possible with these domestic sovereign wealth funds and both lost money on the deal. GSIS got back their original purchase price but no income for the intervening years between 1998-2007. SSS lost even a larger amount.

    When you have large public funds it would be wise to be humble and effective. Not out there in the public eye acting like a savior of consumers when it is all a game for seizing power and wealth under the guise of state power.

    Government is a big elephant in a China shop that are markets. The Philippines is a perfect example of government repeatedly privatizing gains and socializing loses.

    You do not hear the Singaporean government beating their chest in the stockholders meeting of Citigroup to announce to the world that they were one of the institutions that saved Citi. They did it for their own self interest. They could not afford to have the U.S. financial system collapse as they have a lot of dollar reserves.

  22. Ano ito ,parang ang kasabihan na mahirap magpalaki ng magulang? – KG

    In a way, yes. In the Corporate world, the analogous practice would be called managing upwards. Two way communication is essential especially in an organization where you have a combination of specialists and generalists. There’s a saying that the worst subordinate is the one who does exactly as he(or she) is told (no more, no less).

    I admit that the above analogy with the corporate world, is not exact because we the people are not supposed to be subordinates. On the contrary, our political leaders are supposed to public servants. So if you prefer, my point above can also be rephrased as we should seriously think about how to manage our public servants.

  23. CVJ,
    Just asking, ty!

    But Wait, There is more….

    here am I again with my questions.

    Can anyone tell me ,what is the significance of having the thumbs of of CALPERS,everytime their reps visit the Philippines?

  24. Kg,

    “Can anyone tell me ,what is the significance of having the thumbs of of CALPERS,everytime their reps visit the Philippines?”

    One possible significance – the Philippines is a safe and great investment site. CALPERS is the biggest pension fund in the US

    But from one view, a CALPERS investment isnt that exciting, because all the investment is on the stock market only! Not on foreign direct investments (FDIs) – the ones that create jobs! But for whatever reason, for the foreign investment community, a country that is good for stock investments is also good for FDIs

  25. this is what i’m curious about. do funds like calpers or temasek mount hostile takeovers, or help sink the value of shares to either buy more shares or swing management control? if not, why not? if so, when and how?

  26. nencard, this is something i’ll go into in another entry but let me just say that my assumption is that business is basically an amoral -as distinguished from moral or immoral- undertaking. its paramount goal is increasing value, how it does so is secondary to results.

    anyway, the public in contrast to shareholder’s good is enforced from outside business, by the state, through legislation and institutions that regulate business.

    so where are government’s resources best and most effectively utilized, if its efforts are meant to temper business’ natural inclinations so that the public will benefit or obtain relief?

    where has meralco suffered reverses that actually led to consumers getting some of their money back or having electric rates go down? through the energy regulatory commission and the supreme court: this is where meralco’s battery of privately-funded lawyers can meet their waterloo in terms of government-funded lawyers and experts. another force that could be mobilized are consumers, operating as a lobbyist.

    my contention is that winston garcia’s using the gsis pension fund to break down the doors of the boardroom is the wrong fight using the wrong means, because of the collateral damage it causes. even if we assume he’s as pure as driven snow as is the president who gave him her blessings, whether you like it or not, mobilizing state resources to pursue a boardroom battle -a hostile takeover- freaks out businessmen and gets them circling their wagons -and, as i’ve argued, has the same effect on the middle class, a large chunk of which has its future tied to the big bosses at companies like meralco.

    what sort of strategy should garcia pursue? he’s a corporate raider at heart, and apparently, a gifted one. but is corporate raiding what a government pension fund should do? again, let me point you to temasek holdings, which has, as its goals, building value instead of the search-and-destroy style of garcia. if garcia were administering a private fund, his tactics would not only be perfectly fine, but widely applauded. but since he’s doing it with a public institution and with a captive source of funds, one has to ask whether this is responsible or wise (government employees have no choice but to contribute to the gsis but they have no say in whether they like how it’s administered, and if the fund is badly managed the government gets left holding the bag, and government will always bail it out, a situation private fund managers don’t enjoy).

    if you had a government enjoying public support, this would be an easy fight. but since the government’s distrusted, it doesn’t matter what government says, its motives will be suspect. the president’s healthy legislative majority could have been marshaled to fine-tune the laws, after maneuvering meralco into a corner where what it claims are activities permitted by legislation have, by being discussed, convinced many in the public that those practices, while perhaps legal, aren’t moral. but the danger of fine tuning those laws is that it will affect other players in the industry and that includes players who have an interest in picking up meralco’s pieces, to enjoy the same benefits but perhaps more discreetly.

    the resources of the state could also have been marshaled to pursue things in the erc and all the way up to the supreme court, both of which might take time and points to the fight being more for immediate political gain than long term consumer benefits. there won’t be a killing to make, either for a raider like Garcia or, as the President hoped, to boost her standing with the public.

    i won’t even go into the irony of my having to discuss the idea of taking a fight to the proper venue after the Palace has insisted on it when it was to its benefit -and now, conveniently forgets its own mantra, or how, all of a sudden, Ermita now speaks of the bar of public opinion and the courts, a point I raised concerning the issues the Palace has refused to address.

    As I tend to believe the public demonstrates wisdom even when its moods irritate partisans like you and me, it seems to make sense to me that while the public dislikes the president, for example, it drew the line when it came to the means to hold her accountable. it opposed military intervention, it preferred impeachment, it was skeptical of people power because of the types that tried to push it; but it also opposed wholesale liquidations, emergency rule and martial law, and charter change. the same can be seen in its reaction to the garcia gambit -no real objections to the intentions but skepticism and even hostility to the methods being pursued.

  27. “During the Erap time the pruchase by Equitable of a larger bank PCI was made possible with these domestic sovereign wealth funds and both lost money on the deal.” – hvrds

    • Fidel Ramos directed GSIS to invest money in controversial Centennial Expo project, which ended up losing a tremendous amount of money.

    • Erap ordered GSIS, then under Federico Pascual, to put funds in gaming company Belle Corp. and in PCI Equitable Bank. Because of this, GSIS was burdened by tremendous white elephants in its portfolio.

    • Under the Marcos, Aquino, Ramos and Estrada Administrations, a cabal of insurance brokers controlled the reinsurance business at GSIS, milking government of billions through insurance scams and overpricing of premiums.

    GSIS was a big mess when Winston Garcia took over. To his credit, he took on several 800 pound fighting gorillas in order to clean house. Among the things Garcia has achieved in his relatively short stint in GSIS:

    • Garcia took on the bureaucracy and made it more efficient and effective. He also streamlined operations and brought it into the electronic age. While there was tremendous resistance at first, Garcia won out, proving that change can be effected in government institutions. That is something many technocrats have tried to do, but failed.

    • Garcia took on the gang of insurance brokers that had cornered the government reinsurance business for decades. These had been fleecing government of billions through bloated premiums and falsified claims. GSIS is mandated by law to insure over P1.5 TRILLION of government assets and properties. To ensure transparency, Garcia, along with Bank of the Philippine Islands and Malayan Insurance, put up the National Reinsurance Corporation of the Philippines (PhilNaRe), a company listed in the Philippine Stock Exchange, which now handles the bulk of GSIS’ insurance business. Prior to this, a well-funded media campaign was waged by the insurance brokers to destroy Garcia. Some well-known media people were employed to undertake the hatchet job. But in the end, Garcia came out victorious. Garcia is now chairman of the board of the PhilNaRe. And GSIS’ insurance transactions are much more transparent.

    • Garcia made several winning investments in the stock market for GSIS. Besides coming out ahead on PCI Equitable and San Miguel Corp., Garcia began accumulating Meralco shares when they were below P15 per share, just a couple of years ago. Garcia’s average cost for GSIS’ Meralco shares is way below its last closing price of P61.50. Garcia can laugh all the way to the bank about all the ruckus being made about him causing Meralco share prices to nosedive. Even at these levels, HE IS STILL AHEAD.

    The Lopezes know that they have only achieved a pyrrhic victory. The die is cast and Garcia will still eventually get his windfall. This guy is a gritty brawler. Getting bloodied only makes him more fierce and determined. He’s used to it, and he has notched several hard-fought wins to earn his spurs. The Lopezes know its only a matter of time before the “kanto boy” gets what he wants from the aloof and degenerate patricians.

    As for the stock market, it’s a cyclical thing. Meralco is still a good buy. In these volatile times, a good defensive stock will always be attractive. Give it a few months, at most a couple of years. The stock will bounce back and everybody makes money. After all, as recently as January of 2006, the stock traded only at the P13 level.

    As for that gibberish about Singapore’s Temasek Holdings, Temasek isn’t without its controversies. It has been hounded lately by allegations of underhanded dealings in Thailand and Indonesia which may result in several millions of dollars in penalties. I suppose that’s part of the risk one assumes. Oh, and on those multibillion-dollar investments in UBS and Citibank, Temasek wasn’t really beating its chest, was it? It was only coyly showing the world that it could put up $20 billion to acquire trophy companies wherein it would take several years for them to get their money back. Since Temasek acquired those shares, they have suffered even heavier losses. But the pride and recognition of being important shareholders of companies with brand recognition world-wide is well worth the price. Besides, the social-climbing may even pay off 10 or 20 years down the road, when these banks clean their balance sheets and work their way back into health. Temasek has the liquidity to afford the long wait.

  28. “our penchant for working for somebody else as the be all and end all of economic existence…” – Bencard

    I’m happy to work for somebody else. Call me lazy but I’m content with working 35 hours a week with my work life not interfering with my social life.

    We can’t all be capitalists.

    Some of us are happy to underachieve. Count me in, and a glass of cold beer please.

    Life is too short to be a ‘workaholic’ like Winmoron Garcia.

  29. I can’t help but think of “karma, poetic justice,” regarding this Lopez-GSIS war. (With GMA apparently behind Garcia).

    Remember the staunchest TV network supporter of GMA during 2004 elections? ABS-CBN, right. The network have even announced an exit poll result a few hours after elections showing GMA winning in Metro Manila when in fact, she only barely won in one of the smaller localities which was Las Pinas. Anybody can check the COMELEC records.
    Aside from that, the way the network treated the campaign of FPJ. ( No large crowd footage) causing Karen Davila to cry in nationwide television when Susan Roces reminded her of the unfair media treatment to his dead husband.
    Tsk, my point is be careful in extending help to anyone if it means doing injustice to another. You will never know. Karma works in the most painful way.
    He, he, he.

  30. “this is what i’m curious about. do funds like calpers or temasek mount hostile takeovers, or help sink the value of shares to either buy more shares or swing management control? if not, why not? if so, when and how?” MLQ3

    Unless Jude can find anything wrong with Calpers,like his revelations on Temasek Holdings; Calpers is the so called conscience of corporate boards.

    But it wasn’t until 1984 – during the era of the corporate raiders – that the fund made its commitment to corporate governance.

    Byline: Jabulani Leffall Staff Writer

    Enron, WorldCom, Adelphia, Tyco.

    These are all words that bring corporate malfeasance to mind, words that have investors screaming out for reform in the markets.

    What the largest business scandals have left in their wake is investors of all scales paying closer attention to how companies maintain their share prices and whether chief executives are pulling in more dough than they are worth.

    These days the crusade for corporate governance almost always begins in California.

    At the forefront of the call for corporate accountability is the California Public Employees Retirement System.

    CalPERS, often thought of on Wall Street as the conscience of corporate boards, is the nation’s largest public pension fund, with more than roughly $164 billion in assets. The system manages pension benefits for more than 1.4 million state employees.

    Sean Harrigan, president of CalPERS’ board, has said that good corporate governance leads to improved long-term performance of a company and that CalPERS cannot just be a passive holder of stock but an active share owner that takes its responsibilities seriously.

    “The public pension funds have been more willing to take a public stance,” said Charles Elson, Director of the Center for Corporate Governance at the University of Delaware. “Board independence, board composition and executive pay are big issues right now and I think recent moves by CalPERS have illustrated an overall frustration with companies as well as a concern over responsiveness to shareholder interests.”

  31. “But from one view, a CALPERS investment isnt that exciting, because all the investment is on the stock market only! Not on foreign direct investments (FDIs) – the ones that create jobs! But for whatever reason, for the foreign investment community, a country that is good for stock investments is also good for FDIs.”

    FDI’s create employment…
    ” hedging against inflation is investing into something more solid. the only solid hedge is EMPLOYMENT. ( for our economy)

    talking about FDI’s: “Now the key explanation for why our neighbors flourished in the period 1985-95 is that they were deluged with Japanese investment that was relocating from Japan to make up for the loss of competitiveness of Japan-based production owing to the drastic revaluation of the Japanese yen relative to the dollar under the famous Plaza Accord in 1985.”

  32. Jude:
    “Garcia’s average cost for GSIS’ Meralco shares is way below its last closing price of P61.50. Garcia can laugh all the way to the bank about all the ruckus being made about him causing Meralco share prices to nosedive. Even at these levels, HE IS STILL AHEAD. ”

    you have a point there. that’s 15 divided by 61.50 is 24% appreciation.

    but here’s what is current.
    “Meralco stocks have risen to a high of P116 each in the past year. However, in the past month, the value of MER, a part of the bell weather Philippine Stock Exchange index, has fallen to P60 a piece levels”

    that’s almost 50% of losses. from 116 to 60.
    “However, the analyst said that Tuesday is a lose-lose situation for Meralco stocks, which he sees approaching a low of P47.50 in the coming months”.

    Of course Garcia’s accomplishment of improving business process should not be ignored but he should have fully consider FIRST the consequences of his actions.

  33. correction: you have a point there. that’s 15 divided by 61.50 is 24% appreciation…
    it’s 76% appreciation. LOL.

  34. mlq3,

    at best, CALPERS and Temasek force changes in the Board and top management, which hopefully can do something to boost the stock price.CALPERS and Temasek have no intentions of taking over active management of the companies they have shares in.

    Winston Garcia is up to something. Is Maralco stock going up or down? If its going down, Garcia’s actions can be construed as an attempt to protect GSIS’ stake. But we dont hear from Garcia anything on GSIS’ holdings aside from ‘aiming to reduce power costs’!

  35. Can anyone tell me ,what is the significance of having the thumbs of of CALPERS,everytime their reps visit the Philippines?

    this is what i’m curious about. do funds like calpers or temasek mount hostile takeovers, or help sink the value of shares to either buy more shares or swing management control? if not, why not? if so, when and how?

    It is a very big deal when CalPERS recommends a country or a company for investments. This shows that they pass their rigorous standards for corporate accountability. Institutional investors follow their lead leading to increase share prices.

    On the other end of the spectrum, companies dont want to be included in their annual focus list to be targeted for viscious lobbying to shape up their corporate governance and transparency. There is positive correlation from their corporate activism in increasing profitability to the companies targeted. Its called the “CalPERS Effect.”

    This is at the heart of Winston Garcia crusade against MERALCO where he believes that management are lining their own pockets at the expense of the shareholders and the consuming public. Good Luck to him, Our country is not ready for this type of bruising proxy fights because they take things personally.

  36. “Can anyone tell me ,what is the significance of having the thumbs of of CALPERS,everytime their reps visit the Philippines?”

    Three times ko na nakita so I could just laugh at my self.
    What I meant was “Thumbs up” of Calpers.

  37. mlq3, thank you for your response. i sense a little disconnect in your commentary concerning use of government resources to effect a takeover, and using them to “break down the boardroom door”. in the meralco case, the government is on record about its disinterest in wholly owning the company either directly or through a government agency such as the gsis. gsis already owns some 24% of the entire meralco stocks and with a decisive support from smaller investors, can change the board’s make-up and hence, the management. it appears that garcia’s immediate objective is just that – take away the firm’s control from the lopez block mainly because of specified charges of anomalies and mismanagement contributing to the spiraling cost of electricity.

    as a major shareholder of meralco, gsis has an interest in its good management. and as the chief executive of gsis, garcia has the duty to ensure that its ownership rights are protected. as to the argument that the meralco stocks in the hands of gsis are actually “owned” by its members, the idea is demagogic, naive and simplistic. while government workers pay gsis membership dues to maintain membership, their payments constitute premiums for life insurance, disability and retirement pensions and other benefits. they no longer have a claim of ownership to those payments any more than i could claim ownership of my fica payments here in the u.s.

    your mindset that every management decision of a government-controlled corporation is directed by an incumbent president is, i think, at the root of the problem that everything in the philippines is politicized.

  38. “However, the analyst said that Tuesday is a lose-lose situation for Meralco stocks, which he sees approaching a low of P47.50 in the coming months”

    “Of course Garcia’s accomplishment of improving business process should not be ignored but he should have fully consider FIRST the consequences of his actions.” – leytenian

    Analysts try to make their own predictions. Sometimes they’re on the mark. Sometimes they’re way off the mark. They usually have a set of assumptions from which they base their predictions, and that is where discrepancies often arise.

    Big-league stock market players know that prices of stocks go up and down, depending on sentiment and business conditions. They usually have medium to long-term goals and they know better than to let market fluctuations bother them. If the market goes up, as it did when Meralco was at P116 (that was before the world-wide slump in stocks due to the U.S. housing market mess), they may sell some stocks to lock up some profits. GSIS did sell some stocks at the market highs. When the market drops, they buy to lower their average cost. Just as GSIS has been accumulating shares when the market has been down.

    It’s not an all-or-nothing situation, its a constantly evolving one wherein one patiently waits for opportunities to either buy or sell. It is a very amoral situation, with no definite timelines, and the only arbiter is whether one makes or loses money.

    And, as some have pointed out here and as leytenian acknowledges when he cites Garcia’s accomplishment in improving business processes, corporate raiders do play an important role in curbing management abuses. In the U.S., some corporate raiders have attained legendary status and respect because they safeguard and look after stockholders’ rights and welfare.

    Management abuses (and corruption) have not been very much taken into account in the Philippines because most corporations are family affairs. “Management” is almost indistinguishable from “stockholder” because, in most cases, management is usually represented by the owners.

    In the U.S., management is composed of hired professionals who do not usually own the majority of shares. In most cases, the interests of management and the stockholders are very different. Management tries to line their own pockets via scandalous pay and bonuses or via sweetheart deals with suppliers or service contractors wherein they have interests. The end result is that management makes a lot of money at the expense of the company’s bottom line. This results in less profits for the stockholders. That is why stockholders’ rights are an important issue in U.S. business.

    The Meralco model somewhat resembles the U.S. one in the sense that management does not own majority of shares in the company. As the biggest single shareholder, GSIS is well-justified in asserting its rights as stockholder. A glaring problem with Meralco is that management does business with companies that are majority-owned by them. This incestuous arrangement makes accusations of sweetheart deals and lopsided transactions inevitable.

    In the Philippine setting, Winston Garcia may be viewed as an iconoclast, even if, by U.S. standards, it would just be another exercise of stockholders asserting their rights. And we do have a tendency to politicize matters and to take them too personally.

  39. “As for that gibberish about Singapore’s Temasek Holdings, Temasek isn’t without its controversies. It has been hounded lately by allegations of underhanded dealings in Thailand and Indonesia which may result in several millions of dollars in penalties. I suppose that’s part of the risk one assumes. Oh, and on those multibillion-dollar investments in UBS and Citibank, Temasek wasn’t really beating its chest, was it? It was only coyly showing the world that it could put up $20 billion to acquire trophy companies wherein it would take several years for them to get their money back. Since Temasek acquired those shares, they have suffered even heavier losses. But the pride and recognition of being important shareholders of companies with brand recognition world-wide is well worth the price. Besides, the social-climbing may even pay off 10 or 20 years down the road, when these banks clean their balance sheets and work their way back into health. Temasek has the liquidity to afford the long wait.” another pundit blogger

    Whoops!!! Once again jumping to wrong conclusions based on myths.

    Sinagapore’s Temasek Holdings is the fund manager for the provident fund of the government. This is the compulsory savings similar to social security.

    GIC (Government of Singapore Investment Cortporation) is the entity that handles the management of investing Sinagapore’s dollar reserves. It was GIC who invested their dollar reserves with Citi and UBS.

    Their (GIC) investment in UBS and Citi was not simply an infusion of equity for shares. They got a hybrid insturment that pays above market rates in interest of between 8-11%. The rates that junk bond pays with an option to convert into equity at a strike price in the medium term. Soverign investment funds are not there for social climbing most expecially when they have something an undercapitalized bank needs while they restructure and sell off assets to imporve their capital to asset and loan rations. Citi plans to seel off $500 billion in assets to raise their capital ratios.

    So much for brand (CITI and UBS) but even when the mighty fall the have to pay through the nose to get back into the game.

    The problem of protectionist pressures versus sovereign wealth funds exist not only in Thailand but all over the world.

    These provident funds sourced from entitlement taxes are completely different from the investing of dollar reserves. For example GSIS invested in foreign markets and they had to buy dollars from the BSP.

    Meanwhile a large bulk of the countries dollar reserves held by the BSP are invested with JP Morgan who normally invests these in low risk sovereigns.

    Do not put the Philippine finacial system on par with Singapore since we are net importers of capital while Singapore are net exporters of capital. That is why they can get higher yields than the Philippines with their wholesale funds.

    Globe’s partner in the cell phone business is none other than Singtel.

    Their (Temasek) problems in Thailand and Indonesia is simply because those countries do not want the former Thai head of who sold off to the Singaporeans to control a major aspect of their cellphone business.

    Here in the Phils. Salim and Singapore invested heavily in Globe and PLDT/Smart.

    Pundits could ask themselves this question? Where in the world could you get to loan dollars at that level and receive that kind of yield from a A rated institution?

    8-11%. Citi is paying more in interest due to its blunders than even countries with junk bond status.

    But that is only for those with spare funds to lent out.

  40. jude,

    if the setting were the US, Winston Garcia would be doing what he is doing (a) if the Meralco stock price is way way down, and (b) if GSIS’ stake in Meralco lost 90% of its value from its highest stock price.

    in short, Garcia would be protecting GSIS’ stake in Meralco and would do anything to restore the lofty stock price Meralco once had. if that means replacing the Lopezes, so be it

    but the Meralco stock price is light years away from Garcia’s motives

    So why on earth is he trying to shake up management? if Meralco is profitable for the Lopezes, it is just as profitable for GSIS!

    Garcia may not be noticing it, but his actions are dragging down the Meralco stock price!

  41. The likes of Winston Garcia’s should be welcomed in Philippine business. Whatever the outcome in his tussle with the Lopezes have driven a maelstrom of opinions on corporate governace and transparency. The hostile war of words to shake things up have put Philippine companies on noticed that the era of impotent shareholders and ineffectual board of directors might be coming to an end. He might lose this battle but has will eventually win the war.

    The current dip in price per share of MERALCO from the controversies wont even register a blip in the long run. When stakeholders are becoming more pro-active on how the companies they own is managed, the organization becomes more efficient and profitable. I am not surprised a bit that both GSIS, the lopezes and hedge funds ar quietly accumulating shares right now.

  42. “They got a hybrid insturment that pays above market rates in interest of between 8-11%.”

    “8-11%. Citi is paying more in interest due to its blunders than even countries with junk bond status.

    But that is only for those with spare funds to lent out.”
    – hvrds

    The usual long-winded junk from the wordy Marxist. There’s an awfully large gap between 8 and 11 percent. Be specific what instruments Citi is using to pay 11%. I have myself bought Citigroup convertible preferred shares yielding 6½% p.a. After a certain period, these preferred shares can be converted to common shares at approximately $33 per share. I also have Citigroup preferred non-convertible shares that yield 8½%. I would most certainly invest in Citigroup or UBS at 11%. Show me where, or is it just a figment of your paranoid imagination?

  43. magdiwang:
    “The likes of Winston Garcia’s should be welcomed in Philippine business. ”
    the business process improvement by Gracia’s management strategy can be compared to a US student interns ( bachelor’s degree). His strategy may be big deal for Philippine standard and sure the filipinos should welcome but it is below par according to even my standard.

    I agree with Anthony.. when meralco’s share went up to 110, it could have been Garcia’s srategy to sell and cashing out before barking at the wrong tree. His action contradicts all the good things he has done to GSIS. He missed the big opportunity of gaining over 50% of profit just in one year. It was time to sell. Garcia is playing GSIS money like it”s his own money. His current action and out burst is not acceptable in a civilized world of management. It is below par and he needs JUDE to back him up.

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