Congressional Blind Man’s Bluff

(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.”

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.”

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?”

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.”

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.”

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:


Manuel L. Quezon III.

72 thoughts on “Congressional Blind Man’s Bluff

  1. to hvrds: I’ve heard anecdotes of previously-owned Makati condo-prices sliding fast and new-condo sales looking unhealthy. True?

  2. and condolences to the citizenry of Australia’s Victoria state for the firestorm tragedy.

  3. 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…

    …Full time labor force including government workers amount to only 7M… Point out where you can pump prime… – hvrds

    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.)

  4. 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.

  5. 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

    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?


    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.


    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.

  6. CVJ which comes first creating incomes in an income deprived country or increasing the tax base.

    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?

  7. 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.

  8. The 5/6ers survive w/o guarantees. The banks fail even with guarantees. Bakit kaya?

    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.

  9. 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:


    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.


    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.

  10. 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.

  11. 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. – J_ag

    That’s precisely the idea as i propose here.

  12. 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…..

  13. 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. – Ja_g

    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.

  14. 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.

  15. 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.

  16. 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.

  17. 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.

  18. “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.

  19. …Their [China’s] 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. – J_ag

    …a description which incidentally fits the Philippines, don’t you think?

    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. – J_ag

    Nothwidthstanding your use of the phrase ‘went to Adam Smith’, i agree. I said the same thing last year.

    Silent Waters, the communists won in 1949 because of the support of the peasants. That’s why Chiang Kai Shek and his nationalist army was driven from the mainland into Taiwan. The latter, learning his lesson, then implemented land reform in Taiwan so that the peasants on that island will not do the same to them.

    After that, Mao and his party went overboard with communist dogma and implemented hare-brained schemes like the backyard industrialization of the ‘Great Leap Forward’ (which is similar to Benign0’s advocacy) and the ‘Cultural Revolution’ (which is why i don’t agree with those who subscribe to James Fallows’ ‘Damaged Culture’ analysis).

    So in 1978, Deng restored sanity in the system by moving away from collectivization and introducing market-oriented reforms. When he finally declared ‘to get rich is glorious’, there were no more oligarchs to get in the way of the masses. – cvj on Tue, 4th Mar 2008 11:41 am

    Our positions are not that far apart.

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