Introspective
Business World
THERE ARE BETS you’d rather lose. My good friend former socioeconomic planning secretary Ciel Habito and I have a running bet on the GDP growth for this year. His is optimistic at 7% and mine is conservative at just above 6% forecast. With the release of the third-quarter GDP growth at 5.3% last Thursday, it looks like I have a “free” lunch, care of Ciel.
We may disagree on our numbers, but Ciel and I both see that the key to
higher growth lies in the government getting its act together. The
government has much to do in terms of relieving infrastructure
constraints to drive economic growth both in the short and long term.
Short-term growth would be propelled by government spending for
infrastructure and by construction of public-private partnership
projects, long-term growth by the resulting improvement of connectivity
and efficiency in the market attracting private investments that would
create jobs and generate economic activity.
However, last quarter’s GDP growth dipped anew, dragged down by low
government spending especially for infrastructure and by the poor state
of road transport and seaports. It seems that the government is not
doing enough to straighten out its troubles.
Back in July this year, we at GlobalSource wrote that “the setback
caused by the Supreme Court decision on public spending as well as the
slowness in decongesting the Port of Manila threatens 3Q14 economic
growth” and proceeded to pare our 2014 GDP growth forecast to 5.8%. When
August data showed better-than-expected second-quarter growth, we said
that “the economy is not yet out of the woods in terms of bearing the
costs of port congestion, which will feed into prices and economic
activity in 2H14” but conceded a return to our start of the year 6.1%
forecast.
And indeed third-quarter growth, reported at 5.3%, is way below the
6%-6.5% figures from journalists’ polls. Apart from government
underspending (consumption and construction fell 2.5% and 6.2%
respectively) and the seven-month-long gridlock at the main
international seaport in Manila (despite its growth-boosting impact via
weak imports, it may have also caused lower inventory buildup and on the
supply side, an evident slowdown in transport and storage services), a
mix of higher inflation and lower peso remittance growth saw household
spending slowing down (to 5.2% in the third quarter from a revised 5.7%
in the second quarter and 5.9% in the first quarter). At the same time,
bad weather led to a 2.7% decline in agriculture, which is about 10% of
GDP.
The much lower third quarter performance brought year-to-date GDP growth
to 5.8%. With fourth quarter economic activity typically supported by
Christmas festivities and upbeat consumer and business sentiments, what
is the likelihood of fourth-quarter GDP reaching the 6.8% needed to
achieve our latest 2014 forecast?
There is good news. Inflation is decelerating, port cargo movement has
reportedly improved with the lifting of the local government’s truck
ban, private construction shows momentum (12.7% in the second quarter
and 15.7% in the third quarter), and despite the reported recession in
Japan and slowdown in China, exports to these two major trade partners
show robust growth (20% and 22% in nominal dollars, respectively, from
January to September).
On the other hand, we continue to wrestle with the question of whether
or not government can deliver on its promised spending. During the
pre-DAP (Disbursement Acceleration Program), high growth periods, public
sector consumption and construction together contributed anywhere from
one to almost three percentage points of quarterly GDP growth. Hence, if
government officials are rightly optimistic about rehabilitation
spending gaining traction, a high fourth-quarter GDP growth is feasible.
But how likely is it?
Part of this column was culled from a recent GlobalSource report written
by Christine Tang and Romeo Bernardo. Mr. Bernardo is Philippine
GlobalSource advisor and is a board director of IDEA.
Sunday, November 30, 2014
Sunday, November 2, 2014
The PPP promise, a work in progress
BUSINESS WORLD
Introspective
After a false start and a few years limping along, the Aquino government’s flagship PPP program finally roared to life. In relatively quick succession, the government bid out or awarded four projects worth P125 billion and rolled out six more costing about P170 billion. What was particularly surprising was that the auctions yielded substantial concession fee payments to the government, as against pre-bid financial model results showing that the government would have to provide subsidies to enhance project cash flows.
Encouraged by the successes, the government through the PPP Center has lined up another seven projects worth about P180 billion for approval by the National Economic and Development Authority (NEDA) board, and is preparing feasibility studies for 10 other projects. In all, there are about 50 projects in the PPP Center’s pipeline which the government is also actively marketing to foreign investors through a series of international road shows.
The mood has not always been this upbeat due largely to unmet expectations following the government’s high publicity launch of the program back in 2010. Then, the much-hyped “PPP is the solution to the infrastructure shortage in the country” failed to consider that in the wake of controversies surrounding failed PPPs in the past, both sides of the partnerships had their guard up and were distrustful of each other. In particular in the aftermath of the Asian crisis, the public sector had to grapple with and absorb some of the liabilities in PPP contracts, and for years leading up to 2010 preferred to manage the risks from contingent liabilities by avoiding them altogether. In turn, the private sector was particularly leery of government contract promises that the latter had time and again failed to keep, notably delays in tariff adjustments in most sectors -- power, water, rail, toll roads -- particularly during politically sensitive periods.
Moreover, there were very few market-ready projects in the pipeline at the time and fast-tracking last-mile adjustments to ready projects was constrained by technical limitations in implementing agencies. It was thus a slow process of learning by doing on a per-project basis, tentatively delineating risks among the parties involved, with the government deftly testing what risks the market could bear through actual biddings of smaller projects.
These included (a) a small 4-kilometer (km) toll road in December 2011 that very soon became stuck in right-of-way (ROW) disputes, and (b) a project to build classrooms, awarded in September 2012, that was the first of its kind in that it relied solely on government payments for its cash flows and thus was not able to attract more bidders willing to assume congressional appropriations risk. Critics also pointed out that this project and its second phase the following year lacked features of true PPPs in that the private sector merely handled construction of the schools and were not exposed to market and operating risks.
The first major win for the Aquino government was the P15.5-billion, 7.75-km, four-lane elevated NAIA Expressway project that had been in the drawing board for decades and was finally brought to market with donor technical assistance. Albeit it attracted only two bidders, the auction, won by a consortium led by one of the large domestic conglomerates (SMC) in May 2013, yielded P11 billion in concession fees to the government and by early 2014 had already broken ground. Another win six months later was a five-way bid in November to install a P1.7-billion single-ticketing system for Metro Manila’s rail system, where the winning bid was a P1.1-billion payment to the government.
But it has not become easier. The latest auctions, involving three multibillion-peso transport projects, have been uphill struggles for both the government and the private sector. The challenges that have emerged during the bid stage are reminders of the inherent difficulty and associated time lag of doing PPPs, especially in a developing country like the Philippines where institutions remain weak and bidders take for granted that calling on the courts, Congress or the President to intervene on their behalf is part of the rules of the game. Such politicization of the formal PPP processes tarnishes the program’s image and dulls investors’ appetites. Here are a few of the project holdups:
LRT LINE 1 EXTENSION
The biggest and the most complicated one to date, it has been subjected to repeated feasibility studies. The first bidding in August 2013 failed due to misallocation of risk (shifting to the private sector the uncertainty of real property taxes) and the insufficiency of allowed subsidy. It was rebid in May this year with the lone bidder (out of seven prequalified) winning. The award was delayed to September by a still ongoing legal tussle involving the location of a “common station” shared with another rail line.
MACTAN-CEBU AIRPORT TERMINAL
Seven bidders showed up in November 2013, with the consortium of Megawide Construction Group, which partnered with India’s GMR Infrastructure, winning the bid. Citing conflict of interest, the losing bidder challenged the qualifications of the winning group, which was then subjected to a Senate inquiry. Even with a legal challenge filed before the Supreme Court, the project was awarded in April, delayed by a few months.
CAVITE-LAGUNA EXPRESSWAY
Four groups vied in the June bidding, with the SMC consortium disqualified based on a noncompliant bid bond. Of the three remaining, the Ayala-Aboitiz consortium offered the highest premium, amounting to P11.66 billion. The SMC group claimed that it would have won with a P20 billion had it not been disqualified on a “technicality.” It appealed to the President to overturn its disqualification and the Palace issued an order in late June suspending the awarding of the project. The issue has yet to be resolved.
(Next week: Moving forward)
This piece is based on a GlobalSource report by Christine Tang and Romeo Bernardo
Romeo Bernardo was finance undersecretary during the Cory Aquino and Ramos administrations, and board director of Institute of Development and Econometric Analysis Inc.
========================================================================
(to be published Nov 10)
Moving forward
From where it started in 2010, government has made significant strides in terms of project awards and in building a pipeline of PPP projects using the donor-supported Project Development and Monitoring Fund (PDMF). The PDMF framework has led to a coherent, solicited and transparent government-led PPP program, a departure from the past where projects originated via the private sector-driven, unsolicited route. Donor assistance has also gone into strengthening technical capacity in government agencies for identifying and implementing projects suited for PPP and to a more limited extent, drawing up sectoral master plans that map out project requirements.
Notwithstanding the above, the PPP program is still a work in progress (with proposed changes to the legal framework pending in Congress) and continues to be at risk of sliding to stall speed.
For starters, success to date has been based on selecting projects that were either relatively simple to do or had ready feasibility studies sourced either from past technical assistance or unsolicited proposals. The risk now is of exhaustion of feasibility studies for projects that may be undertaken as PPP. While the PDMF is envisioned to be self-sustaining, seed funds provided by donors are at risk of becoming depleted as there is a gap/ time lag in its replenishment via reimbursement from awarded projects. Also, while it would be fair to assume that the contract models now in place for each of the sectors awarded would make it easier to do succeeding ones, we think that the challenge of bringing seemingly similar projects to market will remain a slow process due to the many idiosyncratic factors, including political ones and even at the local government levels, that affect different projects’ risk profiles differently.
Moreover, as the program moves away from brownfield projects, where there are existing and predictable revenues streams, to riskier greenfield projects with uncertain demand, the as yet unknown unknowns can be expected to contribute to longer project cycles. One example is the newly rolled out P123-billion expressway dike project, the biggest one by far, which we understand will have to hurdle challenges from competing tollroad concessions that may see their traffic volume diverted to the new road as well as a skewed cashflow profile with the huge upfront cost to be recovered from revenues too far into the future.
The policy environment
As PPP projects become bigger, riskier and more complex, government will also need to assess its own appetite for taking bolder measures to de-risk projects and provide stronger assurances to investors that it will be able to fulfill contract promises. So far, the general impression is that due to its unpleasant experience with realized contingent liabilities in the past, government has been overly cautious in assuming risks in PPPs. Even if government were prepared to assume more risks, its ability to do so in the short-term would be constrained by the lack of a medium-term expenditure framework that would enable it to commit resources to long-gestating PPP projects over successive administrations and protect projects from politicization. For instance, we expect that two long-term public financial support mechanisms will become more important over time, but both will probably need legislation.
One is an automatic payment mechanism where annual appropriations will be allowed to accumulate and used automatically for payouts in case of government contract breach, similar to the treatment of debt repayments. This would be a more permanent structure compared with the current setup where a “Contingent Liability Fund“ item is lodged under “unprogrammed funds” in the budget and expires every year and would have to be appropriated anew every year. Similarly, a separate long-term fund is needed to meet so-called “availability payments” for projects that rely partly or wholly on government payments for financial viability (Examples include the classrooms and hospital projects as well as PPP structures similar to the take-or-pay power contracts in the 1990s). At present, government is relying on an instrument called multi-year obligation authority (MYOA) that commits the executive to include the required payments in the annual budget over the project period; but it is non-binding on the legislature which approves the budget, thus exposing investors to risk of non-appropriation by congress every year.
There is additionally the challenge of sustaining competitive pressures by expanding the pool of potential bidders beyond the current list of mostly large local conglomerates, which will be crucial to safeguarding the bidding process and ensuring that government receives the best price. So far, the seemingly high concession payments on awarded projects suggest adequate competition but which we think may be more properly traced to extraneous factors – current low interest rate environment and upsides from real estate development that have enhanced forecast revenues beyond a “project only” analysis – that may not be relevant in future projects. In the event, Constitutional restrictions particularly on public utilities may become binding constraints to ramping up PPP deals.
Postscript
The challenges notwithstanding, we think that the PPP program will continue to be a necessary feature of the country’s infrastructure program not only because of constrained public resources but more importantly because it enables government to tap into private sector technical, financial and managerial expertise. But even as government is devoting a lot of resources on developing and marketing new deals, it should probably also pay mind to how it treats its private partners in ongoing PPP projects. Recent reports of backtracking from market-based electricity rate setting, reinterpretation of the concession agreement with water concessionaires on the recoverability of corporate income taxes, and the delays in rate adjustments in mass transport and toll roads put the stability of the country's regulatory environment in a bad light.
At the end of the day, it is the assurance of a predictable legal and regulatory environment during the bidding and award stage and over project life that will kindle private sector interest and achieve value for money for the public sector.
Introspective
After a false start and a few years limping along, the Aquino government’s flagship PPP program finally roared to life. In relatively quick succession, the government bid out or awarded four projects worth P125 billion and rolled out six more costing about P170 billion. What was particularly surprising was that the auctions yielded substantial concession fee payments to the government, as against pre-bid financial model results showing that the government would have to provide subsidies to enhance project cash flows.
Encouraged by the successes, the government through the PPP Center has lined up another seven projects worth about P180 billion for approval by the National Economic and Development Authority (NEDA) board, and is preparing feasibility studies for 10 other projects. In all, there are about 50 projects in the PPP Center’s pipeline which the government is also actively marketing to foreign investors through a series of international road shows.
The mood has not always been this upbeat due largely to unmet expectations following the government’s high publicity launch of the program back in 2010. Then, the much-hyped “PPP is the solution to the infrastructure shortage in the country” failed to consider that in the wake of controversies surrounding failed PPPs in the past, both sides of the partnerships had their guard up and were distrustful of each other. In particular in the aftermath of the Asian crisis, the public sector had to grapple with and absorb some of the liabilities in PPP contracts, and for years leading up to 2010 preferred to manage the risks from contingent liabilities by avoiding them altogether. In turn, the private sector was particularly leery of government contract promises that the latter had time and again failed to keep, notably delays in tariff adjustments in most sectors -- power, water, rail, toll roads -- particularly during politically sensitive periods.
Moreover, there were very few market-ready projects in the pipeline at the time and fast-tracking last-mile adjustments to ready projects was constrained by technical limitations in implementing agencies. It was thus a slow process of learning by doing on a per-project basis, tentatively delineating risks among the parties involved, with the government deftly testing what risks the market could bear through actual biddings of smaller projects.
These included (a) a small 4-kilometer (km) toll road in December 2011 that very soon became stuck in right-of-way (ROW) disputes, and (b) a project to build classrooms, awarded in September 2012, that was the first of its kind in that it relied solely on government payments for its cash flows and thus was not able to attract more bidders willing to assume congressional appropriations risk. Critics also pointed out that this project and its second phase the following year lacked features of true PPPs in that the private sector merely handled construction of the schools and were not exposed to market and operating risks.
The first major win for the Aquino government was the P15.5-billion, 7.75-km, four-lane elevated NAIA Expressway project that had been in the drawing board for decades and was finally brought to market with donor technical assistance. Albeit it attracted only two bidders, the auction, won by a consortium led by one of the large domestic conglomerates (SMC) in May 2013, yielded P11 billion in concession fees to the government and by early 2014 had already broken ground. Another win six months later was a five-way bid in November to install a P1.7-billion single-ticketing system for Metro Manila’s rail system, where the winning bid was a P1.1-billion payment to the government.
But it has not become easier. The latest auctions, involving three multibillion-peso transport projects, have been uphill struggles for both the government and the private sector. The challenges that have emerged during the bid stage are reminders of the inherent difficulty and associated time lag of doing PPPs, especially in a developing country like the Philippines where institutions remain weak and bidders take for granted that calling on the courts, Congress or the President to intervene on their behalf is part of the rules of the game. Such politicization of the formal PPP processes tarnishes the program’s image and dulls investors’ appetites. Here are a few of the project holdups:
LRT LINE 1 EXTENSION
The biggest and the most complicated one to date, it has been subjected to repeated feasibility studies. The first bidding in August 2013 failed due to misallocation of risk (shifting to the private sector the uncertainty of real property taxes) and the insufficiency of allowed subsidy. It was rebid in May this year with the lone bidder (out of seven prequalified) winning. The award was delayed to September by a still ongoing legal tussle involving the location of a “common station” shared with another rail line.
MACTAN-CEBU AIRPORT TERMINAL
Seven bidders showed up in November 2013, with the consortium of Megawide Construction Group, which partnered with India’s GMR Infrastructure, winning the bid. Citing conflict of interest, the losing bidder challenged the qualifications of the winning group, which was then subjected to a Senate inquiry. Even with a legal challenge filed before the Supreme Court, the project was awarded in April, delayed by a few months.
CAVITE-LAGUNA EXPRESSWAY
Four groups vied in the June bidding, with the SMC consortium disqualified based on a noncompliant bid bond. Of the three remaining, the Ayala-Aboitiz consortium offered the highest premium, amounting to P11.66 billion. The SMC group claimed that it would have won with a P20 billion had it not been disqualified on a “technicality.” It appealed to the President to overturn its disqualification and the Palace issued an order in late June suspending the awarding of the project. The issue has yet to be resolved.
(Next week: Moving forward)
This piece is based on a GlobalSource report by Christine Tang and Romeo Bernardo
Romeo Bernardo was finance undersecretary during the Cory Aquino and Ramos administrations, and board director of Institute of Development and Econometric Analysis Inc.
========================================================================
(to be published Nov 10)
Moving forward
From where it started in 2010, government has made significant strides in terms of project awards and in building a pipeline of PPP projects using the donor-supported Project Development and Monitoring Fund (PDMF). The PDMF framework has led to a coherent, solicited and transparent government-led PPP program, a departure from the past where projects originated via the private sector-driven, unsolicited route. Donor assistance has also gone into strengthening technical capacity in government agencies for identifying and implementing projects suited for PPP and to a more limited extent, drawing up sectoral master plans that map out project requirements.
Notwithstanding the above, the PPP program is still a work in progress (with proposed changes to the legal framework pending in Congress) and continues to be at risk of sliding to stall speed.
For starters, success to date has been based on selecting projects that were either relatively simple to do or had ready feasibility studies sourced either from past technical assistance or unsolicited proposals. The risk now is of exhaustion of feasibility studies for projects that may be undertaken as PPP. While the PDMF is envisioned to be self-sustaining, seed funds provided by donors are at risk of becoming depleted as there is a gap/ time lag in its replenishment via reimbursement from awarded projects. Also, while it would be fair to assume that the contract models now in place for each of the sectors awarded would make it easier to do succeeding ones, we think that the challenge of bringing seemingly similar projects to market will remain a slow process due to the many idiosyncratic factors, including political ones and even at the local government levels, that affect different projects’ risk profiles differently.
Moreover, as the program moves away from brownfield projects, where there are existing and predictable revenues streams, to riskier greenfield projects with uncertain demand, the as yet unknown unknowns can be expected to contribute to longer project cycles. One example is the newly rolled out P123-billion expressway dike project, the biggest one by far, which we understand will have to hurdle challenges from competing tollroad concessions that may see their traffic volume diverted to the new road as well as a skewed cashflow profile with the huge upfront cost to be recovered from revenues too far into the future.
The policy environment
As PPP projects become bigger, riskier and more complex, government will also need to assess its own appetite for taking bolder measures to de-risk projects and provide stronger assurances to investors that it will be able to fulfill contract promises. So far, the general impression is that due to its unpleasant experience with realized contingent liabilities in the past, government has been overly cautious in assuming risks in PPPs. Even if government were prepared to assume more risks, its ability to do so in the short-term would be constrained by the lack of a medium-term expenditure framework that would enable it to commit resources to long-gestating PPP projects over successive administrations and protect projects from politicization. For instance, we expect that two long-term public financial support mechanisms will become more important over time, but both will probably need legislation.
One is an automatic payment mechanism where annual appropriations will be allowed to accumulate and used automatically for payouts in case of government contract breach, similar to the treatment of debt repayments. This would be a more permanent structure compared with the current setup where a “Contingent Liability Fund“ item is lodged under “unprogrammed funds” in the budget and expires every year and would have to be appropriated anew every year. Similarly, a separate long-term fund is needed to meet so-called “availability payments” for projects that rely partly or wholly on government payments for financial viability (Examples include the classrooms and hospital projects as well as PPP structures similar to the take-or-pay power contracts in the 1990s). At present, government is relying on an instrument called multi-year obligation authority (MYOA) that commits the executive to include the required payments in the annual budget over the project period; but it is non-binding on the legislature which approves the budget, thus exposing investors to risk of non-appropriation by congress every year.
There is additionally the challenge of sustaining competitive pressures by expanding the pool of potential bidders beyond the current list of mostly large local conglomerates, which will be crucial to safeguarding the bidding process and ensuring that government receives the best price. So far, the seemingly high concession payments on awarded projects suggest adequate competition but which we think may be more properly traced to extraneous factors – current low interest rate environment and upsides from real estate development that have enhanced forecast revenues beyond a “project only” analysis – that may not be relevant in future projects. In the event, Constitutional restrictions particularly on public utilities may become binding constraints to ramping up PPP deals.
Postscript
The challenges notwithstanding, we think that the PPP program will continue to be a necessary feature of the country’s infrastructure program not only because of constrained public resources but more importantly because it enables government to tap into private sector technical, financial and managerial expertise. But even as government is devoting a lot of resources on developing and marketing new deals, it should probably also pay mind to how it treats its private partners in ongoing PPP projects. Recent reports of backtracking from market-based electricity rate setting, reinterpretation of the concession agreement with water concessionaires on the recoverability of corporate income taxes, and the delays in rate adjustments in mass transport and toll roads put the stability of the country's regulatory environment in a bad light.
At the end of the day, it is the assurance of a predictable legal and regulatory environment during the bidding and award stage and over project life that will kindle private sector interest and achieve value for money for the public sector.
Sunday, September 28, 2014
Bangsamoro is a gamechanger
Introspective
BUSINESS WORLD
http://www.bworldonline.com/content.php?section=Opinion&title=bangsamoro-is-a-gamechanger&id=95160
THE GOVERNMENT’S herculean effort to put behind us a four-decade old, costly and painful civil strife and gain for us all the benefits of peace deserve our support. This can be a potential game changer in our economic landscape, not just in what is now called the Autonomous Region for Muslim Mindanao, but for the entire country. True, there are risks along the way. But it is well worth giving peace a chance.
The legitimacy of the Moro wars for independence was the basis for the peace negotiations from the time of Marcos to the present. The Bangsamoro claim they are a separate nation with a distinct identity, culture and independent state (sultanates) with a long history of resisting the colonizers. Nations like this have the “right to self-determination” (RSD), according to the United Nations. The Organization of Islamic Conference (OIC) supported Nur Misuari and the Moro National Liberation Front in part because they supported the Bangsamoro fight for independence under the RSD and in part because they believed that the Muslims of Mindanao were under threat of genocide during martial law.
Peace in the South can bring up Mindanao’s contribution to the gross domestic product (GDP). Mindanao has abundant primary resources, perfect agro-climatic conditions, lower wage rates (with the ARMM cost half of average labor cost in Mindanao), still lower power cost, and vast opportunities for growth and diversification through its BIMP-EAGA connection. Investments have stayed away from Mindanao, even more so than the rest of the country, due to security concerns. Remember the Zamboanga siege? The Ampatuan massacre? Killers for tourism and investments, and not just in Muslim Mindanao.
As for opportunities in the ARMM, the region has the biggest areas of untapped natural resources, rich fishing grounds and fertile lands, the best beaches anywhere in the Philippines or anywhere else, and closest cultural and historical links with Brunei, Indonesia and Malaysia which can allow the region to access new capital thru Islamic financing as well as a new export market in the still growing halal industry. Further, the barter trade between Sulu and Malaysia is an economic tie that is centuries old and can be revived, with BIMP-EAGA and the initiatives being mounted as part of ASEAN 2015, fully backed by the national governments and the Asian Development Bank.
The Bangsamoro will have even more powers than the ARMM government to help craft its own destiny. While the region has disadvantages largely due to the four decades of civil strife and neglect, it also has an important advantage -- starting fresh. It can learn from the history of flawed policies that have hurt the flow of investments and creation of needed jobs in the rest of the country -- rigid and costly labor policies, complex bureaucracies and red tape, a distorted fiscal incentive structure, a failed agrarian reform program and misguided environmental policies that choke the development of a responsible mining industry. As explained by Foundation for Economic Freedom President Toti Chikiamco in a workshop organised by the FEF/Philippine Center for Islam and Democracy, it may actually provide a model for the rest of the country, be the tail to wag the dog, the way Hong Kong/Shenzen has shown the way for the rest of China.
Investors may, by adopting their business models and organisational and management styles to the traditional leadership (datus) structures of the area, find that these can be better places to operate than in other places in the country. This is the encouraging lesson of Unifrutti of former Secretary Senen Bacani and the late Datu Paglas which have won international awards.
It would be fair to ask, who are these guys (in the Moro Islamic Liberation Front leadership) and why do we trust them to succeed? Why do we think that leadership won’t revert to the old traditional leaders/warlords after elections take place?
I posed this question to Amina Rasul, lead convenor of the Philippine Center for Islam and Democracy, also our home Bangsamoro expert. This is what she said: “The MILF leadership is better prepared to take on the mantle of leadership of a civilian government (unlike the MNLF after the signing of the 1996 peace agreement). Under Chair Murad, the MILF has succeeded in establishing the Bangsamoro Development Agency (BDA) and the Bangsamoro Leadership Institute (BMLI). The BDA and the BMLI, chaired by civilians, are led by boards consisting of the MILF Central Committee and professionals. The BDA is tasked to prepare the Bangsamoro Development Plan and has been assisted by development partners and government. The BMLI is putting together training programs for the Bangsamoro. Further, the MILF has been sending young Bangsamoro professionals to study, with the help of development partners.
While all development matters are still decided by the MILF Central Committee, it is clear that the MILF has been preparing for civilian government over the last few years. The failure of the MNLF to govern the ARMM, under Misuari, has been in large part due to their lack of preparation to govern under a democratic system. This is not the case with the MILF, which has been working with government and development partners to put in place programs such as the Sajahatra intended to provide services to its communities.
The MILF leadership also has the support of several political and traditional leaders, particularly in Central Mindanao. “
What can business do to help enhance chances of success at this time -- and moving forward after the Bangsamoro entity is set up?
The most urgent is for the business sector to support the passage of the Bangsamoro Basic Law. The MILF leadership under Murad has invested political capital in the peace agreement. Should the Basic Law be watered down or not passed, the pragmatists in the MILF Central Committee will lose out to the fundamentalist faction which is supported by younger (and more aggressive) leaders who already feel that the original demands of the MILF have been greatly undermined during the peace negotiations.
In the short term, before transition to the establishment of the Bangsamoro political entity, the business sector should assist in providing support for education. First, support adult literacy. Over half a million adults of ARMM are illiterate (more than a third of the voting population). When businesses are established in the Bangsamoro, labor will have to be imported from neighbouring non-Bangsamoro provinces if the existing labor force are unskilled and illiterate. This is a condition that will breed more conflicts, as the affected citizens will lose out on job opportunities to those who have not suffered from the armed conflicts. Second, support short management training for professionals who can run public and private sectors. Apprenticeships and internships can be provided by the private sector. Third, engage the BDA, the BMLI and the Bangsamoro private sectors (chambers of commerce and business councils) to identify opportunities for collaboration.
Let us begin.
Sunday, September 7, 2014
Grains and Gilas: Geography, genes, dashed dreams
Opinion
BUSINESS WORLD
Posted on September 07, 2014 08:59:00 PM
Introspective
Raul V. Fabella
WE CAME very close to beating Croatia, Puerto Rico and Argentina in FIBA Spain. We beat Senegal by a whisker. All the basketball world marveled at our fighting spirit. The entertainment value was unmatched. But in the end we were eliminated. We tried; we even enlisted Congress to accord citizenship to foreign behemoths to raise our ceiling. This leaves a bad taste in the mouth, for how far can you go with instant citizens without eroding our team identity? Still, a win is a win. It was not quite our dream but it was certainly better than a “zero win “for China and India. Our genes in the end let us down.
And yet there is nothing wrong with our genes; the wrong is with our choice of competitive games. Basketball is a game of physical, not mental elevation. That is why a Jewish NBA player always inspires a chuckle like a ghost. And Jews are not insulted. It’s the case again of some Ivy League schools -- when their lowly football teams surprise some nationally ranked teams, a blue moon moment, there follows a groan of self-examination: a sign perhaps that we have lost our academic edge? For there is no free lunch, not even and especially academic edge. Wisdom dictates that we embrace our genetic make-up and choose the contests that enlist our genetic strengths. And for Filipinos, basketball cannot be the repository of lofty dreams. Jews don’t do so badly reposing their dreams in bio-, nano- and other techs. We can too.
As in sports, so in life. But in life, swimming against the tide can be disastrous. Basketball is at least fun and costs the taxpayer no money. Not rice self-sufficiency. In the annals of myths, rice self-sufficiency stands out as the most enduring. Dreams repeatedly get bludgeoned here, but it does not die. The fallacy is that any nation can just engineer it and thus should. In December 2011, Agriculture Secretary Proceso Alcala bragged that by 2014, the Philippines will be a rice exporter because by then the Philippines will have achieved rice self-sufficiency.
So a program of rice import reduction pulled imports down from 860 metric tons in 2011 to 350 metric tons in 2013 in the hope that domestic rice production will fill the void. Well, domestic production did not, despite the huge budget allocation for rice. In the first quarter this year, rice prices spiked. PNoy’s sagging rating had little to do with the Disbursement Acceleration Program (DAP) and everything to do with the price of rice.
Alcala’s was not just a shattered dream; it almost derailed Matuwid na Daan. The besieged Aquino administration quickly reversed course and rushed an import order of 800 metric tons of rice. It also stripped Alcala of four crucial units of the Department of Agriculture. In Japan, where honor is highly regarded, the same chain of events would have triggered a hara-kiri. Here, Alcala is still there.
Why did rice self-sufficiency fail? Rice self-sufficiency is a matter of geography. This is the message of the recent International Rice Research Institute study. Many economists, including Planning Secretary Arsenio Balisacan, have raised the warning. We do not have a comparative advantage in rice production. Our cost per cavan is too high. You can blame lack of infrastructure and farm-to-market roads till you are blue in the face, but if you do not have steady abundant water and a friendly soil, you will be marginal. Which means only limited areas in the Philippines will be competitive and not nearly enough for self-sufficiency. As Adam Smith once observed, Scotland can produce more wine, but if you have to artificially provide the warmth and abundant sunshine freely available in Portugal, you will go bankrupt. Why not produce woolens instead? Producing efficiently if only a fraction of consumption requirement and importing the rest is common sense. Geography is unfair; but it gets bloody if you bang your head against it. As with genes, you choose crops that suit your geography and not the geography that suits your crops.
It is the familiar law of comparative advantage in trade theory once again. If a country specializes according to comparative advantage -- that is, produce crops where it has a cost advantage, say rice for Thailand -- it realizes increases in its welfare. I prefer to emphasize perverse specialization in my class: countries often harvest a nightmare because their governments decide to defy comparative advantage, which for the Philippines is self-sufficiency in rice.
For an epilogue, I always observe that if left to the private sector, this madness does not arise because private business hates to lose money, its own money. Government bureaucrats, though, lose only other people’s money and worse perhaps make a pile for themselves on the side, making perverse specialization common.
Let me end by telling the story of a friend and fellow BusinessWorld contributor, Romy Bernardo, who turned 60 last week. Romy’s singularly successful career is a parable of genetic jujitsu. Had Romy chosen the tennis or basketball court as his Thermopylae, he would be dirt poor and miserable. But he chose as rapiers what the genetic gods dealt him -- abundant IQ and charming wit -- and he and we are all the better for it.
Raul V. Fabella the chairman of the Institute for Development and Econometric Analysis, a professor at the UP School of Economics, and a member of the National Academy of Science and Technology.
BUSINESS WORLD
Posted on September 07, 2014 08:59:00 PM
Introspective
Raul V. Fabella
WE CAME very close to beating Croatia, Puerto Rico and Argentina in FIBA Spain. We beat Senegal by a whisker. All the basketball world marveled at our fighting spirit. The entertainment value was unmatched. But in the end we were eliminated. We tried; we even enlisted Congress to accord citizenship to foreign behemoths to raise our ceiling. This leaves a bad taste in the mouth, for how far can you go with instant citizens without eroding our team identity? Still, a win is a win. It was not quite our dream but it was certainly better than a “zero win “for China and India. Our genes in the end let us down.
And yet there is nothing wrong with our genes; the wrong is with our choice of competitive games. Basketball is a game of physical, not mental elevation. That is why a Jewish NBA player always inspires a chuckle like a ghost. And Jews are not insulted. It’s the case again of some Ivy League schools -- when their lowly football teams surprise some nationally ranked teams, a blue moon moment, there follows a groan of self-examination: a sign perhaps that we have lost our academic edge? For there is no free lunch, not even and especially academic edge. Wisdom dictates that we embrace our genetic make-up and choose the contests that enlist our genetic strengths. And for Filipinos, basketball cannot be the repository of lofty dreams. Jews don’t do so badly reposing their dreams in bio-, nano- and other techs. We can too.
As in sports, so in life. But in life, swimming against the tide can be disastrous. Basketball is at least fun and costs the taxpayer no money. Not rice self-sufficiency. In the annals of myths, rice self-sufficiency stands out as the most enduring. Dreams repeatedly get bludgeoned here, but it does not die. The fallacy is that any nation can just engineer it and thus should. In December 2011, Agriculture Secretary Proceso Alcala bragged that by 2014, the Philippines will be a rice exporter because by then the Philippines will have achieved rice self-sufficiency.
So a program of rice import reduction pulled imports down from 860 metric tons in 2011 to 350 metric tons in 2013 in the hope that domestic rice production will fill the void. Well, domestic production did not, despite the huge budget allocation for rice. In the first quarter this year, rice prices spiked. PNoy’s sagging rating had little to do with the Disbursement Acceleration Program (DAP) and everything to do with the price of rice.
Alcala’s was not just a shattered dream; it almost derailed Matuwid na Daan. The besieged Aquino administration quickly reversed course and rushed an import order of 800 metric tons of rice. It also stripped Alcala of four crucial units of the Department of Agriculture. In Japan, where honor is highly regarded, the same chain of events would have triggered a hara-kiri. Here, Alcala is still there.
Why did rice self-sufficiency fail? Rice self-sufficiency is a matter of geography. This is the message of the recent International Rice Research Institute study. Many economists, including Planning Secretary Arsenio Balisacan, have raised the warning. We do not have a comparative advantage in rice production. Our cost per cavan is too high. You can blame lack of infrastructure and farm-to-market roads till you are blue in the face, but if you do not have steady abundant water and a friendly soil, you will be marginal. Which means only limited areas in the Philippines will be competitive and not nearly enough for self-sufficiency. As Adam Smith once observed, Scotland can produce more wine, but if you have to artificially provide the warmth and abundant sunshine freely available in Portugal, you will go bankrupt. Why not produce woolens instead? Producing efficiently if only a fraction of consumption requirement and importing the rest is common sense. Geography is unfair; but it gets bloody if you bang your head against it. As with genes, you choose crops that suit your geography and not the geography that suits your crops.
It is the familiar law of comparative advantage in trade theory once again. If a country specializes according to comparative advantage -- that is, produce crops where it has a cost advantage, say rice for Thailand -- it realizes increases in its welfare. I prefer to emphasize perverse specialization in my class: countries often harvest a nightmare because their governments decide to defy comparative advantage, which for the Philippines is self-sufficiency in rice.
For an epilogue, I always observe that if left to the private sector, this madness does not arise because private business hates to lose money, its own money. Government bureaucrats, though, lose only other people’s money and worse perhaps make a pile for themselves on the side, making perverse specialization common.
Let me end by telling the story of a friend and fellow BusinessWorld contributor, Romy Bernardo, who turned 60 last week. Romy’s singularly successful career is a parable of genetic jujitsu. Had Romy chosen the tennis or basketball court as his Thermopylae, he would be dirt poor and miserable. But he chose as rapiers what the genetic gods dealt him -- abundant IQ and charming wit -- and he and we are all the better for it.
Raul V. Fabella the chairman of the Institute for Development and Econometric Analysis, a professor at the UP School of Economics, and a member of the National Academy of Science and Technology.
http://www.bworldonline.com/content.php?section=Opinion&title=grains-and-gilas:-geography,-genes,-dashed-dreams&id=94092
Monday, September 1, 2014
The life and times of our only Prime Minister
Introspective, Business World
I WAS PRIVILEGED to be Master of Ceremonies at a recent launch at the Yuchengco Museum of the book of Dr. Gerardo Sicat -- Cesar Virata: Life and Times Through Four Decades of Philippine Economic History (University of the Philippines Press). I highly recommend it to students of economics and history and admirers of the only Prime Minister our country ever had.
We waited 30 years for this book, and only Gerry Sicat could have written it. Professor, most prolific author of economic researches papers and textbooks, and development consultant, Sicat is also father of three economic-oriented institutions known for their excellence -- the UP School of Economics, the National Economic and Development Authority, and the Philippine Institute for Development Studies. (More recently, he is known as the father of the also excellent PSE President Hans Sicat.)
The hefty 800-plus-page book “stands on its own,” the author joked, making reference to its ability to stay vertical without support. He explains the reasons for its physical gravitas. “I see it as several books. The scope is large. First there is Cesar Virata. Along with him are other running stories: our nation in its young age of independence, and the problems of economic national building, then the Marcos years -- the positive, the controversial, and the crisis years. It is also about the transition afterwards.” You need to read the book to fully appreciate its intellectual heft.
Those present at that book launch had the privilege of listening to three “reviewers” and a beautiful musical number. These were, in the order of the program:
• Victor Macalincag -- I described him as “PM Virata’s right-hand man at the DoF,” “my former boss who was brilliant and hardworking,” and not the least “according to my wife and I heard the First Lady of that time, the handsomest undersecretary in government.”
• Washington Sycip -- “One of the few who can claim the high honor of being a mentor to PM Virata, even when the latter was still a student. Founder of the SGV Group, now a continuing mentor and guru to the nation.”
• Ambassador Alfonso Yuchengco -- “Industrialist, banker, diplomat, taipan, belonging to that breed of post-war nation builders which perhaps comes only once in a country’s history.”
The music in the forum was provided by the same person who provided the music in PM’s life: Mrs. Joy Virata, singing a soulful rendition of “Summertime.”
In the remarks I would have made had my iPad cooperated, I underlined some lessons for the idealistic public servant on a man who is the gold standard for public service, integrity and patriotism.
“This is the humbling story of a man who persevered and shepherded the economy through the Philippines most critical financial and political crisis. A man who sacrificed his own reputation, never abandoning the ship of state through the raging storm.”
Sicat writes of how PM typically shirked the limelight. He writes about a posthumous honouring of the late Finance Secretary Jaime Ongpin in Malacanang, during the Cory Aquino presidency, where Virata was unacknowledged by virtually all of those who spoke. That is, until Maribel Ongpin took the podium to give her response. She acknowledged Virata. According to Sicat’s recounting, “The full house thundered in applause. These were all faithful members of the Department of Finance, the career people who had worked for him for almost 16 years. He was a man they respected, who had performed his job in the department faithfully, and whose work was acknowledged as the most consistent and successful during his time in the post.”
Allow me to end this piece with an excerpt from Vic Macalincag. After elaborating on the roles PM Virata played across a wide front of economic reform -- banking and finance, trade, investment, industry, project development, international economic diplomacy, development of Mindanao, energy diversification, agrarian reform, etc., he ruefully considered:
“Reading his biography, one is tempted to conclude that in a different setting and stable political environment, and despite restrictive provisions in our laws, his economic management and policy prescriptions and strategies could have placed the Philippines not far behind South Korea, Singapore, Taiwan and Hong Kong.”
Sunday, August 3, 2014
Why we need a credit information system, and why we need it now
BUSINESS WORLD
Introspective
A 2007 STUDY by the Asian Development Bank (ADB) on binding constraints in the Philippines identified the lack of financing as a key stumbling block to growth and development. This was at a time when local banks were holding a lot of excess cash, and chasing after a few large corporates which were thus in a position to demand lower-than-treasury-yield interest rates.
The constraint clearly applied to micro-enterprises and small and medium enterprises (SMEs). Micro-enterprises refer to those with assets under P3 million, small enterprises those with P3 million to P15 million, and medium enterprises up to P100 million. SMEs alone make up 98% of firms in the country. It is often harder to lend to such enterprises than big corporations -- they do not have audited financial statements, and owners do not put a bar between their business and their household wallets.
SMEs’ lack of access to financing is of course not new. Together with the agricultural sector, they have been the target of failed government-directed programs since the 1970s.
In fact, even as the Bangko Sentral has been barred from these developmental activities, laws mandating private banks to lend to agri-agra and SMEs continue to be in effect. In many cases, banks had found themselves better off accepting the penalties of non-compliance than to risk capital loss by lending to these sectors. Why?
At the core of the problem is a well-known market failure in economies, information asymmetry: banks and other financiers do not know as well as the borrower the latter’s track record in loan repayment, and would thus have a hard time telling apart good borrowers from bad ones.
In the absence of reliable information to help banks make the right credit decision, SMEs and most especially micro enterprises applying for loans would face a higher probability of getting denied. This is true as well for individuals.
The flip side is that the pool of borrowers is smaller, resulting in high opportunity costs not just for the banks and other credit providers, but most crucially for the nation and public at large.
Although the problem is a well-known one, it was only in 2008 that a law was passed creating the Credit Information Corporation (CIC). The CIC is supposed to aggregate individuals’ and firms’ credit information in a database to help would-be borrowers prove good credit record (thus improving their chances of getting a loan) and financiers make good credit judgements (thus reducing default risk).
Work on this has been gaining traction in the past year with the appointment of a dynamic and charismatic IT entrepreneur, Jaime Garchitorena, as President. He has the solid support of his entire board, led by its ex-officio chairman, Securities and Exchange Commission Chair Teresa Herbosa.
Under Garchitorena’s leadership, key milestones were achieved: First, a meeting of the minds between the CIC and the first batch of data providers, primarily the banks. In addition to the banks, the CIC is also aiming to fill its database with payment records of utility companies such as Meralco, the water concessionaires and the telecoms, as well as those of pension agencies, cooperatives and micro-finance institutions.
Second, the signing of contract between the CIC and the CRIF, a leading international credit bureau services technology provider, after a thorough and transparent competitive procurement process supported by the International Finance Corporation. The target is to be able to offer CIC’s services to the public toward the end of next year even as it continually expands data sources to enrich its database.
A necessary activity to ensure public acceptance and wide usage of the credit information system (CIS), which the CIC law also mandates, is a continuing awareness campaign that educates the public about the benefits of the CIS, the do’s and dont’s of keeping one’s credit history clean, conditions for accessing credit records, and increasing financial literacy in general.
The activities of the CIC are fully supported by the government in light of the benefits generated by a functional CIC to the economy and financial system. In addition to the Bangko Sentral and the SEC, Finance Secretary Cesar Purisima and Trade and Industry Secretary Gregory Domingo have been keen for the Philippines to join soonest the rest of the original ASEAN countries with a functioning credit information system. This is one of the factors in international competitive surveys -- including the IFC’s Ease of Doing Business.
My own small involvement is as a member of the USAID-funded COMPETE project that is assisting the CIC in bringing global best practice knowledge in the design and marketing of the CIS as well as garnering broad-based support from local financial institutions, industry organizations, and the other government and non-government organizations.
International experience with credit information systems (most recently in Japan, Malaysia, Taiwan) shows that the availability of reliable information helps reduce firms’ and individuals’ financial constraints, increases their access to credit, lowers banks’ loan default rates and fosters long-term responsible borrower behavior. The CIS is clearly a win-win solution to a critical binding constraint to our country’s inclusive growth aspirations. Simply put, the CIC will help improve our people’s lives.
Introspective
A 2007 STUDY by the Asian Development Bank (ADB) on binding constraints in the Philippines identified the lack of financing as a key stumbling block to growth and development. This was at a time when local banks were holding a lot of excess cash, and chasing after a few large corporates which were thus in a position to demand lower-than-treasury-yield interest rates.
The constraint clearly applied to micro-enterprises and small and medium enterprises (SMEs). Micro-enterprises refer to those with assets under P3 million, small enterprises those with P3 million to P15 million, and medium enterprises up to P100 million. SMEs alone make up 98% of firms in the country. It is often harder to lend to such enterprises than big corporations -- they do not have audited financial statements, and owners do not put a bar between their business and their household wallets.
SMEs’ lack of access to financing is of course not new. Together with the agricultural sector, they have been the target of failed government-directed programs since the 1970s.
In fact, even as the Bangko Sentral has been barred from these developmental activities, laws mandating private banks to lend to agri-agra and SMEs continue to be in effect. In many cases, banks had found themselves better off accepting the penalties of non-compliance than to risk capital loss by lending to these sectors. Why?
At the core of the problem is a well-known market failure in economies, information asymmetry: banks and other financiers do not know as well as the borrower the latter’s track record in loan repayment, and would thus have a hard time telling apart good borrowers from bad ones.
In the absence of reliable information to help banks make the right credit decision, SMEs and most especially micro enterprises applying for loans would face a higher probability of getting denied. This is true as well for individuals.
The flip side is that the pool of borrowers is smaller, resulting in high opportunity costs not just for the banks and other credit providers, but most crucially for the nation and public at large.
Although the problem is a well-known one, it was only in 2008 that a law was passed creating the Credit Information Corporation (CIC). The CIC is supposed to aggregate individuals’ and firms’ credit information in a database to help would-be borrowers prove good credit record (thus improving their chances of getting a loan) and financiers make good credit judgements (thus reducing default risk).
Work on this has been gaining traction in the past year with the appointment of a dynamic and charismatic IT entrepreneur, Jaime Garchitorena, as President. He has the solid support of his entire board, led by its ex-officio chairman, Securities and Exchange Commission Chair Teresa Herbosa.
Under Garchitorena’s leadership, key milestones were achieved: First, a meeting of the minds between the CIC and the first batch of data providers, primarily the banks. In addition to the banks, the CIC is also aiming to fill its database with payment records of utility companies such as Meralco, the water concessionaires and the telecoms, as well as those of pension agencies, cooperatives and micro-finance institutions.
Second, the signing of contract between the CIC and the CRIF, a leading international credit bureau services technology provider, after a thorough and transparent competitive procurement process supported by the International Finance Corporation. The target is to be able to offer CIC’s services to the public toward the end of next year even as it continually expands data sources to enrich its database.
A necessary activity to ensure public acceptance and wide usage of the credit information system (CIS), which the CIC law also mandates, is a continuing awareness campaign that educates the public about the benefits of the CIS, the do’s and dont’s of keeping one’s credit history clean, conditions for accessing credit records, and increasing financial literacy in general.
The activities of the CIC are fully supported by the government in light of the benefits generated by a functional CIC to the economy and financial system. In addition to the Bangko Sentral and the SEC, Finance Secretary Cesar Purisima and Trade and Industry Secretary Gregory Domingo have been keen for the Philippines to join soonest the rest of the original ASEAN countries with a functioning credit information system. This is one of the factors in international competitive surveys -- including the IFC’s Ease of Doing Business.
My own small involvement is as a member of the USAID-funded COMPETE project that is assisting the CIC in bringing global best practice knowledge in the design and marketing of the CIS as well as garnering broad-based support from local financial institutions, industry organizations, and the other government and non-government organizations.
International experience with credit information systems (most recently in Japan, Malaysia, Taiwan) shows that the availability of reliable information helps reduce firms’ and individuals’ financial constraints, increases their access to credit, lowers banks’ loan default rates and fosters long-term responsible borrower behavior. The CIS is clearly a win-win solution to a critical binding constraint to our country’s inclusive growth aspirations. Simply put, the CIC will help improve our people’s lives.
Sunday, June 29, 2014
Plumbing the Manila Water story for corporate lessons
BUSINESS WORLD
Introspective
I was recently asked to say a few words at the launch of an Asian Development Bank (ADB) book by Perry Rivera, Tap Secrets, The Manila Water Story. I hope that readers would find the excerpt of what I said below interesting enough to access the free downloadable version in the ADB website, where it will be posted soon. (In the meantime, you can access it from my Dropbox: https://www.dropbox.com/s/z466q9aj17x80jd/0407_TAP%20Secrets_web-version-2.pdf) It is an amazing story of a most successful public private partnership project:
MY ASSOCIATION with the Metropolitan Waterworks and Sewerage System (MWSS) Public-Private Partnership (PPP) goes back to when PPP was still called “privatization,” now a bad word in certain left-leaning circles. It has been 19 years ago almost to the day when, as a finance undersecretary, I was appointed to the Board of Trustees of MWSS. My assignment was to help make the PPP happen to cope with a “water crisis” in the metropolis. The water crisis arose from a vicious cycle of large systems losses, inability to raise rates because of poor service quality, a nonexistent waste water management, and the low productivity of a grossly overstaffed government agency.
Despite hiccups along the way -- labor unrest, a couple of temporary restraining orders filed by vested business interests, and assorted hurdles -- it was done in record of time of less than two years. This was thanks to the clarity of vision and political will of President Fidel V. Ramos, the thoughtful and dogged execution by a dream team -- then Public Works Secretary Gregorio Vigilar, former MWSS administrator Lito Lazaro, and then Chief of Staff Mark Dumol, now an executive in the San Miguel group.
The accomplishment looked big then, but what we in government started was actually just the beginning. The real achievement was done over 17 years -- and counting -- of dedicated work by the men and women of Manila Water under the Ayala banner, surpassing by far any scenario I could have imagined.
As ADB Vice-President Bindu Lohani’s foreword summarized, “with a $1 billion investment, Manila Water replaced kilometers of pipes, expanded service connections, increased service availability, and reduced non-revenue water from 63% in 1997 to 11% in 2012. The company now serves more than six million happy customers enjoying 24/7 water supply... In this book, Manila Water reveals its most classified corporate secrets, which finally sheds light on the company’s successes in instituting water sector reforms.”
To underscore, 17 years ago, 63% of every liter of water was lost, mostly due to leaking pipes (some to theft). I recall that number vividly because bringing it down to a more sustainable level was always part of the condition of every ADB loan that I had to negotiate as finance undersecretary together with then MWSS Chief Finance Officer Loida Dinio. And year in and year out, we failed to meet this condition.
Certainly, I never imagined that Manila Water could ever reach the current non-revenue water of 11%. This number meets the highest global standards. More importantly, it obviated the need to build a major water source dam and protected the public from another water crisis.
This book is about how these and other milestones were achieved. For instance, there is the multi-awarded Tubig para sa Barangay that connected poor communities at affordable rates. The book delivers on its clever title. It releases a stream of knowledge to any student of management -- public, corporate, civil society -- as well as to anyone or any institution, here in the Philippines or elsewhere, striving to make a difference in the world.
This book is inspirational prose and user’s manual rolled into one. The words flow freely, seemingly effortlessly. For example, take the memorable three EEEs (enable, empower, excel) or the beautiful imagery of the five marbles. And just like the Manila Water story, behind the excellent product is a lot of hard, thoughtful, dedicated plumbing.
In one sense, Perry’s book is not just the tap secrets of Manila Water. It is also about the secret of how the Ayala group as a whole and over the years has succeeded where others failed. In a sense there is really no secret. The factors of success are well known, though not easy to follow: leadership, a culture of excellence, integrity, teamwork, customer orientation, and a long-term commitment that goes beyond the bottom line.
Seventeen years ago, the Ayala group took a huge leap, taking risks in something that was untried here in the Philippines. This leap of faith was propelled by their 160 years of business experience (which date back to the first Manila rail system called Tranvia).
The Ayala Group did this too in telecommunications. Until Globe and around 10 others (whose names few will remember) came along during the de-monopolization in the Ramos years, we were described by Singapore’s Lee Kuan Yew as a nation where “98% of the people are waiting for a phone, and 2% are waiting for a dial tone.”
This would be seen as a biased review if I did not find a single shortcoming in the book. So here it is. The final chapter is devoted to “emerging challenges and issues.” The regulatory regime section is one that business, governments, multilateral institutions, academe, and civil society would have found of particular interest. However, it is only three paragraphs long.
When chided on it, Perry replied that as is done by all authors of best sellers: he is saving that for Volume Two.
Romeo Bernardo was finance undersecretary during the Cory Aquino and Ramos administrations, and board director of Institute of Development and Econometric Analysis Inc.
Sunday, June 1, 2014
Business World
Posted on June 01, 2014 09:26:19 PM
V, J, or L?
Introspective
Romeo L. Bernardo
WAS I surprised that first-quarter GDP growth was “only” 5.7%? No. We in Global Source have maintained a below-consensus full-year forecast of 6.1% since early this year, expecting the first two quarters to be on the weaker side given the boost from election spending last year. Despite successive growth upgrades by other analysts, we continued to maintain our forecast in our latest outlook report released early this month.
But in contrast to equity market players who sold on the news causing a 111-point (1.6%) drop in the main stock index, I think the 5.7% growth figure not bad at all. As the Planning Secretary said in his statement, the Philippines is still the third fastest growing economy in the region (even with the lingering destructive effects of last year’s natural disasters). The slower growth, in my view, also helps in injecting a dose of realism into overly bullish growth expectations that many fear will lead to asset bubbles and cloud prospects for sustained expansion over a longer horizon.
First quarter 2014 performance owed mainly to a robust 5.8% growth in household spending. After four quarters of high double-digit growth, investment growth slid to 7.7% in Q1 as private construction declined 6% even as public construction grew 22% on a reported mix of infrastructure projects. Overall investment growth is traced mainly to durable equipment, which grew by 21.6%, reflecting high growth in “air transport equipment” (related to domestic airlines’ refleeting program) and “other general industrial machinery.” Export recovery generated a small trade-in-goods surplus that was offset by the deficit in services trade. From the production side, all service sectors grew steadily, industry and manufacturing growth slowed down, while agriculture managed less than 1% growth.
Is the Q1 economic performance just a blip or will growth henceforth be more “normal”? Visually, should we expect GDP growth to be V-, J- or L-shaped?
Government, which is keeping its 6.5-7.5% full-year target, is surely hoping for a V, or at least a short-hooked J. This seems possible considering extraordinary factors dampening Q1 growth that included not only base effects but also disaster-related losses in (a.) agricultural crops that also dented food manufactures, and (b.) tourism and insurance receipts. On its own, government also has the wherewithal to quickly push up growth by speeding up delayed rehabilitation and reconstruction work in disaster-affected areas.
On the other hand, an L is also possible depending on the severity of some of the newer developments we noted in our last report (including the Manila City truck ban, El Niño, other infrastructure constraints especially power). Plus, the revived pork barrel scandal may again have a negative impact on public spending, especially after the budget secretary, who has been the one spearheading reforms to increase the transparency of budget processes and quicken disbursements, was included among the hundreds of former and present lawmakers implicated by the alleged mastermind of the scam. The latter tagged him as being the real mastermind who mentored her. While we find this simply bizarre, even by Philippine political tragicomedy standards, there is still the risk that a major misstep in handling the scandal will cost the administration invaluable political capital necessary to keeping business confidence up in the short-term (and even beyond 2016).
Barring another political crisis, we are keeping our 6.1% annual forecast at this time, with the quarterly growth along a curve that gently slopes up. I do not expect growth to return to the 7% level mainly because of infrastructure constraints that, notwithstanding much publicized expressions of interest, will continue to deter actual private investments. However, I am becoming more confident that government will be able to meet expenditure targets, especially with increasing media attention on the slow pace of reconstruction work, and thus, expect GDP growth to improve in the second half of the year.
(This column was culled from a recent GlobalSource report written by Christine Tang and the columnist. The author is Philippine GlobalSource advisor and is a board director of IDEA.)
Tuesday, May 27, 2014
Managing the growth dampeners
No Free Lunch
By Cielito F. Habito
Philippine Daily Inquirer
Read more: http://opinion.inquirer.net/74983/managing-the-growth-dampeners#ixzz32yn8K8kU
Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook
Last week, I cited seven drivers that could keep our economy’s full-year growth above 7 percent this year and next. Space constraints kept me from balancing off the analysis with offsetting growth dampeners, so I will address those downsides this time. Let me state at the outset that notwithstanding these, I remain optimistic that the economy can breach the seemingly conservative forecasts, hovering around 6.0-6.5 percent, being announced by various institutions. But this will not come without some extraordinary effort on the part of government, especially now that everyone’s eyes are on what it would do in its final two years in office.
My friend and fellow economic analyst Romy Bernardo, who produces Philippine economic forecasts for Global Source, doesn’t share my optimism. He has engaged me in a friendly bet (with a free lunch—if there’s such a thing—at stake) that growth this year would be “just a shade above 6 percent,” consistent with estimates I’m seeing from most analysts of late. In his BusinessWorld column yesterday, he cites five growth dampeners that lead him to be more circumspect: (1) delays in public typhoon reconstruction, (2) the daytime ban on trucks in Manila that is disrupting port operations, (3) a potentially damaging El Niño weather disturbance by midyear that can extend to early 2015, (4) still tentative recovery in goods exports, and (5) an impending tightening of monetary policy.
Of the five, El Niño, which is marked by a periodic significant rise in sea surface temperatures, may well be the least avoidable. State weather authority Pagasa has already monitored significantly higher sea surface temperatures in April. It warns of drier conditions, decreased rainfall and possibly stronger storms as El Niño manifests its presence in June. In our last severe El Niño episode in the latter half of 2009 through early 2010, full-year agriculture production dropped by 0.7 percent and 1 percent in those two years, respectively. Note, though, that this did not stop us from achieving a hefty 7.3 percent gross domestic product (GDP) growth in 2010, propelled by 12.1-percent and 7.1-percent growth in industry and services, respectively. With another El Niño episode widely anticipated this year into early next year, deliberate moves to mitigate its effects on agricultural production can already be taken. For example, in anticipation of the severe 1997-98 El Niño episode, the Ramos administration consciously undertook water-impounding projects in the most vulnerable parts of the country.
Bureaucratic inertia may so far be holding back typhoon-related reconstruction and rehabilitation activities, which I identified as one of the peculiar growth drivers this year. But this is not something we cannot overcome; we just need to get our act together. The same can be said on the truck ban issue. Resumption of more normal export markets would be a bonus, but again, shrinking exports in the first half of 2013 never stopped us from being the fastest-growing economy in Asia at the time. Meanwhile, tightening the money supply is entirely the call of the Bangko Sentral ng Pilipinas, which can avoid it if the more direct causes of rising inflation could be effectively addressed.
Could we again breach 7-percent economic growth this year, then? I’d say we can if government can act swiftly and decisively to ensure that the above factors will not be an impediment to achieving such growth. We must overcome start-up difficulties and crack the whip on the various government entities involved in the Yolanda reconstruction program, especially with the typhoon season again fast approaching. We must find a satisfactory solution to the truck ban conundrum that will keep commerce promptly flowing normally again. We must redouble efforts to diversify our export portfolio to further reduce overdependence on unstable electronics for our export earnings. We must address the cost-side causes of recent price increases, to preclude having to tighten money supply to the point of stifling growth. And we must already put in place necessary countermeasures against potential El Niño-induced droughts.
Is it quixotic on my part to talk about 7-percent growth, and up this year and next, when most official forecasts are saying 6 percent-6.5 percent? Well, consider the following: Early last year, the International Monetary Fund saw our 2013 growth at 6 percent, after initially predicting 4.8 and upping it later to 5 percent. The Asian Development Bank placed our growth outlook at 6 percent for both 2013 and 2014. The World Bank had forecast 6.2 percent (it raised this to 7 percent by October, but cut it again to 6.9 percent in December). The United Nations projected 6.2 percent; HSBC said 5.9; Banco de Oro had 6.5; Global Source initially said 5 percent, then upped it to 6.1; and the Focus Economics consensus forecast as of early last year was 5.6 percent. Government’s official 2013 projection was 5.5 percent-6.5 percent. In the end we got 7.2 percent, well beyond everyone’s forecasts.
I still clearly recall how back in the 1990s, when President Fidel Ramos’ dynamic leadership had the Philippine economy riding high, we at the National Economic and Development Authority were constantly seeing our annual growth targets being overshot. Have we simply become too accustomed to expecting less of ourselves, and have yet to get comfortable with the new reality that we can in fact do much better, even as we have in fact been doing so since 2010?
Romy and I do agree on one thing: There remains much for government to do, especially if I am to win our little bet. And it’s a bet he says he’d love to lose.
Read more: http://opinion.inquirer.net/74983/managing-the-growth-dampeners#ixzz32yn2FkTi
Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook
Sunday, May 25, 2014
Growth and infrastructure imperatives
Introspective, Business World
Posted on May 25, 2014 09:02:06 PM
Romeo L. Bernardo
FORMER economic planning secretary and friend Ciel Habito and I have a lunch bet on the forecast GDP growth for this year. He is looking at a number north of 7%; we, just a shade over 6%. He wrote up a strong case for this in his column (“Seven Growth Drivers in 2014,” No Free Lunch, PDI, May 20).
This is one time I would love to lose, but can’t bring myself (yet) to upgrade our number to 7 -- despite the wave of positive feelings buzzing around, particularly at the recent World Economic Forum for East Asia (WEF-EA). However, reports of delays in public typhoon reconstruction, the daytime ban on trucks that is disrupting port operations, warnings of a potentially damaging El Niño weather disturbance by mid year that can extend to early 2015, still iffy goods export recovery, and the start of monetary policy tightening suggest that growth may be more modest, especially for the first quarter.
I do agree with Ciel and others that the Philippine economy has the potential to grow by more than 7% over the medium term. To get there, the resounding advice to government authorities during the WEF, is this: Infrastructure, infrastructure, infrastructure.
Let me share some thoughts, as a former Finance undersecretary, and adviser/independent director in firms participating in PPP (public-private-partnership) projects who is called to provide occasional policy advise for multilateral agencies.
1. Our poor infra weighs heavily on the creation of more jobs and a better quality of life for our people. Academic studies point to the value of connectivity to bring people and goods to the market economy for growth and inclusiveness. International competitiveness surveys says we are the ugly belle in the ball because we have bad ports, airports, road networks, mass transport, logistic chains, etc.
2. The good news is that at this time -- in contrast to where we were the past two decades -- fiscal constraints and financing are no longer issues. Thanks to a combination of reforms taken over the years on the fiscal side -- most recently sin tax reform -- and a favorable macro environment -- high global liquidity and a structural current account surplus fed by high remittances and BPO (business process outsourcing) earnings -- we are now a net creditor country with improved debt ratios and an investment grade rating with access to long term financing matched to long gestation infra projects.
3. In the past, fiscal costs and risks loomed large in the minds of policy makers because of high profile projects with apparent large budget impact. Consider the oft cited stranded cost on power when demand did not eventuate because of the Asian Crisis. What is not fully appreciated is the much higher economic cost by far of under-provisioning. GDP flat-lined in 1991/92, representing opportunity costs equivalent to 4% of GDP annually for two years. Around P800 billion in today’s prices, equivalent to twice the government’s infra budget last year. A JICA study estimated the daily cost of poor transport conditions to be P2.4 billion a day in 2012; annualized its P850 billion or 8.5% of GDP!
4. The balance of risks has clearly moved away from fiscal risks to one of risks -- no certainty! -- of costly under-provision of infrastructure. And yet the pace in which projects are approved and implemented, including inaction on unsolicited projects both already signed and in the pipeline, the risk allocation between government and private sector being done in the structuring of projects (which earlier loaded risks like real estate taxes on the private sector) suggests continuing timidity that emanates from the top in some of the agencies.
5. While there has been progress in building a pipeline, most of these are still in study stages. Actual biddings done are few and far between, and seem in general not to have attracted enough bids primarily because of poor cost and risk allocation. I subscribe to the view that provided processes are transparent and competitive (including for Swiss challenges for unsolicited projects), government and the public sector get full value for the contingent risks government assumes, either by way of higher upfront concession fees it receives, or lower tariffs, depending on government’s bid parameter (which reflects what government is trying to optimize).
6. From where we are, there is high expectation that doing the first one for each of the sectors creates a model that makes it easier for succeeding ones, and for the program to ramp up quickly. The somewhat ambitious targets for 15 projects to be rolled out for the rest of the administration’s term seems to reflect this. Also the target of 5% of GDP in infra by 2016, from only half that presently. But time is running out.
7. There are a number of things government can do to help make sure this happens.
a.) Greater certainty in viability gap funding support. Right now, this is provided in the budget under the Strategic Support Fund on a per agency basis with a lapse of one or two years. In other countries, such support is provided via a continuing flexible and fungible dedicated fund open to all PPP projects meeting certain criteria.
b) Contingent liability fund. Likewise provided through an unprogrammed item in the budget and suffers from the problem of lapsing every year, and therefore does not protect investors over the contract life of the PPP. Perhaps this can evolve into a revolving fund where implementing agencies are forced to contribute a percent of their budget annually and upon which contingent liabilities called will be paid.
c) Firmer national government support in addressing bottlenecks that are thrown in the way of infra implementation -- from right of ways, to hostage taking by local governments, and opposition by not-in-my-backyard activists. A good example here is the four year delayed 600 mw power project in Subic that should have now been contributing to addressing the consumer and economy costly thin power reserves.
d) Greater regulatory certainty. This is best highlighted in the case of the MWSS PPP, earlier hailed by the Finance Secretary as a most successful privatization. After a very high profile public pillory, this is now under international arbitration. MWSS is re-interpreting the treatment of corporate income taxes, 16 years after the signing of the contract. Similar regulatory unease is clouding EPIRA (the Electric Power Industry Reform Act of 2001) with the recent ruling by the ERC (Energy Regulatory Commission) backward adjusting spikes in rates of the WESM (Wholesale Electricity Spot Market) on grounds of market failure, something the generation companies are contesting. There are also efforts to issue new stricter guidelines under the Performance Based Rate Setting, including disallowing revaluation of assets and a heavier role of ERC in approving bilateral contract tariffs -- effectively rate setting power over generation, the competitive segment of industry. This is on top of agitation to revamp the EPIRA law, which as business organizations uniformly declared, risks funding for much needed power projects if acted upon.
This situation of trying to keep rates low is present also in mass transport. For MRT 3, despite the clear case that has long existed for increase in tariffs, these have remained where they were since opening a decade and a half ago, at less than a third of full recovery tariff, and much lower even than what commercial buses are charging. In this case, it is the government, or, if you will, the larger tax-paying public including non-Manila residents, who are carrying these costs.
While the objective of government to keep tariffs low and affordable is fully understandable, we should be clear minded as well on the consequences that politicized, unstable policies have on PPP’s ability to contribute to addressing the infra misery. At the end of the day, from a public welfare standpoint, what is the most expensive, power, water, mass transport? Not having any. This is economically costly, having an impact on investments, jobs and quality growth. It should be made politically costly too.
(The author was Undersecretary of Finance in the Aquino 1 and Ramos administrations and is a Board Trustee of the Institute for Development and Econometric Analysis.)
Posted on May 25, 2014 09:02:06 PM
Romeo L. Bernardo
FORMER economic planning secretary and friend Ciel Habito and I have a lunch bet on the forecast GDP growth for this year. He is looking at a number north of 7%; we, just a shade over 6%. He wrote up a strong case for this in his column (“Seven Growth Drivers in 2014,” No Free Lunch, PDI, May 20).
This is one time I would love to lose, but can’t bring myself (yet) to upgrade our number to 7 -- despite the wave of positive feelings buzzing around, particularly at the recent World Economic Forum for East Asia (WEF-EA). However, reports of delays in public typhoon reconstruction, the daytime ban on trucks that is disrupting port operations, warnings of a potentially damaging El Niño weather disturbance by mid year that can extend to early 2015, still iffy goods export recovery, and the start of monetary policy tightening suggest that growth may be more modest, especially for the first quarter.
I do agree with Ciel and others that the Philippine economy has the potential to grow by more than 7% over the medium term. To get there, the resounding advice to government authorities during the WEF, is this: Infrastructure, infrastructure, infrastructure.
Let me share some thoughts, as a former Finance undersecretary, and adviser/independent director in firms participating in PPP (public-private-partnership) projects who is called to provide occasional policy advise for multilateral agencies.
1. Our poor infra weighs heavily on the creation of more jobs and a better quality of life for our people. Academic studies point to the value of connectivity to bring people and goods to the market economy for growth and inclusiveness. International competitiveness surveys says we are the ugly belle in the ball because we have bad ports, airports, road networks, mass transport, logistic chains, etc.
2. The good news is that at this time -- in contrast to where we were the past two decades -- fiscal constraints and financing are no longer issues. Thanks to a combination of reforms taken over the years on the fiscal side -- most recently sin tax reform -- and a favorable macro environment -- high global liquidity and a structural current account surplus fed by high remittances and BPO (business process outsourcing) earnings -- we are now a net creditor country with improved debt ratios and an investment grade rating with access to long term financing matched to long gestation infra projects.
3. In the past, fiscal costs and risks loomed large in the minds of policy makers because of high profile projects with apparent large budget impact. Consider the oft cited stranded cost on power when demand did not eventuate because of the Asian Crisis. What is not fully appreciated is the much higher economic cost by far of under-provisioning. GDP flat-lined in 1991/92, representing opportunity costs equivalent to 4% of GDP annually for two years. Around P800 billion in today’s prices, equivalent to twice the government’s infra budget last year. A JICA study estimated the daily cost of poor transport conditions to be P2.4 billion a day in 2012; annualized its P850 billion or 8.5% of GDP!
4. The balance of risks has clearly moved away from fiscal risks to one of risks -- no certainty! -- of costly under-provision of infrastructure. And yet the pace in which projects are approved and implemented, including inaction on unsolicited projects both already signed and in the pipeline, the risk allocation between government and private sector being done in the structuring of projects (which earlier loaded risks like real estate taxes on the private sector) suggests continuing timidity that emanates from the top in some of the agencies.
5. While there has been progress in building a pipeline, most of these are still in study stages. Actual biddings done are few and far between, and seem in general not to have attracted enough bids primarily because of poor cost and risk allocation. I subscribe to the view that provided processes are transparent and competitive (including for Swiss challenges for unsolicited projects), government and the public sector get full value for the contingent risks government assumes, either by way of higher upfront concession fees it receives, or lower tariffs, depending on government’s bid parameter (which reflects what government is trying to optimize).
6. From where we are, there is high expectation that doing the first one for each of the sectors creates a model that makes it easier for succeeding ones, and for the program to ramp up quickly. The somewhat ambitious targets for 15 projects to be rolled out for the rest of the administration’s term seems to reflect this. Also the target of 5% of GDP in infra by 2016, from only half that presently. But time is running out.
7. There are a number of things government can do to help make sure this happens.
a.) Greater certainty in viability gap funding support. Right now, this is provided in the budget under the Strategic Support Fund on a per agency basis with a lapse of one or two years. In other countries, such support is provided via a continuing flexible and fungible dedicated fund open to all PPP projects meeting certain criteria.
b) Contingent liability fund. Likewise provided through an unprogrammed item in the budget and suffers from the problem of lapsing every year, and therefore does not protect investors over the contract life of the PPP. Perhaps this can evolve into a revolving fund where implementing agencies are forced to contribute a percent of their budget annually and upon which contingent liabilities called will be paid.
c) Firmer national government support in addressing bottlenecks that are thrown in the way of infra implementation -- from right of ways, to hostage taking by local governments, and opposition by not-in-my-backyard activists. A good example here is the four year delayed 600 mw power project in Subic that should have now been contributing to addressing the consumer and economy costly thin power reserves.
d) Greater regulatory certainty. This is best highlighted in the case of the MWSS PPP, earlier hailed by the Finance Secretary as a most successful privatization. After a very high profile public pillory, this is now under international arbitration. MWSS is re-interpreting the treatment of corporate income taxes, 16 years after the signing of the contract. Similar regulatory unease is clouding EPIRA (the Electric Power Industry Reform Act of 2001) with the recent ruling by the ERC (Energy Regulatory Commission) backward adjusting spikes in rates of the WESM (Wholesale Electricity Spot Market) on grounds of market failure, something the generation companies are contesting. There are also efforts to issue new stricter guidelines under the Performance Based Rate Setting, including disallowing revaluation of assets and a heavier role of ERC in approving bilateral contract tariffs -- effectively rate setting power over generation, the competitive segment of industry. This is on top of agitation to revamp the EPIRA law, which as business organizations uniformly declared, risks funding for much needed power projects if acted upon.
This situation of trying to keep rates low is present also in mass transport. For MRT 3, despite the clear case that has long existed for increase in tariffs, these have remained where they were since opening a decade and a half ago, at less than a third of full recovery tariff, and much lower even than what commercial buses are charging. In this case, it is the government, or, if you will, the larger tax-paying public including non-Manila residents, who are carrying these costs.
While the objective of government to keep tariffs low and affordable is fully understandable, we should be clear minded as well on the consequences that politicized, unstable policies have on PPP’s ability to contribute to addressing the infra misery. At the end of the day, from a public welfare standpoint, what is the most expensive, power, water, mass transport? Not having any. This is economically costly, having an impact on investments, jobs and quality growth. It should be made politically costly too.
(The author was Undersecretary of Finance in the Aquino 1 and Ramos administrations and is a Board Trustee of the Institute for Development and Econometric Analysis.)
Sunday, April 27, 2014
Moto California
Public Lives
Moto California
By Randy David
Philippine Daily Inquirer
LOS ANGELES—After 9/11 and the unraveling of the US
financial system that began in late 2008, images of collapse, decay,
unemployment, class strife, and paranoia dominated my view of America.
But, on this visit, the economic crisis I expected was not immediately
visible. What I saw, in fact, was a country that seemed to be
struggling to free itself from forms of technology that had become
dysfunctional. For example, commuters rendered immobile in freeways
choking with single-passenger cars and monstrous “big rigs.” Here, it is
easy to get the impression that modernity has reached a dead end, and
technology has produced, not a working utopia, but a self-induced
nightmare.
A different picture of the United States, however, slowly unfolds for me from the first moment I take to the streets of suburban California on a motorcycle. It is a Sunday, a perfect day for riding, perhaps anywhere in the world. But, far away from the sweltering heat in Manila, it is springtime in America. Emerging onto the Brea Canyon road after an early breakfast of oranges, bread and coffee, I am grandly welcomed by a cool breeze, a bright sun, flowering trees, and the clearest of skies.
I am joined on this ride by my youngest brother Goli (age difference: 22 years) and our cousin George Gopiao. Three years ago, when I retired, Goli treated me to a memorable ride along the Pacific Coast Highway, staying in family-run bed-and-breakfast inns and stopping for meals in quaint cafés and the usual burger joints that serve humongous sandwiches and unlimited soda. That trip took us to as far as Merced, a jump-off point to Yosemite Valley. Mechanical trouble and foggy weather, however, prevented us from making the final ascent to Yosemite.
But this time, the bikes are in pristine condition, the weather extraordinarily bright and cool, and we are determined to complete the journey. The plan is to meet up the following day with seven other “bucket-listers” from the Hombres of Manila motorcycle group and their spouses, who, like me, had flown all the way from Manila to do this ride of a lifetime. The meeting point is Cannery Row in Monterey, a place immortalized by the American writer John Steinbeck. The riders and their back-up SUV are coming in from the San Francisco area. We, the “Brea boys,” are coming in from San Luis Obispo, where we spent the night.
Smart phones with their GPS-oriented maps make the navigation and coordination almost effortless. Soon, the Hombres find each other and instantly fill the Monterey air with jubilant Tagalog greetings and the macho growl of liter bikes.
Like a flock of wide-eyed tourists following a predesigned itinerary, we quickly dismount and leave our bikes at a parking lot manned by John, a homesick compatriot who could have been plucked out of Steinbeck’s novels. We assemble for a group photo in front of the Steinbeck monument, and pick a restaurant that serves seafood pasta and the signature clam chowder of American cuisine. The service is slow, but we are in no hurry.
Ripon is supposed to be only two-and-a-half hours away from
Monterey. But it takes us nearly six hours before we finally reach the
Covarrubias house. Anxiety floods our hearts when, at a gas station, we
realize that we have lost half of our train. The missing group includes
the most intrepid of us, Romy Bernardo, who, like me, cannot ride fast
in the dark. But, more than that, Romy, who is hobbled by a spinal
condition, needs to be able to rest his back after an hour of riding.
As often happens during group rides in unfamiliar terrain, some riders get lost after missing a crucial bend. On US highways, that means desperately looking for an exit that will bring you back to the correct route. Instead of a quick U-turn, you find yourself going a long way around. Frantic calls to their mobile phones go unanswered and we worry. Soon, they pause to make a call. Everyone is safe, but they are somewhere in Fremont, on a road that would take them back to San Francisco! Google Maps informs them where they are, and promptly puts them on the right track to Ripon. As our commander, Eric Mananquil, remembers it: “The final regrouping in Zeke’s garage was the noisiest ever when Romy finally pulled up amid cheers and applause.” He had been on the saddle continuously for over four hours. He’s exhausted but in good spirits. We take it as a good omen.
Wearing the widest grin as he gets off his iron steed, the 58-year-old Romy Bernardo jokingly asks, “Tell me, why do we do this?” And we all laugh, sharing in the ineffable joy of a riding buddy who finds himself testing his personal limits, and passes with flying colors. At that moment, I recall Nietzsche’s tribute to Emerson: “His gracious and clever cheerfulness discourages all seriousness. He does not know how old he is, and how young he’s still going to be.”
Filled with child-like wonder, we mount our bikes the following morning for the ultimate twisty ride to Yosemite Valley. Something about this place tells you how insignificant you are beside Nature, an ever-changing panorama of beauty and danger that science and technology can neither fully decipher nor improve upon.
A different picture of the United States, however, slowly unfolds for me from the first moment I take to the streets of suburban California on a motorcycle. It is a Sunday, a perfect day for riding, perhaps anywhere in the world. But, far away from the sweltering heat in Manila, it is springtime in America. Emerging onto the Brea Canyon road after an early breakfast of oranges, bread and coffee, I am grandly welcomed by a cool breeze, a bright sun, flowering trees, and the clearest of skies.
I am joined on this ride by my youngest brother Goli (age difference: 22 years) and our cousin George Gopiao. Three years ago, when I retired, Goli treated me to a memorable ride along the Pacific Coast Highway, staying in family-run bed-and-breakfast inns and stopping for meals in quaint cafés and the usual burger joints that serve humongous sandwiches and unlimited soda. That trip took us to as far as Merced, a jump-off point to Yosemite Valley. Mechanical trouble and foggy weather, however, prevented us from making the final ascent to Yosemite.
But this time, the bikes are in pristine condition, the weather extraordinarily bright and cool, and we are determined to complete the journey. The plan is to meet up the following day with seven other “bucket-listers” from the Hombres of Manila motorcycle group and their spouses, who, like me, had flown all the way from Manila to do this ride of a lifetime. The meeting point is Cannery Row in Monterey, a place immortalized by the American writer John Steinbeck. The riders and their back-up SUV are coming in from the San Francisco area. We, the “Brea boys,” are coming in from San Luis Obispo, where we spent the night.
Smart phones with their GPS-oriented maps make the navigation and coordination almost effortless. Soon, the Hombres find each other and instantly fill the Monterey air with jubilant Tagalog greetings and the macho growl of liter bikes.
Like a flock of wide-eyed tourists following a predesigned itinerary, we quickly dismount and leave our bikes at a parking lot manned by John, a homesick compatriot who could have been plucked out of Steinbeck’s novels. We assemble for a group photo in front of the Steinbeck monument, and pick a restaurant that serves seafood pasta and the signature clam chowder of American cuisine. The service is slow, but we are in no hurry.
Zeke Covarrubias, our host in Ripon, a small
city near Modesto, does not expect us until around 6 p.m. for an early
dinner. He and his gracious wife, Hannah, insist that all of us, 14
people in all, spend the night with them. “Mi casa es su casa,” Zeke,
who has ridden with the Hombres in the Philippines, warmly tells us.
And, what an unforgettable Mexican dinner they lay out for us! Local
riders Josh, Dave, Roy, and Ruthann join us. Their friendship and
incomparable hospitality confirm everything that has been told about
biker camaraderie.
As often happens during group rides in unfamiliar terrain, some riders get lost after missing a crucial bend. On US highways, that means desperately looking for an exit that will bring you back to the correct route. Instead of a quick U-turn, you find yourself going a long way around. Frantic calls to their mobile phones go unanswered and we worry. Soon, they pause to make a call. Everyone is safe, but they are somewhere in Fremont, on a road that would take them back to San Francisco! Google Maps informs them where they are, and promptly puts them on the right track to Ripon. As our commander, Eric Mananquil, remembers it: “The final regrouping in Zeke’s garage was the noisiest ever when Romy finally pulled up amid cheers and applause.” He had been on the saddle continuously for over four hours. He’s exhausted but in good spirits. We take it as a good omen.
Wearing the widest grin as he gets off his iron steed, the 58-year-old Romy Bernardo jokingly asks, “Tell me, why do we do this?” And we all laugh, sharing in the ineffable joy of a riding buddy who finds himself testing his personal limits, and passes with flying colors. At that moment, I recall Nietzsche’s tribute to Emerson: “His gracious and clever cheerfulness discourages all seriousness. He does not know how old he is, and how young he’s still going to be.”
Filled with child-like wonder, we mount our bikes the following morning for the ultimate twisty ride to Yosemite Valley. Something about this place tells you how insignificant you are beside Nature, an ever-changing panorama of beauty and danger that science and technology can neither fully decipher nor improve upon.
Frozen
Introspective
Posted on April 27, 2014 08:14:00 PM
Business World
PHILIPPINE-CHINA relations sank to a new low a few weeks
ago following the Philippines’filing of a memorial or pleading before a United
Nations Convention on the Law of the Sea arbitral tribunal on March 30. The
memorial was in connection with the arbitration case it initiated against China
early last year over disputed areas in the South China Sea (West Philippine
Sea) in which it sought to defend its rights under the 200-nautical mile
exclusive economic zone of the UN Convention on the Law of the Sea (UNCLOS).
China has repeatedly refused to participate in the international court case,
claiming that its dispute with the Philippines is over territories or islands
rather than dealing with maritime issues, thus falling outside the purview of
UNCLOS.
While it has rejected external arbitration, China has
nonetheless taken to arguing its legal case in the public arena, with a 1-1/2
page paid advertisement in a local paper. In it, China said that the
Philippines “seriously damaged bilateral relations” by pushing for arbitration
without its agreement while stating its commitment to resolving the disputes
through bilateral negotiations. It added that it is within its rights under
international law to refuse to take part in the arbitration and that “forcing
arbitration will not change the fact that China has sovereignty over the Nansha
Islands (Spratly Islands).”
The Philippines, in turn, claimed that after exhausting
other avenues to settle the disputes, it was left with no other option but to
file for arbitration and let international law clear up each country’s rights
arising from the overlapping claims. The hope is that despite China’s current
insistence in claiming everything within the nine-dash line, a decision from an
impartial international tribunal that is favorable to the Philippines will
persuade it to soften its stance, especially with the pressure of world opinion
bearing down on it, and allow the Philippines to explore areas within its
exclusive economic zone. In response to China’s statement, the President also
explained that the Philippines is not out to challenge China but simply to
defend its own interests through a peaceful and rules-based means that conforms
with international law.
INTERNATIONAL SUPPORT
The Philippine government’s confidence is understandable
as, legal arguments aside, the case has ignited latent nationalistic emotions.
The country is also enjoying broad international backing, not least from the US
given its pivot to Asia, and countries with similar disputes with China,
including Japan and some members of the ASEAN (notably, Vietnam and Malaysia).
Only the Philippines, however, has chosen to take this legal challenge. The
government’s pleading also came within weeks of Russia’s annexation of Crimea,
which would explain the US’s firmer statements recently, admonishing China to
respect the Philippines’rights to use dispute resolution mechanisms under
UNCLOS and telling China that it will stand by its allies in the region,
referring as well to Japan.
To be sure, the Philippines’leaning on US support in its
maritime disputes has drawn strong reactions from China. It has said that it
opposes these attempts to draw a third party into the dispute. But it is
precisely the belief in US support -- the two countries hold periodic war
games, including some near the South China Sea -- that is propping up
Philippine confidence to stand up to China. Lacking any credible military
defense capability, the Philippines is currently locked in negotiations with
the US on a defense treaty that it expects will be signed during the US
President’s scheduled visit to the country this month.
DIPLOMATIC CHILL
Notwithstanding the apparent overwhelming desire among
Filipinos for its government to see the case through, not a few local thinkers
are dismayed that relations with a neighboring economic powerhouse have
deteriorated to such an extent. Both sides are not shy to call each other names
-- “troublemaker” Philippines to “bully” China -- and surveys indicate high
mutual distrust between the two nations. By all accounts, the case has led to
even icier diplomatic relations, especially between the nations’top leaders,
with local administration officials acknowledging that “Beijing is not fond of
the President.”
While the arrival of a new Chinese Ambassador, who just
assumed office this week, can only be positive, his presence is not expected to
lead to thawing relations. The Philippines sees China’s increasing and
disproportionately strong presence in the disputed waters as a sign of
aggression, most especially since the country does not even have minimum
credible defense. This is evident in what has been described as a cat-and-mouse
confrontation between the two sides recently, with smaller Philippine boats
resorting to shallow waters to be able to slip past a China blockade and bring
supplies to its servicemen in the Scarborough Shoal.
Many worry that amidst strained relations, any minor
skirmish from future similar maneuvers, whether or not provoked by either side,
can lead to mistakes that carry high political and economic costs, especially
for the weaker Philippines. The fear is that such accidents may provide the
hardliners in China the excuse they need to forcibly seize islands now in
Philippine possession, without paying a high political price. Analysts agree
that the US will not risk its own relations with China to defend the
Philippines, especially under such conditions.
Cooler heads also believe that the Philippines needs to
dial down the rhetoric, e.g., that the President’s comparison of China’s
actions to Hitler’s occupation of Czechoslovakia in the period leading up to
the Second World War seemed unnecessary. Rather, more calibrated and thought
through pronouncements would enable the country to keep the moral high ground.
As it is, given China’s non-participation in the
arbitration case, the Philippines realizes that even under the best case where
the tribunal accepts jurisdiction and substantively rules in its favor, the
ruling will be unenforceable and China will still have effective control of the
disputed areas. Needless provocations would likely serve to harden China’s
position, which may prove unhelpful in achieving the Philippines’desired
outcome.
ECONOMIC COSTS
Economically, a prolonged diplomatic chill risks
underperformance in mutually beneficial trade and travel ties, which have been
growing rapidly over the years. Trade statistics show that Philippine-China
exports and imports grew at a compounded annual growth rate (CAGR) of 17%
between 1999-2013 compared with the 4% CAGR in trade between the Philippines
and the rest of the world. Chinese tourists, which the World Tourism
Organization tagged as the largest source market for outbound tourism in terms
of expenditures since 2012, have only recently started to come to the
Philippines and despite bilateral tensions grew 70% to over 420,000 visitors
last year. There are also the several thousand OFWs in Hong Kong, which though
an autonomous region is still part of China.
China demonstrated during the April 2012 standoff that at
a minimum, it can bar Chinese tourists from coming to the Philippines and apply
stricter phytosanitary standards on Philippine agricultural exports. Analysts
estimate that about 30% of Philippine exports to China is intended for domestic
demand, a share that may grow as China shifts towards a consumption-led
economic growth strategy.
With a pending court case, one can also expect China to
deploy its huge foreign exchange reserves and continue its charm offensive to
win over other members of the ASEAN. This would not only isolate the
Philippines in its continuing efforts to push for a binding Code of Conduct in
the South China Sea among ASEAN members, but would also give the latter the
edge in attracting fast growing Chinese outward investments ($84 billion in
2012 from less than $3 billion a decade ago, mostly in Asia). At present, there
is very little by way of Chinese FDI in the Philippines, with its one large
stake in the electricity transmission sector being eyed locally with deep
suspicion. Naturally, it is now highly unlikely that the Philippines can
undertake any oil and gas exploration in the West Philippine Sea.
AFTER 2016
Per estimates, it will take anywhere from two to four
years for the tribunal to decide on the case, assuming it does not junk it
immediately for lack of jurisdiction (i.e., take China’s position). Even if the
decision comes before 2016, there is not much optimism among local China
experts that bilateral relations will thaw under President Benigno Aquino. The
hope now is that in the interim, more pragmatic minds on both sides of the
disputed seas will be able to work on preserving and growing economic ties.
(This column was from a GlobalSource special report on
April 11, written by Christine Tang and the columnist. Mr. Bernardo is a board
member of the Institute for Development and Econometric Analysis and Philippine
Advisor of GlobalSource Partners.)
Tuesday, February 4, 2014
Economic growth may not settle within gov’t target – GlobalSource
(The Philippine Star) | Updated February 4, 2014 - 12:00am
MANILA, Philippines - Philippine economic expansion may not settle within the government’s 6.5 percent to 7.5 percent target this year, GlobalSource Partners said, amid a lack of new growth drivers.
“All told, the better-than-expected fourth quarter performance brought full year GDP (gross domestic product) growth to 7.2 percent, our pre-typhoon forecast,” Romeo Bernardo, analyst at the New York-based think tank said in a research note.
“Despite this, we remain less confident than other analysts that increased government spending for post-disaster reconstruction will bring 2014 growth above 6.5 percent, especially given its poor spending record recently,” he continued.
Bernardo said there are no expected growth drivers this year, especially as foreign investors flee emerging markets in part because of the prospect of less US monetary stimulus.
“Aside from the start of construction of a couple of PPP (public-private partnership) tollroads, we have yet to be convinced that there are new growth drivers in the horizon, particularly FDI (foreign direct investments),” Bernardo said.
“At the moment, we see increased risk of tighter domestic financial conditions as capital outflows increase which may dent consumer and business confidence,” he added.
Business ( Article MRec ), pagematch: 1, sectionmatch: 1
The central bank expects foreign direct investments reaching $2.6 billion this year, higher than projected $2.1 billion in 2013. Latest data showed foreign direct investments amounted to $3.361 billion as of October last year.
However, foreign portfolio investments are expected to fall to $2.1 billion this year from a net inflow of $4.2 billion in 2013 as volatility remain in global financial markets following the US Federal Reserve’s scaling back of monthly asset purchases.
“Additionally, we are hearing anecdotal accounts of reduced retail sales as consumers cut back spending on expectations of higher electricity bills ahead,” Bernardo said.
Manila Electric Co. (Meralco) in December announced a record-high P4.15 per kilowatt-hour rate hike but the plan has been put on hold by a temporary restraining order from the Supreme Court.
Of the total power rate hike, P2.41/kWh was planned for December, P1.21/kWh for February, and P0.53/kWh for March.
Meanwhile, inflation this year is seen to rise to 4.5 percent, near the upper-end of the central bank’s three to five percent target range.
http://www.philstar.com/business/2014/02/04/1286263/economic-growth-may-not-settle-within-govt-target-globalsource
Monday, February 3, 2014
PH lacks drivers to grow beyond 6.5% this year, says think tank
MANILA–The Philippines may lack growth drivers to lift domestic economic growth beyond 6.5 percent this year as post-disaster reconstruction spending may not deliver as expected, New York-based think tank Global Source said.
Despite the better-than-expected fourth quarter gross domestic product (GDP) expansion that brought full-year growth to 7.2 percent, Global Source economist Romeo Bernardo said the think tank remained “less than confident” compared to other analysts that increased government spending for post-disaster reconstruction would bring 2014 growth above 6.5 percent.
The research cited the government’s “poor spending record” recently, he said.
“Aside from the start of construction of a couple of PPP (public private partnership) tollroads, we have yet to be convinced that there are new growth drivers in the horizon, particularly FDI (foreign direct investments),” Bernardo said in a research note.
“At the moment, we see increased risk of tighter domestic financial conditions as capital outflows increase which may dent consumer and business confidence,” he said.
Bernardo also cited anecdotal accounts of reduced retail sales as consumers cut back spending on expectations of higher electricity bills ahead.
With a 6.5 percent GDP growth in the fourth quarter, full-year growth reached the top-end of the government’s revised forecast, confirming its assessment of SuperTyphoon Yolanda’s limited growth impact, the research noted.
Apart from the overall growth rate, Global Source said the good news from the fourth quarter GDP economic report card included stable, albeit slower, consumption growth (5.6 percent), double-digit growth in investments in durable equipment (15.5 percent) and continuing growth in exports of both goods and services (6.4 percent).
At the same time, he said the supply side showed continuing healthy service sector growth (6.5 percent) and accelerating manufacturing value-added (12.3 percent).
“On the other hand, weakness in public spending, which we warned about, is revealed in year-on-year declines in government consumption (-5.2 percent) and construction (-1 percent),” Bernardo said.
“Troubling as well is the 0.4 percent dip in private construction which followed last quarter’s growth slowdown to single digit, albeit this also reflects some base effects due to the impressive growth last year,” he added.
Meanwhile, Bernardo said the slow growth in goods imports (1.1 percent) was “puzzling” until his firm was reminded of reports of continuing smuggling, especially of oil.
Read more: http://business.inquirer.net/162902/ph-lacks-drivers-to-grow-beyond-6-5-this-year-says-think-tank#ixzz2sVoJgbs3
Subscribe to:
Posts (Atom)