To the Duterte Administration: pay attention to Agriculture!

February 10, 2019 | 8:42 pm

Introspective

By Romeo L. Bernardo

The recent spike in rice inflation and its harm on the macro-economy and poverty incidence has focused attention to long-standing failures of our agricultural sector. This is evident in comparative statistics vs. peers, e.g. farm productivity (see table below), agriculture sector growth, rural poverty incidence.

Failed policies over decades: tunnel vision on rice self sufficiency ( rice related spending accounts for over 70% of public spending for agriculture), the neglect of other crops and aqua resources where the Philippines has higher actual or potential comparative advantage, and a seriously flawed agrarian reform program that has only transformed landless peasants into “impoverished landowners,” as National Scientist Raul Fabella has found in his research.

I would invite you to read Prof. Fabella’s column, “CARPER: Time to let go” (Oct. 28, 2013),and my other fellow Introspective columnist and Foundation for Economic Freedom (FEF) President Calixto Chikimaco’s more recent “Agriculture, Agriculture, Agriculture” ( November 2018) for a deeper analysis of why we are where in this hole.

Looking forward, may I share with readers our FEF Statement calling for action. Some personal annotations are in italics.

TO THE DUTERTE ADMINISTRATION: PAY ATTENTION TO AGRICULTURE!

We, the Foundation for Economic Freedom, are calling on the Duterte Administration to pay special attention to agriculture because low agricultural productivity and anemic agricultural growth will increase the risk of a return of high inflation and will drag down the economy as it has in 2018.

Agriculture posted a measly 0.56% growth in 2018, way below population growth of 1.6% pa, exposing the dismal performance of this sector. Climate change and weather disturbances cannot be blamed because our ASEAN neighbors are posting healthy growth rates despite similar weather disturbances.

Without significant improvement in the agricultural sector, the government cannot hope to alleviate poverty in the rural areas where most of the poor people live.

Poor agricultural productivity will remain also a drag on the Philippine economy. High food costs translate into high wages and uncompetitiveness of our manufacturing and export sectors. Agricultural products also serve as inputs into food manufacturing. Therefore, high agricultural input costs mean high manufacturing costs and poor competitiveness.

On enhancing agricultural productivity, we ask the Duterte Administration to do the following:

1. Ensure that the P10 billion competitiveness fund for affected rice farmers under the Rice Tariffication Law be properly used to increase agricultural productivity with tight measures to prevent misuse and leakages. (We are all too familiar with past examples of bad, possibly criminal, spending — election linked fertilizer and pesticide programs, most loans under the WTO adjustment fund that went bad, “farm to pocket roads,” and suspicious procurements by NFA. This will need to be addressed more strictly in the IRRs of this new law. A straightforward use should be to directly assist affected marginal rice farmers , along the lines of the Conditional Cash Transfers program. Another would be to support much needed farm mechanization to realize greater efficiencies.)

2. Make rural infrastructure a significant component of the country’s Build-Build-Build Program.

3. Certify the Public Service Act Amendments as urgent in order to increase foreign investments in shipping and ports and thereby lower logistical costs for farmers trying to reach the market.

4. Amend the Comprehensive Agrarian Reform Law to reverse the fragmentation of farmlands, make CARP lands bankable, and enable efficient farmers to expand beyond the legal ownership limit of five (5) hectares.

5. Increase the budget for agricultural research and development, especially for research into crops that will be resistant to climate change.( I would add here, revisit and revamp broken agriculture extension program. This has been ill-designed under the Local Government Code — devolved to the municipal level, when it should have been done at the provincial.)

6. Liberalize sugar imports in order to make local sugar production more competitive and to lower the input costs of our food export manufacturing sector. (Although we are bound under ASEAN to 5%, all imports now are required to pass through the Sugar Regulatory Commission. Another NFA-like situation that has already led to the exit of a large multinational investor in a beverage company because of inability to source their sugar requirements efficiently. )

To these six, allow me to add a couple more:

7. Urgent action to utilize the P80-billion coco levy funds to revive the long-neglected coconut industry. This industry employs 3.5 million Filipinos; 60% and their families live in poverty.

8. Refocus public financial institutions to support agriculture and rural development, especially the LANDBANK and the Development Bank of the Philippines. Over the years, they seem to have been distracted into simply duplicating commercial banking services of private financial institutions, instead of doing development. As a corollary, scrap the failed Agri-Agra Credit Reform Act which mandates banks to lend a certain percent of their portfolio for agrarian and agriculture activities. No private commercial bank has been able to nearly comply and all prudently chose to pay the fines instead of risking money of depositors on bad performing loans. Ultimately it is just a bad tax that raises the cost of credit to all.

Romeo L. Bernardo is vice chairman of the Foundation for Economic Freedom and GlobalSource Partners Philippine Advisor. He was Finance undersecretary during the Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

Better a good neighbor than a distant cousin?

January 13, 2019 | 10:26 pm

Introspective

By Romeo L. Bernardo

On the eve of his state visit to the Philippines last November, Chinese President Xi Jinping wrote that the two countries’ relations “have now seen a rainbow after the rain,” adding upon his arrival that friendship is “the only right choice.” He came bearing gifts for the people, from rice for typhoon victims to promises of scholarship awards, work permits for English teachers and more imports from the Philippines. At the end of the highly publicized visit, observers could only wonder, is there really a pot of gold for the Philippines at the end of the rainbow?

Philippine-China relationship in the past few years has been a complicated one. To recall, under the Aquino Administration, the Philippines took China to an international court in 2014 over disputed areas in the West Philippine Sea/South China Sea (WPS/SCS), a case that secured a sweeping victory for the Philippines, albeit belatedly. By the time the UN-backed Permanent Court of Arbitration in the Hague issued the award to the Philippines in 2016, the Duterte Administration was already in power. Unlike his predecessor, President Rodrigo Duterte had no interest in letting the territorial dispute define the country’s relationship with the regional behemoth, preferring a more pragmatic approach of broadening cultural and economic ties in the hope of securing Chinese funding for much needed infrastructure investments.

In a stunning “pivot” only a few months into his presidency, he directed Philippine foreign policy away from what many thought was an overly pro-US stance to what many say is an overly pro-China position. He opted to pursue bilateral talks with China, something his predecessor had refused to do, and followed China’s lead of simply setting the contentious WPS/SCS issue to one side. He managed to do this notwithstanding surveys showing the wide disparity in Filipinos’ trust for the US (“very good”) vs. China (“poor”), a popular sentiment against China’s control of Filipinos’ traditional fishing grounds in the WPS/SCS, not to mention the military’s close ties to the U.S.

Now, two years after President Duterte’s China pivot, the question that keeps cropping up is, what has the Philippines to show for pursuing friendship with China? Economically speaking, there have been advances although critics would say that they’re too little, too slow.

Among these are:

1. Chinese tourists are arriving in droves — almost doubling from 490k in 2015 at the height of the diplomatic chill to close to 970k in 2017. The number has reached 870k in the first 8 months of 2018, ranking second only to South Korea, and is expected to breach 1 million by yearend.

2. Bilateral trade has expanded almost 45% between 2015-17 (from $17.6 billion to $25.5 billion) and by another 16% in 1H18, not counting supply chain trade that passes through third countries. Based on this, China is now the country’s largest trading partner, accounting for over 15% of total trade. In this, China is of course as much a winner as the Philippines evident in annual import growth (>20%) far outpacing export growth (14% 2015-17 CAGR, 8% 1H18).

3. FDIs, practically non-existent a few years ago, have trickled in and from 2016 to August this year, totaled $220 million vs. about $26-billion total inflows during the period. Moreover, there are worries that some of these monies are (a) invested in the gaming industry the sustainability of which is suspect and (b) possibly, helping to fuel a real estate bubble especially with the increasing number of Chinese nationals entering and working in the Philippines.

4. As to China’s multibillion infrastructure commitments, reports indicate that to date, only two grant-financed bridges valued at $112 million have started construction and one loan agreement for an $82-million irrigation project, signed. Here, sentiments are mixed: one side criticizing the slow pace of implementation; the other side relieved at the slow pace seeing as how other countries have fallen under China’s supposed “debt trap diplomacy.”

Yet recent developments suggest that the two countries are ready to “elevate” their friendship. Right before President Xi’s visit, the Philippine government awarded the rights to operate a third telecommunications company in the country to a consortium that included state-run China Telecom. On his first day here, President Xi also witnessed the signing of 29 cooperation agreements, including the P18.7-billion ($350-million) loan agreement for the construction of a dam to provide additional water supply for Metro Manila and a Memorandum of Understanding on joint oil and gas development in the WPS/SCS.

In Manila’s small business circle, one could easily hear grumblings about the first two deals. But the third, despite providing only a framework, is perhaps the most controversial especially since President Duterte is not seen as being assertive enough about the country’s rights in the disputed waters. With it, many fear that the Philippines may play into the hands of China and validate the latter’s claims over the WPS/SCS.

For now, the President’s high popularity, which will not be challenged in next year’s midterm elections, means that he would probably get his way in dealing with China. China, on the other hand, has found in President Duterte a like-minded ally to whom it could open its doors wider to the Philippines through more trade, investments and people-to-people linkages.

I have heard President Ramos quote a Chinese saying: “Better a good neighbor than a distant cousin.” True for us? Only time will tell.

(This article is an excerpt from the GlobalSource Partners report, “Good not Great,” Nov. 13, 2018, written by Christine G. Tang and the columnist. Check out globalsourcepartners.com)

Romeo L. Bernardo is a fellow of the Foundation for Economic Freedom and a Governor of the Management Association of the Philippines. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

Good, not great

December 2, 2018 | 10:22 pm

Introspective

By Romeo L. Bernardo and Marie Christine Tang

I am pleased to share with readers the executive summary of our quarterly economic outlook report for GlobalSource Partners (globalsourcepartners.com) written by Marie Christine Tang and me last Nov. 22, 2018. The second part of this column is a statement of the Foundation for Economic Freedom supporting TRAIN 3, on property valuation for taxation purposes issued Nov. 30, 2018.

Local moods have soured over the past several months as inflation rose, economic growth slackened, the trade deficit ballooned, the peso fell and asset returns dropped. The string of bad news may be traced to: global events, particularly the triple whammy of US monetary tightening, surging oil prices and an escalating US-China trade war, that have contributed to risk-off sentiments; as well as domestic developments, particularly the badly managed rice import policy and the many chokepoints caused by lagging infrastructure that have led to the economy’s greater import dependence.

More recent news of stabilizing world oil prices and easing local inflation have given rise to hopes that the worst may be over. Indeed, optimists are apt to bet that slower US growth would reduce the number of Fed rate hikes going forward, that the US and China are likely to reach some agreement to ward off the imposition of even higher tariffs next year, and that locally, not only would the visit of President Xi Jinping speed up execution of China-funded infrastructure projects and deepen trade and investment ties in other areas but a new law freeing up rice imports would send prices of the basic food staple down. Should these happen, as the argument goes, emerging markets would benefit from improved financial market sentiments and risk appetites that would bring about a virtuous cycle of capital flows and asset price recoveries and face lower risk of a trade-related China slowdown and its adverse knock-on effects on regional growth; separately, the Philippines would gain from expanding trade and investments with China, and the specter of rising inflation would recede from consumers’ memories, raising confidence anew.

Wishful thinking? Rosy certainly and in the event, the headwinds are unlikely to disappear completely. As it is, oil prices are still projected to remain at current high levels, the US Fed is still on course to tighten once more this year and anywhere from 50 to 100bp next year, a high degree of uncertainty surrounds the US-China trade dispute where both sides appear prepared to set aside WTO rules, and locally, most Filipinos continue to eye the rewards of Chinese projects with suspicion, including opportunities for job creation, and with regards to the proposed law to “tariffy” rice, it remains unclear at this point whether it would truly free up rice trade.

Moreover, election season lasting through May 2019 is upon the Philippines during which time, work on the executive’s tax reform proposals, particularly the unpopular Package 2 dealing with corporate investment incentives, is widely expected to be put on hold, keeping investors in suspense about the future corporate tax regime. In the meantime, any boost to domestic demand from election spending may simply translate into higher imports, especially with all the construction works spurred by public spending adding to the economy’s chokepoints in the interim. As well, second round impacts from all the supply shocks this year are still working their way through the economy and expected to keep inflation outside monetary authorities’ target band through mid-2019.

All things considered, the Philippine growth outlook is still a good one. Our baseline view forecasts GDP growth remaining above 6% in the next 12 months, among the highest in the region However, the downslide in output growth would continue in the face of external headwinds and internal supply bottlenecks. Upsides to growth include better than expected exports of both goods and services, including tourism, as well as lower inflation, particularly rice prices. Downsides include an escalating trade war, more by way of confidence than direct trade impact which is expected to be manageable, and a multiplicity of geopolitical risks, including another runup in oil prices.

                                            FEF STATEMENT ON THE VALUATION REFORM ACT

We, the Foundation for Economic Freedom, support the proposed amendments to the country’s real property valuation system under Package 3 of the government’s Comprehensive Tax Reform Program.

The main objective of Package 3 is to develop and maintain an equitable and efficient real property valuation system.

It will address the present problem of multiple, overlapping valuations through the adoption of a uniform valuation standard and establishment of a single valuation base for taxation purposes.

Conflicting land values result in right-of-way compensation problems — leading to delays in implementation of government infrastructure projects and additional costs to the government.

It also will make the Bureau of Local Government Finance (BLGF) to develop and maintain implementation of uniform valuation standards in compliance with international best practices, under the Department of Finance (DoF) oversight while assessment levels and tax setting will remain a function of the Sanggunian of the Local Government Units (LGUs). Separating valuation from political bodies will also ensure that the practice is free from undue politicization.

It will further ensure timely updating of the Schedule of Market Values (SMVs). At present, only 38.8% of LGUs and half of Regional Development Offices have updated SMVs. Outdated and below market valuation means foregone government revenues from property ownership and conveyances.

Setting up of an electronic database on real property will ensure transparency and accessibility of data.

On average, real property taxes contribute around 31% of the LGUs local source of income. The proposed reform will increase government revenues and at the same time increase local autonomy as it will improve LGU financial self-sufficiency. Package 3 does not intend to create and impose new taxes but rather improve efficiency in real property tax collection.

Romeo L. Bernardo is a Fellow of the Foundation for Economic Freedom and a Governor of the Management Association of the Philippines. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

‘Never waste a good crisis

November 11, 2018 | 11:45 pm

Introspective

By Romeo L. Bernardo

There has been much hand-washing among our legislators on TRAIN 1. The unfortunate part about this is they were responding to fake news.

Much of this is likely limbic (also referred to as lizard and “fight or flight”) thinking which has sadly characterized much of discourse lately, fanned by social media and live news. Tweets, live feeds, and text messages or phone calls for instant reactions. They discourage deliberate thought grounded on evidence and serious research, which at the same time educate the public.

Though often together, this shouldn’t be confused with the kind of more calculated political moves that pander to voters, short-term fixes at the expense of more long-term public good. The classic case of this is wasteful spending that leads to unsustainable fiscal deficits, macro instability, hyperinflation, ultimately immiseration of the people, especially the poor. We have seen such a sorry tale unfold in Chavez’s Venezuela and Mugabe’s Zimbabwe.

Serious analysts observed this may have been at play here with the passage of the costly P50 billion-a-year “free tertiary education” in the SUCs bill. Despite fact-based research by government’s think tank, the Philippine Institute for Development Studies, and the forceful well-argued opposition by the Secretaries of Finance, Economic Planning, and Budget, and the head of CHED, this populist bill passed.

Evidence was disregarded that this badly targeted, hugely costly bill is faulty use of public resources for educating the young for future jobs, especially the poorest. This may also corrode the quality of education and training systems as students and teachers move away from private institutions to quality-challenged SUCs, some no more than diploma mills (see the PIDS study and the economic managers’ statements.).

The folly of a bill costing so much and so narrowly focused on free tuition in SUCs became even clearer to me upon listening to a panel on “Technology and Inclusion in Asia” during the recent Annual Conference of the Federation of ASEAN Economics Associations. The panel consisted of PCC Chair Arsenio Balisacan, ADB Chief Economist Yasuyuki Sawada, Professors Emmanuel Esguerra (UP), Erika Legara (AIM), Euston Quah (Nanyang Technological University) and Ayala Corporation Chairman Jaime Augusto Zobel de Ayala.

My key takeaway from them is that to meet the challenges of technological disruption on our economy (especially BPO and manufacturing ) and to find future jobs for our youth, “it will be important for the private sector (industry and academia) to work hand in hand with the government to plan out a roadmap to create both a national upskilling program and to create a longer term educational reform program to design education and training for a technologically enabled and digitally-led economy.”

Similar observations as that bill have been made of other inadequately studied and targeted programs, e.g. free irrigation, increasing the pensions of SSS retirees, VAT exemptions for senior citizens, more so-called pro-labor legislation that lead to rigidity in labor markets, less investments and jobs. Contrast these to the Conditional Cash Transfers program, started four administrations ago, which was well studied, carefully piloted, and now showing good results in reducing poverty and keeping children in school.

Election season is upon us, however, and perhaps we should be more understanding of populist knee-jerk moves. An appeal to our politicians: please study the premises; thrash the fake news.

FAKE NEWS ON TRAIN

Fake News 1: TRAIN caused inflation

In September 2018, the top 10 contributors to inflation, largely raw food items, accounted for 5.5 percentage points (ppt) of the 6.7 percent inflation (see Figures 1 and 2). Of these products, the DOF estimates that TRAIN contributed around 25% of personal transport inflation, 5% of utilities inflation, 100% of non-alcoholic beverages inflation, and 20% of tobacco inflation.

Overall, TRAIN’s contribution to inflation is around 0.4 to 0.7 ppt. The Department of Finance (DOF), National Economic and Development Authority (NEDA), and Bangko Sentral ng Pilipinas (BS) all arrived at comparable estimates using different methods to model the legislated tax increases.

In comparison, rice prices alone accounted for 1.03 ppt of the 6.7% inflation rate.

Fake News 2: TRAIN has not yielded collections as targeted.

“Falsehood flies, and the Truth comes limping after it,” Jonathan Swift once wrote. It was hyperbole three centuries ago. But it is a factual description of the post-truth society we live in today, so much so that even conscientious media consumers can be taken in by false information.

For example, in her column last week, our much-loved favorite Prof. Winnie Monsod cited from some news source that “revenues collected from TRAIN were 74.1 percent short of target.” This is in stark contrast to a report given by DOF saying that in the first half of 2018, where complete data is available, TRAIN revenue collection is on the dot.

The target for the first half is set at P30.1 billion. This is around 48 percent of the P63.3 billion target for the full year. This is lower than the P89.9 billion reported in the budget as the revenue from e-invoice (P6.6 billion) and fuel marking (P20 billion) were moved to succeeding years given that both projects needed more time to prepare.

TRAIN revenue collection is estimated at around PHP 33.7 billion or 12 percent above target.

HOW TO LICK RICE INFLATION — END NFA MONOPOLYThere have been an abundance of learned articles and studies over decades on why Quantitative Restrictions/NFA monopoly on rice importation needs to go, and for importation to be left to the private sector, subject to a tariff. And with tariff collections to be used for investments in agri diversification, raising productivity, and safety nets for affected marginal farmers. Most recently, the following articles made the case blindingly clear, and recommended the way forward.

1. FEF Statement on Rice Policy, Foundation for Economic Freedom, 12 April 2017

2. Red flags in rice tariffication, Ramon L. Clarete, Introspective, BusinessWorld, 8 October 2018

3. Rice policies and fallacies, Cielito Habito, Philippine Daily Inquirer, 2 October 2018

4. Wanted: A new rice industry road map after lifting of quantitative restrictions, Emil Q. Javier, Manila Bulletin, 28 July 2018

5. NFA needs major role change to remain relevant — PIDS, Philppine Daily Inquirer, 22 October 2018

The Department of Finance has also issued an excellent summary in favor of passing this bill. It can be read in this link.

As I said in my last column: With our rice prices double or higher than our neighbors, this monopoly has profoundly aggravated poverty, dampened manufacturing investments and job creation through wage uncompetitiveness, and periodically inflation shocks our macroeconomy, like now. The FEF’s position on this is well articulated in various statements and columns over the years, most recently by Toti Chikiamco, in his most recent Introspective column. “Abolish the NFA rice importation monopoly and fully liberalize rice importation. The bill passed by the House is defective: it allows the NFA to continue licensing and regulating traders. The Senate should completely abolish the NFA’s rice import monopoly and remove its regulatory and licensing functions”.

This bill has been in Congress for over a year now. Legislators have an opportunity to do something about inflation in the last few months of this session, and not just for now, but for decades to come. And stop the corruption and accumulation in government-guaranteed NFA debt and lift millions of our people out of poverty.

Dear legislators, please act. “Never waste a good crisis”

Romeo L. Bernardo is a Fellow of the Foundation for Economic Freedom and a Governor of the Management Association of the Philippines. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

Capitalism and inclusion under weak institutions

Capitalism and inclusion under weak institutions

October 21, 2018 | 9:56 pm

Introspective

By Romeo L. Bernardo

One could not have thought of a better title for the latest book of UP Economics Professor, former Dean and National Scientist Raul Fabella, a deceptively slim volume (120 pages) but a real heavyweight. It has amazing sweep and depth on what ails our economy, and provides possible solutions, cogently pulling together literature and research on what has worked here and elsewhere.

There is a reason why we have only one National Scientist in Economics (possibly all the social sciences). Professor Fabella is without peer in profundity and originality of thought. And in the elegant and compelling way he explains these ideas.

I have been a fan of Raul’s writing since we, then strangers, met as fellow travelers and Pinoy graduate students at a bus station in DC in 1976. He would write long letters to his friends (in paper and ink, pre-internet) on his observations of US society and academic life at Yale University. It was a correspondence I could not sustain, being more inclined to be lateral than literary. (The best I could do was send him postcards of Williams College I sent everyone. )

Fast forward to 1998, my learning from Raul would resume as our paths crossed again in lively social dinner discussions with like minded academics, former public officials and private professionals united in advocating good governance and market-oriented reform. This would later metamorphose into the Foundation for Economic Freedom (fef.org.ph). Its founding members included, among others, Mahar Mangahas, Philip Medalla, Calixto Chikiamco, Alex Magno, Simon Paterno, Cayetano Paderanga (+) and Francis Varela (+).

In honor of Dondon and Francis and their life’s work in doing public good and advancing our common advocacies, our current President, Toti Chikiamco and Chairman, Bobby de Ocampo, initiated the Paderanga-Varela Memorial Lecture, now on its third year. The last two lectures featured FEF Fellows Dr. Vicente Paqueo (“Does Ending ENDO Contribute to Inclusive Economic Growth”) and Dr. Art Corpuz, (“On a National Land Policy in the Philippines”).

Later this month, Professor Raul Fabella will present his book’s findings and recommendations. Just a sample of my favorite takeaways:

1) Crisis of Inclusion in Capitalism: Poverty Incidence vs. Income Inequality. The overarching problem of the Philippines is poverty, not the income inequality of Piketty that has become banner of the Trump and Brexit nativists and their counterparts in other rich countries. The two are not the same, nor are their solutions. This is well illustrated in the case of China under the leadership of Deng Xiaoping where, thanks to market-oriented reforms, “poverty incidence has been reduced from 64 percent in 1990 to 4 percent in 2015, even while income inequality (measured by the Gini ratio ) rose from 31 percent to 42 percent.”

2) Taming Overreach: “The genius and heresy of Deng Xiaoping was in recognizing that there are spheres of provision other than the state and that these can do better than the state in many domains. The state, however strong, may be overreaching, that is operating beyond its domain of competence.” Professor Fabella’s (and my) favorite case in point of how private sector can do better in social provision and inclusion is the highly acclaimed MWSS Public Private Partnership. He wrote a chapter on this in the Asia Foundation book Built on Dreams, Grounded in Reality (downloadable for free in this link — http://regulationbodyofknowledge.org/wpcontent/uploads/2016/08/BuiltonDreamsGroundedinReality_AsiaFoundation_2011.pdf).

3) The Impulse for Size: “One very salient feature of current Philippine economy is the unmistakable presence of conglomerates competing in many markets….The vent for size is more urgent in weak governance environments (such as the Philippines’).” I have had direct learning of the built in advantage of bigness when my late father left me a few hectares of land not too far from what has become Metro Manila, which would have been ideal for mass housing. My enthusiasm for developing it was quickly doused from step one by the difficulty of enforcing my ownership rights against illegal settlers. I happily sold to a major developer, part of a conglomerate, which has the knowhow and connections to solve this, navigate government permitting labyrinth and dealing with “revolutionary tax collectors.”

4) Conglomerates and Inclusion: “Do conglomerates contribute in a positive way to inclusion in its normal profit-motivated way? The answer is ‘Yes.’” Professor Fabella then proceeds to illustrate how conglomerates have done this in various fields, from telecom, water provision, tertiary education, not to mention through their Corporate Social Responsibility (CSR) Initiatives.

5) The Way Forward: “Rather than threaten to shackle the conglomerates in our midst, we should re-channel them to the Tradeable goods sector, such as food production, or towards the segment of the Non-traded goods that is ancillary to the Traded goods sector-power generation.” And I may add, create more room in Public-Private Partnerships in other infrastructure needed to support our global competitiveness — airports, seaports, mass transport and telecommunications.

Picking up on the last item, from what I know of the sector as a Board Director of Globe Telecom, the controversial proposal to limit the number of telecom tower operators to only two is a case of overreach. It is also anti-competitive. Quoting below the blog of Peter Wallace on the subject.

DON’T LIMIT TOWERS

Why would we limit the building of cell site towers to two companies? A tower is not exactly a highly technical thing to build. The equipment that goes on it is, but that’s provided separately by the cellphone companies who lease space on the tower.

Get specific specifications that must be met, then leave it to companies to bid for construction at the various sites. Sites identified by the cellphone companies who know where to locate to provide the best signal. This includes areas that are not considered as densely populated but nevertheless need connectivity and mobile services. With the backlog of 50,000 towers we are currently facing, the more companies who are willing and able to build according to agreed specifications should be allowed to build. This should include incumbent telcos and whoever is the chosen 3^rd player because this is part of their mandate.

NFA MONOPOLY

Another live instance of government overreach is the NFA monopoly. With our rice prices double or higher than our neighbors’, this has profoundly aggravated poverty, dampened manufacturing investments and job creation through wage uncompetitiveness, and periodically inflation shocks our macroeconomy, like now. The FEF’s position on this is well articulated in various statements and columns over the years, most recently by Toti Chikiamco, in his Introspective column last week —

“Abolish the NFA rice importation monopoly and fully liberalise rice importation. The bill passed by the House is defective: it allows the NFA to continue licensing and regulating traders. The Senate should completely abolish the NFA’s rice import monopoly and remove its regulatory and licensing functions.”

As a wise guy said: “ Let’s not waste a good crisis.”

Romeo L. Bernardo is a Fellow of the Foundation for Economic Freedom and a governor of the Management Association of the Philippines. He was Finance Undersecretary during the administrations of Corazon C. Aquino and Fidel V. Ramos.

romeo.lopez.bernardo@gmail.com

End of the road for federalism

September 2, 2018 | 8:40 pm

Introspective

By Romeo L. Bernardo

IN his third State of the Nation Address (SONA) in July, President Rodrigo Durterte urged Congress to work on his proposal to change the Constitution to enable the Philippines to shift from the current presidential to a federal form of government. Curiously as we observed in our brief, he did it less forcefully then what many had expected considering that federalism, along with the drug war and anti-corruption drive, had been an oft-repeated subject of his lengthy monologues. Today, a month after that speech, the drive for federalism seems to be waning.

What happened? To start with, there was never popular support for federalism, nor even awareness, of what the proposal was about. Then on the day of the SONA, the fiercest champion of federalism in Congress, the then speaker, was ousted and replaced with former President Gloria Arroyo who does not seem to share her predecessor’s enthusiasm for fast-tracking the proposal. Then, when asked, the President’s own economic team was critical of the proposal’s dire fiscal impact with the Finance Secretary telling members of the Senate that he would “absolutely” not vote for it. The economic team’s position was soon echoed by business and civil society in a rare joint statement issued by seven large business groups and 19 advocacy organizations. Too, the Supreme Court’s ruling granting local governments a larger stake in national taxes may have helped assuage some of the regional discontent with “Imperial Manila.”

And yet, the fuss over federalism is continuing with Malacañang now promoting voter education for public support. Is this another example of a strongman trying to get his way no matter what?

Those who charge the President with chiseling away at Philippine democratic institutions would readily agree, and perhaps they have grounds to believe so.

Nevertheless, there is another possibility that we find hard to refute. This view argues that for President Duterte, the federalism campaign is just a matter of keeping options open. The ultimate objective, per this line of reasoning, is effective succession planning, one that would allow him to escape Philippine democracy’s disturbing cycle of successive leaders sending their predecessors to jail. Indeed, many have observed that in the country’s post-democracy era, only President Corazon Aquino had managed her succession successfully.

If this is the case, then fate has favored him with an unequalled ally in the person of Speaker Arroyo. The former president, who had been under hospital arrest during most of her successor’s term, had tried to amend the Constitution through various means during her presidency ( though she preferred then a unitary parliamentary to a federal presidential system). From all indications, Speaker Arroyo remains committed to this vision. She has, however, only nine months remaining in her third and last congressional term and has dismissed the former speaker’s plan to cancel the 2019 mid-term elections (supposedly to give Congress time to work on federalism).

What will she do then? For one who considers politics the art of the possible, she would most likely have several cards under her sleeve and close to her chest. For now, she has put the onus of setting the President’s proposal aside on the Senate, which has refused to participate in a constituent assembly, the President’s preferred avenue for changing the Constitution. Meanwhile, she has busied herself tending to matters that the President has no appetite for, i.e., the economy, and possibly filling a vacuum in leadership. The months ahead will reveal how the stars will align for the two most powerful people in the country.

In the meantime, the success of the President’s daughter (the mayor of Davao City) in forming a formidable alliance between her regional party (Hugpong Ng Pagbabago or HNP) and nine other national and local parties has opened up another path that may allow the President to retire in peace to his hometown at the end of his term. Of course, he still has four years to go in his term and in Philippine politics, that is light years away.”

Romeo L. Bernardo was Finance Undersecretary during the Cory Aquino and Ramos administrations. He is a fellow of the Foundation for Economic Freedom and a Governor of the Management Association of the Philippines.

romeo.lopez.bernardo@gmail.com