All fall down: 10 years after the Asian financial crisis

All fall down: 10 years after the Asian financial crisis

Ten years after the Asian financial cataclysm of 1997, the economies of the Western Pacific Rim are growing, though not at the rates they enjoyed before the crisis. There is no doubt that the region has been indelibly scarred by the crisis, the key indices being greater poverty, inequality, and social destabilization than existed before the crisis. South Korea’s painful labor market reforms, for instance, have produced the quiet desperation that is resulting in one of the highest suicide rates among developed countries.

What global financial architecture?

Meantime, despite all the talk about a “new global financial architecture,” there is little in place to regulate the massive movements of capital shooting through global financial networks at cyberspeed.

Leave-it-to-the-market enthusiasts tell us not to worry and confidently point out that there’s been no major crisis since the Argentine bankruptcy in 2002, but people who know better, like Wall Street insider Robert Rubin, who served as Bill Clinton’s Secretary of the Treasury, are very worried even as they resist regulation:

“Future financial crises are almost surely inevitable and could be even more severe. The markets are getting bigger, information is moving faster, flows are larger, and trade and capital markets have continued to integrate… It’s also important to point out that no one can predict in what area -- real estate, emerging markets, or whatever else -- the next crisis will occur.” A recent study by the Brookings Institution confirms Rubin’s fears: There have been over a hundred financial crises over the last thirty years.

The reign of finance capital

The amounts of speculative capital sloshing around in global financial circuits are truly mind-boggling. According to McKinsey Global Institute, the global stock of “core financial assets” stood at $140 trillion in 2005. Traditional commercial banks held a significant amount of global financial assets, but non-bank financial operators, which have become important intermediaries between savers and investors, accounted for $46 trillion in 2005, hedge funds for $1.6 trillion, and private equity investors about $600 billion.

These figures and other data on the stupefying rise and scale of global finance capital were presented by economist C.P. Chandrasekhar at the conference “A Decade After: Recovery and Adjustment since the East Asian Crisis” held in Bangkok, the epicenter of the 1997 financial earthquake, on July 12-14.

The explosive growth of finance capital is seen by some analysts as stemming from the overcapacity that is plaguing the global economy. This has resulted in a marked slowdown in investment in major parts of the global economy, with notable exceptions like China and the US.

With stagnation, capitalists are less motivated to invest in more productive capacity and have more incentive to move their money to speculative activity, that is, to try to squeeze more value out of already created value.

This is indicated by the fact that the ratio of global financial assets has risen from 109 percent in 1980 to 316 percent in 2005, according figures from the McKinsey Instituted cited by Financial Times columnist Martin Wolf.

Speculative activity as a mode of profit-making has also outran trade, with the daily volume of foreign exchange transactions in international markets standing at $1.9 trillion daily, compared with $9.1 trillion of trade in goods and services a year -- that is, speculative activity in a single day amounted to 20 percent of the annual value of global trade!

Martin Wolf, one of the cheerleaders of globalization, captures today’s power relations among the fractions of global capital when he writes: “The new financial capitalism represents the triumph of the trader in assets over the long-term producer.”

Ten years after the IMF and the US put the blame for the crisis on the alleged non-transparency of financial transactions in Asian countries, opaqueness is the order of the day when it comes to global finance, as the movements and mutations of speculative capital have outrun the capacity of national and multilateral regulatory authorities.

In addition to traditional credit, stocks, and bonds, new, esoteric financial instruments such as derivatives have exploded on the financial scene. Derivatives represent the financialization or the buying or selling of risk of an underlying asset without trading the asset itself. Today risk on everything can be financialized and traded, from the pace of carbon trading to the rate of internet broadband connections to weather predictions.

Paralleling the emergence of more complex instruments has been the rise of hedge funds and private equity funds as the most dynamic players in the global casino. Hedge funds, said to be key villains in the Asian financial crisis, are even more freewheeling now.

Now numbering over 9,500, hedge funds take short and long positions on a variety of investments, with a view to minimizing overall risk and maximizing profits. Private equity funds target firms with the end in view of controlling them, restructuring them, then selling them for a profit.

Accumulating reserves as a defensive strategy

With the absence of global financial regulation to tame the whirlwind of global finance, the Asian countries have taken measures to defend themselves from the volatile global speculators that brought down their economies by pulling $100 billion in panic from their economies in a few fateful weeks during the summer of 1997.

The ASEAN countries have banded with China, South Korea, and Japan to form the “ASEAN+3” financial grouping that will enable member countries to swap reserves in the event their currencies are targeted by speculators, as they were in 1997.

Even more important, they have built up massive financial reserves by running massive trade surpluses, an objective they have achieved by keeping their currencies undervalued.

Between 2001 and 2005, said the Nobel laureate Joseph Stiglitz, eight East Asian countries -- Japan, China, South Korea, Singapore, Malaysia, Thailand, Indonesia, and the Philippines -- more than doubled their total reserves, from roughly $1 trillion to $2.3 trillion. China, the leader of the pack, is estimated to now have over $900 billion in reserves, followed by Japan.

This has resulted in a highly paradoxical situation. In a global economy marked by strong tendencies toward stagnation, China as producer and the US as consumer are the twin engines that keep the world economy afloat.

Yet, keeping US economy going necessitates a constant flow of credit from China and the other East Asian countries to the US to finance the middle classes’ consumption of goods from China and Asia. In the meantime, countries that really need the capital from East Asia, such as countries in Africa, get very little of these reserves since they are not considered creditworthy.

The demise of the IMF

The building up of massive reserves on the part of the Asian countries is directly related to their bitter experience with the International Monetary Fund. Governments recall the crisis as the result of a one-two-three punch delivered by the IMF.

First, the Fund, along with the US Treasury Department, pushed them to liberalize their capital accounts, which resulted in the easy exit of foreign capital that brought down their currencies. Then, the IMF provided them with multibillion dollar loans, not to rescue their economies but to rescue foreign creditors. Then, as their economies wobbled, the Fund told them to adopt pro-cyclical expenditure-cutting policies that accelerated their plunge into deep recession.

“Never again” became the slogan of a number of the affected governments. The Thaksin government in Thailand declared its “financial independence” from the IMF after paying off its debts in 2003, vowing never to return to the Fund. Indonesia has said it will pay off all its debts to the IMF by 2008.

The Philippines has refrained from contracting new loans from the Fund, while Malaysia defied it by imposing capital controls at the height of the crisis.

Ironically, then, the IMF has become one of the key victims of the 1997 debacle. This arrogant institution of some 1000 elite economists never recovered from the severe crisis of legitimacy and credibility that overtook it -- a crisis that was deepened by the bankruptcy of its star pupil Argentina in 2002.

In 2006, Brazil and Argentina, following Thailand’s example, paid off all their debts to the Fund in order to achieve financial independence. Then Hugo Chavez let the other shoe drop by announcing that Venezuela would leave the IMF and the World Bank.

What is, in effect, a boycott by its biggest borrowers is translating into a budget crisis for the IMF. Over the past two decades, the IMF's operations have been largely funded from the loan repayments of its developing country clients rather than from the contributions of wealthy Northern governments. But with the biggest borrowers refusing to borrow, debt repayments are being to be reduced to a trickle.

The upshot of these developments is that payments of charges and interests, according to Fund projections, will be cut by more than half, from $3.19 billion in 2005 to $1.39 billion in 2006 and again by half, to $635 million in 2009. These reductions have created what Ngaire Woods, an Oxford University specialist on the Fund, describes as “a huge squeeze on the budget of the organization.”

This succession of events has left the IMF with scarcely any influence among the big developing countries and groping for a new role. But the unraveling of the authority and power of the IMF is due not only to the resistance to further Fund intervention by developing countries.

The Bush administration itself contributed to eroding the Fund’s search for a meaningful role in global finance when it vetoed a move by the conservative American deputy director of the Fund, Ann Krueger, to create an IMF-supervised “Sovereign Debt Restructuring Mechanism” (SDRM), which would have allowed developing countries a standstill in their debt repayments while negotiating new terms with their creditors.

Many developing countries regarded the proposed SDRM weak, and what Washington’s veto showed was that the Bush people were not going to tolerate even the slightest controls on the international operations of US finance institutions.

Neoliberalism rejected: Thailand

It was not only the IMF but also neoliberalism, the dominant ideology of the 1990s, that came crashing down in the aftermath of the crisis. Malaysia imposed capital controls and stabilized the economy, allowing it to weather the recession in 1998-2000 better than other afflicted countries.

It was, however, Thailand that most dramatically broke with neoliberalism. After three stagnant years under governments faithfully complying with the IMF’s neoliberal prescriptions, the newly elected government of Thaksin Shinawatra propelled countercyclical, demand-stimulating neo-Keynesian policies to get the economy back on track.

Rural debt was frozen, government-financed universal health care was instituted, and each village was given one million baht to spend on a special project. Despite dire predictions from neoliberal economists, these measures contributed to propelling the economy into a moderate growth path, one that has since been sustained by demand emanating from China’s red-hot economy.

The 1997 financial crisis, which saw one million Thais drop below the poverty line in a few short weeks, turned Thais against neoliberal globalization. Even as the government refocused on stimulating domestic demand through income-support for the lower classes in the countryside and the city, popular sentiment went against free trade.

On Jan 8, 2006, several thousand Thais tried to storm the building in Chiang Mai, Thailand, where negotiations for an FTA (free trade agreement) were taking place between the US and Thailand. The negotiations were frozen; indeed, Prime Minister Thaksin’s advocacy of the FTA became one of the factors that contributed to his loss of legitimacy and eventually his ouster from power in September 2006.

The souring on globalization has been paralleled by the rise in popularity of an economic perspective promoted by the country’s popular monarch, King Bhumibol. Dubbed “sufficiency economics,” it is an inward-looking strategy that stresses self-reliance at the grassroots and the creation of stronger ties among domestic economic networks. Taking advantage of the King’s popularity, critics claim that the military-supported government that overthrew Thaksin is cleverly using the sufficiency economy to legitimize its rule.

Whatever the case, globalization is an unpopular word in Thailand today.

Neoliberalism triumphant: Korea

While Thailand broke with neoliberalism and the IMF, Korea followed almost to a “t” the neoliberal reforms forced on the government by the Fund: undertaking radical labor market restructuring, trade liberalization, and investment liberalization.

According to sociologist Chang Kyung Sup, “labor shedding was the most crucial measure for rescuing South Korean firms. Even after the breathtaking moments were over, most of the major firms continued to undertake organizational and technological restructuring in an employment minimizing manner, and thereby got reborn as globally competitive exporters.”

Once the classic activist developmental state that a report of the US Trade Representative characterized as the “most difficult place in the world” for US enterprises to do business in, Korea under IMF management has become a much more liberal economy than Japan.

Denationalization of Korea’s financial and industrial firms has taken place with “appalling speed,” says Chang, with foreign ownership now accounting for over 40 percent of the shares of Korea’s top financial and industrial conglomerates, or “chaebol.”

Samsung now has 47 percent foreign ownership, Posco, the steel company, over 50 percent, Hyundai Motors 42 percent, and LG Electronics 35 percent.

The IMF has touted Korea as a “success story.” However, Koreans hate the Fund and point to the high social costs of the so-called success. Poverty has increased sharply, from 3.0 percent of the population in 1996 to 11.6 percent in 2006, and the Gini coefficient that measures inequality jumped from 0.27 to 0.34.

Social solidarity is unraveling, with emigration, family desertion, and divorce rising alarmingly, along with the skyrocketing suicide rate. “We have one big unhappy society that looks back to the pre-crisis period as the golden age,” says Chang.

All fall down

In retrospect, the Asian financial crisis of 1997 may have brought about the downfall of the IMF, but, as economist Jayati Ghosh points out, it also marked the demise of the East Asian developmental state that had aggressively managed the integration of the Asian economy into the world economy so that this would be strengthened, not marginalized by global economic forces.

Despite their different pathways from the crisis, the economies of East Asia have been irrevocably scarred and weakened. The crisis marked the end of their being at the forefront of development, as models to be emulated. The 21st century that was supposed to be their century slipped away.

The cataclysm marked the passing of the torch to China, and indeed, in their weakened state, the smaller East and Southeast Asian economies have now become increasingly dependent on the dynamism imparted by their giant neighbor.

Uncontrolled development

Uncontrolled development

Owners of business establishments in Boracay have welcomed a moratorium on new construction on the world-renowned island resort. Now foreign investors are said to be setting their sights on an island in Romblon for tourism development similar to Boracay. Elsewhere in the Philippines, new tourist destinations are also being developed.

The story of Boracay should provide valuable lessons in uncontrolled development. The island resort grew into a top tourist draw with no planning and little regulation, and it shows. With Boracay’s forest cover depleted and resorts, restaurants and nightspots jumbled together cheek by jowl on the island, authorities are scrambling to stop overdevelopment, which is straining the island’s resources and posing a threat to the environment.

It’s not just Boracay that can use some regulation. Even the highlands overlooking Taal volcano are becoming overdeveloped, depleting the vegetable and flower farms that have long been part of the area’s charm. Authorities must bear these lessons in mind as new tourist destinations are developed. Among the emerging tourist spots are the areas around the Albay Gulf where visitors can watch whale sharks and dolphins, and surfing areas in the coastal regions of La Union and Ilocos.

The irony is that amid overdevelopment, top tourist destinations lack facilities and skilled workers to provide quality services to visitors. Both the national and local governments are unable to provide the most basic of visitors’ needs: public toilet facilities that are spacious, clean and with piped water and toilet paper. Many of the nation’s tour guides can also use better training.

Older tourist destinations, meanwhile, are being neglected. The rice terraces of Banaue continue to deteriorate. For several decades there has been little improvement in access to the site either by land or by air. The country’s tourism infrastructure is inadequate not just in the Cordilleras but also in many other areas, except in destinations such as Boracay where the private sector has taken the lead in development. The danger in this case, as we have seen, is overdevelopment.

Singapore girl, a

Singapore girl, a

If you have access to the Internet you have probably received an e-mail that contains pictures of what are claimed to be the flight attendants’ quarters of various airlines.

The e-mail starts with the plush accommodations—complete with airbeds—that several foreign airlines supposedly reserve for their cabin crews. It ends with the picture of an Asian-looking flight attendant dozing off on a crappy jump seat; the picture is captioned “Philippine Airline” (sic).

It is one of those e-mails that a disturbing number of Filipinos seem to enjoy circulating as they engage in their favorite pastime—putting their own country down.

Indications are, however, that the e-mail is nothing but a hoax. For one thing, the “Philippine Airline” stewardess looks more like a malnourished stewardess of one of China’s regional airlines—a number of which are truly crappy, going by their horrible safety records—than a PAL flight attendant.

But even if the e-mail were authentic, it does not tell the whole story.

If foreign airlines are indeed able to make available deluxe accommodations to their flight crews, it is only because their bottom line regularly gets a big boost in the form of hefty subsidies from their own governments.

In contrast, our flag carrier and our other carriers get no such support from the Philippine government.

In our part of the world, many airlines are either partly or wholly owned by the state. For some Asian countries, keeping their airlines at par with the world’s best is a matter of national pride—and they don’t mind spending billions of taxpayer dollars just to be able to do so.

For instance, the charming Singapore Girl who promises to satisfy the fantasies of air travelers is actually a civil servant because Singapore Airlines is owned entirely by the city-state’s government.

Other Asian airlines such as Thai Airways International, Malaysian Airlines, Korean Air and Asiana regularly get infusions of state funds. Practically all of the countries in the Middle East also subsidize their airlines.

In other parts of the world—from North America to Europe to Australasia—governments continue to support their flag carriers notwithstanding admonitions from their own officials and economists that governments have—to borrow the free-traders’ mantra—no business going into business.

State subsidies to airlines are bad because they give unfair competition to those of countries like the Philippines that do not give financial support to their carriers.

What is worse in our case is that the government is giving undeserved advantage—in the guise of an “open skies” policy—to foreign airlines that are heavily subsidized by their own governments.

Despite the lack of government support, our carriers have managed to keep their heads above water. But the question is, for how much longer?

Philippine Airlines, for instance, was able to post profits without subsidies from the government. It registered record net earnings of $140.3 million for fiscal 2006-07—PAL’s third profitable year in a row.

The milestone has emboldened the private flag carrier—the only one of its kind in Southeast Asia—to apply for an exit from receivership from the Securities and Exchange Commission by the end of the year.

PAL, therefore, had good reason to take the moral high ground as it joined the global call for the abolition of all forms of government subsidies to flag carriers—especially those in Southeast Asia and the Middle East—as a precondition to the liberalization of the aviation industry.

PAL executives, led by vice-president for marketing support Felix Cruz, said at a recent press forum that subsidies and all other forms of state support “can seriously distort competition.”

They added that PAL is ready to compete but underscored the need for “equal opportunity” for the “open skies” regime, which certain government officials have long been pressing for.

PAL joins other airlines, such as Australia’s flag carrier Qantas, which has called for a ban on unfair subsidies enjoyed by Emirates, Qatar Airways, Singapore Airlines and other carriers.

Starting a business in the Philippines

Starting a business in the Philippines

It is not easy to start a business in the Philippines.

It takes 11 steps, 48 days and is costly—about 18.7% of income per person, and costs 1.8% of your minimum capital, per capita, according to World Bank data using figures supplied by the Philippines’ leading corporate law firms.

The bank studied how to start a business in the Philippines—all the procedures, how to obtain licenses and permits, completing the required notifications, verifications, or inscriptions for the company and employees with relevant authorities.

The bank also measured the time and cost of complying with each procedure under normal circumstances and the required minimum paid-in.

Cost is recorded as a percentage of the country’s income per capita. So 18.7% translates into $243, assuming per-capita income is $1,300.

Canada, which ranks No. 1 in ease of starting a business, requires just two steps, three days and 0.9% of per-capita income. There is no minimum capital.

The World Bank suggests that the easiest way to ease up on starting a business is to change the corporation code. “Eliminate the minimum capital requirement, make business registration administrative rather than judicial and allow registration notices to be published online or at the registry,” advises the bank. Get rid of the judges.

Business start-up takes 20 days more on average where judges have to approve the applications.

Serbia and Uganda avoided these delays by creating a new administrative registry. Bulgaria did the same in April 2006, despite fierce opposition from the judiciary. Honduras and Italy transferred registration from judges to private chambers of commerce.

In Serbia, the government decided that radical reform was better than wrestling with the existing system. The reform took nearly two years to complete, starting in January 2003 with a seminar on business registration in countries of the European Union.

In May 2004 parliament passed a law to create the new registry. Registration was simplified, and agencies linked through a central electronic database. The registry no longer has the authority to check the authenticity of data or to refuse registration if the application is complete. A “silence is consent” rule ensures automatic registration within five days.

As soon as the law came into force, the focus shifted to training and publicity. The registry’s director, named in July 2004, became the spokesperson in the publicity campaign. By January 2005, when the registry opened, everyone knew about it. New registrations increased by 43% in the first year.

Slovakia took a different approach, reforming in steps. In October 2003—in time for its entry into the European Union the following year—Slovakia passed the Act on the Commercial Register, transferring registration from judges to court clerks. Standard documents and clear filing procedures replaced substantive review by judges.

And Slovakia did not stop there. In July 2004 it cut the statutory time limit for issuing a trade license from 15 days to seven.

Three years after the commercial register act was adopted, opening a business takes 25 days rather than 103.

Reformers who want to start simple could consider administrative reforms first: Cut unnecessary procedures, create a one-stop shop for business registration, introduce standard application forms and a single business identification number and move any tax payments to after the business has started operations.

Creating one-stop shops for company registration was the most popular reform in 2005/06. But one-stop shops are not enough. Many other procedures may be required before a business can legally operate—such as obtaining documents and having them notarized, depositing initial capital or registering for social security.

One-stop shops work best when other start-up procedures are cut or simplified. For instance, El Salvador cut the time to start a business—with no changes to the law.

In 18 months start-up time dropped to 40 days and the share of satisfied customers rose to 87%.

But reformers went even further, transferring staff from the Ministries of Finance and Labor and the social security institute to the company registry. Entrepreneurs now register with all 4 agencies in a single visit and can open their business in 26 days—down from 115 before the reform.

Whatever reforms are made, reformers should advertise the changes and monitor their effect on new registrations. Most reformers are bad marketers.

So, few entrepreneurs know how much easier registration has become. El Salvador first established a one-stop shop in 1999, but local entrepreneurs thought it was only for foreigners. A lesson was learned. The second time around reformers staged two “ribbon-cutting” events with President Antonio Saca and Vice-President Ana Escobar. The media coverage ensured that everyone knew about the new system when it opened in January 2006.

Finally, reformers best stick to one principle—simplify. Cumbersome entry procedures mean more hassle for entrepreneurs and more corruption, particularly in developing countries.

Each procedure is a point of contact—an opportunity to extract a bribe. The cost of such systems is the forgone jobs that new firms would have created.

Banana chips launched as healthy food

Banana chips launched as healthy food

THE regional offices of the Department of Trade and Industry (DTI) in Southern Mindanao and the Department of Education (Deped) formally launched Thursday banana chips as a healthy nutritious snacks in all public elementary and high schools in the Davao City.

Paciente Cubillas, senior trade and industry development specialist of the Consumer Welfare and Trade Regulation Division (CWTRD) of the DTI-Southern Mindanao, told Sun.Star Davao that the launching is a regional campaign for school canteens to offer banana chips as a nutritious food snacks to all elementary and high school students.

"The processors will be the one to draw an agreement with the school canteens kung ilan ang isu-supply nila," Cubillas said, adding that the partnership on banana chips project between DTI and DepEd has been concretized after a year of planning.

"May mandate para sa lahat nga mga agencies sa government towards providing good nutrition sa mga bata.

Ang mandate naman sa amin is to produce jobs, so with this partnership, we can generate more jobs with the more demand of the products na isu-supply sa mga canteens," Cubillas said.

He added that they identified six banana chips processors in Davao Region that will supply banana chip products in school canteens.

"Most of the processors are into export, they can be assured of the quality and packaging," Cubillas said.

Where the money is

Where the money is

SAN Miguel Corp. paid Goldman Sachs millions to identify growth opportunities, initially on power.

That is how serious SMC is in its diversification effort. The money paid Goldman is well spent. The investment bank is probably the world’s best strategic planner today.

A consortium led by tycoons Ramon S. Ang, Henry Sy Jr. of SM and Joselito “Butch” Campos of Del Mon­te gained the upper hand in the auction of the state power transmission TransCo. following the failure of bidding in four tries.

In the last attempt, only three bidders were left for the right to operate TransCo for 25 years—Ramon Ang’s San Miguel group with Tenaga, operator of Malaysia’s National Grid, as its technical partner; the group of Enrique Razon of International Container Terminal Services, Inc. (ICTSI) with the Satte Grid Corp. of China as technical partner, and the group of Ricky Delgado who has an Italian partner.

TransCo could cost from $2.6 billion to $4.5 billion but the cash required of the winning bidder could be just 10 percent of that.

TransCo is a hugely profitable enterprise, being a monopoly.

In 2006 it had an operating income of P16.2 billion ($345 million), a return on gross utility revenue of P24.29 billion. In 2004 its return on sales was also a hefty 62.2 percent.

Properly managed, Trans­Co could yield its operator between $500 million and $800 million in annual free cash or EBITDA.

Not everybody with mo­ney can buy TransCo. A bidder must be 60 percent Filipino. It must have $300 million of net worth. It must have a foreign technical partner whose transmission experience includes 50,000 miles of power lines.

There are three major reasons why San Miguel is keen to diversify: one, thinning margins on beer; two, shrinking beer demand; and three, the market shift to brandy, as Filipino taste moved upscale.

Thus, SMC will go into power, mining, infrastructure, utilities, and property development. These businesses are extremely more profitable than brewing and selling beer.

In 2006, SMC posted return on sales of four percent—P10.17 billion net income on record revenues of P249.65 billion. The P249 billion made San Miguel the country’s largest company in sales but the P10.17 billion made it one of the well, modestly profitable. So it is not a question of just generating revenues. It is more a game of generating profits.

Based on average equity of P145 billion, SMC’s P10.17 billion represents a return on equity of seven percent—below the bank-lending rate of about 10 percent.

TransCo claims a return on equity of 10.89 percent in 2005 and 12.42 in 2004 but analysts believe ROE could be as high as 20 percent, given the right focus and the right management.

Luzon’s biggest power producer, Mirant, makes easily P10 billion from its two power plants, Sual and Pagbilao. Those plants were bought this year by Tokyo Electric and Marubeni. Their Team Energy paid $4 billion for the plants and will spend another $350 million to expand capacity. It takes three years to put a power plant on stream.

In her SONA July 23, President Arroyo admitted to a power shortage in Luzon and Mindanao over the next two years, by 150 megawatts and 210 megawatts, respectively. Visayas is even now suffering from occasional brownouts. Overall, the country needs probably as much as 3,400 megawatts of additional power capacity. It costs $1 million to install a megawatt.

In 2006 the Lopezes’ First Gen Corp. made 14 percent return on sales from power generation; their Meralco electricity retailer made 6.58 percent but its profits are understated. Meralco’s share price rose seven-fold in the last year, to P116 a share, reflecting higher demand for power and electricity shortages, with the booming economy. Meralco buys electricity from another Lopez company, First Gen, at a price twice that it pays Napocor.

The power business is extremely good. The economy has been growing by about five percent in the last six years releasing pent-up demand for energy that present supply cannot meet.

In water, the value of the Ayala family’s investment in Manila Water rose from P2 billion in 2001 to P22 billion in 2006, ten times in just five years. It’s not brilliance but high pricing. Manila Water got a 50 percent rate hike per year for five years. Any business that gets a 50 percent yearly price increase cannot lose money.

Property is another mega­bucks producer. In 2006 Henry Sy’s SM Development Corp. generated a whopping 69 percent return on sales—P984-billion profits out of revenues of P1.43 billion.

In mining in 2006, Philex Mining chalked up a 30.6 percent return on sales. Coal producer Semirara Mining reported 12.1 percent. There is a worldwide shortage of minerals and China, the world’s fastest-growing economy, wants to buy everything it can lay its hands on.

Business process, outsourcing have changed the business and economic landscape

Business process, outsourcing have changed the business and economic landscape

IF the brighter lights in commercial areas are an indication, the business process outsourcing industry has changed the business and economic landscape of the major business areas in Metro Manila. The industry currently employs a quarter of a million people, with pay scales that rank and file workers from other companies can only dream of.

Based on data from the Business Processing Association of the Philippines, the industry’s current global market share of 5 percent could double in four years, growing at a compound annual rate of 40 percent. This would mean the creation of more than 300,000 jobs in the coming years, with information technology-enabled service firms pushing for the faster development of the domestic talent pool which would be a key component in the industry’s plans to increase revenues to billion and a workforce that would total half a million by the year 2010.

Experts and industry leaders say the sector must strive for growth rates greater than what can be observed at present. In the recent Call Center Conference and Expo 2007, members of the Business Processing Association of the Philippines and the Contact Association of the Philippines agreed to develop and push for an industry roadmap to achieve their goals in the next four years. The roadmap would include: Business process outsourcing companies working with government in creating the right business environment, especially one with tax incentives and similar attractions; creating new locations and developing alternative sites in cities; and enhancing the available talent pool of agents as well as management skills; and expanding the business process outsourcing growth rate that has been achieved so far.

The Philippine Business Processing industry has reached global heights. With a roadmap in place, concerns and barriers to growth can be removed to make the economic prospects of the country even brighter.

Long wait for Manila airport

Long wait for Manila airport

It’s not just collapsing ceilings that are bedeviling Terminal 3 of the Ninoy Aquino International Airport. President Arroyo, after enumerating in her State of the Nation Address the other day a long list of airstrips being built and airports being expanded or renovated nationwide, said the NAIA-3 could collapse in a powerful earthquake. She invoked public safety as the top consideration in opening the terminal, but fell short of saying outright that the yearend deadline she gave for the opening of the facility would no longer be met.

Collapsing ceilings can be blamed on deterioration from non-use. On the other hand, a facility that cannot withstand the earthquakes that periodically strike this archipelago, which lies along the quake-prone Ring of Fire, suffers from structural defects — something that can be blamed on the builder. The original Philippine white elephant, the Bataan Nuclear Power Plant, was abandoned after experts warned that it was built near an earthquake fault. The Philippine government at least ran after Westinghouse, which built the plant. But Philippine officials accused of receiving multimillion-dollar kickbacks for the project, led by dictator Ferdinand Marcos, went unpunished.

If the NAIA-3 suffers from structural defects that could endanger public safety, the government should also go after those responsible for the project. Earlier reports said it could take up to P2 billion to make the NAIA-3 operational. The scandal over the project has already damaged the image of the Philippines, especially in Europe, as an investment destination. The country is also suffering from the failure to open a badly needed new airport terminal while other Asian countries are racing to build larger and more modern airports.

The Philippines has neither the means nor the political will to build a bigger premier airport outside Metro Manila. But it can show the world that it is doing something to penalize those behind the construction of yet another white elephant. If we can’t have a new airport terminal, we should at least see certain individuals behind bars. But who should be indicted? This project was cancelled because it was supposed to be onerous. The contractor is challenging this and has taken the Philippine government to an international arbitration court. The mess is unlikely to be untangled any time soon. Juan de la Cruz has a long wait ahead for a new airport terminal.

Mindanao: Gateway to ASEAN

Mindanao: Gateway to ASEAN

Joji Ilagan-Bian

Considered the second-largest island in the country, Mindanao has finally started getting the attention of travelers.

Mindanao tourist arrivals, particularly those from other countries, have increased over the years despite unfavorable travel advisories issued by western countries, many of which did not even have sound basis.

Last year, total visitor arrival here reached 2.93 million, with 108,062 coming from other countries such as the US, Japan, Korea, Australia and Malaysia. This was 10 percent more than year-ago level.

Mindanao has three international airports -- in the cities of Davao, Zamboanga and General Santos -- although only the first two accommodate direct international flights.

Initiatives

Prime movers of Mindanao development, especially tourism industry players, have come together to promote Mindanao as an international gateway, given its proximity to the rest of the countries in Asia and the Pacific and its accessibility considering its air and sea linkages with those countries.

The Department of Tourism and the airline companies in Davao City, for example, came up with a program that aims to intensify travel between Davao, a haven for business in Mindanao, and the rest of the world.

During the program launch, airline executives announced some proposed flights between the city and certain international destinations.

Similar moves have also been undertaken in other parts of Mindanao. In Zamboanga City, based on the announcement of the Mindanao Economic Development Council in May, Asian Spirit had started servicing three times a week the Zamboanga City-Sandakan, Malaysia route using the Japanese-built Weiss-11 60-seater plane.

There are also attempts to mount direct flights between Zamboanga and Bander Seri Begawan, the capital of Brunei Darrusalam.

Fifth-freedom rights

These developments are taking place as the four-country East ASEAN Growth Area started implementing the fifth freedom traffic rights. Leaders of Indonesia, Malaysia, Brunei and the Philippines believe that with the implementation of this travel concept, their respective destinations will get a boost from the growing number of Asian and other foreign travelers.

This particular travel mechanism, which Mindanao leaders have been pushing since a decade ago, allows an aircraft to pick passengers and cargoes in any airport within the sub-region aside from its home airport. This enables an airline to sustain operations even in missionary routes.

Many flights in the past did not survive mainly because traffic was not really that active even in primary Mindanao destinations such as Davao, General Santos, Cagayan de Oro, Zamboanga and Cotabato.

With the strengthening of cooperation between Mindanao and the rest of the East ASEAN Growth Area, great things are expected to take place in the tourism sector, including more flights between the sub-region and the rest of the world.

There is an attempt to bring in more tourists from China and South Korea. These markets have expressed interests in Mindanao. Last month, the tourism industry players in Davao went to Seoul for the Korean World Travel Mart as part of the Philippine delegation.

Sea linkages

There are also the emerging sea linkages between key Mindanao areas and the rest of the sub-region. One of them is the link between General Santos City and Bitung, Indonesia, which has been vibrant in the last couple of months owing to increasing trade between the Jose Abad Santos-Sarangani-Glan-Cooperation Triangle, and Bitung and other nearby ports.

These developments should provide more business and tourism opportunities for Mindanao and make it a viable gateway not only to the ASEAN but also to the rest of the world.

Broadband row tied to JdV fate

Broadband row tied to JdV fate

Julius F. Fortuna

We thought for a while that the controversy over the national broadband network (NBN) was geopolitical that involved the interest of Beijing and Washington. Now, it is becoming clear that this row is a story of a losing bidder complaining about a contract.

ZTE, a Chinese telecommunications firm, had earlier bagged the contract to provide Internet services to the government, including the small towns. But Amsterdam Holdings, a firm owned partly by Jose de Venecia 3rd (son of the speaker), is challenging the awarding of the contract on several grounds, including the price.

We were even surprised that US Ambassador to Manila Kristie Kenney had to join the debate, saying that there has to be “fairness” in the contract. This fueled the suspicion that AHI formed the core of American interest. But after much reportage in the press, which included paid ads, domestic politics entered the picture. It seems that cronyism is at the root of this problem.

As part of their polemics against the incumbent speaker, three lawmakers vowed to make sure that the House will investigate the reported efforts of the son of Speaker Jose de Venecia Jr. to corner the national broadband network (NBN) project of the government. NBN and the speaker­ship had joined up.

Reps. Jose Solis of Sorsogon, Luis Villafuerte of Camarines Sur and Danilo Suarez of Quezon—all supporters of Pablo Garcia of Cebu for speaker—said they will initiate the probe to determine if the name of Speaker de Venecia had been used by the young de Venecia in relation to the project.

The speaker’s son, Jose de Venecia 3rd, has been attacking in media the NBN deal forged by the government with ZTE of China, while pushing a competing NBN proposal of a company he co-founded, Amsterdam Holdings, Inc. (AHI).

Villafuerte had also demanded that AHI could not even provide a corporate profile to determine the personalities behind it, its financial standing and its technical capability.

For this, Villafuerte, as well as Solis and Suarez, said AHI’s proposal may have been pinned solely on its co-founder’s relationship with the House speaker. The young de Venecia is also a stockholder of AHI.

The move of the three congressmen is clearly an attempt to put the speaker on the defensive in the run-up to the election come July 23. At present, the speaker seems to have the numbers. But his opponents think that the list of JdV’s voters published in the newspapers is tentative.

A general at the Kapihan sa Sulo

It is a rare chance for journalists to meet AFP officers because of their sensitive jobs. That’s why we welcomed last Saturday Lt. Gen. Alexander B. Yano, who spoke at the Kapihan sa Sulo about the work of the soldiers on the ground.

We found out that Yano is an articulate officer, possessed with the capability to state official policy with eloquence and precision. As commander of the Southern Luzon Command, he knows his mission, to insure that the south belly of Manila is protected.

He is an expert on Mindanao, having been commander of the brigade that guards the center of the main island. Of course, he knows the culture of the region because he comes from Sin­dangan, Zamboanga del Norte. He knows how to fight and to talk—having been chairman of the ceasefire committee dealing with the MIF.

Journalists asked him difficult questions, like extrajudicial killings now hounding the government. He said that there is no government policy encouraging extrajudicial killings; if there were, he would surely know about it. In his SOLCOM, he makes sure that political work among the people is 85 percent of the whole battle for the hearts and minds of the barangays. The remaining 15 percent is combat—which could not be avoided because the enemy is armed.

BRIEF NOTES. How much is our foreign and domestic debt? Records show that the state’s debt stood at P3.9 trillion, or about $84.7 billion. Of that amount, about 44 percent is owed to foreign creditors and the balance to domestic lenders.

Airline e-ticket scam victims seek police assistance

Airline e-ticket scam victims seek police assistance

Daisy Mandap

Two groups of Filipinos defrauded by syndicates behind an apparently massive airline e-ticket scam have filed complaints with the police, after the Consulate issued an appeal for victims to come forward.

Vice Consul Val Roque has welcomed the news relayed to him by The Sun, which first reported the victims' plight. "This will be helpful in tracking down the people behind the scam," says Roque.

He hopes Cebu Pacific, the airline often used by the syndicate to con travelers, would also respond to the Consulate's request for help in preventing the fraud.

In a letter sent to Cebu Pacific president Lance Gokongwei last month, Consul General Alejandrino A. Vicente asked the airline to issue "advisories and others measures" to help stop the fraud.

Roque also spoke with the airline's station manager, Liza Anareta earlier, to ask for the same thing.

"So far we have not received a response from them," said Roque.

But even as Cebu Pacific appears set to downplay the incidents, 35 Filipinos who fell prey to the e-ticket syndicates are determined to go after the perpetrators.

One group is represented by Malone Bicua, whose family's plight was one of those cited byCongen Vicente in his letter to Gokongwei.

In her complaint to the police, Bicua named her own sister-in-law, Elnora B. Sanorio and and the latter's husband, Noel, as the ones who tricked them into buying apparently spurious e-tickets with Cebu Pacific.

"I really want them to answer for what they did," Bicua told The Sun. "Imagine sila pa ang galit, at sinasabing biktima din sila."

The couple, when pressed to refund the money paid by Bicua's family for replacement tickets, supposedly blamed a certain agent in Macau as the one who profited from the scam.

"But I was not told any of these before," said Bicua. "We paid cash for the tickets, and I did not know that a credit card was used to buy them in turn."

Another group of 27 complainants is represented by Antonio Coronel, who works at Chek Lap Kok as an engineer, and is president of the Aviation Professionals Association of the Philippines, Inc.

Among the complainants is Coronel's son, six of his officemates, and their respective families.

"I really want to push this (complaint) because a lot of people have already been victimized, and many of them are hesitant to come forward," says Coronel.

In his complaint, Coronel identified four people who allegedly worked together to defraud his group: Remedios Cabigas, Daday Conchas, Ferdinand S. Fernandez and a certain Jake Massimo, who apparently was the one who made the e-ticket bookings.

Coronel says he did not think at first that something was amiss because his officemates who got their etickets from the same group had managed to travel to and from the Philippines without a problem.

But things turned bad when Coronel was not allowed to board his flight for Manila in April. He had to pay $1,200 to get a new ticket. Coming back, the same thing happened to him and his son, and they had to shell out more than Php19,000 to be able to leave as scheduled.

The other complainants suffered the same fate, although two families did manage to use them in traveling to Manila, but were unable to use them on their return to Hong Kong.

According to Coronel, he first got in touch with Cabigas by email when told that she was the source of cheap e-tickets bought by some of his colleagues earlier.

Cabigas in turn referred them to Conchas, who emailed instructions for them to send the payment of $800 per ticket to Fernandez in Macau. The e-tickets were forwarded directly to the victims by email.

Massimo's name came up only recently, when Coronel pressed Cabigao to refund the money paid by his group for the etickets.

Massimo, using the email address jakerize@yahoo.com, told Coronel in a message sent on June 25 that it was Cebu Pacific's fault that e-tickets were deemed invalid.

"...am very sorry, but it wasnt our fault then, there was a problem with cebu machine, that is why such problem happens, cuz i was the one who book your ticket then, but now it is better, so if you want to book as much now you can email me then i book for you, and will book you for a better price," says Massimo.

When told by Coronel that his group did not want another booking, but wanted to claim back the payments they made to Cabigas, Massimo sent another e-mail on July 2, saying he never received the payments.

"I Book for her but she didn't pay me yet up till now and I decided to leave the money for her even with her other agent. since then she has been running fro me when ever i called she never pick my call..."

Coronel said that a trace of Massimo's email address showed it was opened somewhere in Nigeria.

Filipina links in-laws scam

By Smiley D. Julve

A Filipina sought police assistance on July 4 over what she believes is a case of deception by her in-laws for selling her invalid return e-tickets for Cebu Pacific flights. Malone L. Bicua took the step after an amicable settlement arranged by the Consulate failed.

Bicua also reported to the Immigration Department a possible violation by her sister-in-law, Elnora B. Sanorjo and her husband, Noel, for acting as sub-agents, in violation of their restricted visas as domestic helpers in Hong Kong.

Early this year, Malone vouched the idea of bringing her second daughter, aged 13, to Hong Kong. But when her relatives found out about this, they decided to pitch in so that their favorite nieces and nephews could also come to Hong Kong.

Elnora and Noel even promised to pay for the airfare of Malone's husband, Wenceslao, and offered her cheap air tickets costing $950 for each child.

Wenceslao and the children had no problem coming to Hong Kong on Apr. 18, but found out that their return tickets were no longer valid when they had to rebook it on June 12 at the Cebu Pacific's office in Tsim Sha Tsui.

According to the airline's agent, Michael Choi, the credit card used to book the tickets was no longer good.

This surprised Malone as she had paid her in-laws cash for the tickets. She claims to have paid her $4,000 share in the airfare while the balance and other visa fee requirement amounting to $4,330 was contributed by her husband's relatives in the Philippines was also given in cash to her in-laws.

She says she found out later that the tickets had been paid by credit card by an agent in Macau. As a result, Malone had to use the money allocated for her children's tuition fees to pay for the $5,750 ticket of her family so they could go back home. There was no time for second thoughts as the children were already late for their classes.

After much prodding, her in-laws allegedly transferred $1,300 to Malone's account to shoulder Wenceslao's airfare. But Malone wants them to pay at least half of what she paid for.

At the Consulate, Elnora verbally agreed to give back Malone's $2,000 and promised to produce the money in a week's time. But weeks later, Malone said Noel told her on the phone: "Hindi kami magbabayad. Biktima din kami."

Noel's argument is based on the fact that two of his children were also unable to use the e-tickets he and Elnora had bought for them, and had to buy new tickets as well.

But Malone is not appeased, and is determined to make her in-laws pay for what she believes they owe her.

The failure of her family to board their return flight as scheduled was only the latest in a series of setbacks they suffered after buying the e-tickets.

The original plan was for Wenceslao and their children to come here on Mar. 31. The family had obtained passports, and even the two-month tourist visas they would need for an extended stay. But the night before they were due to leave, they were reportedly told that they could not board their scheduled flight the next day.

She only followed up the matter on Apr. 2 and was told by Noel, "Wala kaming aabonohan." Startled, Malone allegedly replied that she just wanted her family to come to Hong Kong.

She was then informed of another booking on Apr. 11 which was re-scheduled the next day, but that, too, did not materialize. In between, she was also asked whether she could pay an additional $250 for each child so that they could fly via Philippine Airlines or to pay an extra $50 because the travel agency claimed to have received so little a commission from the transaction.

Finally, Malone's husband received an e-mail detailing a Cebu Pacific itinerary for him and his five children. They were scheduled to arrive in Hong Kong on Apr. 18 and depart on June 18.

Just to be sure, Wenceslao confirmed this with the Cebu Pacific office in Manila and the staff who attended to him even printed out transaction receipts and assured him that they would not have any problems with their flight. Because of this, Malone was also advised to check whether Cebu Pacific could also be held liable for all her trouble as the airline confirmed the validity of the roundtrip air tickets and even printed out transaction receipts to that effect.

The only good that came out of the situation, said Malone, was the opportunity given to her to be with her family in Hong Kong. "At least nakarating sila," she said. What happened, she described, was "a dream of a lifetime." Unfortunately, her dream came at the expense of unplanned debts and family rift.

Crab mentality in the corporate world

Crab mentality in the corporate world

Dan Mariano

LAST month the Philippine Stock Exchange approved the application of Phoenix Petroleum Philippines, Inc. to list 145 million common shares with a par value of P1. The shares were to be sold for P9.80 each through an initial public offering.

An independent distributor of oil products, the Davao City-based Phoenix operates over 20 retail service stations all over the country. It plans to set up 30 more service stations by year’s end and expand its network to 140 stations by 2010.

Expansion was the reason that Phoenix decided to go public. Last Tuesday—the eve of its IPO—it was reported projecting to generate through the bourse P355.25 million, which it intends to use for its capital expenditures and working capital needs.

The following day investors grabbed as much Phoenix shares as they could. Minutes after the trading day began PNX stock was already at P13—up P3.20 or 32.56 percent from its IPO price—with 18 million shares changing hands. It actually rose as high as P14.

At the end of the trading week Friday PNX closed at P13.75—up 1.8516 percent—at a volume of 7,518,500 shares.

Phoenix’s offering is the third IPO in the country so far this year. It came on the heels of the highly successful offerings of Pacific Online Systems Corp. and National Rein­surance Corp. of the Philippines in April.

The strong performance of these companies’ IPOs has helped make our stock market one of Asia’s most vibrant. Moreover, it reinforced confidence in the Philippine eco­nomy as whole.

Cheap tricks

Yet, rather than cheer on Phoenix some quarters had resorted to some cheap tricks in their vain bid to derail its listing.

Phoenix is the country’s first petroleum company to go public since the oil industry’s deregulation in 1998. It has been in operation barely four years and yet has already managed to corner 5 percent of the Mindanao market and attract such clients as Cebu Pacific and Asian Spirit as well as international suppliers like PTT Thailand—Southeast Asia’s largest petroleum company—and Emarat, the Gulf’s leading manufacturer of petroleum products.

Despite Phoenix’s success—or perhaps because of it, the company has its share of detractors.

Some newspapers were unwittingly used when they reported on a complaint filed by Oilink International Corp. (Oilink), the oil supply company of Unioil Petroleum Phils., Inc., with the Securities and Exchange Commission against Phoenix.

The complaint, anchored on a case filed before the Davao City Regional Trial Court, alleges Phoenix committed an error in its registration statement when it stated that “there are no material legal proceedings pending or threatened against the company or in which property of the company is the subject thereof.” The complaint insisted Phoenix’s registration should be revoked.

Phoenix’s response to queries cut through the legal gobbledygook. It explained that the complaint is misguided, as Phoenix has nothing to do with Oilink and that it is Udenna Corp.—a shareholder of Phoenix—that is the subject of the complaint.

Industry insiders were surprised at the news reports because it is common knowledge the case used as basis for Oilink’s complaint had already been dismissed sometime back—for lack of merit.

More disturbing was the rumor that an SEC insider was responsible for leaking Oilink’s complaint letter to the press even before its validity was determined.

Botched deal

Industry analysts suspect Oilink and its owners are still smarting from the shelving of a planned partnership with Udenna. The venture would have allowed Oilink some presence in the growing markets of Mindanao but it reportedly failed to live up to its end of the deal. However, that is another story altogether.

It may be more prudent for Oilink, the oil supply company of Unioil, and its owner Paul Co, to pay more attention to the smuggling and tax-evasion case amounting to P315,885,623 filed against them by the government.

Another case filed by the Bureau of Customs against Oilink and its mother company Union Refinery Corp. also seeks the collection of P138 million in unpaid excise, ad valorem and VAT taxes incurred by the two firms due to oil importations from 1991 to 1995.

The government has given this case serious attention because of the amount involved and the allegedly brazen manner it was committed.

Justice Secretary Raul M. Gonzalez has declared that his department will pursue resolution of the complaints. Solicitor General Agnes Devanadera has also ordered state lawyers to closely coordinate with Customs on the matter.

Government to tap anew retail bond market

Government to tap anew retail bond market

Maria Eloisa I. Calderon

The government is selling treasury bonds to retail investors the week after next, heeding calls from the market for new debt papers to replace maturing ones.

In a memorandum to banks, acting National Treasurer Roberto B Tan said the Bureau of the Treasury will auction off on July 23 at least P8 billion worth of retail treasury bonds (RTB) with three- and five-year maturities.

The bureau scrapped its planned five-year Treasury bond auction to give way to the RTB offering.

"To provide an investment opportunity for RTB investors, the Republic of the Philippines through the Bureau of the Treasury will auction on July 23, 2007, 3-and 5-year RTBs [with issue date of August 1, 2007] in a minimum aggregate nominal principal amount of P8B," read the memo dated July 12.

"The Bureau is making this announcement ahead of the scheduled auction date to allow the prospective selling agents to start marketing the said bond issue," it added.

Retail T-bonds are sold for as low as P5,000 each.

Bond dealers said appetite for the retail bonds has shored up as the highly liquid market scours for other investment options.

About P38 billion worth of RTBs matured in June, and another P35 billion worth of these papers are maturing this month, a bond dealer said.

"The market has been anticipating an RTB issue since last month. We’ve been asking if the government will replace the maturing RTBs," a bond dealer said.