Making good use of BSP’s cooperation

Making good use of BSP’s cooperation

AFTER about a year of prodding by financial market players, the Bangko Sentral ng Pilipinas (BSP) finally succumbed to calls to limit access to a facility meant to temper inflation.

Its policy-making Monetary Board decided last Thursday to close some of the windows of its special deposit account (SDA), which has been competing for funds with the national government, preventing it from securing short-term borrowings during its fortnightly auctions of Treasury bills.

What appeared to have been the straw that broke the camel’s back was the Bureau of Treasury’s recourse to negotiated sales of T-bills after it had failed to sell these in the open market due to the attempts of banks to bid up their rates.

Conceding to the high bids would have led T-bill rates, the benchmark for banks’ lending rates, to shoot up, removing a key pillar of the country’s recent economic success. The low interest-rate regime has allowed businesses to expand and households to leverage their incomes and spend more, boosting investment and consumer spending, respectively.

Low rates also enabled the government to trim its debt servicing costs, helping it reduce its budget deficit to a record low and way below the ceiling ahead of this year’s objective of bridging the fiscal gap.

The government move to do away with auctions and negotiate T-bill rates however would have short-circuited the debt market, which is premised on transparent price discovery. The BSP no less warned that negotiated rates would throw off course capital market reform. Its decision to refine the SDA therefore is a case of walking the talk.

This move also reverts to its regular policy tools the burden of taming inflation. Alongside refining its SDA, the BSP also parted ways with its US counterpart, the Federal Reserve (Fed), suspending further monetary easing by keeping its overnight rates steady. Had it cut anew in lock-step with the Fed, the BSP would have encouraged an uptake in inflation.

The consequence of this action however is a wider differential between Philippine and US rates, especially if the Fed eases its funds rate later this month as is widely expected. From then onwards, we should expect a further strengthening of the peso vis-à-vis the dollar, which would also temper inflation in light of record prices of imported oil and other commodities.

The downside of course would be felt by, among others, the export sector, where jobs may be at risk due to slipping sales abroad. Data for January already showed this, as electronics shipments, the bulk of the Philippines’ sales abroad, decelerated. That data also lent credence to our susceptibility to a US slowdown as shipments to our largest market abroad likewise fell. State-run Philippine Institute of Development Studies (PIDS) just last week warned the country may have already contracted the Dutch disease, which infected the Netherlands in the 1960s when the discovery of huge gas reserves attracted big foreign investments, sending the kroner to record highs. This eroded the share of Dutch manufactured exports abroad, causing job losses.

PIDS said this might be happening in the Philippines, citing the weak manufacturing amid a strengthening peso. If we’ve been smitten, then expect unemployment to rise. This puts policy markers in a bind.

With monetary authorities preoccupied with reining in inflationary pressures, the task of ensuring the Philippine economy survives a US recession lay squarely on the fiscal side of policy. The question is whether the government has the wherewithal to rise up to this challenge.

Pump priming requires ample resources, which may not be forthcoming, as the government’s two main revenue agencies have insisted they are unlikely to meet higher collection targets this year. Last year’s record-low deficit was largely due to huge proceeds from government’s privatization, which is also unlikely to be replicated this year.

That leaves borrowing to plug the gap, which brings us back to where we started. Incurring more debt to accommodate the planned spending hike implies that the government would have to forego its balanced budget goal this year.

It’s a tough call given that this government has worked hard for the much-coveted upgrade in its credit rating hopefully by yearend. This Holy Grail would further improve the government’s chances of securing much cheaper borrowings from abroad.

But after the BSP’s recent policy move, the government should push this effort to its logical conclusion: jack up state spending to support economic growth. Otherwise, the central bank’s cooperation would all be for naught.

Broadening the Filipino investing class

Broadening the Filipino investing class

THE growing number of people falling for investment scams underscores the inaccessibility of the country’s financial markets to ordinary savers. That otherwise educated people would risk losing their hard-earned savings to any of a growing number of illegitimate get rich-quick schemes says a lot about how far removed higher-yielding investment instruments are from the average Filipino’s life.

The blowout in the preneed industry is partly to blame, as it eroded trust in what were supposed to be legitimate investments. But there are structural reasons as well.

With savings account rates dropping close to zero, it’s no wonder consumer spending has been the main engine of economic growth. Why leave your cash in the bank when it would earn less than the inflation rate.

Price increases have sunk to historic lows, pulling down interest rates, with the benchmark 91-day Treasury bill rate at one time slipping to an all-time low early this year. The government fancies that the low rates are a result of its narrowing budget deficit. So while an improving fiscal position brings down the cost of borrowing and allows government to cut its debt, the dividends of this fiscal restraint are not shared equitably by all.

Sure companies, especially big ones trading at the local bourse, have been enjoying a bonanza of fundraising. We’ve seen many of them refinancing their expensive debt with cheaper ones, while a growing number of firms are raising fresh capital by selling additional shares at the stock market. More importantly, family-held firms are braving the market, and opening ownership to the public through maiden share offerings.

All of this fundraising has attracted its share of new investors, particularly from the retail side. But we’re far from where China is, where you see ordinary people in their shorts and sandals, crowding in any of the neighborhood stock market satellite stations, watching their bets while reading the papers, gossiping, knitting, even playing cards or chess.

Local financial regulators luckily have noticed and have been going the rounds of key cities imparting the virtues of investing in the stock market. Unfortunately, we have a long way to go before we can raise our country’s domestic savings rate in a sustainable manner.

This is unfortunate because our low savings rate is a key reason why we go to great lengths, even foregoing much-needed tax revenues, to attract foreign investments to fuel our economic expansion on a more sustainable pace. Foreign money however is fickle and no serious reformer would rest his (or her) industrial policy on the lone leg of foreign investments.

Restoring confidence in the financial markets is in order. But regulators have to do more.

Low interest rates should be a boon since they bring down the cost of borrowing to build houses, buy cars and establish or expand businesses—all worthwhile activities that would create jobs and raise people’s incomes.

But financial market stakeholders should go beyond a literacy program. Pricing or the cost of investing obviously is an issue.

Regulators should take their cue from the world’s most advanced markets so we can broaden the Filipino investing class. Failing to do so would prevent our economy from really taking off.

Deeper in debt

Deeper in debt

The 1987 Constitution requires the government to give “the highest budgetary priority” to education. Like the constitutional provision on the separation of church and state, however, the provision on budget priorities has never been followed. Debt servicing, not education, has always eaten up the biggest chunk of the annual national budget. The strong peso has shaven off a substantial chunk of the country’s foreign debt, but the amount is still in the trillions, saddling generations of Filipinos with debt.

Yet the government continues adding to that mountain of debt, the latest of which is a whopping $1.8-billion loan from China. That’s approximately P84 billion at yester-day’s exchange rates; the amount could balloon if the peso weakens. Government officials have pointed out that the loan from the Chinese Export-Import Bank will have easy repayment terms. The cash-strapped government can use foreign assistance especially for badly needed infrastructure. But because what is involved here is not a grant but a loan, the repayment of which will be shouldered by taxpayers, with interest, the government must give a full accounting to the public about the purpose of the loan.

A big part of the loan — $330 million — will be used to finance a broadband network for the government. The deal has been awarded to Chinese company ZTE. The $1.8-billion loan was signed a few days ago by Philippine and Chinese government officials. It is not clear whether awarding the contract to a Chinese company is part of the loan agreement. Too many things, in fact, are not clear about the broadband deal, starting with the circumstances surrounding the disappearance of the original document that was signed in the presence of President Arroyo in China last April by ZTE executives and Transportation Secretary Leandro Mendoza. The lost document is supposed to have been reconstituted, but this new version also has not been made public.

A big question is whether the country needs the broadband service at all. Another question is why this service is double the price of the offer for a similar service by another interested party. The nation is already up to its neck in debt. The least that the government can do is convince the public that any new indebtedness is justified.

Air Farce

Air Farce

In the battlefield, an attack helicopter goes down, killing the co-pilot. As the MG-520 of the Philippine Air Force was fished out of the waters off Basilan the other day, it didn’t look like the crash was caused by enemy fire. Neither Islamic separatists nor Abu Sayyaf bandits have been known to open fire on airborne aircraft. Air Force officials grounded the PAF’s fleet of MG-520s — all 17 of them remaining — pending the results of an investigation into the cause of the crash.

At least it didn’t look like the MG-520 met its doom after getting tangled in a kite string. That was another helicopter, downed earlier this year. That accident would be funny if it didn’t highlight the pathetic state of the Air Force’s fleet. Other PAF aircraft have crashed due to engine malfunction. An Italian-made trainer jet became so notorious for fatal crashes it was dubbed the “widow maker.” With planes and helicopters like these, who needs terrorists?

The political leadership has long given low priority to defense spending. Part of the reason was that for nearly a century, the country had the US security umbrella to rely on for most of its defense needs. The political order of priorities did not change when US troops were kicked out of the Philippines and the country lost its umbrella. When it finally dawned on political leaders that national defense required naval patrol boats that do not conk out in the high seas because of age or lack of fuel, and modern aircraft and helicopters to support ground and naval forces, the government had to scrounge around for funding sources.

The government is still scrounging to finance a modest military modernization program. In the meantime, troops in the frontlines continue to die in aircraft crashes or walk into ambuscades while armed with dud mortar rounds. How many of the soldiers killed since July in Basilan and Sulu could have avoided death if they had the proper weapons and equipment? It’s time for national leaders to go beyond lip service in promoting the welfare of the military’s fighting men and women.

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.

Lowered BIR targets raise eyebrows

Lowered BIR targets raise eyebrows

JUST the other week the Department of Finance announced that the revenue collection target for the Bureau of Internal Revenue (BIR) has been slashed from P765.8 billion to P741.3 billion, or a reduction of about P25 billion.

The move immediately raised eyebrows and triggered renewed speculation over the real motive behind this decision by Finance Secretary Gary Teves. There are three reasons for the raised eyebrows.

The first has to do with President Arroyo’s infrastructure commitments made during her State of the Nation address (SONA). The accelerated development of her “superregions” requires trillions of pesos.

The timing of her stepped up infrastructure program combined with Teves’s reduction of BIR collection goals immediately raises the question: Where will the government get the money to fund its ambitious goal? The spending spree can go with a borrowing binge but that would contradict the administration’s current fiscal and deficit objectives.

The second has to do with Teves’s unceremonious axing of the highly respected former BIR Commissioner Jose Mario Buñag. To this day the move is still causing much confusion as to whether or not the government values good public servants. Buñag is one of those rare individuals who ventured into government service out of a desire to serve the nation after making his mark as one of the country’s top tax lawyers in the private sector.

As BIR commissioner, Buñag managed to remain untainted by controversy. He whipped his agency into shape as a team obsessed with raising revenue collection levels. He achieved this rare feat in 2006, a milestone in the history of government revenue generation.

In fact, the feat was one of the highlights in pre-SONA newspaper ads where the government trumpeted its 2006 “Balanced Budget,” highlighting the record collection of the BIR in 2006 and the fact that the record overshadowed the BIR’s own 2005 collection level. Buñag was BIR commissioner when this feat was achieved.

In view of the jubilation over the BIR’s 2006 performance, observers were perplexed when Teves began berating the agency early this year over what he called collection shortfalls. They recall that Buñag had urged a “downward adjustment” of the 2007 targets since the original goal was about 30 to 40 percent more than the 2006 target. Besides, the BIR was being made to reach it without additional budgets, manpower or technology support.

Teves rejected Buñag’s recommendation to lower 2007 targets. Instead, he fired the BIR chief.

With Buñag out of his hair, Teves then turned around and lowered the BIR targets. What gives?

The move raises a further question: Are BIR targets merely whimsical and arbitrary? The sequence of events tends to show that Teves had merely set Buñag up for a disgraceful departure. He raised the revenue goal to impossible heights, rejected a Buñag plea to lower it to reasonable levels, then axed Buñag. And then he lowered the target.

Now that he has finally gotten rid of, Teves now has to make do with less revenue. Where’s the financial wisdom and logic in that? Was the government’s revenue collection program caught in the crossfire of personal animosity?

Now comes the third reason for raised eyebrows. Teves named Lilian Hefti, Buñag’s erstwhile deputy, as the axed commissioner’s successor. Again, looking for the logic behind the decision to appoint her is like looking for the proverbial needle in a haystack. As a key member of Buñag’s team, wasn’t Hefti partly responsible for the agency’s “underper­formance,” which supposedly drew Teves’s ire?

By naming Hefti as Buñag’s successor, isn’t Teves merely perpetuating the infirmity her erstwhile boss and predecessor caused at the BIR?

The view is that Teves’s decision to reduce the BIR’s collection targets was grossly unfair to both Buñag and the government. It is also unfair to Hefti.

Are the lowered targets evidence of Teves’s lack of confidence that she can match her predecessor’s performance?

Hefti has little reason to worry, however. It could be that Teves is all set to applaud her collection since she is expected to hit a much lower goal. Then, Teves would be able to tell all and sundry that BIR hit its target after he axed Buñag.

If this whole affair is unfair to Hefti, it may be because she—like the revenue collection program—may have been merely caught in the crossfire of personal animosity. In the future, a way should be found to prevent government revenue collections from being held hostage by a single official’s pet peeves.

Statesmen who can rise above personal motives, indeed, are hard to come by these days. They just kicked one out on the excuse of collection shortfalls.

Opening a can of worms

Opening a can of worms

Executive Secretary Eduardo Ermita yesterday said economic managers and mon-etary authorities will look into the possibility of giving "special" rates for the dollars remitted by overseas workers. What is there to study?

The managers and Bangko Sentral officials do not even have to review their textbook in Economics 101 to shoot down the proposal out of hand. With Gloria Arroyo pandering to every politically powerful block, introducing multiple exchange rates is a foolhardy step down a precipitous slope. Let’s not even think of the economic consequences of multiple exchange rates. Let’s just imagine the effects of giving the corrupt administration additional powers to reward/punish economic units through multiple peso/dollar rates.

Let’s not fool ourselves with the phrase "special rates." It means OFWs will be given the privilege of exchanging their dollars for more pesos than the rate set, as determined by the market. We are familiar with the plaints of OFWs and their dependents. They used to get up to P56 for every dollar. Now, it’s only P45 to the dollar. This means that if an OFW is sending home $500 a month, his family is now getting P5,725 less than it used to. Clearly, OFW families are losers in the strengthening of the peso.

But that’s only one side of the coin. The other side is that OFW families are consumers, too. The stronger peso has resulted in the taming of inflation. Imported raw materials, especially fuel, are relatively cheaper. And this has a direct impact on the stabilization of the prices of basic commodities.

OFWs are borrowers, too, and they, as much as everybody else surely, must have benefited from lower interest rates. It’s now easier to buy television sets, DVDs, karaoke machines and other creature comforts on installment. Buying or building houses is also more affordable now with lower mortgage rates.

And surely OFW families must also be benefiting from what the government boasts as higher social spending in the wake of easier debt payments as a result of a stronger peso. These social dividends are enjoyed by families whose bread winners are not taxed on their income in the first place.

And after the OFWs, who’s next in line for "special" exchange rates? The exporters who at the moment are also being squeezed by their lower peso earnings on the same dollar receipts? And which specific exporters - agricultural producers, processors and traders? And producers of which specific crops – coconut and its products, sugar, bananas, pineapples, papayas, asparagus, etc.?

Before we know it, every interest group would be lining up at the Palace to plead for inclusion in the list of "special rate" beneficiaries.

It would be dollar quota of the 1950s and 1960s in reverse.

Wouldn’t it be rich, the current administration closing its regime of thievery by going back to a discarded system?

‘SANA’ – State of Palengke Address

‘SANA’ – State of Palengke Address

THREE days after President Arroyo delivered her State-of-the-Nation Address, we continue to try and decipher from her remarks what it all meant in terms of a national framework for collective action.

Valid hopes have been raised by our national leadership. But despair continues to fester among our people.

Yes, there is payback for some, but the multitude remains left out, disconnected from the nominal accomplishments enumerated by the President.

Noong Lunes, napakinggan natin ang SONA. Ngayon naman aking hinahandog po sa inyo ang "SANA"… sana mangyari na sa ating bansa. O kung ayaw niyo ang SANA, siguro ang SOPA – State of the Palengke Address.

Ang agenda ng Pangulo at ng pamunuhan ay dapat hindi lumayo sa agenda ng palengke.

Ang huntahan sa kanto, sa sari-sari store, sa karinderya, sa bawat tahanan ay dapat dalhin sa pambansang entablado kung saan malayang makakalahok at mapapakinggan ang hinagpis, ang pangarap at panukala ng bawat Pilipino.

For it is in the true lives of real people struggling with their everyday problems that the true state of the nation is found — where Filipino values and dreams are hoped for and expressed every day.

Our country is buffeted by large, pervasive jetstreams of change that affect the whole world.

We are part of a global community that shares the effects of global warming and unpredictable weather patterns; terrorism; energy shortages; pandemics; unregulated movements of capital in turbulent financial markets.

To combat these afflictions, the world is aggregating and consolidating; sadly we here in our country are atomizing. Ibig sabihin, tayo watak-watak, ang buong mundo, nagco-consolidate, nag-u-unify.

Our institutions and their occupants are inadequately equipped in terms of values, knowledge and the moral will to meet the increasing tempo of global change and transformation.

We need a crash course to revamp and fortify our institutions; build character in our leaders and bureaucrats, regulators, state and community actors.

We must break out of our parochial views, and embrace the brave new world as one nation founded on strong and robust institutions.

And we can start by rejecting the worn-out dialogue that is engaged in by politicians and pundits, and engage in the dialogue of the people with an authentic sense of civic duty.

Let each dialogue begin and end with the people’s interests as the driving force.

This dialogue should include:

1.) How with each day that passes, we witness a debilitation of the freedom from want and the freedom from fear that we are all entitled to expect.

The financial economy is different from the real economy. Incomes are diminishing, stomachs are aching, opportunities are found wanting.

Wall Street is different from the main street, just as Ayala Avenue is different from J.P. Rizal St.

The stock market is different from the palengke where food and other items are sachet-fied to make them more affordable. Kung dati-rati por kilo ngayon mas tingi-tingi na lamang.

Lumalalim ang mga hinanakit sa ating lipunan dahil sa di makatarungang pagkawala at pagkapatay ng ating kababayan, at malawakang korapsyon.

2.) This dialogue should also address how we must come together, to repair the derangement in our republican institutions.

Kailangan tayong magkaisa upang ituwid ang kahibangan sa ating mga institusyon.

The President’s vision, as stated in her SONA, is for the Philippines to join modernity, or what she refers to as the first world twenty years from today.

Her plan is cast in physical infrastructure terms, striving to bring the nation together through a network of ports, airports, bridges and roads, assuming that simply building the connectors that the country will then come together. That is different as timber, plywood, hollow block, steel bar – building a house – which does not automatically make it a home.

I ask, even if we had all the infrastructure in the world, who or what will bring together our political, social and economic institutions to save the nation from poverty, fragmentation and conflict?

Even in the hallowed halls of the Senate, what I see are convoluted political arrangements where once again the people’s will is being thwarted.

The Senate Presidency and the committee leadership is now in the hands of a coalition even as in the last elections, clearly our people ordained the opposition to lead and direct the agenda of the Senate.

Let me say, as an aside, that I am and shall continue to be in the opposition. I am faithful to the mandate of the Liberal Party. I shall do my part to serve the people. As it was when you elected me, so shall it be today and everyday.

Indeed, the dividing line between any third and first world nation is drawn on the comparative strength and quality of their institutions.

The dividing line between any third and first world nation is drawn on the relevance of their institutions to the lives of the common people, on the force of principle in their politics, in the integrity and cohesion of their democratic organs of power.

Institution building is in the fullest sense of the word—nation building; and the quality and consistency of governance is the ultimate measure of what makes a country first world and modern.

Our political institutions, regrettably, the great powers of this republic, are not only in a state of weakness or disrepair but are in blatant disarray.

We have an anti-terror law that, given our weak record for law enforcement and intelligence, as well as a poor record for human rights, can end up terrorizing the citizens themselves.

We have ambitious fiscal targets but underperforming revenue agencies. Rather than whip them into shape, government instead plans to sell more of our national assets.

The public agenda has been usurped by personal and partisan ends.

We are heading for the dark abyss of endless bickering and fragmentation even as we bask in the seeming illusion of normalcy.

I am here to propose a solution, or at least the beginnings of a solution— to the increasing divide as between the people and their government.

Everyone, first of all, ought to focus on the power of collective responsibility guided by our common faith. Ang panawagan nang matagal na hindi nadidinig; subalit makabuluhan pa rin lalo na ngayon – ay Pilipinas muna bago ang sarili.

I call upon President Arroyo to make the nation whole by a committed, relentless leadership to repair the derangement of our institutions:

To remove the climate of fear and to heal the nation with justice.

To bring to every household the prosperity only indicated by the economic statistics.

The first principle of institution building is transparency and accountability. I believe that the best way to make our republic whole and enable the effective working of our institutions is to accord the people the freedom of access to official information.

We want to demolish the barriers that keep people out of governmental affairs, dismantle the culture of official secrecy and banish the belief that the man on the street is not enlightened enough to participate in government decision making.

The people must not only be the governed but themselves be the governors of the nation.

In the Free Information Act which we propose, government functionaries must respond to all written requests for information, unless proper justification is given on the basis of privacy, national security or diplomatic imperative. And even then, upon official notification, there will be recourse for the inquisitive to find out exactly why their request has been denied.

Harsh penalties shall be levied against government functionaries who knowingly and unjustly refuse to provide this information.

Our history is replete with events and contracts that would benefit from greater transparency, all of which have served to make Juan de la Cruz view his government with distrust and disdain.

The ZTE Contract, conceived, negotiated and consummated outside the normal process that govern such contracts;

The privatization of the electric power sector and numerous biddings, cancellations, failure of bids and all of these other contracts pertinent thereto;

The Radstock-PNCC deal where details reveal how government to its detriment unilaterally recognized a debt that was never on the books, and so on and so forth.

These are part of a rogue’s gallery of questionable transactions that brings the government further away from the people, making the people look upon their government with such disgust.

Just the other day, the Finance secretary indicated more sales of prime government assets.

Hilingin din natin ang detalyadong plano ukol sa pagbenta ng mga ari-arian ng sambayanan para lamang mapagtakpan ang kakulangan sa performance ng BIR at BOC. Hindi sila nakapagkolekta, ibebenta ang ating ari-arian at matapos pagbenta nito, kung saan na tayo pupulutin, sa kangkungan na lang.

The second principle of institution building is oversight by the people’s representatives.

Of immediate concern is government’s preoccupation with security and intelligence matters proceeding from the implementation of the Human Security Act, albeit without its IRR.

I was one of the very few who voted against the passage of this Human Security Act.

We propose the establishment of a bipartisan oversight committee from the legislature, sworn to confidentiality under sanctions, so that they can be given full access to all intelligence information, so that all the activities under this Human Security Act can then be monitored and can be guided by the actions of the people’s representatives. These representatives should be able to shape policy and advise the President and Commander in Chief on matters involving:

The appropriation and deployment of national security and intelligence resources.

Ideological and doctrinal issues; as well as the rules of engagement against the enemies of the state, and

Orders of battle drawn up by the Armed Forces of the Philippines.

We feel that this oversight on intelligence committee would be much better off than the National Security Council which operates more like a debating club and only discusses that which the executive provides to it. It does not have its own ability to figure out what the real information is, it only debates what it is spoonfed to it.

Our proposal is intended to reinforce the stated commitment of the President Arroyo to arrest the assault on civil liberties.

And just much as there ought to be public oversight in the security and intelligence activities of the government, our government’s regulatory oversight over dishonest practices by unscrupulous elements in the business community likewise must be made more robust.

We need stronger action against those who swindle the consumers’ hard-earned money; those responsible for pyramiding and Ponzi schemes; those who fool the public in order to make some money.

These oversight functions in financial matters can be extended to other matters as well:

The CHED could be more proactive in shutting down non-performing schools and diploma mills.

The SEC could be more rigorous in regulating the pre-need companies. Thousands of students and parents, many probably who are in this very room, suffered greatly because of dishonest and fraudulent educational plans, the companies unable to redeem the promises that they made when they first sold these plans.

The BFAD, the Bureau of Food and Drugs, could be more consistent in its effort against substandard medicines and food items.

We need oversight in the full sense of the word without impairing the separation of powers.

The measures I propose will open the doors of dialogue between the institutions of government and between government and the people, for the good of all.

Our dialogue with the people must begin with an earnest dialogue of leaders.

The era of gridlock must give way to the era of authentic nation-building.

And we can only heal the nation by healing the despair.

Maghihilom lamang ang mga sugat ng bayan kung mapapawi ang pighati sa puso, damdamin, at isip ng bawat Pilipino.

By healing despair we can proceed to the essentials that make lives better for every Filipino.

Apart from repairing our republican institutions comes the task of repairing human lives and keeping families whole.

We want a national development plan focusing on better brains and bodies – better, more competitive and productive Filipinos – that can rise above the humblest beginnings on merit instead of patronage or palakasan.

We need huge and broad investments in health and education to carry Filipinos across the digital highway, above the poverty threshold, into the more competitive global markets.

The EVAT ought to be converted to a people’s fund earmarked as a special account in the national treasury separate from the general fund.

This EVAT, coming from all of your and your parents; sacrifices amounts to about P80 billion every year. This is the result of your sacrifice, and there must be a firewall between these funds and the hands of discretion and patronage.

Let us truly put our money where our mouths are. Our most valuable resource is our people, all of you.

Thus, we propose that half of this amount, half of the Php80 billion should go to education, to close the resource gaps in teachers’ training, in the number of teachers and salaries, classrooms and school buildings, as well as to purchase textbooks and funds for scholarships, and the balance to go to public health.

We are for better public clinics and hospitals, continuous training of medical personnel, and reduced malnutrition among mothers and their children.

These basic requirements, other societies take for granted. They’re looked upon as realities in each of their societies. We must summon the political will to align ourselves, our institutions, our laws and our resources to our own development realities.

On another front, those who work in the country, specifically minimum wage earners, must be given relief from their daily financial burden including having to pay the EVAT.

To ease the burden on millions of minimum wage earners, we propose exempting the minimum wage from any income tax. The aggregate "lost collection" for this sector is small compared to the massive relief it would bring to the number of families and to the family budget.

Tax exemption for minimum wage earners is a concrete measure for social payback. Elevating the social payback of the economy also means collecting the right taxes and exorcising the conspiracy of tax thieves from both the government and private business.

We have pointed out the derangement in our institutions and the need to assert common values in order to build strong institutions and keep our country together.

I now propose two more urgent steps to create a more hospitable condition for development to happen.

First, let us resume peace talks with the National Democratic Front without any conditions from both sides.

I urge the government to withdraw the condition attendant to a ceasefire, and the NDF to withdraw the condition attendant to their being tagged as a terrorist organization.

Second, Senator Sonny Trillanes ought to take his seat in the Senate, without prejudice to the handling of his case.

This would be a solid step to ease the restiveness in the soldiery, depoliticize the uniformed ranks and advance political stability.

About 12 million people, knowing that he was charged for his crimes, knowingly voted for him. They want him to bring their voice to the Senate, and we must respect this.

More than just a litany of infrastructure projects just as we’ve heard last Monday, we need strategic steps to pull the rug from under the small hurts, the petty fights and misgivings that serve to disunite us.

Let us open the table for new ideas to move forward.

Kung hindi lahat kasali sa tunay na dayalogo, at kung hindi magtatapat ang pamahalaan sa sambayanan, paano malulutas ang mga problema ng ating bansa? Buksan natin ang pinto natin at hayaang sumibol ang mga bagong panukala at kaisipan. Makinig tayo sa taong bayan, hindi lamang doon sa may kapangyarihan.

I have presented three steps for winning our future:

1. The repair of our broken institutions through transparency and accountability.

2. The harnessing and safeguarding of our resources to deliver economic gains to the home of every Filipino family.

3. And the creation of hospitable conditions for development and peace.

This conceptual framework for national development is our best hope for economic freedom, political stability and first world modernity.

Maraming maraming salamat sa inyong lahat.

A sober look at the property boom

A sober look at the property boom

It's in bad taste to revel in one’s success just when your neighbor is down in the dumps.

But in the case of the Philippines’ newfound property boom, the party simply cannot wait. After all, it took the country nearly a decade to shake off the debris from a financial crisis that left many real estate projects unfinished and sent huge amounts of capital down the drain.

So while we should keep an eye on the United States’ sub prime market debacle, we shouldn’t lose sight of the potential of the local property sector. Those living abroad sure aren’t taking their time and watching the boom from a distance. In fact, a growing number of Filipinos living outside the country, including overseas contract workers, are plowing their savings into the local housing industry.

A look into the books of blue-chip property firms like Megaworld would indicate that the bulk of their growth is due to real estate sales, and only to a smaller extent on the business process outsourcing craze.

This is why a number of property developers have set up marketing units abroad, to benefit from the renewed interest in the Philippine real estate sector. This interest is only partly due to risk aversion, as investors shy away from the troubled US market and seek safe havens abroad.

A greater part of the attraction of the local property sector is the country’s sound economic fundamentals. This is economese for low interest rates, easing inflation, a strong currency, and improving government finances. The Philippine real estate sector in particular is reaping the benefits of a low interest-rate regime, thanks largely to easing inflation.

Before the government’s bungling of its first-half fiscal position, benchmark rates as measured by the yields on risk-free government bills and bonds, had sunk to historic lows. This was after consumer prices rose to their slowest in years, with inflation back in the low single-digits.

Combine that with strong remittance inflows and you have the makings of a strong domestic economy supported by robust consumer spending.

Dollar inflows boost the country’s foreign-exchange hoard, which in turn helps bring down inflation and with it interest rates.

Property companies are the first to benefit from sliding interest rates, as this makes bank borrowing cheaper. Indeed, a growing number of lenders are offering long-term housing loans with fixed interest rates. State housing agencies likewise plan to cut their loan charges.

It is a good time to buy a house or condo, or refinance an existing loan, using other people’s money.

This is why the Bangko Sentral ng Pilipinas’ recent reduction in its overnight borrowing rate is welcome news. In so far as it discourages banks from leaving their excess funds with the BSP, the monetary loosening prods them to increase lending to the public.

With easier access to bank lending, which is still the main source of credit in this country, the pace of economic activity quickens, creating more jobs, and hopefully better-paying ones. Moreover, Filipinos, especially those benefiting from remittances, can leverage on these flows and borrow money for consumption or income-generating activities.

Having said the above, the recent retreat in the US stock market, which has reverberated across Asia, should be viewed with concern not because of any direct impact it has on the Philippine economy and its job- and income-generating capacity. But because an erosion of consumer confidence in the world’s largest economy would take its toll in terms of spending on all things the US imports, including the

Philippines’ digital signal processors, wiring harnesses, garments, and electronics components among other items that find their way on the shelves of Wal-Marts and Sears stores across America.

Of course, a feeling that they are worse off than before would cause Americans, including Fil-Americans, to cut back on non-essential expenditures, which include that nice vacation lodge along the Batangas coastline or on a hilltop in scenic Tagaytay.

Its not just about sustaining confidence in the Philippines, but also keeping foreigners’ and overseas Filipinos’ confidence in their future economic condition. And that is one important reason why we should prevent the revelry from deluding us into complacency. Our neighbor’s woes may yet befall us.

Square pegs in round holes

Square pegs in round holes

No doubt Gloria Arroyo is in a panic over the deteriorating fiscal situation.

The first time around, she had at least an excuse and even support from various economists from the University of the Philippines, all of whom pointed to the fiscal crisis that needed fixing, through an expanded value-added tax (e-VAT) slapped on the nation. It was painful, they said, but necessary.

But it now looks like she has absolutely no more excuses to lean on.

But whenever Gloria hangs dangerously at the end of a cliff, Romulo Neri and Angelo Reyes come to the rescue.

Neri and Reyes, now Energy secretary and short-term former Natural Resources secretary and former Interior and Local Government secretary and once Defense secretary until the junior officers called for his resignation, are the two longest-serving mainstays of Gloria’s Cabinet.

Both appear to have won Gloria’s ultimate trust for staying with her when the political platform on which Mrs. Arroyo stands precariously was about to flip.

Reyes, who was detained President Joseph Estrada’s untrustworthy military chief of staff, was among the key figures in the coup d’etat that was made to look like a popular revolt that installed Gloria in power.

Neri held out against the so-called Hyatt 10 — eight Cabinet members mainly economic officials and two bureau heads — who resigned at the height of the “Hello Garci” controversy that backed up allegations Gloria cheated to steal the vote in the 2004 elections.

The Hyatt 10 asked Gloria to resign and Neri and Reyes were her key defenders and went live on television to pledge allegiance to Mrs. Arroyo at the height of the political turmoil.

Neri was rewarded with a guaranteed slot in the Cabinet moving from the Budget secretary then back to the National Economic Development Authority then apparently temporarily to the trouble-laden Commission on Higher Education (Ched).

Thus no matter how both appear as square pegs in round holes in the positions that they are recycled into, Gloria would be tapping the two for a rescue, which is quite ironic, considering that they are not quite the bright boys they want to make themselves to be.

Both, after all, are unremarkably unremarkable as Cabinet secretaries.

Gloria is in a new crisis, or to be exact, an old crisis that was temporarily swept under the rug, involving the budget.

Two main planks of Gloria fiscal reform packages, the Electric Power Industry Reform Act and the e-VAT law, were not delivering what was expected.

The reform in the power industry was stumped by the failure to sell much of the power assets putting in disarray the reform timetable. A power spot market was opened without complying with a requirement for at least 70 percent of the generating assets, or power plants, to be sold to have a truly competitive market.

The electricity now being traded at the spot market is subject to manipulations since the government remains the dominant seller of electricity.

Electricity prices are on the upswing instead of being reduced, which was the reason for its being in the spot market.

The slow pace in the sale of the power assets was mainly the result of poor investment confidence in Gloria. Investors are turned off by the image of the country under Gloria as being the most corrupt in the world.

Gloria sent in Reyes to fix the energy mess.

The e-VAT should have resolved the perennial fiscal shortfall since the sales tax, which everybody — poor or rich — pays, was raised from a rate of 10 percent to 12 percent while at the same time, its coverage expanded to include those previously exempted such as electricity and oil products.

At the same time, the corporate tax was increased to 35 percent from 30 percent.

What Gloria got was progressively falling tax collections that was obviously the result of low efficiency among the collecting agencies, meaning that corruption remains high and could have grown still higher because of the bigger amounts involved with the e-VAT.

In comes Neri with a mission from Gloria--and to the Ched, of all agencies!

Reyes and Neri, Gloria’s troubleshooters who make an even bigger mess.

Gloria creates the trouble and the two willingly pick up the mess and mess it up some more.

Such blind faith.

This trick of naming roads, etc., after VIPs

This trick of naming roads, etc., after VIPs

NAMING GAME: They say that one way of ensuring government support for a project, especially big ticket infrastructure, is to name it after somebody dear to the President. I don’t know if the trick works, but I won’t be surprised if it does.

In my province, for instance, local politicians pulled a scoop when they named Clark Field, the former home base of the US 13th Air Force, the Diosdado Macapagal International Airport.

If you were President Gloria Macapagal Arroyo, would you allow a major airport named after your dear father go the way of ordinary weather-beaten infrastructure standing as monuments to government neglect?

But what rules are there, if any, governing the naming of public structures after notable persons, dead or alive?

* * *

DIVISIVE: Reader Jorge B. Navarra, a Butuanon, has written the National Historical Institute to ask if the renaming of the “2nd Magsaysay Bridge” in their city as “Diosdado Macapagal Bridge” complied with NHI requirements as prescribed by law.

Navarra reported: “This multibillion-peso bridge project spans the Agusan river about three kilometers upriver from the old Magsaysay Bridge in downtown Butuan. It was temporarily called 2nd Magsaysay Bridge.

“When it was inaugurated before the May 14 elections, its name was 2nd Magsaysay Bridge. The people of Butuan knew that a permanent name would be given in due time.

“Not a few Butuanons wanted ‘Butuan Bridge’ to identify this landmark with Butuan and inculcate pride of place among its citizens. This was a monumental project for Butuanons and naming it Butuan Bridge will inspire unity. This name will avoid the divisiveness caused by naming public structures after politicians, their relatives and their benefactors.”

* * *

RECOMMENDATORY: Navarra recalled that during the Butuan visit of President Arroyo last July 10, the bridge suddenly sprouted signs identifying it as “President Diosdado Macapagal Bridge.”

Then the President was reported on TV, radio and the newspapers to have accepted the resolution of the Butuan City Sangguniang Panglungsod giving the Macapagal name to it.

Did the Butuan City Sangguniang Panglungsod officially confer this name to the bridge? “If it did,” Navarra said, “was this not done in violation of the Local Government Code?”

He noted that Section 13 provides that local governments can exercise authority only over structures owned by them. It so happened that the Butuan bridge is funded by a national government loan from Japan’s ODA-granting agency.

If the Butuan Sanggunian passed a resolution endorsing to the President or to Congress the naming of the new bridge, Navarra said, this resolution is merely recommendatory.

* * *

CONSULTATION: The Macapagal name cannot as yet be adopted, he added, yet it has been placed on signs at the structure, carried in media and used by bureaucrats in referring to it.

Until a presidential proclamation is issued or a law is enacted naming the bridge, its project name “2nd Magsaysay Bridge” remains. The preparing of the proclamation or passing of a law must involve public consultations, Navarra said.

“We have no issue with the credentials of the persons being honored by naming public structures after them,” he said. “We are questioning the practice of naming highways, bridges, buildings, airports, etc., after persons using procedures that do not conform to the law.”

* * *

WHERE’S MONEY?: Sen. Mar Roxas is pressing Malacañang to tell the people where it would get the billions needed to fund the ambitious infrastructure program that President Arroyo outlined in her last State of the Nation Address.

This makes sense, because it is easy to draw up a wish list of supposed projects and wave it before an expectant population — and another thing to produced the money to make the wish come true.

Roxas said the President mentioned only these fund sources: P1 trillion from state revenues, with tax reforms, and orders to the BIR and Customs to meet their collection targets, P300 billion from government corporations, and more billions from state financial institutions, private sector investments, local government equity, and foreign loans and grants.

But after you add up the money, he said, there is still a big deficiency.

* * *

MASINLOC SOLD: The government announced the sale, finally, of the 600-megawatt Masinloc coal-fired power plant in Zambales.

This is significant because Masinloc is the most valuable among the power-generating plants of the National Power Corp. and has been the subject of questioned attempts to sell it to favored bidders.

The Singaporean-led consortium Masinloc Power Partners Co. Ltd. won the auction after submitting a $930-million bid. It will be asked to pay 20 percent of that price up front after the official transfer of the plant.

The MPPC is affiliated with Singapore’s AES Transpower Pte. Ltd., an investment holding and service company for entities involved in generating, accumulating and trading electricity.

Losing bidders included big names: Masinloc Consolidated Power Inc. (which bid $588 million), Masinloc Holdco Inc. ($606 million), Anglo Cayman Energy Development Co. Ltd. ($650 million); First Gen Luzon Power Corp. ($710 million).

* * *

BID CANCELLED: The first round of Masinloc bidding in 2004 failed because the only buyer, the supposed winner, would not pay the required deposit until it is assured of signing a firm supply contract with a generator or distributor.

In that bidding in 2004, YNN Pacific Consortium offered $560 million. But it failed to deliver the 40-percent up-front payment of $270 million.

The Power Sector Assets and Liabilities Management which oversaw the bidding forfeited YNN’s performance bond of $14 million in July 2006.

Another major transfer of power assets months ago was of Mirant — the biggest independent power producer — selling its assets in the country to a consortium of Tokyo Electric Power and Marubeni Corp.

Short

Short

When President Gloria Macapagal-Arroyo unveiled her administration’s P1.7-trillion Public Investment Program for the last three years of her presidency, the question on everyone’s lips was an unbelieving, “Where will she get all that money?” Ms Arroyo hastened to supply the answer by citing three major funding sources: P1 trillion from revenue collections, P300 billion from the earnings of government corporations, and P400 billion from private investments, local government units and foreign assistance. Those figures hardly reassured those who suspected that she did not have her feet planted firmly on the ground. But while such carping and cynicism were expected from her usual critics, whether in the opposition or the media, what caught administration officials by surprise was the public airing of similar doubts by the London-based Fitch Ratings.

The day after the President delivered her State of the Nation Address, Fitch declared that the government would not be able to carry out its “ambitious” infrastructure development program unless there was a “significant improvement in tax collection.” The government’s revenue collection effort during the first six months has been disappointing, the international credit rating agency said, noting that while real economic growth was believed to have averaged 6.5 percent in the first half of 2007, “the 3.4 percent growth in tax receipts was rather poor.” Because of the revenue shortfall, Fitch said, the government would not be able to achieve its goal of holding the budget deficit down to P63 billion, and the full-year deficit would balloon to P125 billion.

Finance Secretary Margarito Teves promptly disputed Fitch’s basis for its gloomy prediction, saying it didn’t count the expected proceeds from the sale of some government assets. He said that with the privatization of some big-ticket items and improved collections, the government would still be able to keep the deficit at P63 billion for the whole year.

The fact remains, however, that both the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) have failed to achieve their collection targets so far this year. The BIR, which was given a collection target of P373.3 billion for the first half of the year, managed to collect only P334.7 billion. The BOC collected P92.2 billion against its target of P105.3 billion. Thus, the two principal tax collecting arms of the government fell short of their targets by a total of P51.7 billion. And this is the reason the actual deficit widened to P41 billion compared to the target of P31 billion.

Despite the confident pose they put on, Teves and other officials are obviously very much worried by the shortfalls in revenue collection. And they should be, for the administration’s infrastructure program, which the President intends to be the country’s springboard to First World status, hinges on the government’s ability to raise funds.

Right now those ambitious projects look like pure fantasies, given the poor performance of the government revenue-collecting agencies. With this year’s revenue shortfall, the targets given to the BIR and BOC under the proposed 2008 budget don’t seem realistic at all: P845 billion for the BIR, up 14 percent from its P740 target for 2007; and P254.5 billion for the BOC, up 10 percent from this year’s P231 billion.

Finance officials have been scrambling to find ways of pushing up collections, starting with the sacking of Internal Revenue Commissioner Jose Mario Buñag for the BIR’s failure to deliver the targeted revenue. More recently, the revenue district offices were ordered to conduct a tax-compliance audit, aimed at flushing out tax cheats. There was also the successful bidding for the coal-fired power plant in Masinloc, Zambales, which fetched $930 million. With some luck, the government might yet be able to prove Fitch wrong as far as the deficit is concerned.

But the administration cannot bank on the sale of government assets to bridge the gap between revenues and expenditures, much less to finance its infrastructure-building program; there are only so many of those assets, and soon everything will be gone. The key is efficiency in tax collection, which seems to be the direction the government is taking.

Filipinos should hope the effort to collect the right amount of taxes will succeed this time. Otherwise, the administration might ask Congress to pass new tax measures, which would again penalize honest taxpayers and continue to reward tax evaders.

Beyond the growth figures

Beyond the growth figures

Fitch Ratings finds the country’s fiscal performance disappointing. The Australian government reports that the Philippines lags behind its Asian neighbors in poverty reduction and economic progress, based on certain economic indicators. Filipinos who have been overseas do not need special reports to realize that their country is being left behind by many of its Asian neighbors. The proof is evident in the efficiency of public service, the emergence of a large middle class, and in the quality of infrastructure including modern airports and well-paved roads.

Share prices went down to their lowest in four weeks yesterday in reaction to the Fitch assessment, which could affect the agency’s rating of the country’s credit worthiness. Meanwhile, Australia’s bilateral overview, prepared by its Department of Foreign Affairs and Trade, compared Philippine economic performance over the past 30 years with that of its neighbors in East and Southeast Asia. The report noted that in poverty reduction, the Philippines has been overtaken by South Korea, Taiwan, Thailand, Indonesia for a certain period, and China.

Those 30 years include about half of the Marcos era, when massive corruption and dictatorial policies brought the country to the brink of ruin. But Filipinos cannot keep blaming Ferdinand Marcos for current ills. The damage inflicted by the dictatorship could have been repaired with reforms to strengthen fragile democratic institutions following the 1986 people power revolt. Instead reforms have been stubbornly resisted, especially those that seek to promote transparency — an indispensable component in good government, which in turn is needed to eradicate poverty. The result is that poverty alleviation has moved slowly, aggravated by persistent inequality in the distribution of wealth, as the Australian report has noted.

The economy is one bright spot that the administration likes to crow about amid continuing political discord. But economic growth will be truly impressive once its benefits are enjoyed by the masses. This is the challenge facing the Arroyo administration as it embarks on its final three years.

Just a lofty dream

Just a lofty dream

PRESIDENT Arroyo’s ambitious spending program outlined in her State of the Nation address (SONA) runs the risk of losing steam if the government’s key revenue-generating agencies fail to hit their collection targets.

According to the President, she aims to fund her P1.7-trillion Medium-Term Public Investment Program partly through state revenue which, at P1 trillion, comprises the bulk of her funding requirements.

It is unfortunate therefore that she devoted several pages on where projects taxpayers’ money is being spent on, but only a paragraph on how the Bureau of Internal Revenue (BIR), which accounts for at least two-thirds of public revenues, would boost its collections.

How the real-time Revenue Watch Dashboard, as well as the LGU Revenue Assurance would show us the money was left to everyone’s imagination. Worse, the implementation of these measures “before heads would roll per [Rep. Danilo] Suarez’s Attrition Law” sends the wrong signal to BIR and Bureau of Customs personnel that they need not fear the very law that penalizes their failure to hit collection targets.

We reiterate our suggestion that the government not stop at the sacking of the BIR chief. Exemplary justice should be served on everyone responsible for the first-half collection disappointment.

Obviously, “firm orders to BIR and Customs to hit their targets” failed to work their wonders in the first six months of the year. As a result, the government may be unable to keep its budget deficit below the P63-billion ceiling.

The World Bank earlier put it in the starkest terms when its outgoing country chief said that the Philippines’ fiscal reform program has “stalled,” and that failure to correct its recent path would squander years of fiscal restraint and the citizenry’s sacrifice. The past several years of below-standard public expenditures left ordinary Filipinos to fend for themselves.

Without the improvement in tax collections, something has to give: either the government cuts down on its ambitious list of projects, or it borrows more to make up for the collection shortfall. That is how we view the government’s recent sale of retail Treasury bonds (RTBs). Looking past the helping-the-small-investor-save hype, the auction of RTBs was nothing but the government racking up more debt to finance its expenditures. This was how we managed to spend so much in the first half, if we were to believe official borrowing data.

The Department of Finance’s plan to undertake a selling bonanza of remaining state-owned assets, including equity in San Miguel Corp. and Philippine National Oil Co.-Energy Development Corp., may give the government enough to tide it over this year. But that’s about it. As many pundits have said, asset sales are unsustainable because time will come when the government would no longer have anything valuable to offer. And remember, the medium-term investment plan will span the next three years.

Much as the President would like to think that we’re past our fiscal problems, which is what a close reading of the SONA would uncover, the hard truth is that we’re barely out of the woods.

The truth hurts and denial is a usual refuge, which is why the SONA was almost silent about the government’s renewed fiscal straits. The balance of P700 billion required by the medium-term investment plan won’t materialize if the private sector and foreign donors fail to get a clearer signal on how the government intends to get back on course to fiscal reform.

We can talk all we want about our vision for the country 20 years hence, but this will remain a lofty dream without the hard cash required to turn this to reality.