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IPR protection in the ASEAN

The fastest-growing sub-sector in the Philippine economy over the past 5-1/2 years — 2014 to the first half of 2019 — is intellectual property products, under Capital Formation (or private investments). It was growing at 28% per year, with capital formation growing at 14% and GDP at 6.3%.

And this points to the need to further protect intellectual property rights (IPR) because they are easier to copy and counterfeit, unlike physical property.

The Philippines is not ranked high globally when it comes to innovation and IPR-related businesses. See this result from the World Intellectual Property Organization’s (WIPO) annual report, the Global Innovation Index (GII).

In WIPO’s GII, “Knowledge creation” includes patents and industrial design by origin, and “Intangible assets” include trademarks and industrial design by origins.

In the overall innovation index, the Philippines ranked 54th out of 126 countries and jurisdictions, and lower in knowledge creation and intangible assets (See table 1).

Then in the US Chamber of Commerce’s Global Intellectual Property Center (GIPC) International IP Index 2019 report, the Philippines ranked 37th out of 50 countries covered.

Low or poor IPR protection means there are more fakes, counterfeits, smuggled and illicit products passing around and sold.

True enough, in the Economist Intelligence Unit’s (EIU) Global Illicit Trade Environment Index (GITEI) 2018 Report, the Philippines ranked 64th out of 84 countries covered. GITEI measures how countries and economies enable (or inhibit) illicit trade through their policies to fight smuggling and illicit trade and the index is composed of four main categories or indicators, each of which have sub-indicators — government policy, supply and demand, transparency and trade, and the customs environment (See Table 2).

So the recent fast growth of IP products means there is some catching up going around in the Philippines, which is good.

In the new 18th Congress, House Bill 1597 by Congressmen Michael L. Romero and Enrico A. Pineda was filed, Amending RA 8293 (Intellectual Property Code of the Philippines), increasing penalties and sanctions, rationalizing its power and functions.

The authors say that their bill seeks to “streamline all administrative procedures of registering patents, trademarks and copyright, to liberalize the registration on the transfer of technology, and to enhance the enforcement of IPRs in the Philippines.” Good move then.

On Sept. 24, Geneva Network (UK) and Minimal Government Thinkers (MGT, Manila) will jointly launch a new report, “The Importance of IPR in the ASEAN.” The report will be jointly signed by five independent (non-government) free market think tanks from Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, and will be launched in their respective capital cities. Geneva Network is coordinating the study.

And on Oct. 16, the Property Rights Alliance (Washington, DC) will launch the International Property Rights Index (IPRI) 2019 Report in Manila. MGT and the Foundation for Economic Freedom will be the local sponsors of this event. The IPRI annual report measures the degree of respect and protection of both physical and intellectual property of many countries and economies. The Philippines ranked 70th out of 125 countries in IPRI 2018 Report.

At both events, Department of Trade and Industry Secretary Ramon Lopez will be the keynote speaker. Mr. Lopez is a standout among Cabinet Secretaries of the Duterte administration because of his consistent advocacy for a competitive, innovative, non-bureaucratic economy and ease of doing business. Price control, IPR tweaking and weakening are far out from his work and department agenda.

Keeping the sanctity of private property, physical or intellectual property, is an important ingredient to attract and keep more private investments and job creators, both local and foreign.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com

Poverty reduction: President Duterte’s lasting legacy

The Philippine Development Plan targets the reduction of the national poverty headcount to 14% in 2022 from 21.6% in 2015. Relatedly, rural poverty is expected to fall to 20% from 30%.

Are the targets doable? It is not a walk in the park and will require smart work.

It is 2019 now and the President has three years to go. The Philippine Statistics Authority’s full 2018 report is coming out soon and it does not look like poverty would go down below 20%. Therefore, the remaining years must reduce incidence by two percentage-points a year to reach 14%.

BENCHMARKS
The ASEAN poverty average of Indonesia, Thailand, and Vietnam is 8.5%, weighted by population. Never mind Malaysia with almost zero poverty. This means the Philippine poverty rate is 2.5 times higher.

Poverty is dominant in the agriculture sector in the Philippines. Rural poverty is 30%. About three-quarters of the poor are rural. Obviously, poverty in the country is an agriculture phenomenon. Poverty in the cities is only about 10%.

Some lessons:

Lesson 1: My engineering instructor claimed that a three-legged stool is the most stable even on uneven floor. It has something to do with the center of gravity.

Lesson 2: The 80:20 Rule. Also known as the Pareto Principle, it suggests that 20% of your activities will account for 80% of your results.

Lesson 3: Investment drives economic growth, and, more importantly, the productive capacity of the economy.

In terms of development, three legs can also be identified as crucial: Leadership at the national level, the Legislature, and the Local government units (LGUs). The private sector — small to large producers — responds to the investment climate created by national policy and by the LGUs, down to the barangays.

LEADERSHIP
The ASEAN’s poverty reduction success is rock solid. Rural poverty can be solved with sustained national resolve. In the past four decades, the Philippines’ rural poverty reduction drive faltered badly. Agriculture lagged in productivity measures across major crops. There was an ingrained belief that with rice sufficiency, rural poverty will be reduced. Empirically, this is not so.

Rice only accounts for a third of farmland, coconut, another third. The rest are planted to corn, sugarcane, banana, other fruits, coffee, rubber, tobacco, and vegetables. In gross value added, crops account for 60%, with livestock and poultry, and fisheries and aquaculture, 20% each. And yet resource focus was only on a few commodities.

The leadership to achieve inclusive growth must make sure the right resources are invested in projects with the highest economic and social returns.

LEGISLATURE
The laws include, among many: the Local Government Code (LGC) of 1991 which devolved agriculture extension to the municipal LGUs, and the Comprehensive Agrarian Reform Law of 1986.

The Acts of the Legislature affect implementation. It is worth noting that:

• 28 years have passed since the enactment of the LGC. A law can be amended after five years of effectivity. Big oversight.

The “ideal” extension hub is at the provincial capital. It has economies of manpower, career service and multiple specialists on agronomy, soils, pests control, water management, and marketing.

• Agrarian reform has not promoted investments. If it did, farm productivity should have increased since 1986. The five-hectare retention limit is too small for private investors. Too small for mechanization. The gross profits barely return the investments if overhead such as manager’s salaries are taken into account. Small farms can be consolidated but there is a crying need for management and resources. It is time to raise retention limits to a viable size.

The LGUs are the front lines of rural development. They have the internal revenue allotment (IRA). They can raise taxes. The LGC mandates that 20% of IRA will be allotted to fund economic development.

Sadly, only a few municipal LGUs are development-driven.

One is Piddig, Ilocos Norte. It has gone into rice farm consolidation, coffee estates and processing, small farm reservoirs, and farm tourism. It has reduced poverty incidence.

Another is Alabat, Quezon thanks to Mayor Fernando Misa with his broad-based development programs. Noted economist Ciel Habito cites cacao production and processing, coconut sugar production, honeybee culture, and production of hot chili pepper for food service chains.

At the provincial level, the proof of concept is Bataan: It has achieved the lowest poverty headcount of 2% among all localities in the country including Metro Manila (3.9%). It advocated for balance sectors.

The Department of Interior and Local Government (DILG) Seal of Good Governance is a great way of benchmarking. In 2018, only 207 municipalities out of 1,489 passed while 17 of the 81 provinces passed. The criteria cover: financial administration, disaster preparedness, social protection, business friendliness and competitiveness, environmental management, tourism, culture and the arts.

Elected legislators and LGUs pledged their support to the President’s plan to reduce poverty. Where are the proofs of concept? Action is needed now and less talk.

A dramatic reduction in poverty can be the greatest legacy of President Duterte. It hits the pockets of over 20 million Filipinos, most of them in agriculture. It is also good for business. The strategic metric is poverty reduction by the provinces and municipalities.

The legs of development must work in seamless tandem to bring investments to the countryside and achieve the reduction of mass poverty.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

 

Rolando T. Dy is the Co-Vice Chair of the MAP AgriBusiness Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

map@map.org.ph

rdyster@gmail.com

http://map.org.ph

More than a Space:Ang Pulitika sa Kubeta

There has been another uproar concerning gender and comfort rooms, thanks to an incident where one who was not born female (i.e. sex; physiological), who redefined their identity as a transwoman (i.e. gender; social construction and reconstruction), decided to use the women’s comfort room in a mall. The politicized image was that of transwoman being handcuffed and paraded out — somehow reminiscent of a scene in Game of Thrones where Cersei was paraded naked in public, with a monotone but powerful word “Shame!” echoing behind the “accused.”

Online, there have been hashtags — #realwomen, #tunaynababae — presumably arguing that transwomen are not women versus hastags of #righttopee, #iihilangpo presumptuously claiming that all that there is to this is for whichever person to enter a comfort room to simply urinate (or defecate). Then one will come across posts about sexual assault of girls and women in comfort rooms by transwomen (or those pretending to be trans) as if all transgender people are sexual predators, thus hastags #women’s safespace and #whataboutus.

SPACE
What’s the big deal anyway? Well, the kubeta is not really an innocent nor non-political space.

Several years ago, in an effective teaching seminar demonstration activity at the Ateneo de Manila University, I decided to lecture on the “politics of spaces.” In the 15 minutes that I had to do the demo, I brought the males to the female comfort room and the females to the male one.

Thereafter, we went back to classroom and I asked: “what did you observe?” For the males, they observed the female comfort room “did not smell bad” and was “clean;” for the females, they said the male comfort room was stinky and even if “visually clean,” it was somehow “still dirty.” Simply put, they were all about opposites.

Then I asked, “what did you feel?” Both male and female had the same answer — it was “uncomfortable” being in a space that they were not supposed to be inside of and in having people who were not supposed to be there in your space. There seemed to be a force field pushing you out from a space where you were socially programmed not to enter. It was about territoriality, “our space” — needless to say, it was about “othering.” And that was how I introduced the “politics of spaces.”

Comfort rooms are indeed political spaces. I could just imagine caucuses, continuation of board room conversations, realignment of loyalties, negotiations, story-telling, unleashing of rage and sadness, and so much more, happening in comfort rooms. “Comfort” comes from more than just urinating (or defecating) — it is a space to relieve oneself, literally, and to come out of it not the same as you went in. That is quite political in itself.

Then you have communal comfort rooms — to be used by everyone, regardless of sex, gender, ethnicity, class, religion. Supposedly, these spaces are where people are held equal. Sure. But try to observe where the toilet bowl and urinal are — don’t you feel powerless against the urinal in front of you (as in directly facing you), imposing itself in your face? Yes, it is about power.

SEXUAL ASSAULT
Sexual violence is about power, an act using sex to achieve the physical satisfaction of opportunism, of attacking, of controlling, of defeating. Sexual predators prey on the vulnerable — those who are not able to fight back, those who are too shocked to react to being attacked by those they trust, those who have the highest tendency to self-blame and thus, suffer in silence.

Sexual predators exist and they are potentially everywhere. All-female transport service (e.g. train coach, taxis) and spaces (e.g. comfort rooms, women-and-children friendly spaces in internally displaced peoples camps) are pockets of safety. From a gender perspective, this discourse highlights the victimhood discourse of women and the perpetrator narrative of men. And a transwoman, according to some, is “still” a man and therefore, not to be allowed in women’s comfort room. In this regard the transwoman has been “othered” and all of those in her “tribe” are nothing more that sexual predators. To this I say, #mali!

Look at the issue of sexual predation where I say that no single gender has a monopoly when it comes to being a perpetrator of sexual violence. The logic of segregation and sexual assault is simply a band-aid solution that does not think of the structure of the violence after all. Without undermining victimization of sexual assault and the perceived safety of gender-specific spaces for women, the truth of the matter is simple: sexual predators can attack you wherever you are… learn to identify them and not stereotype transwomen in comfort rooms as the only gender that does and will sexually assault you. This is purely discrimination.

SEGREGATION
We are not equal and this is why we have segregated spaces.

Segregation serves the purpose of “othering” — that you shall have your own space because you need to be protected, because you need a safe place, because you are not the same as the rest.

The protection argument (from the preventive lens of the “protector”) and the safe space logic (from the vulnerability view of a possible “victim”) go hand in hand and are inextricably linked with the issue of sexual assault. However, to assign a singular gender to be the perpetrators of sexual violence undermines the point that it is not about gender but about sexual predation. Anyone, whatever your gender, is a possible perpetrator and potential victim.

Discrimination on the basis of sex, gender, race, ethnicity, religion, age, physicality is the enabler of segregation and a sure shot way to polarize — us and them — neatly and conveniently nestled in dichotomies and dualities. This is how cosmopolitan society seems to be evolving. Hate speech and texts target the others and dehumanize them in a way that it is okay to marginalize and disenfranchise them.

Transwomen deserve to feel safe in spaces too, including comfort rooms. Whether it is just about urinating and defecating or putting out a political statement on gender and combating transphobia, the point of “relieving oneself,” whether literally or figuratively, do matter.

Who would have known that the humble kubeta would be a place of gender nazism? Well, that is the politics of space.

 

Ma. Lourdes Veneracion-Rallonza, Ph.D. is an Associate Professor at the Department of Political Science, Ateneo de Manila University.

mrallonza@ateneo.edu

Heroism beckons

After three years, we need to undo, trash, and reset relations with China. Trust, sincerity, mutuality and reciprocity must define it. There’s a clear observable pattern of imperial abuse and coercion by China reported in media.

IN THE WEST PH SEA:

• swarms of maritime militia backed by its Coast Guard and Navy at Pagasa;

• the ramming of our fishing vessel in Recto Bank;

• the presence of Coast Guard vessels off Ayungin;

• the repeated incursions into territorial waters in Tawi-Tawi;

• the suspicious presence of vessels patrolling Turtle Islands;

• the suspicious presence of research vessels also in Benham Rise; and,

• the refusal to accept the UN award of Benham Rise to the Philippines.

ON LAND:

• the control of our electric grid and communications systems

• the POGO swarm — locations and labor — beside military camps;

• firmly entrenched triads in the drug business;

• the dummy fronted mining firms overlooking our SLOCs (sea lines of communications);

• swarms of illegals violating all kinds of laws and rules nationwide;

• arrogant and rude behavior like they own us; and,

• using corrupt practices to buy access, impunity and protection.

IN RECENT HISTORY:

• seized control of Mischief Reef, reclaimed it and built a military base;

• wrested control of Scarborough;

• stopped tourism flows and imports after the Arbitral ruling was released;

• repeated destruction of giant clams habitat, coral reefs;

• non-stop poaching in the West Philippine Sea;

• widespread dredging and black sand mining; and

• obstructing free passage and fishing in our exclusive economic zone.

When a country does all that, does it take a rocket scientist to figure out what its intentions are, whether those are the acts of a friend or foe? Last week, an irritated President Rodrigo R. Duterte (PRRD) ordered all foreign ships to obtain prior permission or we’d be constrained to “enforce in an unfriendly manner.” Despite that, powerhouse China continues to do what it pleases and seems to be uncaring about a reversal in our relations. It’s now time to tough it out and that’s why he’s where he is.

PRRD said three years ago that, at the proper time, he’ll raise the Arbitral ruling before Chinese authorities. China had three years to reciprocate our sincerity, honesty, and respect for our declared-independent foreign policy of “friend to all, enemy to none” but that was taken for granted. Well, three years of patronizing behavior is sufficient to reach an informed assessment and opens the door for necessary adjustments midway through his term. It doesn’t close the door to diplomacy but the experience now invites a push back.

In my case, I’ve been hands-on since 2012 in piloting my own journey against China’s abusive behavior, going from bellicose to diplomatic to a blend of both depending on the situation. It’s because I go with the flow in mirroring the incumbent administration’s approach to the China problem. There have been a few times though when I broke ranks with what the administration thought was best which didn’t fit what my heart said.

I try my best to absorb what’s going on, interpret what it means, and see where it could bring the nation. There’s no doubt that despite the divergent approaches taken by the previous and present administrations in their dealings with China, treachery is off the table. Our leaders are not traitors. Their appreciation of the information available to them, and the vision they have for the country, shapes the ways and means they opt for to improve relations or stand firm in the national interest.

It’s in our national interest to be friends to all and enemy to none. But that requires sincerity, mutuality, and reciprocity. It’s been obvious — perhaps because of the time when we worked together in the past, and a having front row seat these past four years observing him and gaining insights — that PRRD has been demonstrating goodwill, prudence, and circumspection from the start. Unhappily, imperial China hasn’t returned the favor, leading to PRRD’s increasingly hard stance today.

I’ve said time and again that the conduct of international relations is tricky given the quantum of issues and concerns impinging on the national interests of both our countries. It’s a non-stop wild ride aboard a monstrous roller coaster, complete with twists and turns, ups and downs, and loop the loops. We need to sit tight, hang tough, and reach the finish line. That’s where you and I are now, in the middle of that wild ride, mustering all the courage to pull through and reach a happy ending.

But when diplomacy isn’t working or is being ignored, stomp our feet and pound the table to be felt and heard. Don’t be afraid to push back. In honor of our past, present and future national heroes, let me end with this stirring speech of President Manuel L. Quezon:

“My fellow citizens, there is one thought I always want you to bear in mind: and that is that you are Filipinos. That the Philippines are your country and the only country God has given you. That you must keep it for yourselves, for your children and your children’s children until the world is no more. You must live for it and die for it if necessary.

“Your country is a great country. It has a great past and a great future. The Philippines of yesterday are consecrated by the sacrifices of lives and treasure of your patriots, martyrs and soldiers. The Philippines of today are honored by the wholehearted devotion to the cause of unselfish and courageous statesmen.

“The Philippines of tomorrow will be the country of plenty, of happiness and of freedom. A Philippines with her head raised in the midst of the West Pacific, mistress of her own destiny, holding in her hand the torch of freedom and democracy. A republic of virtuous and righteous men and women all working together for a better world than the one we have at present.”

 

Rafael M. Alunan III currently chairs the Philippine Council for Foreign Relations.

rmalunan@gmail.com

No need to avoid stress

By Tony Samson

HAS THERE ever been a doctor who informed you that stress is good for you? Not too many. Still, a little stress can be beneficial.

Before it became a tool for checking the soundness of banks, “stress test” referred to a medical procedure. It is part of a general check-up that those over 40 (and below 80) undergo, as the body starts showing signs of sub-prime performance in many areas, like liquidity and asset disposal.

The patient steps on the treadmill, the same machine one finds in gyms. His bare chest is attached with suction cups at certain points wired to a monitoring machine to track heart rate, breathing, and blood pressure as he walks then jogs on the treadmill that may even be gradually raised to an incline. In the medical facility, there are no mirrors on the side as there are in gyms, to save the patient from the sight of the wreck the patient calls his body, trying to stay vertical. The eye test comes afterwards.

The patient is put at ease by being asked irrelevant questions (Are those sneakers new?) to check if he is still capable of speech as the speed and angle of the treadmill is raised. The heartbeat rate and time to return to normal breathing provide a medical scorecard on the patient’s condition. Sir, don’t sleep yet.

The US Fed stress test after the financial meltdown of 2008 was designed to see how strong banks were and what speed and steepness they could take before they fell off the financial treadmill. How much losses can a bank absorb, and what kind of provisioning for bad debts and other risks need to be provided for?

Unlike tests that students take to validate what knowledge they have acquired and retained, the financial stress tests are designed not to give out grades. They intend to determine how much additional tutoring the student requires in order to pass or if they can still stay in school.

Can the stress test be applied outside the areas of health and banking?

Stresses are routinely inflicted by critics and media on their favorite politicians. Bashers do not always work in tandem although they sometimes strike at the same time. A leader, even in the corporate setting, is having his heartbeat raised as the treadmill he’s on moves faster, with the background music rising in volume too. Reaction to stress rather than the stress points themselves indicate the health of the patient… and the impatient.

Stress tests are also used in the manufacturing process. They determine the resistance levels of materials prior to their breaking point. The glass windows used in high-rise buildings are subjected to ever-increasing pressure in wind tunnels to test the glass’s tensile strength. This grading of resistance to stress determines the quality of a building’s façade, as well as its price.

Relationships too are subject to stress. (We will not get into the favorite love triangle in show biz.) The romantic treadmill is sometimes referred to as the “slippery slope” and is haunted by ghosts of the digital kind. A partner can get used to quirks like snoring, bad breath, or habitual tardiness. Every stress point leads to new rules and expectations, sometimes new partners who bring on different sets of pressures.

For physical fitness, stress is a necessary component to tone the muscles and improve body strength and stamina. Lifting weights, pulling springs, and pushing heavy objects offer different stresses for body building. Isn’t there a mantra in the gym — no pain, no gain? (I’ll take the first, please.)

In life, we are often told to avoid stress. Studies show that emotional rattling of the mind from anxiety, pressure, and tension can lead to physical ailments. There are all sorts of inducements to relax and take siestas (alone, if possible) or pamper oneself with a body scrub using Dead Sea salt. All are aimed to relieve stress and prolong life.

However, not being subject to any stress at all can make the body (and soul) sluggish and the muscles flaccid. There is no need to specify which muscles these are.

A little stress can keep the mind alert. The little puzzles of life can stimulate us — where do I get money for rent? Something will come up, usually the pulse rate.

 

Tony Samson is Chairman and CEO, TOUCH xda.

ar.samson@yahoo.com

Senate body keen on GDP catch-up plan

By Charmaine A. Tadalan
Reporter

THE SENATE Finance committee will zero in on the government’s spending catch-up and impact of the escalating Sino-US trade war as the chamber begins on Wednesday its parallel hearings on the proposed P4.1-trillion national budget for 2020.

Scheduled in the committee starting Wednesday is a two-day briefing with the Development Budget Coordination Committee (DBCC) that will focus on macroeconomic conditions.

Asked what he expects of the DBCC briefing, Senator Juan Edgardo M. Angara, committee chairman, replied in a mobile phone message on Sunday: “mention of how to catch up to predicted growth rate to make up for delayed budget and to prepare for effects of us China trade war.”

Gross domestic product (GDP) expanded by a disappointing 5.5% last semester against an already reduced 6-7% full-year target, blamed largely on the four-and-a-half month delay of the 2019 national budget. Socioeconomic Planning Secretary Ernesto M. Pernia said on Aug. 9 after release of the second-quarter and first-half GDP data that the economy will have to grow by 6.4% this semester to reach the lower end of the government’s full-year target.

The DBCC is composed of the Department of Budget and Management (DBM), National Economic and Development Authority, Department of Finance and the Bangko Sentral ng Pilipinas.

President Rodrigo R. Duterte signed the 2019 national budget on April 15 — four-and-a-half months late after a tiff between the Senate and the House of Representatives over alleged irregular fund insertions — but vetoed P95.3 billion in funds deemed not in sync with government priorities, reducing it to P3.662 trillion.

The DBCC in a March 13 meeting slashed its GDP growth target for 2019 to 6-7% from 7-8% originally in the face of the delayed 2019 national budget.

State spending catch-up was under way as of July, according to data the DBM released on Aug. 15, as state offices moved to make up for subdued expenditures for much of last semester due to the four-month delay in enactment of this year’s national budget.The DBM said then that while notice of cash allocation (NCA) — the authority the department gives to state offices to use cash allocated to them — dropped by 17% to P1.688 trillion as of July from P2.033 trillion in last year’s first seven months, and NCA used dipped 1.57% to P1.569 trillion from P1.594 trillion, NCA utilization actually improved to 93% from 78% in the same comparative periods.

The Treasury reported on Thursday last week that state spending picked up by 3.43% to P339.4 billion in July from P328.1 billion a year ago, although primary expenditures — or net of interest payments — edged up by just 1.81% to P288.4 billion from P283.3 billion. Still, that was a turnaround from a 3.06% drop in primary expenditures, which include infrastructure disbursements, in June.

The seven months to July still saw the government spending 0.11% less at P1.93 trillion from P1.932 trillion a year ago, with primary spending still contracting by 1.32% to P1.699 trillion from P1.721 trillion.

The House of Representatives, which began national budget deliberations on August 22, targets final approval of the national budget by Oct. 4. It targets to submit the approved spending plan to the Senate on Oct. 8 and have the bicameral conference committee report on Dec. 9 in time for the signing into law by Dec. 20.

The proposed spending plan for next year is 12% more than the P3.662-trillion 2019 budget and is 19.4% of GDP, with planned infrastructure expenditure topping spending priorities at P972.5 billion, equivalent to 4.6% of GDP.

Credit raters and economists have said that while the Philippines is not immune to a downturn in global trade as a result of the escalating Sino-US trade ware, they are watching more closely how the government plans to make up this semester for muted spending that marked the first half.

Dirty money watchdog tweaks rules to cover casinos

By Mark T. Amoguis
Senior Researcher

THE ANTI-MONEY LAUNDERING COUNCIL (AMLC) has tweaked rules on administrative cases to cover casinos — including their officers, directors and employees — and introduced gradation of fines according to gravity of violation.

The AMLC Procedural Issuance on Rules of Procedure on Administrative Cases (RPAC) — signed on July 26 and published in a newspaper last week — repealed the Rules on Imposition of Administrative Sanctions (RIAS) signed on May 24, 2017 and which took effect on Aug. 8 that year.

“The RPAC is intended to apply to administrative cases for non-compliance with, or violations of the AMLA (Anti-Money Laundering Act), as amended, and its implementing rules and regulations, and guidelines and issuances of the AMLC,” the AMLC said in a statement on its Web site.

“The RPAC covers not only administrative cases against covered persons, but also those against its individual officers, directors and employees of the covered person.”

Aside from covering the entities regulated by the Bangko Sentral ng Pilipinas, the Insurance Commission, the Securities and Exchange Commission, as well as non-financial businesses and professions such as jewelry dealers and precious metals and stones dealers, the RPAC also includes casinos, including the Internet- and ship-based ones, “with respect to their casino cash transactions related to their gaming operations.”

Casinos are considered “covered persons” under the Republic Act No. 10927 — enacted in 2017 — amending the Anti-Money Laundering Act of 2001.

The RPAC also revised upward respondent classification according to asset size. Micro is classified as those with assets of up to P10 million (from up to P3 million previously); small, P10,000,000.01 to P100 million (from P3,000,000.01 to P15 million); medium, P100,000,000.01 to P1 billion (from P15,000,000.01 to P100 million); Large A, P1,000,000,000.01 to P50 billion (from P100,000,000.01 to P500 million); and Large B, P50,000,000,000.01 and above (from P500,000,000.01 and above).

The AMLC also revised fines according to an entity’s asset size and gravity of violation.

As with the previous rules, violations are classified as grave, major, serious, less serious and light, but the new rules further breaks down each classification into minimum, medium and maximum levels.

The new rules also introduced a separate schedule of fines for non-compliance with submission of covered transaction reports. Covered are transactions in cash or other equivalent monetary instrument involving a total amount in excess of P500,000 within one banking day.

Gov’t expects revised terms for Davao, Kalibo airport dev’t this week

By Denise A. Valdez
Reporter

THE DEPARTMENT of Transportation (DoTr) is looking to receive before the month ends revised concession terms for unsolicited proposals from private firms to modernize two regional airports.

Transportation Undersecretary for Planning Ruben S. Reinoso, Jr. said in a mobile phone message that the new contract terms for Davao International Airport and Kalibo International Airport are expected within the week. “We need to review if compliant before we endorse to NEDA (National Economic and Development Authority),” he said over the weekend, referring to concession terms to be submitted by the proponents.

Chryss Alfonsus V. Damuy, president and chief executive officer of Chelsea Logistics and Infrastructure Holdings Corp., confirmed in a text message that the company plans to submit the revised proposed terms “within the month.”

Chelsea was awarded by the DoTr original proponent status (OPS) last year for its P49-billion proposal to operate, maintain and develop the Davao International Airport over a 30-year period.

As for the Kalibo International Airport, Mega7 Construction Corp. has a P12-billion bid to operate, maintain and develop the gateway, also for a 30-year period.

Mr. Reinoso had said the proposals had been submitted to NEDA but were returned to the DoTr after Transportation Secretary Arthur P. Tugade sought for all airport proposals to be patterned after the concession terms for Clark International Airport. In June, Mr. Tugade said requiring airport proponents to submit contract terms that are aligned with those of the Clark contract will reduce time spent negotiating, as the Clark contract had already been approved by the NEDA Board. An unsolicited proposal needs NEDA approval before being subjected to a Swiss challenge, whereby other parties can try to match it.

The consortium of seven major companies for the Ninoy Aquino International Airport and Aboitiz InfraCapital, Inc. for the Bohol-Panglao International Airport submitted their revised concession terms to the DoTr last month. Both proposals had already been turned over to the NEDA for further evaluation.

So far, the Duterte administration has awarded one airport project to a private sector proponent: San Miguel Holdings Corp. for its P734-billion Bulacan International Airport proposal, which was awarded earlier this month. The NEDA Board approved San Miguel’s proposal last year.

DoF guiding new Moro region on fiscal sustainability

THE DEPARTMENT OF FINANCE (DoF) is forming a technical working group (TWG) to help the newly formed Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) run its economic departments and crafting policies that will “ensure the region’s long-term fiscal stability.”

This was the directive of Finance Secretary Carlos G. Dominguez III following an Aug. 8 meeting between DoF Undersecretaries Gil S. Beltran and Bayani H. Agabin, and Minister Eduard Uy Guerra of the Bangsamoro Ministry of Finance, Budget and Management (MFBM).

“They agreed that the DoF will give a briefing on the structure (of the finance and budget department) so that they can properly set up their own structure. We’ll help them interface with the other departments as well,” Finance Undersecretary Bayani H. Agabin was quoted as saying in a statement on Sunday.

The TWG will be made up of representatives of the Department of Budget and Management, Bureau of Customs, Bureau of Internal Revenue, Bureau of Local Government Finance and the Commission on Audit.

Mr. Beltran said in the same statement the TWG will “design more briefings” to tackle other areas, particularly fiscal management, budget management and financial planning.

The DoF also committed to assist the new Bangsamoro government in setting up Islamic Banks.

The DoF will also tap the Philippine Tax Academy to instruct BARMM officials on fiscal management, financial planning and budget matters.

The BARMM was formed under Republic Act No. 11054, or the Organic Law for the Bangsamoro Autonomous Region in Muslim Mindanao, enacted in July 2018. In a plebiscite early this year, the provinces of Maguindanao, Lanao del Sur, Basilan, Tawi-Tawi, as well as Marawi and Lamitan cities — which had formed the Autonomous Region in Muslim Mindanao — and Cotabato City and North Cotabato opted to be included in BARMM. — Charmaine A. Tadalan

How much has income inequality changed in the last few decades?

How much has income inequality changed in the last few decades?

Decentralization, PH-style

By Benjamin R. Punongbayan

THE Local Government Code of 1991 decentralized local government units (LGUs) and, for this purpose, LGUs were given an annual allocation (allotment) of 40% of national tax collections (Internal Revenue Allotment or IRA). The IRA is in addition to the local taxes that the LGUs already impose and may impose in their respective jurisdictions. Now, after a long 28 years, this decentralization does not seem to have provided the improvements in the lives of our citizens that its proponents had argued as reason for its adoption.

The decentralization is a failure.

This failure is evident in the persistent use of the term “Imperial Manila” to describe the national government; by the LGUs’ continuing mindset of looking at the Center for additional financial assistance for their infrastructure development responsibility; and by the continuing acceptance by the Center of such requests.

The failure is also evident in the current proposal of some groups to make the existing union of the Filipino people federal. Interestingly, a principal proponent of federalism is himself the creator of the 1991 deregulation code. Whatever one makes out of this trend of thinking, it is a clear tacit recognition by the author of deregulation that it has failed.

The failure is also evident in the generally sorry state of infrastructure in Philippine provinces, cities, and towns. Uncollected garbage still abounds because of inadequate dumpsites. During the rainy season, some school children cannot go to school because the shallow and narrow rivers they cross swell and there is not even a footbridge across the river that they can use. The poor use the river as a toilet, because there are no public toilets for their use. When the school year starts, there is usually a scramble for additional classrooms which, under the Code, the LGUs could provide. But they generally don’t and look to the national government to provide them.

The former agricultural service extension of the national government had been decentralized. Judging by the continuing poor performance of the agriculture sector, this decentralized important government service makes absolutely no difference in agricultural development.

Why is decentralization a failure? Is it because the amount of IRA is inadequate? Offhand, probably not, judging by the prevalence of lampposts along the town roads, some of them so elaborately designed that they look grotesque; as well as by the painting of trees along the roads with a uniform combination of bright colors.

More seriously, it appears that it is not a pressing issue among LGUs. Otherwise, the adequacy of the IRA would have been a perennial big issue that would constantly hog the headlines. Of course, several years ago an LGU raised the issue of the basis of calculating the IRA and that was decided by the Supreme Court last year in favor of the LGUs. This decision requires that the basis of calculating the IRA should include customs duties and not just the national taxes collected by the BIR, as done presently. But, prior to this decision, there had been no persistent clamor to increase the IRA.

What I thought is occurring is that LGUs look at the IRA as a fund they can use for whatever they deem necessary. When it becomes short for any development needs in their jurisdiction, they leave the projects to the next higher level of government to deal with, or ask that level of government for additional funding. They are not made to see that the IRA is the only additional money that they can have to carry out all their stated responsibilities. As a result, the LGU does not have any compulsion to use its own IRA effectively and efficiently. A good example of the consequences of this mindset are the additional classrooms I mentioned earlier. Other notable examples are the development of ports, bridges, drainage, sewerage, and dumpsites that would serve local needs. LGUs tend to look at these not for them to develop and fund, but for the Center or somebody else to do.

To be fair, let us look at the quantum of the IRA. The 40% IRA is calculated based on national tax collections of three years ago. The allocation of the IRA among the LGUs is specifically provided at 23% for the provinces, 23% for the cities, 34% for the municipalities, and 20% for the barangays. These allocations are further divided among the peer units using prescribed bases.

In 2018, the total IRA was P522 billion, of which P281.3 billion (54%) was the combined IRA for municipalities and barangays. For better appreciation, let’s bring these numbers down to the region level, say, Region VI (Western Visayas). This region’s total IRA in 2018 was P41.8 billion. Bringing this down to the province level, the IRA for each province in that region ranged from P1.3 billion to P17 billion. The low end was for a small province. Let’s focus on the high end. Of the P17 billion, P3 billion was for the province itself and P14 billion was for the cities, municipalities, and barangays in that province. It is not possible to bring the numbers down to a specific municipality and barangay, as such information is not publicly available. But, based on the numbers cited, it can be discerned and it is fair to say that the separate IRA of each province, city, municipality, and barangay is not a small amount of money and may meet their respective needs, especially considering that these are amounts they are receiving every year and receiving in increasing amounts in parallel with national economic growth. Moreover, the IRA is on top of the taxes that provinces/cities/municipalities directly collect from their respective citizens. The combined amounts are certainly more than they need for operating expenses and, therefore, they have available funds for infrastructure and other capital spending.

LGUs spend their share of IRA money, which did not exist before 1991, at their own discretion. For 28 years to 2019, the cumulative power of these available funds should have made a big difference in the development of the provinces, cities, and towns. But this supposed big difference does not show. If LGUs around the country just focused on farm-to-market roads, they could have built a lot of them during the last 28 years. That, by itself, would have been a convincing exhibit of the success of decentralization. But the LGUs did not build many of those roads, because they were largely looking for somebody else to build them. So where did the money go?

I recognize that what is presented here is a top level evaluation of the outcome of decentralization. It will be more instructive if a thorough study of the effectiveness of the 1991 decentralization is undertaken. It is incumbent upon the national government to make or commission this study before it augments the IRA to implement the recent Supreme Court decision.

Decentralization is a good principle to adopt and implement as a public policy. However, it requires a good design. A good design requires a clear specification of the responsibilities of the people to whom the decentralized activities have been devolved and an inclusion of a system of accountability for the use of the money that is given.

The Local Government Code is quite expansive in its enumeration of the responsibilities of the LGUs. In infrastructure alone, the responsibilities of each province include: “provincial roads and bridges; inter-municipal waterworks, drainage and sewerage, flood control, and irrigation systems…;” For a municipality: “municipal roads and bridges; school buildings… clinics, health centers…; communal irrigation…; fish ports… drainage and sewerage and flood control…” And, for a city, its responsibilities include all those listed for the municipality and the province and a few more.

Clearly, the responsibilities of LGUs cover a wide area and LGUs are given money to carry them out. Even if only half of each of those facilities listed above had been developed for the last 28 years, we would have much better provinces, cities, and municipalities to live in today.

But there is a lot of vagueness in the enumeration of these responsibilities and that led to poor performance.

The responsibilities of each government unit in a province for the infrastructure listed above, because of their nature, necessarily overlap. For roads and bridges alone, what is a provincial road or bridge for which the province is responsible? A city road or bridge for which the city is responsible? A municipal road or bridge for which a municipality is responsible? If there is a need for a bridge to cross a river in a town, who is responsible for building it? I guess the argument would be: would it connect to a mere municipal road; or will it eventually serve to connect to a provincial road or to a city road? If we throw in here the building of drainage and sewerage, flood control, and irrigation systems, it becomes much more complicated, because most of these facilities will necessarily cross a few towns and cities.

What makes the situation worse is the way the development of these infrastructure facilities is defined in terms of funding. To quote for a province: “Infrastructure facilities intended to serve the needs of the residents of the province and which are funded out of provincial funds…” The writing is the same for the city and municipality, except for substituting “city funds” and “municipality funds” in place of “provincial funds.” Who decides which funds are to be used for which project?

When we put all of these together, the whole thing becomes a game of contrived confusion. A municipality may say, that road or bridge is not my responsibility. It is the province’s responsibility. Or, it may say; yes, I am responsible for that road or bridge, but I don’t have money anymore. The same is true for the province but, this time, it looks to the national government for assistance. Then the legislators’ pork barrel, which comes from the national funds, gets into the picture. Each government unit within a province tries to get a piece of that pie.

So what happens in the end? A sorry state of widespread neglect. The needs of the citizens are not served.

The other side of the problem is the lack of accountability. The IRA is, in effect, free money given to the LGUs. This money is not raised as taxes directly from the LGUs’ own citizens, so these citizens may not be even aware of the magnitude of this money and it does not come into their consideration as the LGU officials’ accountability during election time. LGU officials should have been made clearly accountable for the LGU’s IRA by informing the citizens of each barangay, municipality, city, and province annually of the amount of its IRA, its budget, and, after the end of the year, its actual revenue, including IRA, and its actual expenditures in a form giving reasonable, pertinent, and understandable details. But they are not so required.

Decentralization was a missed great opportunity that could have improved the lives of all Filipinos. It makes one think that there are many more such missed opportunities in our society. And this is the reason we have become laggards and continue to descend in the economic chart compared to our neighbors in the world community. And also the reason why we cannot beat widespread poverty in our nation.

Most Filipinos have already been numbed by the unending failings of government. They just shrug their shoulders and say: “So what’s new?” Tough luck.

 

Benjamin R. Punongbayan is the founder of Punongbayan & Araullo, one of the Philippines’ leading auditing firms.

ben.buklod@yahoo.com

Duterte defined: His SONA and his legacy.

ON July 23, my colleague Christine Tang and I were asked by GlobalSource Partners New York* to do a teleconference call with our international subscribers on the topic in the headline. I am pleased to share with readers the transcript of that call. Apologies, this will have to be in two parts. The second installment will be on the risks to this cautiously optimistic scenario, and some political analysis — what the President will likely do with his abundant political capital and the odds of policy continuity post 2022.

I will talk about the following key points:

1. First, the economy under President Duterte, which is doing well in terms of economic growth and stability. The reform agenda is also progressing better than expected.

2. Second, the administration’s Build, Build, Build program, intended to usher in a “Golden age of infrastructure.” The Gold (medal) is aspirational, but efforts may yet earn the administration a Bronze.

3. Third is an assessment of economic prospects in the next three years under President Duterte. I think growth will be resilient at 6%, or even 6.5%, but will be hard to sustain if higher than that.

4. Finally, tail risks and politics.

Let’s start with the economy under Duterte: so far so good.

The President’s economic management style from Day 1 has been to give his economic managers a free hand. Led by his finance secretary Carlos Dominguez III, the economic team hit the ground running and announced a 10-point agenda that hewed closely to the policies, programs and projects of past administrations. The team had its challenges along the way, for example the delay in the passage of this year’s budget and last year’s inflation spike but by and large, the economic team has been successful at maintaining macroeconomic stability, i.e., keeping growth above 6% and steering inflation back within target, it is below 3% now.

Many have also noted that under this administration, the masses have shared in economic growth, with surveys showing a lower number of people identifying themselves as poor, unemployment rates continuing to fall and the quality of jobs improving. Reasons for this include income tax cuts implemented by this administration as well as a number of social programs that have increased households’ disposable income, e.g., free college tuition, higher pensions, conditional cash transfers and universal health care. Although we and other analysts have flagged the rising fiscal costs of these and other subsidy programs, so far, the fiscal burden has been limited.

The other notable achievement of the economic team is the passage and implementation of difficult economic reform measures that have earned the sovereign credit a BBB+ ratings upgrade from S&P. On the fiscal side, the TRAIN (Tax Reform for Acceleration and Inclusion) law for example, which replaced losses from lower personal income tax with higher consumption taxes especially on oil, raised the tax effort by 1% of GDP in its first year of implementation. These revenue inflows have helped to fund higher public spending on social services and infrastructure while keeping the budget deficit at around 3% of GDP, a fiscally sustainable level, per the IMF.

Other reform measures include the game changing rice tariffication law, a reform three decades in the making that has brought down rice prices, as well as the anti-red tape law, the BSP Act, National ID and the Bangsamoro Basic Law. The next stage challenge of implementing these reform measures as designed is underway, and the political will to do so seems to be there based on the explicit statements of the President during his State of the Nation Address.

SECOND POINT
The one activity that has defined this administration’s economic program to date is the Build, Build, Build infrastructure program, my second discussion topic.

Historically, over the last three or four decades public spending on infrastructure averaged only around 2% of GDP, a far cry from the average of 5% of our neighbors. The failure to invest is showing badly in congestion on roads, rails, sea ports, air ports. Slow approval processes are also beginning to affect the power sector which has been privatized. Failure to develop water sources by government has also caused water shortages in Metro Manila.

The last administration managed to raise infrastructure spending but only up to 3% over a six-year period. What the Duterte administration did was to raise spending to 5% of GDP three years into its term. And, through an ambitious infrastructure program, it intends to ramp up spending to 7% of GDP by 2022, the end of its term. This, economic managers say, is consistent with the target 7-8% GDP growth.

But I doubt that they can achieve these targets nor do I think it desirable to ramp up infrastructure spending so quickly. Experts I talked to question not only what makes up the 5% of GDP spending but they tell me that the quality of the projects pursued so far are not all growth enhancing. Many involve maintenance works on existing facilities some of which are superfluous. IMF estimates also show low efficiency of public investments in the Philippines, suggestive of large leakages.

My take is that is that if government could only maintain infrastructure spending at the current 5% of GDP over the medium term, that would already be a big achievement, especially if that 5% is spent on good projects that have high economic returns.

In any event, at 5% of GDP, BBB will be an important driver of GDP growth in the next three years, although all the construction activity is adding to chokepoints to economic growth in the short-term and it will take perhaps two more years for us to feel the decongestion effects of ongoing projects.

THIRD POINT
This brings me now to my third discussion point, the resilience of a 6% economic growth for the Philippines.

First, let me go over the structural factors underpinning the 6% economic growth rate. Philippine GDP trend growth rate has risen from an average of about 3% in the 1990s to 4-5% in the 2000s, to above 6% from 2010 to 2018. There are three reasons behind this rising trend growth.

One is demographics. The country has a young population, over 60% are in the working age group and this number will grow by 60% over the next two decades. The growth impact of this is evident in resilient remittances and the expansion of the BPO sector that have fueled domestic consumption and raised demand for retail trade services, financial products, and a real estate boom.

The second factor is the combined impact of past reform efforts on total factor productivity. Due to the reforms beginning in the 1980s (trade and foreign exchange liberalization, opening up of telecommunications and financial sectors, privatization of power), the contribution of total factor productivity to economic growth has grown from only 0.5 ppt in the 1990s to over 2 ppt this decade (Source: BSP).

Third is the growth of the middle class, which we think will continue to feed the consumer sectors. The rising importance of the middle class is an upshot of decades of sustained high remittance and BPO sector growth, both continuing but maturing and thus expected to grow at lower single-digit rates. A recent phenomenon that has taken up the slack left by slowing remittance and BPO growth rates is online gambling. The emergence of this sector has seen an estimated 200,000 Chinese workers moving to the Philippines, pushing up demand in real estate, construction, retail trade, etc. Young, single, and earning roughly $12,000 a year, this group is adding to middle class demand with spending potential approaching 1% of GDP.

(To be continued.)

*https://www.globalsourcepartners.com/

 

Romeo L. Bernardo was finance undersecretary during the Cory Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@gmail.com

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