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Ride: QuickTake Q&AMaking sense of bitcoin and its wild price

THE INITIAL PRICE of bitcoin, set in 2010, was less than 1 cent. Now it’s crossed $19,000. Once seen as the province of nerds, libertarians and drug dealers, bitcoin these days draws millions of dollars from hedge funds. In its latest step toward widespread acceptance, futures trading in bitcoin has begun on two of the largest US exchanges. The recent price surge may be a bubble. Or it could be a belated recognition by the broader financial community that so-called cryptocurrencies — digital forms of money — are going mainstream.
It might be time to nail down what a bitcoin is, and why its price has been going through the roof.
1. WHAT EXACTLY IS BITCOIN?
It’s a form of money that’s remarkable for what it’s not: It’s not currency you can hold in your hand. It’s not recognized by most Main Street stores. It’s not issued or backed by a national government. At their core, bitcoin and its imitators are sets of software protocols in a way that makes it hard to counterfeit or re-use tokens. A bitcoin has value only to the extent that its users agree that it does.
2. WHERE DID THE BITCOIN SYSTEM COME FROM?
The original software was laid out in a white paper in 2008 by a person or group of people using the pseudonym Satoshi Nakamoto, whose identity remains unknown, despite several efforts to assign or claim credit. Online fantasy games had long used virtual currencies.
The key idea behind bitcoin was the blockchain — a publicly visible, largely anonymous online ledger that records bitcoin transactions.
3. HOW DOES THAT WORK?
Think about what happens if you make an online transfer using a bank. It verifies that you have the funds, subtracts that amount from one spot in a giant database it maintains of accounts and balances, and credits it in another. You can see the result if you log on to your account but the transaction is under the bank’s control. You’re trusting the bank to remove the right amount of money, and the bank is also making sure you can’t spend that money again. The blockchain is a database that performs those tracking functions — but without the bank or any other central authority.
4. WHO PERFORMS THE BANK FUNCTION FOR BITCOIN?
It’s done by consensus on a decentralized network. Bitcoin transactions can be made through sites offering electronic “wallets” that upload the data to the network. New transactions are bundled together into a batch and broadcast to the network for verification by so-called bitcoin miners.
5. WHO GETS TO BE A MINER?
Anybody, so long as you have really fast computers, a lot of electricity and a desire to solve puzzles. The transaction data in each batch is encrypted by a formula that can be unlocked only through trial-and-error guessing on a massive scale. The miners put large-scale computing power to work as they compete to be the first to solve it. If a miner’s answer is verified by others, the data is added to a linked chain of blocks of data and the miner is rewarded with newly issued bitcoin.
6. HOW DOES THE SYSTEM PREVENT CHEATING?
Because every block contains data linking to earlier blocks, an attempt to spend the same bitcoin twice would mean revising many links in the chain. Plus, as miners compete, they verify each other’s work each step of the way.
7. WASN’T BITCOIN USED BY DRUG DEALERS?
Yes, back when its primary appeal was its relative anonymity. It was, and still is, used by websites peddling everything from arms to drugs to paid hits. One such $1.2-billion marketplace, Silk Road, was shut down by federal agents in 2013. But others soon took its place. Joseph Stiglitz, a Nobel laureate in economics, said recently That bitcoin “ought to be outlawed” because it’s designed to evade regulation and “doesn’t serve any socially useful function.”
8. WHAT CHANGED?
Bitcoin’s reputation has improved, partly because there are fewer large-scale thefts like the one in 2014 in which bitcoins were stolen from a bitcoin exchange called Mt. Gox. (Security has improved, but it’s still an issue.) And many technology and financial firms grew interested in blockchain as an idea separate from bitcoin.
9. WHAT IS BLOCKCHAIN’S APPEAL?
Enthusiasts see it as a new way of doing all sorts of business. Costs could be lower without a central middleman doing the work of keeping track of transactions, and charging for it. Banks and stock exchanges have invested heavily in developing blockchain technology, while retailers like Wal-Mart Stores, Inc. are experimenting with using blockchain for ensuring food safety. Central banks are even speculating about issuing blockchain-based official currencies. And other forms of blockchain emerged, often using their own cryptocurrencies to facilitate transactions. The most prominent is the etherium blockchain, sometimes described as a platform for so-called smart contracts.
10. WHY HASN’T THE COMPETITION HURT BITCOIN?
As the number of cryptocurrencies and tokens multiply — they now reach into the thousands — bitcoin remains the best-known, time-tested and valuable. That’s led to it being viewed by some as the most predictable venue for people wanting to bet on blockchain’s exponential growth.
11. WHAT EXPLAINS THE SURGE IN BITCOIN’S PRICE?
New investors, and expectations of many more to follow, has increased the price of a bitcoin more than 16-fold so far this year. The last spurt may have been driven by the news that futures trading was in the offing. Cboe Global Markets, Inc. began trading futures contracts tied to bitcoin on Dec. 10, and CME Group, Inc. followed suit on the 17th, while Nasdaq plans to start next year. The ability to trade on bitcoin’s price without owning it — and to bet that its price will fall — is seen as expanding bitcoin’s appeal to investors. The fact that bitcoin’s software guarantees that there will be a finite supply has added to the fear of missing out for some investors. Coinbase, a bitcoin exchange, was overwhelmed by two to three times its normal traffic on Nov. 29, when bitcoin’s price soared past $11,000.00, making its service temporarily unavailable to some users. New crypto-focused hedge funds are opening up weekly, and already surpass 100. Most of them invest at least part of their funds in bitcoin.
12. IS THIS A BUBBLE?
Possibly. Some people, most notably JPMorgan Chase & Co. Jamie Dimon, call bitcoin a “fraud.” Yet his own bank is considering offering bitcoin futures to clients. Fund manager Mike Novogratz calls cryptocurrencies “the biggest bubble of our lifetimes,” and yet he is starting a $500-million fund to invest in them. Depending on whom you talk to, bitcoin’s value could double again — or it could go down to zero.
13. HOW CAN I BUY BITCOIN OR INVEST IN IT?
There are a bunch of ways, all with different risks. People can buy the coins directly from exchanges like Coinbase. Accredited investors can also invest in vehicles like the Bitcoin Investment Trust, which tracks bitcoin’s price. Now investors can buy or sell bitcoin futures, and soon may be able to buy bitcoin exchange-traded funds, once regulators feel comfortable with the idea. But be warned: Even plenty of people who believe in bitcoin’s future think some wild rides lie ahead. As if in proof, the Nov. 29 surge to over $11,000 was followed by a 20% drop. And yes, you can bet on a crash. — Bloomberg

Outsmarting online fraudsters at their own game

By Melissa Luz T. Lopez
Senior Reporter
LIKE MOST INDUSTRIES, the banking sector has been left with no other choice but to follow their clients onto the digital space.
It’s well and good to offer electronic banking solutions with the promise of a seamless and more convenient user experience, but protecting people’s money and personal data has proven to be all the more challenging once mounted online.

Just as bank branches are embedded with several layers of protection — from shockproof steel vaults, time-activated locks, surveillance cameras, and security guards — transactions in the digital space also need similar, if not heavier security protocols.

Banks have been shaken up by the glaring need to go digital to suit changing consumer demands, especially in the face of stiff competition from nonbank firms offering new channels outside the traditional brick-and-mortar system. After all, the tech-savvy millennial market in the Philippines prefers to go paperless rather than face the laborious process of filling up forms and submitting printed documents.
Banks had to act fast before these financial technology firms beat them at their own game — it was a “digitize or perish” scenario as one banker put it. As a result, banks are pouring billions of pesos into setting up their cloud-based database systems, online and mobile banking channels for retail customers, and digital clearing platforms.
Just as bank branches are embedded with several layers of protection — from shockproof steel vaults, time-activated locks, surveillance cameras, and security guards — transactions in the digital space also need similar, if not heavier security protocols.
DO THE BASICS
While setting up these cyber firewalls appears to be a daunting task, an expert said financial firms (or even businesses in general) need to make sure that basic lines of defense are in place in order to deter digital crimes.
“We need the new hammer that will hit these new nails…There are some really basic concepts that we’ve known for a very long time that we’re just not doing. If we did those, we’d be in a better place,” Brendan Laws, director for Solutions Architecture at Secureworks, Inc., said in an interview.
The American technology and cybersecurity firm said among the most common ways to steal client data is via e-mail phishing, where users are duped into giving their private information through fake websites sent and shared online.
“When we are in a situation where there’s always a new threat, if we’re always looking for a new space or tool to solve that problem while we ignore doing some very basic general hygiene items, we’re not putting ourselves in a good position,” Mr. Laws added.
He noted that among the “basic” security details which firms often overlook include the use of two-factor authentication to validate a person’s online identity: “Implementing that one simple thing removes a whole bunch of the new threats that are simply trying to get access to your information.”
The same measure has also been prescribed by the Bangko Sentral ng Pilipinas (BSP) for financial firms. Since September 2017, the central bank has required all banks and credit card issuers to put in place a multi-factor authentication (MFA) system for online transactions.
The more stringent security controls are expected to deter fraudsters from stealing money and private data. Among the MFA options include using a password or personal identification number; presenting a payment card or a one-time password sent via text message; and using a fingerprint or retina scan.
The BSP has also stood firm on its June 30 deadline that requires all card-issuing companies to shift to using microchip-embedded cards and veer away from the magnetic stripe variants, with the former seen to quash skimming attempts where thieves copy a person’s bank details and drain accounts without the owner’s knowledge.
The central bank set minimum standards on managing information technology risks in 2013, with the rules regularly updated to address particular stress points. The BSP went as far as requiring banks with “complex” IT systems to put up 24/7 security operations centers to monitor and foil any attacks. In turn, all lenders need to install baseline security standards for both their back-end systems and branches.
The BSP has always been lobbying for constant vigilance as banks and even regulators cannot afford to be vulnerable to such risks. The neighboring Bank Negara Malaysia foiled a cyber attack back in March, which had the local regulator reminding Philippine banks to be “extra careful” in handling wire transfer requests.
In 2016, a Philippine lender was used as conduit by thieves who stole $81 million from the Bangladesh central bank, as Dhaka’s internal system was reportedly hacked to send payment instructions from their account at the United States Federal Reserve.
The 2018 Cyberthreat Defense Report pointed out that human error is often the root of digital breaches, with the lack of skilled personnel and low security awareness preventing them from identifying cyber attacks as they come.
IP Converge Data Services, Inc. said offices need to instill a “cybersecurity culture” which means taking simple but proactive steps. These include training employees in using long and strong passwords (which uses a mix of uppercase letters, lowercase letters, symbols, numbers); recognizing and avoiding suspicious e-mails and website links; and limiting the installation of computer programs and data, to name a few.
TECH FOR TECH
The very allure of using digital channels is ease of access, which is also the exact feature which cyber criminals are looking to exploit. However, it turns out that online fraudsters can be outsmarted at their own game.
Scott Zoldi, chief analytics officer at global credit scorer FICO, said there are “broad options” for banks and other firms to detect fraud via computer-aided behavioral analytics, particularly to block dirty money transactions.
“By bringing artificial intelligence (AI) in there, we have a model that’s not going to be dependent on well-known rules and that allows new cases to be identified, it allows false positives to be reduced,” Mr. Zoldi said in a phone interview. “That will change the landscape with respect to making it harder for money launderers to commit their crimes.”
The good news is that the Philippines is roughly in the middle of the pack compared to its peers in adopting such firewalls.
“The Philippines is not behind, they are leveraging machine learning models, credit risk scores, automation… As I look at it across Asia, I would think the Philippines is above average for sure,” Mr. Zoldi added.
The BSP has also revealed that it is exploring the use of AI in doing its own regulatory work. BSP Deputy Governor Chuchi G. Fonacier said the so-called “RegTech” eyed for rollout entails the collection of industry data by way of electronic submissions for faster and more efficient information sharing. Chatbots are also being eyed for the processing of consumer complaints.
Ultimately, the goal is to bring more Filipinos into the formal financial system while keeping them out of the radar of thieves and scammers.

The country’s centralized public credit registry, banks and data privacy

By Karl Angelo N. Vidal
Reporter
IN MAY, S&P Global Ratings upgraded its risk assessment on the Philippine banking industry, uplifting the country’s Banking Industry Country Risk Assessment (BICRA) score to “6” from the previous “7.” S&P uses its BICRA framework to evaluate and compare global banking systems. Scoring is done on a one-to-10 scale, with one being the best score, signifying lowest risks.
The global debt watcher cited that the state-led Credit Information Corp. (CIC), the country’s centralized public credit registry, will strengthen the underwriting standards in the consumer lending segment which will lower the banks’ nonperforming loans (NPLs) and improve transparency.
“Better data availability of credit history is positive for this segment where credit quality has historically been constrained by lack of information,” S&P said in a May 14 report, adding that clarity on creditworthiness should also foster risk-based pricing.
Enacted in 2008, Republic Act No. 9510 or the Credit Information System Act mandates the establishment of a comprehensive and centralized credit information system, with CIC tasked to consolidate the data.
The law also states that submitting entities or lenders such as banks, insurers, cooperatives and state pension funds are required to provide all credit data of their borrowers in their database to the CIC.
In an interview, CIC President and CEO Jaime P. Garchitorena said that having a centralized credit information system is “beneficial.”
“It is beneficial because the more you know your client, you will only lend him what he can afford to pay so it is less likely he is to default,” Mr. Garchitorena told BusinessWorld last June 21.
ROUGH START
The concept of a credit registry, Mr. Garchitorena said, is not new in the Philippines. In the 1980s, the government issued a letter of instructions mandating the central bank to form Credit Information Bureau, Inc. (CIBI).
“The only fail point in that old presidential decree is that it did not require lenders to send contribution to then-CIBI. Suffice to say, that didn’t work out very well and at some point in the near past, CIBI became a private organization,” he noted.
The need to establish a centralized credit registry resurfaced when a crisis in the United States on subprime mortgage in 2007 developed into a global financial crisis.
“It became very apparent, at least in the Asia region, that nobody had any credit bureaus. Or if they did, it was not robust enough. So in the Philippines, the law was passed in 2008 and the [implementing rules and regulations] was passed in 2009,” told Mr. Garchitorena, adding that the CIC became dormant for nearly three years.
“The CIC remained largely inactive for about three years until about late 2011 when the Aquino government decided to revitalize it by putting a new board, which I was part of.”
The CIC started collecting data from submitting entities in 2015 when it got the bid for its credit information system.
However, the national credit registry had — and is having — a hard time in collating the credit information as some financial institutions fail to adhere with data formatting as well as update and correct loans which were already paid or resolved.
“There was even a time when we experienced these submitting entities or banks coming here with the boxes [telling us] that they will submit the data. Or even floppy disks,” CIC Senior Vice-President Aileen L. Amor-Bautista quipped.
BIGGER MARKET, LOWER NPLS
“A lender has normally three goals,” Mr. Garchitorena said. “Lower NPLs, expand their market, lend their existing market more within specific risk tolerances. The CIC hopes to be able to assist them in all of those three.”
For one, the credit data collated by the CIC can be used by banks to mitigate NPLs or bad loans.
“Banks can make sure that whatever their institutional policies are on risks, whether they have a high or low risk appetite, they can properly contextualize prior to giving them a loan,” he said. “Banks can automatically make sure that their overall portfolio of risk is kept at a reasonable level.”
Mr. Garchitorena also noted that aside from lowering their NPL ratios, banks can also assess their clients across various risk levels.
“It’s not always about managing your NPLs because it just means no one is defaulting in the best case. It should be a matter of managing higher-risk individuals by using data and also making money off the volume of transactions from lower-risk individuals,” noting that a centralized credit information system will also reduce prejudice-based lending practices.
Apart from this, banks and other financial firms can lend more money to its existing clients and extend its lending services to more customers.
“It is possible to use the risk management system that the CIC data will provide to increase the benefits to your lenders, whether that results in larger credit limits or progressively lower interest rates,” CIC president added.
Accessing the credit information system can also expedite the lending process, enabling accessing entities to grant loans anytime.
“In the current mode of investigation prior to lending, it can take anywhere from hours to days to months for a loan to be approved, and it only runs from 9 a.m. to 5 p.m. Since the database is automated, 24/7 lending is a possibility.”
‘WORKS BOTH WAYS’
The banking community, meanwhile, is receptive of the initiatives of the CIC, saying that a repository of credit information will benefit not only the banks but the borrowing public as well.
“This is for the good of the whole banking industry,” Asia United Bank President Manuel A. Gomez said in a press briefing on June 22. “[W]e are pushing for the establishment of this credit bureau for the benefit really of not only the banks but the consumers as well.”
For Gregorio B. Anonas III, president of Chamber of Thrift Banks, the credit information system will help address the rising NPLs of thrift lenders.
“Yes, definitely, but it is worth looking at the growth of loans and not just the absolute amount so it’s relative,” Mr. Anonas said in a June 1 text message.
Despite being beneficial for the banking industry in general, Rizal Commercial Banking Corp. President and CEO Gil A. Buenaventura said that banks are also obliged to share their client information which could pose threat.
“At the same time, you’re committed to share whatever you have to that national credit system, which could also be a threat. It works both ways, but the net result I think is beneficial because that’s really one way to increase your customer base,” Mr. Buenaventura said in a round table discussion on June 25.
SECURITY A PRIORITY
Amid the escalating cyberthreat environment, the CIC said it is making sure the credit data collated will not be placed in the wrong hands.
CIC’s Mr. Garchitorena said their information technology unit is one of the biggest departments in the state-led firm. It also gets the biggest funding.
“The security policies that we implement, including vulnerability assessment and penetration testing, exceeds that of normal corporations,”Mr. Garchitorena said, adding that the government mandates the state-led firm to practice “extraordinary diligence” when it comes to securing data.
“Extraordinary means something — if a bank does this, then we have to do more. So whatever the current standards are, there’s tendency to expect more from the CIC.”
In fact, the CIC pushed back the date of going live to make sure that the information is indeed secure.
“In all my interviews, I’m very careful to couch my predictions because before going live, security is a major concern. And the environment has become such where many of the… data outside CIC can [be exposed] to fraud and misuse,” he said.
COLLECT MORE DATA
The CIC said it will continue to receive more data as some financial institutions such as rural banks, cooperatives and state-fun financial firms are yet to hand in their client data.
“Considering we have only covered large financial institutions, there’s still that whole mass of borrowers that borrow from rural banks and co-ops,” Mr. Garchitorena said.
The credit information registry added that they are eyeing at least 18 million people with credit data.
“With no consideration of overlapping, we have a potential 18 million people with formal borrowings from credit cards to microfinance,” he said, adding that it can even climb to 30 million when large state pension funds start to send credit data.
“The total universe that’s going to be accepted into the CIC should be close to around 30 million over time.”
To date, the CIC has 5.3 million “thick” files or files with complete information, noting that 2 million of which were “thin” or incomplete.
“Over time, the thin files were converted into thick files because of the increased [know-you-customer] requirement of banks. More details about their clients have been loaded since,” Mr. Garchitorena said.
The system, which is expected to be live in the third quarter, can be accessed by two kinds of users: the SAEs or credit bureaus, as well as the submitting financial institutions, such as banks, cooperatives, lending firms, to name some.
Currently, there are four official SAEs namely local firm CIBI Information, Inc., South Africa’s Compuscan, Italy’s CRIF S.p.A, and United States’ TransUnion Information Solutions, Inc.

Tycoon wants to free millions of Filipinos from loan sharks

BILLIONAIRE John Gokongwei, owner of the Philippines’ largest snack maker and budget airline, and a Skype, Inc. founder will invest as much as $200 million over three years to lend to millions of unbanked Filipinos.
The venture, set up last year by Gokongwei’s JG Summit Holdings, Inc. and financial-technology start-up Oriente, seeks to give credit through a digital platform to Filipinos who often resort to loan sharks because they lack access to formal banking services. Its expansion comes as the central bank encourages emerging technologies to spur financial inclusion in a country where more than 70% of adults have no bank accounts.
“The big picture here is how do we liberate and enable under-served Filipinos to have access to funds,” JG Summit President Lance Gokongwei, son of John, said in an interview in Manila on Wednesday.
The platform with Oriente, which was established by a co-founder of Skype and Chinese financial-technology start-up LU.com, rivals a venture of Singapore Telecommunications Ltd.-led Globe Telecom, Inc. and Jack Ma’s Ant Financial as well as Manila-based PLDT, Inc., which is in talks with a possible foreign partner.
The venture is hiring 1,000 people this year mostly to handle verification, loan processing and collection for a targeted half a million borrowers by the end of 2018, said Hamilton Angluben, general manager of the platform, which is called Cashalo.
There are only 41.5 million deposit accounts in the Philippines, even though there are more mobile phones than the 110 million population, and almost 50 million people use Facebook in the country.
“The technological savviness of Filipinos is off the charts,” said Geoffrey Prentice, Oriente co-founder and chief strategy officer. The service will also be attractive because so few people have credit cards, he added.
Bank branches aren’t available in a third of towns and cities in the Philippines, while pawnbrokers and microfinance providers have a wider presence, according to central bank data.
Cashalo users can apply for loans entirely online and those without bank accounts can receive the money in designated convenience stores, pawnshops, and bill payment centers within 24 hours. The service allows customers to borrow as much as 5,000 pesos ($95) for up to 45 days at 2.95% plus a 4% processing fee. That compares with the 20% monthly interest charged by many loan sharks. — Bloomberg

All the ways you can lose your bitcoin

THERE ARE LOTS of opportunities for cryptocurrency to go missing — some inherent to buying internet money, some involving crime. Below, a few common ways of going virtually broke.
NOT REALLY YOUR FAULT
• Phone Porting
Pretty basic: Scammers hijack people’s mobile accounts by calling their carriers and impersonating them. The thieves get their victims’ numbers transferred to new devices and ultimately gain access to crypto accounts.
• 51% Attack
This hasn’t happened yet, but it’s every crypto enthusiast’s greatest fear. If a nefarious syndicate were to gain control of more than half of the Bitcoin network’s computing power, it could tamper with the process of verifying transactions and potentially spend the same Bitcoins twice.
• Ransom Demands
Everyone from local officials to large corporations has fallen victim to ransomware attacks, which often involve hackers holding computer files hostage until the victim pays a fee in crypto. In June 2017 a South Korean web provider paid hackers $1 million in Bitcoin. Although many payments aren’t publicized, it’s the largest ransomware demand known to have been paid.
SORTA YOUR FAULT
• Exchange Issues
It seems as if every week another cryptocurrency exchange says it’s been breached by hackers who’ve run off with customer funds. Investors can also lose money on exchanges because of technology glitches or account holds that freeze funds and prevent buying or selling during significant market movements.
• Fraudulent ICOs
Investors have poured billions of dollars into initial coin offerings, only to find their savings drained. In April two founders of an ICO promoted by boxer Floyd Mayweather were brought up on federal charges of raising more than $25 million for a planned digital currency without registering the offering. (Mayweather wasn’t accused of wrongdoing.)
• Overhyped Stocks
Dozens of struggling businesses used the buzz around crypto to boost their stock market value in late 2017 and early 2018. (Long Island Iced Tea Corp. changed its name to Long Blockchain Corp., but it couldn’t raise the capital to mine crypto.) Traditional investors looking for exposure to the nascent industry bought in, but the gains didn’t last, and some companies got in trouble with regulators.
TOTALLY YOUR FAULT
• Lost Keys
There might be no worse self-inflicted crypto wound than buying Bitcoin low (say, in 2013) and trying to sell high (say, at the end of 2017), then realizing that you lost your private key. D’oh!
• Twitter Scams
Fraudsters on social media have devised a new twist on an age-old con: If you send them one Ether coin, they’ll send you 100 back! Sound too good to be true? It is. Still, scammers have tried to fool people’s followers by making fake accounts (with real names and photos) to lure victims into thinking that they were being offered a great deal from a reputable source.
• Wrong Addresses
Unlike credit card transactions, Bitcoin payments are irreversible. If you send digital tokens somewhere you didn’t mean to, you’re out of luck unless the other party agrees to return your funds. — AFP

For better or for worse: Duterte as disruptor

By Camille A. Aguinaldo
Reporter
PRESIDENT Rodrigo R. Duterte as disruptor has been quite a running theme by now, two years into his administration. But above all, this theme is a tangible reality being felt by the country — by its citizenry and its stakeholders — whether one considers the body count in the drug war or the presidential pronouncements almost out of the blue that have led to disruption here and there in the business community.
From Gina L. Lopez’s shaking up the mining industry at the outset of Mr. Duterte’s presidency, to the Roberto V. Ongpin-Philweb episode, and to the much-anticipated third player in the telecommunications industry, this presidency has been a weighty factor among businessmen.
“In the past years, the Philippines was governed by politicians who vowed to foster change but left Filipinos burdened by similar concerns they had decades ago,” presidential spokesperson Harry L. Roque, Jr. told BusinessWorld through a text message. “The last thing our country needs is the same brand of leaders who promise the world but fail to deliver. What the Philippines needs is someone who is not afraid to get things done for the people, even if this means he has to “disrupt” an entire system of government.”
The Duterte administration had been cautious, but is now picking up momentum on the “endo” labor issue, whereas on his latest environmental cause, Boracay — that has plainly disrupted tourism in the island — Mr. Duterte can be seen to be sudden and almost brash in his enforcement of the island’s rehabilitation. One assumes that business is on alert as to what lies ahead in the long remainder of his term, apart from the possibilities in store amid the planned transition to federalism.
But the air of concern earlier expressed by the business community in the early days of this administration have transitioned into warmness as Mr. Duterte pursued relations beyond Western countries.
“On foreign relationships, he opened more avenues for the business community to consider. We were always pro-West, pro-Europe,” Philippine Chamber of Commerce Inc. (PCCI) President George T. Barcelon said in a phone interview with BusinessWorld.
The business leader further said the President’s pursuit of warmer ties with other countries with China and Russia became a “wake-up call” in their sector to widen its scope in pursuing better opportunities in other region or other countries.
Mr. Duterte sought closer ties with China and Russia early on his presidency, holding bilateral meetings with Chinese President Xi Jinping and Russian President Vladimir V. Putin. It has been viewed that the President has “pivoted” to China and Russia amid his blunt statements against the century-long ally United States.
Last April, Philippines and China inked business deals worth P508.6 billion, which may generate over 10,000 jobs. Several agreements on defense, trade, and agriculture, among others were secured by Philippines during the President’s visit to Russia May of last year.
The Central Bank has said warmer ties with nontraditional investment sources such as China and Russia would support stronger investment inflows this year.
Employers Confederation of the Philippines (ECoP) Acting President Sergio R. Ortiz-Luis said the Philippines was no longer being taken for granted in the international stage, noting the good deals the country was getting from China, Japan as well as with the United States and Europe despite Mr. Duterte’s attacks with the latter trading partners.
“I think the numbers will show that he has been a big help picking up business in general,” he said in a phone interview with BusinessWorld.
Global bank Nomura in its April report on China’s Belt and Road Initiative (BRI) indicated that Philippines and Malaysia have the most to gain in infrastructure investments with the BRI. Philippines and Japan have also signed a P51.3-billion loan agreement for the construction of the first Metro Manila subway. The US and Philippines have also launched the construction of a humanitarian and disaster relief warehouse in Pampanga under the Enhanced Defense Cooperation Agreement (EDCA).
The President’s advocacy on corruption also earned positive gains in the business community with the better performance of the Bureau of Customs (BoC) and higher collections of the Bureau of Internal Revenue (BIR), which Mr. Barcelon credited to Finance Secretary Carlos G. Dominguez III.

While the business community has been generally satisfied with President Duterte as disruptor, others have questioned this certain leadership style for its lack of clear planning and a clear vision for his policies, which retained the continuing trend of uncertainty since the early days of his presidency.

“If there is corruption, the cost of doing business increases and our competitiveness is affected. We want to have the people in government to attend, to really facilitate the needs of the private sector in business applications and even in processes with Customs,” he said.
“All these things that (Mr. Duterte) is saying to help businessmen, its impact is not only here in the local business establishments, but also for foreign investors. They see that this President is serious about attracting investments,” he added.
The recent enactment of the Ease Doing of Business law – which streamlined procedure and shorter processing time for government transactions – placed Philippines a step further into being more business-friendly, the business leaders also noted as another favorable disruption.
The National Economic and Development Authority (NEDA) has said the full implementation of this law would help the country’s manufacturing sector grow further.
But not all aspects of the President’s economic policies have been laudable in the business community as the two business leaders raised points of concerns that needed to be addressed.
Mr. Barcelon hoped the administration’s infrastructure plans in its ambitious “Build, Build, Build” program picks its pace in the next two years.
The government’s infrastructure program marked its first year last April. The program was deemed to usher in the “golden age of infrastructure” in the Philippines. Notable projects included the Subic-Clark railway, the Metro Manila Rail Transit System Line 7 (MRT 7), and the New Clark City.
NEDA has said the government’s infrastructure program has contributed to the increase in employment. Demand for workers in the construction was also expected to rise as more projects break ground.
“This should be pursued for us to really see this big benefit for our country,” Mr. Barcelon said.
For Mr. Ortiz- Luis, the issues on contractualization and minimum wages needed to be clarified as disruptions in labor policies under the Duterte administration have put employers into confusion on the possible outcome of the issue.
“We don’t know what will be turnout but so far, it has been very bad for a lot of investors because it has been confusing,” he said.
Ending contractualization has been one of the campaign promises of Mr. Duterte that labor groups repeatedly clamored for. An executive order prohibiting illegal contracting or subcontracting has been signed last May during Labor Day. But many labor groups have said the document was merely a reiteration of current labor policies. Malacañang, in its defense, has said an expanded ban on contractualization may only be pursued through legislation.
As for the minimum wage, Mr. Duterte last May ordered the Department of Labor and Employment (DoLE) to convene regional wage boards and to study possible increases in minimum wage amid the rising prices of goods and services.
While the business community has been generally satisfied with President Duterte as disruptor, others have questioned this certain leadership style for its lack of clear planning and a clear vision for his policies, which retained the continuing trend of uncertainty since the early days of his presidency.
Last February, Mr. Duterte threatened to shut down Boracay Island, calling it a cesspool for its environmental woes. Executive departments acted following with his pronouncement which led to closure of the billion-dollar holiday island in Visayas last April in an effort to solve its environmental woes. Hotels and airlines scrambled for contingency plans as they braced for the six-month period closure.
“The disruption is in the guise of reform but will not necessarily lead to that reform,” former dean of the Ateneo School of Government Antonio G.M. La Viña told BusinessWorld.
While there were good intentions for disruptions on certain issues, such as the war on drugs and the Boracay closure, Mr. La Viña pointed the lack of clear planning of the Duterte administration on how a particular disruption should be carried out.
The intent for some of Mr. Duterte’s disruptive pronouncements was to construe himself as someone who is powerful or above the law, Mr. La Viña observed.
“There are good reasons why you want to restrict mining. There are good reasons why you want close down Boracay. There are good reasons why but none of these is planned. None of these is backed by a plan. None of these is backed up by an objective to be reached. But it’s just like, ‘I just want to do it because I think it’s right and it’s instinct that I do it right,’” he said.
“And at the end of all of these, there might be nothing to show. No change. No change really happened because it’s disruption for the sake of disruption,” he added.
He also said Mr. Duterte kept his leadership style as mayor and applied in a national level, which Mr. La Viña said as impractical.
“Those are all signs of populism. Those are all manifestations of populism, that ‘my macho, sheer political will can change things.’ Unfortunately, that is not true in a complex country. In a city when you’re a mayor, you can change things by your sheer political will. But in a country, you cannot,” he said.
There are good points to Mr. Duterte’s disruptions, Mr. La Viña said, such as the tax reform program, the Build, Build, Build program, and the peace process. However, unlike other issues, the three policies of the administration were backed with a plan and with the whole government ensuring its continuity.

By his own analysis, Mr. Arugay believed the President was questioning the role of Catholic Church as the moral compass of society.

For his part, University of the Philippines (UP) political science professor Aries A. Arugay noted the lack of a “grand vision” on President Duterte’s disruptiveness, which he also perceived as “governance by whim.”
“Disruption is a tactic. It’s a way of implementing a grander strategy. And that is what I’m looking for. What is the grand strategy? And the problem is, a grand strategy whether we like or not, will have to transcend the term of the Duterte administration, meaning beyond 2022. What is the grand strategy and what is the ultimate goal?” he said in a phone interview with BusinessWorld.
While the administration is banking on its mantra of change, Mr. Arugay stressed that the key question was how Mr. Duterte could ensure that his disruptions are sustainable and institutionalized.
“So long as the disruptions are not institutionalized they cannot be maintained so as long as the government doesn’t create mechanisms that will outlast its own shelf life,” he said.
The President has repeatedly lashed out against the priests of the Catholic Church over the religious institutions’ criticisms with the government’s anti-illegal drug campaign.
By his own analysis, Mr. Arugay believed the President was questioning the role of Catholic Church as the moral compass of society.
“If he keeps on clashing with the Church, then who will take on the role as the moral compass of society? Is he taking on that role? That’s the problem with disruption without any idea of where things will be headed,” he said.
He also observed that Mr. Duterte do not share his intent on certain policies with his alter egos in the Cabinet, citing the differing statements on Mr. Duterte, Foreign Affairs Sercretary Alan Peter S. Cayetano, presidential spokesperson Harry L. Roque, Jr., and Defense Secretary Delfin N. Lorenzana on security and foreign policies in South China Sea.
Mr. Arugay also saw inconsistencies with how Mr. Duterte’s disruptive nature fared with the Boracay closure and with the federalism cause. He said the national government challenged the local government authority on the Boracay issue, a move that ran counter with the principles of federalism.
“If we are completely federal, do you think President Duterte can do what he did in Boracay right now? He cannot because that is a call of state government. (Boracay issue and federalism) are both disruptions but they can’t co-exist. From a political science point of view, one is decentering power the other is asserting central power,” he said.
“This is where the disruptive nature of President Duterte’s leadership is not good because there is no overall principle that guides the disruption,” he added.
The economic policies of Mr. Duterte have not been seen to redistribute the wealth of the country equally to its citizens, he also noted.
Much of the disruptiveness of President Duterte in his two years of presidency has turned the tides in some sectors for better or for worse.
But in light of certain unfavorable impacts of Mr. Duterte’s disruptions, Mr. La Viña acknowledged that disruptions for its own sake might have needed such interventions. He said it has brought to fore a debate on options that could be undertaken by government to address a particular issue.
He said policy makers, experts, and ordinary Filipinos could take advantage of Mr. Duterte’s differing statements on mining and thoroughly discuss the best way forward to provide a clear policy on the issue.
Many believed Mr. Duterte and his administration still have a long way to go to considerably address issues that, to be fair, have hounded every presidency. While there are initial steps to resolve some, it remains to be seen whether this administration have delivered on its promise of change. With all the disruptions and changes that President Duterte have imposed to this country halfway into his term, it would appear that the big question still remains, as Mr. Arugay has phrased: “change for what and for whom?”
Mr. Roque, when sought for comment, also said: “The President is doing all his best to fulfill his goal of building a nation where opportunities abound and where citizens are empowered to realize their aspirations. The economy is on a roll. Revenue agencies have exceeded collections. Big-ticket infrastructure has shifted to high gear. An independent foreign policy has been launched where we are friends to everyone and enemy to none.”
“High officials have been fired for corruption. Crimes are down. People feel safe walking at the streets at night. The President is, indeed, a disruptor, for he represents the genuine and meaningful change that this nation long aspired for. And people have appreciated PRRD by expressing optimism in the future of the Philippines and believing that the best years are ahead of us under the Duterte administration.”

Inflation worldwide is declining, no special credit to Dutertenomics

Bienvenido S. Oplas, Jr.By Bienvenido S. Oplas, Jr.
“Money cannot call forth goods, but goods can call forth money…”

— David Ricardo,
on the “mere increase of money” (1809)

That statement from one of the world’s famous classical liberals is the early seed of monetary explanation for inflation. David Ricardo, known for his free trade theory of comparative advantage and the labor theory of value, argued that greater output can only come from greater savings and investment, not from greater quantity of money being put into circulation by governments.
Fast forward two centuries, monetary policies by many governments to tweak their local interest rate, exchange rate and inflation rate are done more often.
The Philippines experienced high inflation in January 2018 (4.0%) vs December 2017 (3.3%). TRAIN bill became a law in December 2017. And the inflation rate kept rising until May 2018 and public dissatisfaction keeps rising too.
Year-on-Year-inflation
On June 7, 2018, the Department of Finance (DoF) produced a chart and posted in its social media accounts with this note:
“With a running average of 2.8%, the Duterte administration’s inflation rate is well below the 6.3% average of the past five administrations.
According to the data released by the Philippine Statistics Authority (PSA), the average inflation rates during the respective terms of the past five presidents are: (1) Aquino, C. 10.2%; (2) Ramos – 7.8%; (3) Estrada – 6.5%; (4) Arroyo – 5.2%; and (5) Aquino, B. – 2.8%.”
That is a deceptive campaign by the DoF and give high credit to Dutertenomics. Asiawide or worldwide, inflation rates are declining in many countries from the 70s and 80s. Interest rates too are declining, GDP size of countries are rising.
So almost all recent administrations in many countries can claim or grab credit for themselves what are actually global phenomenon.
Canada’s Trudeau, USA’s Trump, Australia’s Turnbull, UK’s May, Germany’s Merkel, Japan’s Abe, Taiwan’s Tsai, South Korea’s Moon, China’s Xi and HK’s Lam can also brag that inflation in their administration is lowest compared to many or all previous administrations’ record over the past 30+ years.
Also Thailand’s Prayut, Singapore’s Lee, Cambodia’s Hun Sen, Indonesia’s Widodo, and Vietnam’s Nguyen (see table).

So almost all recent administrations in many countries can claim or grab credit for themselves what are actually global phenomenon.

The proper comparison should be the inflation rate of the Philippines vs. other countries over the same period and years, say from 2016 to 2018. Many countries’ inflation rates declined in 2018 despite the rise in world oil prices, except the Philippines and few other countries.
Aside from credit grabbing of Dutertenomics, notice also its cherry picking of years. Why compare inflation under Du30 vs past five administrations only, why not six? Why did they skip the last six years of Marcos where inflation rate was nearly 20%? So that the Duterte idol of Marcos family won’t be upset?
A few groups and former NEDA, DOF, DBM, BSP officials are producing statements blaming many factors for the high inflation rate – world oil prices, peso depreciation, “profiteering” by the private sector, “our own worst enemies” self-infliction, etc – but not TRAIN tax hikes.
So long as Dutertenomics will not have the humility to admit that (1) series of tax hikes in TRAIN 1 has unleashed high inflationary pressure, (2) fare hikes and limited wage hike adjustments must be done before January 2019 or part 2 of oil/lpg/coal tax hikes will be implemented, the ills of TRAIN 1 will only be replicated in TRAIN 2 bill that will soon become a law.


Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.
minimalgovernment@gmail.com.

Off-track? Learning from our TRAIN experience

Weslene UyBy Weslene Uy
THE CHORUS of lawmakers and various groups calling for the Tax Reform for Acceleration and Inclusion (TRAIN)’s suspension amidst inflation rates peaking to four-year highs has only grown louder. The chief architects of the law have been put on the defensive, vehemently explaining that the rise in prices was predominantly driven by external factors. Even the president himself, who usually refrains from talking about economic issues, has offered his two cents on the debate. While he acknowledged that TRAIN is one of the factors driving up inflation, he emphasized that he needed money to run the country.
The TRAIN has been a highly-polarizing issue since the proposal was first floated only a few months after President Rodrigo R. Duterte stepped into office. Taking advantage of the president’s popularity, officials from the Department of Finance lined up five tax packages with a two-fold objective: to remedy the deficiencies in the current tax structure and to raise revenues for much-needed public investments.
Tax effort as % of GDP
While the personal income tax cuts were widely supported, the revenue-generating measures of the bill, such as the excise taxes on petroleum, were met with widespread criticism. To justify these offsetting measures, the proponents of the TRAIN, backed by multilaterals, credit rating agencies, and leading economists, argue that merely lowering income taxes would strain our limited financial resources.
From the start, the economic managers knew that TRAIN would trigger a price shock. Nevertheless, they insisted that the benefits would eventually outweigh its costs. They also assured skeptics that several measures would be implemented to cushion consumers from higher commodity prices. During the deliberations, however, it became clear that some details still needed to be ironed out. Yet, Malacañang flexed its muscles and pressured lawmakers to speed up the passage of the bill. In its final form, the TRAIN has also morphed significantly from its original version to accommodate hastily inserted provisions — some of which were not carefully studied — in lieu of tempered excise taxes, while trying to preserve the revenue goal.
Of course, it would be unfair to solely lambast the TRAIN law for the steep price increases, or even from knocking off a few percentage points from our economic growth during the first quarter of 2018. For all its shortcomings, the TRAIN still addresses some of the current tax system’s deficiencies by including tax administration provisions and by streamlining and simplifying the processes. So far, revenue collections and spending performance have been on-track to meeting the full-year targets.
COLLECT, COLLECT, COLLECT
The government has rationalized that in order for the Philippines to reach upper middle-income status by the end of the Duterte administration, it has to catch up on much-needed investments, amounting to some P2.2 trillion. Half of the necessary revenues is allotted for infrastructure investments under the administration’s Build, Build, Build campaign. The TRAIN is expected to add P90 billion in revenues in its first year of implementation alone and contribute a total of P786 billion by 2022. Even at our best effort, the projected revenue collections from TRAIN will not be enough to cover half of our investment requirements, but it will prevent us from further stretching our finances.
Thankfully, revenue collections turned out higher-than-expected for the first quarter of the year, finally reversing an era of constantly missed targets. This, of course, is a welcome development. From January to March of 2018, the Bureau of Internal Revenue collections exceeded its target by 16.8%. The higher excise taxes from the TRAIN law have been instrumental in boosting revenue collections.
SPEND, SPEND, SPEND
Although the Philippines has recorded stellar economic growth rates in the last few years and even outperformed several of its peers in the region, infrastructure investments have failed to keep pace with growing demand. Infrastructure to GDP spending, for example, averaged at only 2.4% from 2010 to 2016. Consequently, the underinvestment in the sector has prevented us from reaching our full economic potential.
In an effort to overturn our dismal performance, the Duterte administration promised to allocate record-breaking funds into the sector to usher in the “golden age of infrastructure.” The government’s aggressive infrastructure campaign has so far yielded promising results.
When asked about the government’s spending performance last August 2017, Budget Secretary Benjamin Diokno remarked that underspending was “a thing of the past,” noting then that disbursements were almost “on the dot” for the programmed budget. Diokno’s bold declaration followed through for the rest of 2017, as infrastructure to GDP spending reached 3.6% and exceeded its programmed disbursements. This trend continued at the start of 2018, with the government’s commitment to roll out infrastructure projects in “full steam.” Indeed, the first four months of 2018 saw a 48% increase in infrastructure spending, on the back of construction and improvement of road and flood systems. Overall disbursements also jumped by 29.4% during the same period year on year.
Despite the faster infrastructure disbursements, several highly publicized “Build, Build, Build” projects, or 75 high-impact and critical projects that the government wants to showcase, have seen their completion dates pushed back due to issues such as the delays from right-of-way and the constrained capacity of construction companies.
Since the bulk of revenues from TRAIN are meant to fund infrastructure projects, it is crucial for the administration to deliver its Build, Build, Build program. Filipinos need to see concrete and tangible changes, instead of being wooed by lofty but empty promises.
MITIGATING MEASURES
Consumer prices rose to a four-year high of 4.1% for the first four months of 2018. Private sector economists expect inflation to reach 4.1% in 2018 and to inch even higher to 5% due to second-round effects from higher taxes. For the bottom 30% income households, the inflationary impacts are even greater, driven by higher food, beverages, and tobacco prices, which account for three-fourths of their consumption. Unsurprisingly, this segment of the population would be worse off under the TRAIN law since they will have to pay for the higher prices of commodities without benefitting from the relief of lower income taxes. While it is unfair to pin the rise of prices solely on TRAIN, the timing of its implementation, in conjunction with other external factors such as higher global oil prices and a weaker peso, all contribute towards the burden of inflation.
Secretary Diokno stressed that, “We are going to benefit from this. It is for the poor.” Indeed, a portion of TRAIN’s revenues are earmarked for various social safety nets. To cushion the poor against higher prices, the government is rolling out its unconditional cash transfer of Php 200 per month, covering 10 million Filipinos and expanding the current 4.4 million beneficiaries of the Pantawid Pamilyang Pilipino Program (4Ps). For this year, P25.67 billion has already been allocated for unconditional cash transfers. Yet, the simultaneous release of the unconditional cash transfers has only complicated an already faulty system. Unfortunately, close to 60% of beneficiaries have yet to receive their cash transfers, with the Department of Social Welfare and Development admitting that it was hard-pressed to roll out the program on time.
Other mitigating programs, such as the Pantawid Pasada, a revival of an ad interim measure implemented by the Department of Energy in May 2011 to cushion the impact of higher fuel prices on drivers and commuters through subsidies, is still expected to be implemented at the end of 2018. Just like the cash transfer program, the Pantawid Pasada was riddled with issues that usually plague targeted transfers including duplicate or fraudulent households, unliquidated funds due to distance or ineligible beneficiaries, and untimely release of funds.
To address this, the government is pushing for a National ID system or Philippine Identification System to make it easier to target qualified beneficiaries for the government’s social protection programs. The government has already allocated P2 billion to roll out the system in 2018, where senior citizens and PWDs will reportedly be prioritized, followed by the poorest 5.2 million households that do not have 4Ps cards. Both houses of Congress recently ratified the bill, and as of this writing, it is only awaiting the President’s approval.
Without these measures in place, the poor, who have not benefitted from the cut in income taxes, will continue to bear the brunt of higher excise taxes.
WHAT’S NEXT?
The country’s experience of TRAIN should serve as a lesson from which our lawmakers and economic managers could learn. Unfortunately, in its rush to approve tax packages, ostensibly to generate revenues to fund its investment requirements, the government may have overestimated its readiness to implement these reforms. As our legislators deliberate on succeeding tax proposals, they shouldn’t expedite the passage of the next tax package without carefully studying its wider impact. Otherwise, we end up repeating the same narrative as that of TRAIN, with the government punching above its weight.
 
Weslene Uy is Senior Economic Research Associate at Stratbase ADR Institute.

Two years of Dutertismo

IN 2016, we witnessed power shifts around the world with the rise of populist, nativist, or nationalist politics on a global scale. Rebalancing themselves between change and continuity, the demands for radical social change have gotten more pronounced due to rising inequality amidst wealth, economic growth, and disruptive social forces. In 2017, we welcomed a new world order or disorder: where societies continue to face a state of political uncertainty, unpredictability and international factors beyond the control of national governments and economies. In 2018, more uncertainties have unfolded that characterize an ever-changing political dynamics and political economy of societies. In this post-factual world, we are simply caught in a tug-of-war between change and continuity.
The Philippine landscape is not isolated or alien from these political and economic conditions. Time and again, the emergence of strong-willed leaders has historically wooed and rallied political support from the people in unprecedented scales. Surpassing the electoral votes garnered in 2016 and the performance ratings by past presidents after two years in office, President Rodrigo R. Duterte faces bigger challenges in managing the affairs of the country. Consequently, he finds himself in much tighter and expansive situations than simply being a mayor of Davao city.
Two years into his presidency, Mr. Duterte’s national policy has been anchored on three elements, namely, re-establishing the rule of law, Dutertenomics, and restructuring the form of government. Re-establishing the rule of law consisted of suppressing crime, illegal drugs, and corruption; strictly implementing the rule of law; and ending insurgencies and combating terrorism.
Dutertenomics (or the promotion of inclusive socioeconomic growth and development) comprised of expansionary fiscal policy to fuel investments on public infrastructure and social services, massive infrastructure investments as its centerpiece (from 5.2% in 2017 to 7.4% of GDP in 2022), rising social services spending (from 8.5% in 2017 to 9.2% of GDP in 2022), tax reform to finance investments in human and physical capital, and the focus on investment and industry as major drivers of GDP growth. Meanwhile, the adoption of a federal hybrid system is at the centerpiece of restructuring the form of government with the goal of making it more functional.
With the promise of radical change and adherence to the rule of law, Mr. Duterte is a leader who wants to outrun the “past” and break from its traditional practices. To make the difference, he has initiated actions and policies to disjoin from the traditional practices and has continued to attract popularity by appealing to the nationalistic and sectoral sentiments of the population. However, the problems that he wants to confront head on are historical problems embedded in a whole gamut of societal concerns. For instance, the problems of rebellion and illegal drugs are national (and international) concerns and cannot be resolved through simplistic and militaristic methods. After successfully combating terrorism in Marawi City, the presidency is now endeavoring to achieve much-stalled peace talks with the Communist rebels.
What makes Mr. Duterte an easy target of political scrutiny is his overarching tendency of not displaying appropriate public relations and diplomacy. As a president, a national leader should not plainly approach political dissent and opposition like a mayor bereft of political astuteness and statesmanship. A mayor openly and dauntlessly speaks about town or city issues, unwary of whatever the other local leaders in surrounding towns and cities would say. In turn, a president speaks to the public with all diplomacy and decency and takes into consideration the impact of the statements made. Thus far, what we have then is a parochially adventurist president undaunted by the local, national, and international repercussions of his actions and pronouncements.
Aside from this leadership style, another contributing factor is the web of social relations that he might be challenging, restructuring or reinforcing. Unlike other presidencies that have been indebted to the national oligarchy, Mr. Duterte efforts to exercise political independence from them are fragile.
In an international context, to exercise independence from foreign powers should be done with utmost diplomacy. The blunt, hostile, and arrogant withdrawal from an international judiciary institution does not only promote a politically myopic perspective but undermines years and decades of democratic struggle and achievements. This is why the withdrawal or the threat to withdraw from the International Criminal Court is a big blunder. International politics dictates upon the culture of unending negotiation and bargaining and détente.
However, what could we call the co-ownership agreement of the West Philippine Sea between the Philippines and China? While co-management is a very diplomatic and astute way of addressing the problem, to “share” what is originally ours is simply an abandonment of our sovereignty. If Mr. Duterte could stand up against western international institutions and foreign powers, succumbing to another foreign power clearly undermines the anti-mendicancy principle he has pronounced. In short, the administration has simply manifested a radical turnaround in its foreign policy.
Without establishing the grounds for economic democracy, political democracy is fleeting. It is in this crux of political economy where a national leader can initiate and implement the much-needed change to break from the web of social relations that have dominated Philippine politics.
Consequently, initiatives in battling corruption and advancing political reforms will tend to be impeded by either piecemeal or abrupt actions. For example, the sacking of public officials due to their lifestyle, foreign trips or hidden wealth is not accompanied by follow-up investigations to arrest the many other corrupt officials from top to bottom. Another remarkable initiative is the destruction of high end imported cars. While it created headlines and demonstrated the resolve of the administration to combat smuggling, again, the absence of subsequent inquires and investigation merely relegates such action to a show-off.
As for the concern that TRAIN promotes inflationary effects, the bottom line for the ordinary Filipinos is the cost of their everyday existence. Although in its very early stages of implementation, the mid- and long-term effects of this tax measure would indeed be revealed and experienced. Initiated by the current administration, the railroading of this measure for speedy promulgation has become suspect to many. Currently, the decision as to whether or not to suspend TRAIN amidst increasing inflation is left to Congress.
In the case of federalism, its railroading insinuates a significant degree of the presence of a hidden agenda. Be it in terms of power retention and extension or the preservation of patron-client politics, the current meticulous politicking within the House of Representatives is remarkable. Moreover, to require federalism as an ideal to be accepted as a PDP senatorial candidate casts more doubt on the true nature of the federalist agenda.
Lest we forget, the electoral platform and national program of Mr. Duterte animated by his leadership style has reaped favorable performance ratings from the public. Overall, he enjoys a much better level of public perception compared to the last five presidencies. Although contingent, the trend of his performance and the public trust ratings provided by third party institutions projects a positive trajectory.
The performance ratings of Duterte in the last quarter of 2017 rebounded at +71% satisfactory rating with a +58% net satisfactory rating. The net rating posted a 10-point increase compared to the third quarter of the same year. Similarly, the Pulse Asia survey of in the month of December gave an 80% approval and 82% trust ratings for the top official. The approval ratings did not change while the trust ratings posted an increase of 2 percentage points. This relatively remarkable rebound coincided with the phenomenon where Filipinos expressed widespread hope for the New Year. The SWS survey of 18-16 December 2017 registered an all time high record where 96% of Filipinos are “entering 2018 with hope rather than with fear.” This phenomenon is not unrelated to the changing political environment that the new presidency has brought about.
And after bouncing back by 5 percentage points, the satisfaction rating of PRRD slid by a negligible 1 percentage point, from +71% in the last quarter of 2017 to +70% for the first quarter of 2018. Accordingly, his net satisfaction rating also slid by 2 percentage points, from +58% to +56% in the same periods mentioned.
In essence, whether Mr. Duterte is another “strongman” in the making and capable of demonstrating his political will to achieve radical social change, the democratic adage that institutions matter more should not be overlooked. As leaders come and go, institutions are here to stay.
Hence, the restructuring of the form of government to make it more functional goes beyond the superficial form or system it assumes. Rather, it digs into the deeper condition of a political institution as the breeding ground for democratic values and aspirations.

Breaking the routine: Will ChaCha now go forth?

By Charmaine A. Tadalan and  Gillian M. Cortez
AFTER ATTEMPTS by the past administrations to overhaul the 1987 Constitution, is the government’s bid, on President Rodrigo R. Duterte’s watch, toward federalism likely to succeed this time?
Charter change has been a recurring episode since the Marcos era, with a total of six constitutions adapted by the country since its independence in 1898, according to the state gazette.
For much of the Commonwealth until the postwar era, the 1935 Constitution was the sacred law of the land, revived after the end of Japanese occupation and the Pacific War.
But by Ferdinand E. Marcos’s second term at the ominous dawn of the 1970s, the idea of charting a new law that was supposed to keep up with the times began to take shape, if only to be severely compromised by bribery charges at the Constitutional Convention (Con-Con) then, and, at last, by the outcome of a Marcos-tailored constitution ratified at the start of martial rule with the nation held at gunpoint. In hindsight, it was this episode that spawned the persistent campaign since for constitutional revision in the post-Marcos era.
After Mr. Marcos was toppled by the 1986 People Power Revolution, his successor Corazon C. Aquino sought to restore the spirit but not the actual body of the 1935 Constitution by dismantling remnants of the Marcos dictatorship and his legal framework, the 1973 Constitution. She issued Proclamation No. 3, practically declaring a revolutionary government and providing a provisional “freedom” constitution, and formed a constitutional commission in the manner followed now by Mr. Duterte, to draft a new charter that was ratified in a plebiscite the next year.
But in less than a generation’s time, there have been attempts to revise the 1987 charter by the administrations of Presidents Fidel V. Ramos, Joseph E. Estrada and Gloria M. Arroyo. Only now, in Mr. Duterte’s time, is the call to revise the Constitution’s nationalistic provisions, particularly on foreign equity, gaining traction.
Past charter-change campaigns before Mr. Duterte were either tainted by political motives akin to Mr. Marcos’s designs for power or opposed by concerted protest action precisely on that suspicion. The Senate, too, had opposed these charter-change moves, as political science professor Gene L. Pilapil of the University of the Philippines pointed out in an interview.
Back then, the charter-change campaign, especially on Ms. Arroyo’s watch, advocated a unicameral legislature and was therefore aimed at the Senate.
“Institutionally, the fate of these charter change campaigns was determined by the opposition of the Senate who stood to be the most negatively affected in the shift,” Mr. Pilapil said. “But at the same time, (the chamber was) in a position to be the one to vote on whether or not there will be a call for a constituent assembly or a constitutional convention.
Fast-forward to the present: a constitutional change is underway, this time not simply to introduce amendments.
The shift to a federal system was a key advocacy in Mr. Duterte’s presidential campaign in 2016. Six months into the presidency, he issued an executive order organizing the Consultative Committee (Con-Com) to Review the 1987 Constitution, but it wasn’t until January this year that he completed the appointments to this body. As of this reporting in June, the review body had until July to furnish the President a draft constitution ahead of his third State of the Nation Address (SONA).
“This is the first time in the history of this country, where a presidential candidate… already espoused federalism,” former Senate President Aquilino “Nene” L. Pimentel, Jr., who is part of the Con-Com, told BusinessWorld in an interview.

Fast-forward to the present: a constitutional change is underway, this time not simply to introduce amendments.

In the controversial Con-Con of the early 1970s where he also took part, Mr. Pimentel opposed Mr. Marcos’s designs for power and was subsequently detained, together with other delegates opposed as well to the Marcos dictatorship. In the present political environment, he appears to be more open to the possibilities of genuine political reform via constitutional amendments. And like Mr. Duterte, Mr. Pimentel is also a leading advocate of federalism.
“So, if you become a federal state under our proposal, then every state determines the kinds of investments which go to their area and the incentives they will give without seeking the permission of a centralized government agency like NEDA (National Economic and Development Authority),” Mr. Pimentel said.
Con-Com member Arthur N. Aguilar, chairman of the subcommittee on economic affairs, shares Mr. Pimentel’s regard of the work ahead for this body. “Right now, It’s centralized in NCR, CALABARZON, and Central Luzon. That’s about 60% and all regions are in fact languishing, so (the federal system will) empower the regions to plan and have a greater degree in (the economy),” he said.
Mr. Aguilar also cited the recently enacted Ease of Doing Business Act of 2018 as a “precondition” to strengthening an inclusive economy. “When you bring down the permits and licenses to the regions, then it must be easier for businesses to grow from there, and then the regions would have, hopefully, greater share of the tax revenues, that they can plan their own infrastructure (program) and invite investments to generate employment and livelihood,” he said.
Adapting a federal system is believed to devolve government’s power and spread it out across the federated regions. The proposed charter being finalized by the Con-Com intends to grant regions autonomy over economic development, tax policies and foreign and trade relations, among others.

This is the first time in the history of this country, where a presidential candidate… already espoused federalism.” — Former Senate President Aquilino “Nene” L. Pimentel, Jr. told BusinessWorld

These reforms should take effect at least three years after a federal system is in place. But some regions, like Davao and Bicol, are seen to develop faster than the others, according to Mr. Aguilar.
University of the Philippines Professor Antonio Gabriel M. La Viña also echoed in this statement, saying “We have so many successful local governments compared to years ago. Many local governments can take care of themselves (And) many local governments would rather not deal with Manila anymore and that gives them an opportunity for all of them in a regional level. There are so many local governments that have expanded already.”
The UP Professor said that the spread in government power will be convenient for regions. “In (a) archipelagic country it’s always better to disperse. The nearer the regional center is to the local, the better,” he explained.
Unlike the 1987 constitution, Mr. La Viña stressed “Federalism is about creating entity in the region that will now exercise same powers as the national in that same level, and it’s better there. They don’t have to go to manila. They don’t have to go to manila (because) it stops there in the regional level. You’ve been giving the regional level the power to do that.”
For its part, Commissioner Amabelle C. Asuncion of the Philippine Competition Commission (PCC) has advised the committee to ensure consistency in the regulation of competition across the country. “This will preclude (federated regions) from passing their own competition law or forming their own competition commission, so it will be centralized, nationalized,” she said.
The effect of Federalism on business is still up for debate since it will depend on what type of Federal government the Philippines will choose to shift to. Chamber of Commerce of the Philippine Islands President Jose Luis U. Yulo, Jr. said, “It must be further noted that each country has their own versions of Federalism and not all are necessarily successful great countries.Therefore, the economic impact of federalism will greatly depend on the details of the devolution of powers and how these powers are managed.”

“People are beginning to see beyond the big promises that federalizing the form/structure of government is not the correct ‘means,’ and in fact will be counter-productive…” — Christian S. Monsod, member of the 1986 Constitutional Commission

As promising as federalism sounds, however, Mr. Pilapil as well as lawyer Christian S. Monsod, a member of the 1986 Constitutional Commission, still note the public skepticism toward yet another charter-change drive.
A June 2018 Pulse Asia Survey reported 67% of Filipinos are not in favor of amending the 1987 Constitution either at the present (30%) or in the future (37%) while a mere 18% supports Charter change. The same survey showed 62% of the population opposed to federalism now (28%) or in any other time (34%), with only 28% in favor and the rest, undecided.
“People are beginning to see beyond the big promises that federalizing the form/structure of government is not the correct ‘means,’ and in fact will be counter-productive, to address the most urgent problems of mass poverty and gross inequalities, where we are the laggards in our part of the world,” Mr. Monsod said.
He pointed out, further, that the move toward federalism is not even included in the Philippine Development Plan 2017-2022 and Ambisyon Natin 2040, the medium and long-term plans for development. In fact, the plan has about 300 targets, based on strategies to address the issue of underdevelopment of outlying regions.
Mr. Monsod also sees the federalism drive as heading toward “constitutional authoritarianism” — and this is where the latest enterprise on charter change is still haunted by the ghost of Marcos.
Like Mr. Monsod, Mr. Pilapil expects the Senate to handle the present charter-change enterprise with scrutiny. “The Senate may not agree to a joint vote. Even with a separate vote, (convening Congress into a constituent assembly) may not get the ¾ vote of at least 18 senators to approve (the) new constitution (expected to be proposed by the Con-Com).”
“In which case, the charter change project will die a quiet death. And we will have wasted precious time in addressing the real problems of mass poverty and gross inequalities,” Mr. Monsod said.
Atty. Ramon A. Pedrosa, Chairman Emeritus of the CCPI, said Federalism “is a unitive system. The desideratum of granting hithereto national power to subsidiary entities will divide the country.”
The CCPI chairman added that giving regions their own power could possibly lead to weakening of the peso and rising of inflation. “Unless firm monetary and fiscal policy is reserved at the center, the new-found independent economic policies at the local federated level may create a situation where the buying power of the peso may deteriorate into runaway inflation,” Mr. Pedrosa said.
Mr. Yulo added that the Federated regions possibly passing different laws that govern business and economy could make it “become more difficult to do business within our own country.”
Mr. Pilapil said the goal of a federal system to end the dictates of “Imperial Manila” could be better achieved by amending the present Local Government Code.
“(The) problem is, Congress has not even done a single review of the Local Government Code as a first step to amending it, since (it has been) 26 years after (its enactment) — a mandatory review that should be done at least every five years under Section 521 of the code,” Mr. Pilapil said.
Mr. Monsod agreed with that suggestion, noting as well that what the Philippines need now is not a new constitution, but rather the full implementation of the 1987 Constitution and its provisions on social justice, human rights, and local autonomy.

Analysts cite Duterte’s options and China’s odds in sea row

IN THE SECOND of three presidential debates in 2016, then-candidate Rodrigo R. Duterte asked contender Grace Poe, by way of testing her relative inexperience in her five-plus years in public office, what she would do in a Chinese attack on the Philippine Coast Guard.
Ms. Poe answered at that forum in Cebu (posted on YouTube by Bloomberg TV Philippines) that she would summon the military chief and the head of the Transportation Department, being the mother agency of the Coast Guard, and engage other nations with whom the Philippines observes such commitments as the Visiting Forces Agreement:
Ang kailangan natin gawin ay siyempre ang Presidente, kailangan bumangon agad….Mabilis na babangon ang Presidente at itatawag ang head ng AFP (Armed Forces of the Philippines) at ng head ng DoTC (Transportation Department), sapagkat nandiyan napapailalim ang Coast Guard….Ngayon, meron tayong Visiting Forces Agreement. Meron tayong kasunduan sa ibang bansa kung papaano tayo dedepensahan. Totoo, ayaw natin umasa sa kanila….Kung ano ang pwede natin gawin sa pagkakataon na yun, kailangan ay depensahan natin ang ating bansa. Pero ang totoo, kailangan din natin ng tulong ng ibang komunidad para tayo madepensahan. Pero hindi nangangahulugan na hindi natin palalakasin ang ating military.”
Mr. Duterte won the presidency that year and was immediately confronted by this issue of the Philippines’ maritime tension with China which, as some critics have pointed out, exposed his own relative inexperience in an arena much broader than the national scene, geopolitics.
Since then, the Hague arbitral court ruled in the Philippines’ favor in its dispute over Chinese expansion toward the archipelago’s exclusive economic zone (EEZ). Mr. Duterte sought to revive and nurture the country’s relations with China — and also sought to alienate traditional ally the United States. In the course of this foreign policy, Chinese militarization has advanced in the disputed South China Sea, prompting other world powers to step up pressure on China, while Filipino fishermen contended with the gut issue of recovering their threatened livelihood amid the pursuing Chinese coast guard in our EEZ.
The criticism against Mr. Duterte, not all of it by personalities identified with the opposition Liberal Party, has in turn led to this issue acquiring a political color. And further complicating this matter, as analysts see it, is Mr. Duterte’s raising the specter of war.

Mr. Duterte won the presidency that year and was immediately confronted by this issue of the Philippines’ maritime tension with China which, as some critics have pointed out, exposed his own relative inexperience in an arena much broader than the national scene, geopolitics.

‘LAST COUNTRY TO WANT WAR’
“The President constantly talks about war,” said foreign policy expert Richard J. Heydarian of De La Salle University (DLSU) in a June 6 interview for this article. “That is part of a deliberate attempt to lure false choice for the Filipino people. To say we have only two options is completely devoid of realities on the ground.”
“We know that China is the last country to want war in the South China Sea,” Mr. Heydarian said. “First and foremost, China relies on stability in the South China Sea as (its) oil and gas pass through the South China Sea. Any war will affect China’s trade and strategic interests.”
“The moment they declare war, (this) will immediately alienate every other country that has not seen it (China) as an aggressive power. All these fence-sitters will now consider aligning with the US and the rivals of China. The moment China engages with the United States, this will be used as a pretext (by the US) to also step (up its) military presence in the area,” Mr. Heydarian also said.
He further pointed out that China “wants to be a regional leader. Being a regional leader is all about legitimacy and authority. It’s not about brute force. The moment China is seen as an aggressive force, China will lose legitimacy and authority. And China’s bid to become the center for East Asian architecture will come to an end.”
Also sought for this article, defense analyst and Institute for Policy, Strategy and Development Studies fellow Jose Antonio A. Custodio noted how “countries as far away as Europe have decided to participate in showing the flag and sailing through the South China Sea. Now these are very powerful countries with very capable militaries which in fact, from a maritime and naval dimension, outmatch that of China. Hence, China will be hard-pressed to proclaim its ownership of the area when navies steam through these waterways with impunity.”
As this story was written in June, US bombers had reportedly flown by Chinese defense installations and occupied islands in the South China Sea, on the heels of French ships also sailing by the disputed waters the previous month. France and Britain have agreed to sail its warships there, following warnings by US Defense Secretary James Mattis of Beijing’s “intimidation and coercion” in the South China Sea.
“Global powers are doing that to prevent China from redefining the world order and international system of relations that grew out of the experience in World War Two,” Mr. Custodio said. “That is not merely doing it for the Philippines’ behalf but in order to protect the accepted system of international norms where unilateral declarations of ownership and control especially of large areas is not acceptable.”
Indeed, a report last May (and released in June) by the Congressional Research Service of the US Congress had articulated the “US position on territorial and EEZ disputes in the Western Pacific (including those involving China)” to include the following “elements”: that “the United States takes no position on competing claims to sovereignty over disputed land features in the ECS (East China Sea) and SCS” — a position that, to be sure, is also qualified in the report — and that “the United States supports the principle of freedom of seas, meaning the rights, freedoms, and uses of the sea and airspace guaranteed to all nations in international law. The United States opposes claims that impinge on the rights, freedoms, and lawful uses of the sea that belong to all nations.”
CASUS BELLI
The US pressure on China has been widely regarded as an effort to catch up from its stance in this region during the previous Obama administration.
“We see that when the Chinese started the reclamation in 2013, for two years, everyone was in a state of shock and awe,” Mr. Heydarian said. “Even the United States did not react, in the Obama administration. And I think it will forever dent President Obama’s administration. The US was an absolute failure in the first years. Only recently did they take up the cudgel, and, in reality, the US on their own has not been very effective against China. It has actually given China an excuse that any militarization is defensive.”
The report to the US Congress last May is quite notable for its tenor in describing China’s strategy in the South China Sea: “Some observers characterize China’s approach for asserting and defending its territorial claims in the ECS and SCS as a ‘salami-slicing’ strategy that employs a series of incremental actions, none of which by itself is a casus belli, to gradually change the status quo in China’s favor.”
China’s “incremental actions” may well refer to developments in the South China Sea up to this point, notably Chinese installations last year, as monitored by Washington think tank Asia Maritime Transparency Initiative (AMTI).

The US pressure on China has been widely regarded as an effort to catch up from its stance in this region during the previous Obama administration.

“During Duterte’s administration, China’s militarization has seen an acceleration,” Mr. Heydarian said. “Only now do we see the full weaponization of islands and…, contested land features. In the past few months alone this year, we have seen China deploying electronic jamming equipment, surface-to-air missile sites, anti-cruise ballistic missiles, and nuclear-capable bombers, and likely soon, they will also deploy jet fighters as they have said consistently in the past few weeks.”
He added: “Under Duterte, it seems the Chinese are also expanding their strategic footprint in the Benham Rise. We’re facing Chinese ships in the Eastern and Western coastlines.” This, despite recent efforts by the Duterte government to keep watch over what his Executive Order No. 25 now officially calls the Philippine Rise.
Mr. Heydarian took note of how other countries in the region are dealing with China. “We look to Malaysia,” he said. “In the past two decades since Mahathir resigned in (2002), Malaysia adopted a policy where China will not creep into Malaysian claimed waters and will not claim land features in the South China Sea. They (the Malaysians) have been completely disproven. That is why when Mahathir returned (to power), he is now taking a proper stance on China both in Chinese investment, and then of course questioning the necessity to remain quiet when China is clearly undermining Malaysia’s interests in the South China Sea.”
The analyst also cited Vietnam and Indonesia as “countries (that) are stepping up their efforts” before China. Vietnam, which is no stranger to conflict with China, is a case in point, going by AMTI’s June 13 report (as of this article’s writing) on Vietnam’s dredging activity at Ladd Reef in the Spratlys.
At the same time, “Vietnam has issued strong words as it has called for the removal of these Chinese military installations,” Mr. Custodio for his part said. “Indonesia also has acted assertively against Chinese encroachments. It is only the Philippines through the Duterte administration which is doing what Beijing wants.”
“As long as the Duterte administration remains in position, it is expected that the Philippines will not do anything to displease China,” Mr. Custodio said, adding that “the Philippines has broken ranks with its ASEAN (Association of Southeast Asian Nations) partners on the matter of Chinese aggressive expansionism in the South China Sea.”
Said Mr. Heydarian: “We are now alone as one of the major claimant states that is hoping that by being meek towards China we’re gonna get their mercy. I have yet to see the mercy.”
“This is a self-inflicted appeasement policy vis-a-vis China,” said professor Renato Cruz de Castro of DLSU’s International Studies Department who was also sought for comment. “The other side would consider you weak and not respect you and, in fact, deal with you with utmost contempt. That’s what’s happening right now.”
“We should use diplomacy to create a coalition of states that of course would legally and diplomatically challenge China. That is our approach. We have to rely on that,” Mr. De Castro also said.
Even without a formal coalition, there is a broad understanding — among the global powers and ASEAN’s more assertive members — that weighs against China’s expansion. The need now is for the coordination of this common interest, with or without the Philippine initiative in this effort.
“The US should put forward a maritime security initiative where (it) will help (the) Philippines, Vietnam, and other counties to develop their capabilities,” Mr. Heydarian said. “(This) has to be multilateral — it’s important all major powers with interests in preserv(ing) order and the status quo to help the community. You have the Australians, and the Japanese and Indians have conducted military drills as well. Britain and France have sent ships as well. Remember, France, Britain, and US are all members of the UN Security Council. Russia, by the way, is not taking China’s side. Russia is helping Vietnam in developing their submarines and maritime capabilities. China is against four members of the UN Security Council. The message here is it’s not China versus US. Its China versus the international community.”
Mr. Duterte, however, sees the geopolitical situation differently. Amid the US pressure on China, he said, on the occasion of the 120th anniversary of the Department of Foreign Affairs, that “even the United States has shown a little bit of apprehension” toward China.
He added that “if you go against China, Russia will join the fray.”
For his part, Foreign Affairs Secretary Alan Peter S. Cayetano asserted that Mr. Duterte, “even before he won, knows independent foreign policy. He understands geopolitics.”
And to criticisms of the Philippine position on the South China Sea, Mr. Duterte said: “(W)hat do you want? What kind of pugnacious attitude would I have to adopt to convince the Chinese to get out?”
‘SUBMISSION AND WAR’
“It’s completely misguided and it’s ignorant to imply that our choices here are submission and war,” Mr. Heydarian said. “There is a wide spectrum of strategies the Philippines can adopt. We should upgrade our security pacts with America. We can upgrade our maritime capabilities with India, Australia, and Japan.”
He added: “The reality is that, (al)though Duterte has not been a huge advocate of deterrence with China, the AFP has been very clear that their duty is to protect our territorial sovereignty. You have this kind of dissonance with Philippine foreign policy. We need internal checks that the Executive doesn’t undermine our national interest.”
On the other hand, the DFA has been criticized for what Mr. Custodio describes as its “obfuscating game.”
“It claims it has done a lot to protest what China is doing when in fact it has no previous documents to prove that it did protest,” he said. “In fact, while it goes through the motions to unwillingly protest, it has accelerated internal moves to undertake joint operations with China knowing full well that this will put the Philippines at a great disadvantage as this is tacit recognition of Chinese suzerainty over the area.”
In a press conference on June 14, when this article was being written, Mr. Cayetano maintained that the Philippines was standing firm on its sovereignty.
“I’m assuring you that we’re taking all diplomatic action,” Mr. Cayetano said. “May (We sent a) note verbale, may verbal protest, may written protest, may demarche. So iba-iba ’yung paraan ng (we have taken different steps in terms of) diplomatic action. Meron ding pong minsan ’yung (Sometimes we seek an) inquiry. Ngayon ang sinasabi natin (Now, what we have been saying) from the start that I took over, we do not believe in megaphone diplomacy or microphone diplomacy. We will do our work. We will get the results we want. We have the same objective as past administrations to secure our national territory and protect our sovereign rights. But we will not announce to you every single time we do something.”
Mr. Heydarian, in our interview, had recommended that “We can openly threaten China to embarrass them with the arbitration award. The nine-dash-line doctrine is increasingly disappearing from Chinese diplomatic lingo. They cannot defend it anymore as it was equivocally struck down by arbitration. They are using a different doctrine. So the arbitration award is a continued source of leverage.”
But on that matter, Mr. Cayetano said he had consulted a number of experts who advised him, “’Sir, tignan niyo ’yung sinubmit niyo sa arbitration award. Hindi niyo naman pina-define na nasa EEZ ang Scarborough. Ang sinabi niyo lang, traditional fishing ground.’ So bakit dati hinihuli natin ang Chinese at Vietnamese? Ngayon hindi lang nawala ang control, nasa award pa tuloy na it’s traditional fishing ground of both.” (Sir, look at what you submitted for arbitration. You did not ask that Scarborough [Shoal] be defined as part of the EEZ. You just [cited it as] traditional fishing ground. So why did we even apprehend the Chinese and the Vietnamese [in the past]? Now, not only did we lose control, it’s even in the [ruling] that it’s traditional fishing ground for both.)
“It’s a complex, legal (matter). But this is being brought out by the legal experts sa atin (among us),” the country’s top diplomat continued.
“Pero hindi ibig sabihin na inaatras natin kung kanino ’yun. Kung sasabihin natin, halimbawa, ni Willard, kotse ni Willard ’yun sabi ko kotse ko. Sasabihin ko hindi ako makikipag-usap kay Willard kung ang sasabihin na lang niya ay kotse niya ’yun. At sabihin niya rin, ‘Hindi ako makikipag-usap kay Alan kung sasabihin na lang na kotse mo ’yun.’ Kung sasabihin niyo, ‘Willard, Alan, huwag kayo magbago ng stand ninyo pero mag-usap kayo kung pwede MWF si Willard may gamit, Tuesday, Thursday, Friday, ako may gamit.’” (But it doesn’t mean we are withdrawing [the matter as to] who it [e.g. Scarborough] belongs to. If we say, for example, Willard says he owns the car that I say is mine. I will say I won’t talk to Willard if all he’’ll insist is that it’s his car. And he’ll also say, ‘I won’t talk to Alan if all he says is it’s [his] car.’ And if you say, ‘Willard, Allan, don’t change your stand but talk among yourselves if it’s possible that MWF [Monday-Wednesday-Friday], Willard will use [the car], Tuesday, Thursday, Friday, I’ll have the car.’”)
“Ngayon, kung ako may control, may talo ako doon. So sasabihin ko, ‘Willard, bakit ko pagagamit ko ito three times a week nasa akin?Pero kung siya hindi in control, hindi ba mas maganda na pansamatala, Monday, Wednesday, Friday, nasa kanya. Kaso sa wala at all.” (Now, if I had control, I’d still lose. So I’ll say, ‘Willard, why will I let this [car be used] three times a week that I have it?’ But if he is not in control, wouldn’t it be better that for the time being, Monday, Wednesday, Friday, he has it. Better than nothing at all.)
“President Xi (Jinping) and President Duterte agreed na mahirap na umatras sa posisyon ang bawat bansa (that it would be hard for each of the countries staking a claim to withdraw their position). Ang Vietnam, Malaysia, hindi sila aatras sa kanilang posisyon. Ang Pilipinas hindi aatras sa kanyang posisyon. Ang China hindi aatras.”
“So that’s why they have to answer it that way because they never agreed to give up their position at this point in time. But ang sinasabi ng China (as China would say), look at our history. For 40 years, we negotiated boundary disputes on land and after 40 years, most of them have been resolved, so why can’t we talk and resolve here?”
Relations between the Philippines and China, which are now hinged on this unresolved maritime tension, are being watched by this country’s sectors as well as by the citizenry, among whom the polls show China enduring a problematic regard. But with its long experience with adversity and resistance, the nation carries on, regardless of government. — R.S.Torre with interviews by Arjay L. Balinbin, Dane Angelo M. Enerio, and Camille A. Aguinaldo

Two years of Duterte: A mixed picture of drug war, economic boom

PRESIDENT RODRIGO R. Duterte’s two years in office in the Philippines have been marred by controversy, but with one big success: a booming economy. The jury is still out if that’s because, or in spite, of him.
The brash, 73-year-old leader — nicknamed The Punisher when he was a crime-busting town mayor for two decades — has led an anti-drug war that’s killed thousands of people, been labeled a misogynist, angered Catholics with his blasphemous statements and sidelined some of his enemies.
Yet an economy growing more than 6 % and rising incomes have helped keep his popularity intact.
He’s pushed through a tax reform plan, poured money into a 9-trillion-peso ($170 billion) program to build roads and railways, added jobs and kept growth momentum going.
The remaining time of his single six-year term in office will be more challenging. The economy’s outlook is turning sour as inflation surges to a five-year high, investors dump the nation’s stocks and the currency hits a 12-year low against the dollar. That’s not to mention mounting global risks, such as a U.S.-China trade war and rising interest rates.
STILL POPULAR
Duterte’s satisfaction ratings remain high compared to his predecessors
As Duterte enters his third year in office, here’s a look at how his administration has performed on some key indicators.
TAX REFORM
A comprehensive tax plan implemented this year — which lowered income taxes and raised levies on sugary drinks and oil products — boosted government revenue by 19% in the first five months of the year compared to the same period last year. That’s given Duterte more room to spend on projects to support an economy expanding near its potential growth of 6.9 % to 7 %.
Duterte’s government has also taken a hardline stance against tax evasion, winning big in a settlement against cigarette maker Mighty Corp. for alleged wrongdoing.
TAX BOOST
Duterte’s tax reform implemented this year is showing positive impact on collection.
Duterte’s flagship program is dubbed Build, Build, Build, and involves almost 5,000 projects that are expected to generate 43 million jobs by the end of his six-year term. The focus is to spend 859 billion pesos completing 32 of 75 key infrastructure projects by 2022, including upgrading Manila’s airport and rail links from the capital to northern provinces.
DUTERTE’S “GOLDEN AGE” OF INFRASTRUCTURE
The infrastructure push will widen the budget deficit to 3.2 %of gross domestic product next year, above the government’s cap of 3%, Finance Secretary Carlos Dominguez said on Monday.
INFLATION
The tax law boosted fuel costs, and coupled with rising oil prices and a weak currency, pushed up the inflation rate to 4.6 % in May. The central bank will miss its 2 %to 4 %target this year and is worried about price pressures spreading more broadly in the economy and adding to wage demands. Governor Nestor Espenilla has raised interest rates twice this year, with economists predicting he’ll tighten some more in the second half of the year.
CURRENCY
The peso has been one of the hardest hit in Asia this year as stocks take a worse beating than their emerging-market peers. Overseas investors have pulled $1.22 billion out of equities so far this year, exceeding the combined inflows in 2016 and 2017. Since Duterte took office in 2016, foreign investors have withdrawn more than $613 million.
RED TAPE
The Philippines slumped the most in Asia in a global competitiveness ranking by Switzerland-based IMD, dropping nine places to 50th of 63 economies. Stamping out red tape by speeding up bureaucratic processes and queues was one of Duterte’s three biggest campaign pledges, along with restoring law and order and fighting corruption.
PUBLIC ORDER
Duterte’s security policies have been among his most controversial moves. He has repeatedly ordered police officers to shoot drug suspects who resist arrest, and promised to protect authorities from criminal cases in an effort to fight crime and drug dealers. But he’s been criticized for supposedly encouraging summary killings in the drug war that’s left at least 4,000 dead, based on police data. He’s also imposed martial law in the southern island of Mindanao to combat terrorism. The government have said crime rates have eased, but private surveys show 1.5 million families have still been victimized by common crimes during the first quarter of the year. — Bloomberg