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Sweden eyes expanded business, academic relations with Iloilo

SWEDISH AMBASSADOR to the Philippines Harald Fries said he is on a mission to link Swedish businesses with areas outside the National Capital Region as well as strengthen tourism and academic relations between the two countries. “One important mission is to learn how Swedish business can connect with the Philippine businesses outside Metro Manila. I like to go to other places and talk to local politicians, business people, civil society organizations to see how it can connect Sweden and the local province,” Mr. Fries said in an interview at the Iloilo City hall last Friday. “We will see how we can build to strengthen the relationship in terms of business, tourism, and academic student exchange,” he added. Mr. Fries also noted the efforts of the local government in terms of ease of doing business. “There are many opportunities. The local politicians here are working hard on doing business earlier by making fewer steps in terms of transactions, tax incentives, and infrastructures. It’s very important for business,” he said. The ambassador said he first visited Iloilo 28 years ago and noted the urban growth. “I was here 28 years ago and it was a huge change compared to late 80s… The new airport and driving in from the airport, its completely a new modern city compared to before,” he said. — Emme Rose S. Santiagudo

Give K-12 program some time, says PBEd

THE PHILIPPINE Business for Education (PBEd), a non-profit established by the country’s top chief executive officers in 2006, said it is too soon to judge the effectiveness of the K-12 basic education program after senators recently called for a review on the curriculum’s supposed role in the sinking performance of students. PBEd Chairman Ramon del Rosario Jr. said the K-12 curriculum, which was first implemented in the school year 2012-2013, has yet to produce real results. “You have to remember, that these people (recent K-12 graduates) took the first 10 years out of the old curriculum and then they just added Grade 11 and 12,” Mr. Del Rosario said in an interview with BusinessWorld last week. “We don’t have the real graduates of K-12 yet so how can you judge the effectivity o K-12?” added the PBEd chairman, who is also the president and chief executive officer of PHINMA Inc. and PHINMA Corporation. Earlier this month during a senate session, Senator Sherwin T. Gatchalian pointed out the declining performance of Grade 6 and Grade 10 students in national achievement examinations. He also cited the 2018 Fresh Graduates Report from Jobstreet, which indicated that 35% of companies are not willing to hire K-12 graduates without undergraduate degrees. The senator called for a review of the K-12 program, enlisting the help of the Department of Education (DepEd) and other concerned agencies. Mr. Del Rosario said PBEd is open to discussions and ready to lend assistance in addressing the problems of the country’s basic education program. — Gillian M. Cortez

Cebu provincial board to discuss state of calamity declaration Monday

CEBU’S PROVINCIAL Disaster Risk Reduction and Management Office (PDRRMO) is set to present before the provincial board on Monday the damage assessment and impact on farmers of the prevailing dry spell due to El Niño after recommending last March 21 the declaration of a state of calamity. The board will have to give its approval for the declaration, which would allow the use of emergency funds to assist affected farmers. PDRRMO chief Baltazar S. Tribunalo, Jr. Tribunalo, in a statement from the provincial information office, said among the priority areas for assistance are Argao and Dalaguete towns. The provincial government has allotted at least P89 million as Quick Respond Fund (QRF) this year to address the effects of the El Niño. He said both crop and fish farmers have reported losses as well as seaweed growers. Last Feb. 28, the PDRRMC Council approved PDRRMO’s recommendation to place the province under a state of preparedness to brace for the impact of the prolonged dry spell. Mr. Tribunalo among the mitigation mechanisms they have initiated include the installation of water tanks and the use of delivery trucks to provide water rations to priority areas.

Cloud seeding in Davao del Sur starts this week; province now under state of calamity

THE DAVAO del Sur government has placed the province under a state of calamity due to the dry spell brought that has caused an estimated P161.2 million in damage to rice and corn farms. “The losses have been placed at P155.6 million for 3,657 of rice farms and P5.5 million for 321 hectares of corn fields,” Department of Agriculture (DA) Davao Region Disaster Risk Reduction and Management focal person Roy Jose Pascua said last week, noting that the data is based on reports as of March 20. The damage cost is expected to go higher, specifically in the hardest-hit municipalities of Magsaysay, Bansalan, Kiblawan, Hagonoy and Matanao. The declaration of a state of calamity will allow the local government to use emergency funds to assist farmers. Meanwhile, the DA is set to conduct cloud seeding starting this week to May 25 to save the crops that have not yet been harvested. — Carmencita A. Carillo

Beating the summer heat

LOCAL tourists flock to and take a dip at the Wawa Dam in Rodriguez, Rizal on Sunday, March 24. Weather bureau PAGASA declared the start of the summer season last Friday and warned the public to brace themselves for a longer dry season due to the prevailing weak El Niño phenomenon.

Army’s engineering brigade in need of at least 1,000 for Marawi rehab

THE PHILIPPINE Army’s 55th Engineering Brigade is need of at least 1,000 additional personnel to assist in the Marawi City rehabilitation program. In a social media post last week on the official page of the military’s Civil Relations Service, the brigade’s commander, BGen. Evan T. Ruiz, called for applicants. “We need as many personnel to help in Marawi rehabilitation under the supervision of the Task Force Bangon Marawi (TFBM),” Mr. Ruiz said. The 55th Engineering Brigade was recently reactivated to help speed up the rehabilitation projects, including road widening, drainage, and construction of schools, health centers and other government facilities. Meanwhile, TFBM Chair Eduardo D. del Rosario appealed to displaced residents to stretch their patience and verify reports about the rehabilitation program. “Today, we have initially identified one of their worries which is the fear that they might not be able to go back to their homes. So, we assured them today that they can visit their homes after the debris clearing, and the DSWD (Department of Social Welfare and Development) will also give cash assistance,” he said during a two-day dialogue last week intended to quell rising tension in the war-torn city. It has been almost two years since local extremist groups laid siege to Marawi in late May 2017, which led to an almost five-month fierce battle with government troops that left central areas of the city in ruins, including 24 villages whose residents remain displaced. Mr. Del Rosario, who is also head of the Housing and Urban Development Coordinating Council, said there are groups spreading wrong information. “Although it is their right to express what they want, but it’s not helping the rehabilitation of Marawi City. So, I hope they realize that at the end of the day, what we are doing is for the general welfare of everybody and not to satisfy the whims and caprices of very small groups,” he said.

More stock market development

Continuing the Market-Oriented Reforms for Efficiency (MORE) series in this column, we look at one of the important indicators of an economy’s attractiveness to private business, entrepreneurship and job creation, the stock market.
Unlike foreign direct investments (FDI) which are long-term and, hence, require lots of basic soft and hard infrastructure, portfolio and stocks investments are often short-term, with investors buying today and selling after a month, or a week, or within hours. Thus, the stock market reflects the long- and short-term business sentiments.
The Philippines stock market has experienced good expansion in the previous decade, and further expanded until 2015. It has tanked though at the end of 2016 during the Duterte administration, grew in 2017, but declined again early this year.
Thailand and Indonesia have started at similar levels with the Philippines in 2000 and, since then, have expanded much faster and are twice that of the Philippines today. Vietnam started late but has shown consistent increases. One reason for this is that the Philippines has a small number of listed companies, only 267 (see table).
Market capitalization of listed domestic companies in Asia, $ billion
Taiwan is not included in the WB report but it is listed in the WFE, it has market capitalization of $1,118.3 B in February 2019 from 1,716 listed companies.
China is wobbling from the ongoing trade dispute with the US and many domestic problems are surfacing today, like huge debts by the corporate sector, state-owned enterprises and local governments.
The Philippines needs to attract more companies to be publicly listed. This will invite more individual and corporate investors and help expand market capitalization. I am not aware of the major reasons why there is low participation by corporations in the local stock market. Could it be the huge minimum capitalization required, big and voluminous SEC requirements, BIR alert of more taxes if companies are listed? Or cultural, companies would rather remain “low key” to preserve their clan-dominated corporate structure and investment?
Hope that such hurdles will be addressed soon. In particular, the DOF-BIR should not be too tax-hungry that they can scare many companies to be more publicly transparent.
PSE BGC bells
There are two forums on the stock market this week. First is the “BusinessWorld Stockmarket Roundtable 2019” on March 25 at Conrad Hotel. The four speakers are Roel Arco Refran, COO of the Philippine Stock Exchange, Michael “Mike” Gerard Enriquez, Chief Investment Officer of Sunlife Financial, Justino “Jun” Calaycay, Jr., Head of Research and Engagement Department of Philstocks Financial, and Marvin Fausto, Business Development Consultant of COL Financial.
Second event is the “Breakfast and Market Update” at the PSE on March 29, exclusive for members of the UP School of Economics Alumni Association. It is co-organized by Hans Sicat, former PSE president and a school alumni.
Last year, the “BusinessWorld Stockmarket Roundtable 2018” was held in February at Makati Shangrila Hotel. The four speakers were Augusto “Gus” Cosio Jr. of First Metro Asset Management, April Lynn Tan of COL Financial Group, Jun Calaycay, Jr. of Philstocks, and Mike Gerard Enriquez of Sunlife.
 
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers
minimalgovernment@gmail.com

Embracing the light

It’s summer 2019 and the sun is beating down hard on the equator. Draught and dying crops are littering the Philippine landscape. Physical but especially mental activity is a hard slog. In the Serengeti Wildlife Reserve in Equatorial Africa, lion prides ignore prey to doze off in the shade for hours. The lions are not being lazy; they are just obeying the rule of efficient energy use. Under the harsh midday sun, the endotherms’ most energy-efficient posture is supine and asleep under the shade.
Westerners who found themselves in the equator have called the natives “lazy” but Dr. Jose Rizal in “The Indolence of the Filipino” had alluded to this partly as “adaptation” to climate. When it’s chilly in the temperate latitudes, there is always a sufficient layering of clothing that keeps one warm inside and physically and mentally alert. In the equator, extreme disrobing does not suffice. Any exertion heats up the body; which in fact gives comfort on a cold and discomfort on a hot day. Heat speeds up oxidation and decay in organics: foodstocks, wood materials, etc., while it supports a plethora of harmful bacteria and viruses. This is the backdrop for the so-called “equatorial paradox” the closer to the equator the lower is per capita income. The equator seems at times like a cruel tyrant exacting high tributes from hapless natives. No wonder that equatorial latitudes, like the Sub-Saharan Africa, host the most abject poverty.
Equatorians can’t be blamed if sometimes they curse the light that brings heat; if sometimes they woe the accident of their birth. But while equatorians can’t change their heritage of solar surfeit, they now can, as in Jujitsu, turn it in their favor. For equatorial poverty, unlike equatorial tyranny, is not destiny.
History shows that technology has allowed humans to transcend the limits of geography. Modern refrigeration has rendered certain closed spaces in the equator suitable for food preservation and for mental and physical activity. I, for one, take refuge in air-cooled coffee shops to think and work. But this comfort has been achieved by burning the by-product of yesterday’s solar radiation, fossil fuel. By the same token have we built a massive system of power generation, transmission and distribution on the back of Michael Faraday’s rotating magnet; furthermore, we have built an immense concrete transportation system to host Nicolaus Otto’s internal combustion engine. We dismissed the possibility that today’s solar abundance can be deployed to loosen the grip of equatorial tyranny with a once valid excuse, that being price differential and intermittence.
That excuse is now kaput. Solar photovoltaic (PV) and battery storage technology have changed the calculus of electricity provision and propulsion. Already, under five-cent-per-watt bids have won power supply contract auctions in oil-rich and solar radiation abundant Dubai and Qatar. The Philippines is also richly endowed with solar radiation. New electric vehicles (EVs) now go over 300 miles on one charge. And advances in grid-scale electricity storage employing graphene-based supercapacitors are pushing renewable intermittence into our rear-view mirror. Cost, once the bastion of the fossil-based empire, has changed sides. The sun is truly setting on the empire of Faraday and Otto.
The proverbial crossing of the Rubicon in power coincides with the leap from ethics to economics from “helping mother earth” to “helping the bottom line.” Tree-hugging zealots made news, but it is shrewd capitalists making huge bets in emerging renewable revenue streams that are ramming the gates open. European electricity and gas supplier giant, Eon, has begun divesting its fossil-based assets to concentrate on renewables. Norway’s sovereign wealth fund is divesting its oil and gas holdings that have become more risky. Norway’s oil and gas giant, Statoil, is also moving into renewables for reasons now purely economic. At the current furious rate of technical advance, the stranding risk of gas and coal assets is fast ramping up.
The demand side of the power market poses the other stranding risk factor. Large establishments with ample capital, such as malls and supermarkets, will now begin to save and even make money by converting ample idle roof space into solar farms to meet part or all of their needs, to charge grid-scale batteries thus avoiding the cost of diesel-fired backup generators and to shave off peak power demand for a more stable grid power. Or they can rent out these idle roof spaces to new solar power entrepreneurs or retail electricity suppliers. Fossil-free fast food outlets will become commonplace. Residential PVs will also follow suit when the capital constraint is eased. The disruption here will be as immense as any promised by the Fourth Industrial Revolution.
That is not to say that government should prohibit new fossil-based investments by the private sector. Market players are better at reading the short and long investment horizon than government and, anyway, they wager their own money in a competitive market. Aboitiz Power is carrying the cost of its mothballed bunker fuel-burning power barges. Privatization spared the NPC and the taxpayers of their stranded cost!
Government can however employ policy “nudges” rather than mandates. The share of electric vehicles (EVs) in government vehicle purchase should progressively rise. New public school and office buildings should now be solar PV-equipped for part of their largely daytime needs besides jump-starting students in the wonders of electrochemistry. EVs could be exempt from number coding. PEZA should now plan for fossil-free ecozones. The seamless integration of distributed and centralized generation requires urgent government attention.
Solar PV and storage technology now allow us to transform the abundance of light from a liability into an enormous asset, one which promises to leapfrog the problem of high electricity cost. But to monetize it, we have to let Capitalism’s creative destruction take its course. Government forbearing, profit calculus and market competition will propel the nation to a bountiful embrace of the light.
 
Raul V. Fabella is a retired professor of the UP School of Economics and a member of the National Academy of Science and Technology. He gets his dopamine fix from hitting tennis balls with wife Teena and bicycling.

Eating my frustrations away

We’ve been worn down by a lot of bad news lately. The long drawn-out impasse between the Senate and the House over the General Appropriations Act is the most worrisome of all. Unresolved, it could mean a deceleration of the economy from 6.5% growth to just 4.2% this year. Add to this the water crisis, the country’s withdrawal from the International Criminal Court and the inclusion of two convicted plunderers in the senate’s magic 12. For those who don’t know any better, it’s easy to assume that the country is rowing in the wrong direction, economically and politically.
wine
I’ve been frustrated by the country’s state affairs all week. But having been an observer of national affairs for as long as I have, I know that the spate of bad news, however dire and frequent, is always temporary. It won’t be long before we hear good news again. That’s just the way this country rolls. In the whole scheme of things, the country is still on the path of progress, albeit turbulently and oftentimes, frustratingly. The trick is to wait it out until favorable developments occur again. When they do, frustration will give way to optimism.
Last week, I opted to take a step back, let things be as they are, and simply wait for things to get better. After all, there is only so much a humble columnist like myself can do.
I decided to combat my frustrations by indulging in what I enjoy most…. food and wine. It turned out to be an educational experience. The meal I had was so interesting that I thought you, my readers, would enjoy the diversion as well.
A DELICIOUSLY EDUCATIONAL MEAL
I am part of a small group, the members of whom take turns hosting unique gastronomic experiences. Last week, it was the turn of our Belgian buddy, Harmen Haringsma, the CEO of S&L Fine Foods. Harmen is as much a businessman as he is a cheese connoisseur, having worked as an exporter of European cheeses since 2004.
Harmen’s company, S&L Fine Foods, is one of the country’s largest importers of fine foods from Europe and Australia. Their range of products include a vast selection of European dairy goods, cold cuts, beef, lamb and essential Mediterranean ingredients like oils, dried fruits, spices and condiments. S&L has been in business since 2007 and is one of the foremost suppliers of ingredients to restaurants and hotels today. Some of their products are also available in high-end supermarkets.
S&L has recently opened a restaurant at the Park Terraces, Makati to showcase its products. The name of the restaurant is Brera Delicatessen, and this is where Harmen invited us to dinner. My anticipation was building all week as I looked forward to sampling the meats and cheeses that Brera has to offer. It was the perfect diversion from all the bad news going on.
Friday night came and my wife and I turned up at Brera. It is a sizable restaurant of roughly 300 square meters filled to the brim with food products and wines from Europe. Its dining room is elegant in a rustic kind of way. It reminded me of old taverns in Italy.
For those unaware, Brera is an ancient district in Milan which is also its artistic heart. It is a place where you will find artisan shops and chef-owned restaurants, side by side. The district is quaint, picturesque and distinctly European. The soul of Brera is what the restaurant captures.
Our menu for the night was quite extraordinary. We started off with a platter of rare cheeses to appreciate, then segued to a plate of sausages. The main course was a sampling of four grades of beef, the purpose of which was to “experience” their differences.
We sampled five types of cheeses including French Saint Paulin, Italian Pecorino con Tartufo, Spanish Manchego, French Coulommier and Dutch Gouda with Green Pesto.
Hands down, my favorite was the Italian Pecorino made from 100% sheep’s milk. I liked it for its firm texture, savory aroma and salty-smoky taste. The notes of black truffles made it even more savory, which I like. The French Coulommier was exceptional too. It looks and tastes like Brie but with a markedly nuttier flavor. The cheeses went well with the 2013 Salvano Barbaresco wine, made from nebbiolo grapes. The wine was expertly served at 17 degrees celsius, a telling sign that the establishment knows how to keep, serve and respect wine.
The sausages were served next. On the platter were Rostbratwurstel and genuine Vienna sausages, both imported from Austria. Contrary to the perception of most Filipinos about Vienna sausages, the real McCoy is about six inches long and rather slender. Its distinguishing characteristic is its casing. Made from premium sheep’s intestines, the casing should snap when bit into, allowing an explosion of porky juices in your mouth. The Rostbratwurstel is a three-inch sausage which is similar to an English banger. It was salty, herby and peppery. This is a sausage best eaten for breakfast, I thought.
With appetizers done, we were ready for the mains. As promised, Harmen served four grades of steaks, three of which originated from John Dee of Australia and one from Kiwami of Japan.
John Dee is the oldest family owned meat processing institution in Australia and reputed to be among the world’s best as far as beef processing goes. Based in Queensland, the 75-year-old cattle raiser is an authority in cattle husbandry, feedlotting and grain feed development.
The folks at John Dee have mastered the science of instilling its desired flavor, texture and fat content to its meats. It all begins from the time the cows are weaned from mothers milk. The number of days the cows are fed and whether they are fed grass, grains or some other feedstock determines the meat’s characteristics. John Dee’s cattle are of the black angus breed.
The first steak we sampled was the Premium grass fed striploin. Although an entry level steak, I thought it was equally succulent as those available in most fine restaurants in Manila. It had a clean (not gamey) flavor with a sweetish note. This would be a perfect steak for everyday dining considering its quality and price.
We then progressed to the John Dee Silver tenderloin. These steaks originated from cattle which were put on a diet of grains for 100 days. It was remarkably juicier than the first steak and also more tender. It had a rounded flavor that reminded me of beef cooked in butter. The silver tenderloin is affordable enough to be considered everyday luxury.
The John Dee Gold Tenderloin was the next one served. These steaks came from cattle fed with grains for at least 150 days. It had a marbling score of 3 which indicates a high fat content. It was tender and juicy but still firm to the bite. Its flavor was even more buttery than the silver tenderloin. This is the kind of steak you would serve on a special occasion.
Finally, the star of the meal was laid down before us, the aromatic Kiwami Rib Eye Steak. Kiwami, meaning “outstanding excellence” is a Japanese brand. It is arguably the finest Wagyu commercially available in Manila. The steak had a marbling score of 9+ (very high, with 12 as the maximum score). Coming from cattle of the finest Wagyu pedigree, the steaks oozed with juices even after resting. When I bit into it, a burst of beefy nectar flooded my mouth. I have never experienced a sensation like this before. The meat was remarkably tender but not mushy. I would describe its texture as being silky, if that makes sense. Flavor-wise, it tasted like brown butter sauce — rich, savory and lingering. Bar none, this was the best piece of meat I have tasted, better than the Wagyu I had at the famed Katsura Steak House in Sapporo. This is the kind of steak to enjoy during milestones in your life.
The steaks were complimented by bottles of 2015 Fratelli Vogadori Amarone de la Valpolicella wine, an inspired combination of corbina, corvinone and rondinella grapes. This wine garnered 4.4 stars from Vivino (over 5), a respectably high rating considering its reasonable price.
That night, I ate my frustrations away. The food and wine put me in a better headspace immediately. True enough, a few days later, it was announced that the impasse between the House and Senate over the budget was being worked out by both parties. Things were looking up already. Just like that, my frustration gave way to optimism yet again, as it always does.
 
Andrew J. Masigan is an economist

The banks always win

Big banks posted another banner year in 2018, with profits growing by a tenth at a time of higher borrowing costs and a weaker peso. Total operating income grew by 14.9% to P564.202 billion from P491.227 billion the past year, central bank data showed (BusinessWorld Feb. 11, 2019).
Much of operating income came from net interest income of P431.782 billion, which after adding net non-interest income, applying provisions for losses on loans and other financial assets, writing off bad debts and claiming recovery from charged-off other financial assets, etc., net income of the “big banks” — universal commercial banks (UKBs) — came up to P179.03 billion. Income taxes paid when including share in the profit/loss of unconsolidated subsidiaries, associates and joint ventures was 20% of total profit of P200 billion before tax.
Not bad for the 42 UKBs. The lending was brisk in 2018, increasing 14.6% to bring outstanding credit to P9.018 trillion as end-December, versus P7.867 trillion in 2017 (Ibid.). Observe that the banks’ lending rate moved up from 5.566% in November 2017 to 6.602% in October 2018 (www.ceicdata.com).
This was the time when the Bangko Sentral ng Pilipinas (BSP), set five rate increases to curb rising inflationary pressures (because of the domestic rice shortage, exacerbated by the increase in world oil prices). With the 175 basis points increase, the overnight reverse repurchase rates was brought to 4.75%, the overnight deposit rate to 4.25% and the overnight lending facility at 5.25%. (The Philippine Star Nov. 16, 2018). It was a purposeful move by the BSP to sop up excess liquidity by discouraging the availment of loans (which will increase money supply) by the increased rates.
Naturally, the banks increased their own lending rates. Quoted lending rates of commercial banks as of March 4, 2019 were, for example: Banco de Oro (BDO, largest UKB) lent at a high of 10.625% per annum, and at a low of 6.625%; Bank of the Philippine Islands (second largest UKB) lent 10.7% to 6.25%; and Citibank lent from 8.3040% down to 5.3880% (bsp.gov.ph). Note that these lending rates might have been higher in November, 2018.
But unnaturally, borrowers seemed not to balk at the increased rates. In 2018 banks enjoyed a 14.6% increase in loans giving a net interest income of P431.782 billion. Outstanding credit stood at P9.018 trillion as end-December 2018, versus P7.867 trillion in 2017 (BusinessWorld op. cit).
So many projects were already on stream with the Build, Build, Build program and collateral activities that borrowers just had to “bite the bullet”. Also, with the depreciation of the peso to critical levels nearing P54-55 to the US$, businessmen had to borrow more for the bloated costs of foreign exchange. It aggravated the situation that the country is a net importer, and so the depreciation of the peso and inflation plus (or because of?) the rice shortage brought the economy to near-crisis in 2018.
Perhaps the position of advantage of a bank in good times and in bad can tempt business opportunism. While enjoying the higher lending rates, did the banks increase their deposit rates to still enjoy a conscionable spread (net profit), if only to alleviate the plight of the Filipino in crunch time?
Savings and time deposit rates of commercial banks are featured in some blogs that cater mostly to those “investors”/savers managing their own personal finances. Many big banks advertise their rates directly. The Bank of the Philippine Islands (BPI, second largest UKB) offers 0.50% interest for its “Maxi-Saver” for a minimum maintaining balance of P25,000. If one commits to a maintaining balance of P100,000, interest will be 0.75%, while P1,000,000 will be paid 1.75% under the “Advance Savings Account with Passbook”. All still subject to 20% final withholding tax on interest earned. The BDO Optimum Savings Account pays the same interest of 1.75% for a minimum balance of only P30,000. Citibank’s peso bonus saver asks for an initial maintaining balance of P50,000 at 0.60% interest, climbing up to 1.56% as the depositor’s “total relationship account” balance tops P1 million (sample data from moneymax.ph Jan. 29, 2019).
Time deposits for P1 million and above, 360 days, range from 1.0% [BDO and Metrobank] to 1.25% [BPI], with incentivized rates for time deposits of over P1 million (sample data from philpad.com Jan. 2019). By this, we think of the poor depositor with his depreciated peso and high prices in inflation, and ask, is the banking industry feeling for the people with limited money, whose necessary activities for survival are curtailed by the tightening lack? Juxtaposed with the high borrowing rates, justified as “market driven,” there seems to be a dimming horizon for that noble social objective of our struggling economy for “financial inclusion.” In bad times, the rich get richer (for they hold more of limited resources of the economy), and the poor get poorer.
Imagine the bank spread between lending rates of around 10% and time deposit rates of around 1.0%. Even considering the low-end of lending rates of 5% versus 1% deposit rate would give from about 4.0% to 9.0% profit margin to the banks. Time was when bank spreads were watched by the regulator (called the Central Bank of the Philippines then). Discussions with contemporaries in the Financial Executives Association of the Philippines (FINEX) in the 1980s recall how corporate treasurers would chide bank account officers about making too much money on them, as these finance people would adeptly compute the bank’s profit from the transaction/loan, even imputing the bank’s reserve requirement and the cost of this; the cost of capital to the borrower and the lender; and argue on that “fair spread” of the bank which can allow a lower interest rate to the borrower. At that time, the critical spread was about 2.5-3.0 percentage points.
And so the big banks enjoy double-digit profitability, and double-digit growth, while their publics do not even enjoy inflation cover with their measly interest earnings and heavy borrowings. But it is unfair to pummel banks for their success, in these very different times. Even yields to investors in government bonds do not even cover inflation. Government 10-year bonds went down to 3.04% when inflation was raging above 6.0%! Aren’t government securities the perfect counter-balance to inflation?
Something must be wrong somewhere. And the banks just can’t be bothered. Perhaps the new BSP Governor can think of some creative “correction” on the financial market’s situation. Some moral suasion, at least — in the fashion of today’s governance?
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com

The march for Women’s Health

“There is no tool for development more effective than the empowerment of women,” according to Kofi Annan, former UN Secretary-General.
By breaking barriers in fields that were exclusive to men such as education and science, the pioneering efforts of women all over the world have led to groundbreaking changes in the course of history.
In the Philippines, we dedicate the month of March to celebrate the vital role of women in our society. Since 1988, the National Women’s Month has been part of Filipino tradition, and it forms part of the worldwide observance of International Women’s Day held on March 8.
The key to empowering women is the realization of rights and their role as change makers in all aspects of society. By doing so, we are able to inch closer to reaching the sustainable development goal of gender equality.
One of the landmark reforms that helped advance women’s rights in the country is the Responsible Parenthood and Reproductive Health (RPRH) Law. The RPRH Law has strengthened the prioritization of women’s health. But in this regard, the sin tax law of 2012 was crucial in augmenting the funds for the effective implementation of the RPRH services.
The enactment of the sin tax law resulted in a threefold increase in the budget of the Department of Health (DoH). The revenue from this law led to the birth of numerous health programs. The funds generated continue to nurture and develop these programs further. In many ways, it is fitting to brand sin tax as the mother of health programs.
Among the programs that have benefited from the expansion of the health budget are the programs for Family Health and Responsible Planning. By 2017, services for RPRH constituted almost 40% of the DoH budget.
The utilization of RPRH services has been increasing. About a fifth (21%) of the total PhilHealth benefit claims are from RPRH services, the bulk of which is for Maternal Neonatal and Child Health Services,
All told, however, the Philippines is still far from achieving its target health outcomes for women. Data from the DoH’s 4th RPRH Annual report states that maternal mortality ratio in the Philippines remains high at 114 per 100,000 live births. The unmet need for family planning (FP) in the Philippines is still 49% among unmarried, sexually active women and 17% among married women. And while FP services are provided at no cost to the public by government health facilities and PhilHealth-accredited institutions, gaps in coverage, especially among the poor, still remain.
Given the effectiveness of the sin tax law in augmenting the budget for women’s health, another significant increase in sin taxes should provide a viable source of funding to help our country reach its RPRH targets.
Furthermore, a substantial increase in tobacco taxes is needed to safeguard the health of women because, alarmingly, female smoking prevalence in the Philippines has remained among the highest in the ASEAN region.
According to the Southeast Asia Tobacco Control Alliance (SEATCA), the Philippines has the fourth highest smoking prevalence among female adults in the ASEAN region. Among the female youth, the picture is even more disturbing. Female youth smoking prevalence in ASEAN is highest in the Philippines at 9.1%. This figure is almost four percent higher than Thailand, which is second with 5.2%.
Calculations show that if we do not pass a high tobacco tax increase, we will be powerless to stop at least one million Filipinos from starting to smoke by 2022. To put it more specifically, non-passage of the tax increase means that we will be unable to stop women smokers (adult and youth alike) from potentially facing the health consequences brought about by tobacco use.
According to the Philippine Cancer Society, the four leading cancer cases for women include cancers of the breast, cervix, colon, and the lung. Multiple studies show that the risk of contracting these cancers increases when exposed to cigarette smoke, whether firsthand or secondhand.
Moreover, exposure to cigarette smoke has a marked effect on the reproductive health of women. The World Health Organization states that female smokers are more likely to suffer from infertility. For those who are able to conceive, they are more susceptible to stillbirth, and neonatal death compared to non-smokers. Cigarette smoking affects not only the health of the mother, but of the baby as well.
Earlier this year, President Rodrigo Duterte certified the tobacco tax increase as an urgent measure. The Senate Committee on Ways and Means chair Senator Sonny Angara has stated that an agreement has been made in principle to pass a tobacco tax increase that will significantly reduce smoking prevalence among the youth. Should this reform be passed, it will shoot two birds with one stone. It will not only discourage women from smoking, but will also ensure that programs that put women’s health at the forefront are well-funded.
The signing of the Universal Health Care Law in February 2019 will definitely improve the health and well-being of our people. We do hope that before the Seventeenth Congress ends in June, we can add another increase in sin taxes to the growing list of health laws that further empower the lives of Filipinos, especially women.
 
Viviane Apostol and Carlos Jacinto are researchers of Action for Economic Reforms’ health financing team.

BSP likely to cut rates by May

The Monetary Board, led by new central bank governor Benjamin E. Diokno, decided to keep the policy rate unchanged at 4.75% during Thursday’s meeting. Photo by GEREMY PINTOLO, The Philippine Star

By Melissa Luz T. Lopez, Senior Reporter
THE Bangko Sentral ng Pilipinas (BSP) will likely reduce key interest rates by May, noting that policy makers are likely growing more confident after inflation forecasts were slashed anew on Thursday.
Global market watchers called for a 25 basis point (bp) cut in benchmark rates during the May 9 policy meeting.
The Monetary Board decided to keep the policy rate unchanged at 4.75%, remaining at a decade-high. Thursday’s meeting was the first led by new BSP Governor Benjamin E. Diokno, who signalled earlier this month that he is seeing “room to ease” policy settings coming from last year’s series of hikes worth a total of 175bp.
From a peak of 6.7% in September and October, inflation has steadily dropped to 3.8% in February, the lowest in a year and returning to the BSP’s 2-4% target range. However, the year-to-date average is still at 4.1%.
BSP Deputy Governor Diwa C. Guinigundo said the inflation forecast has been slashed to three percent from 3.1% previously, with authorities seeing the easing monthly print sustained for the rest of 2019.
In a commentary, Capital Economics said they see the BSP cutting rates in its next meeting, noting that latest signals from Mr. Diokno “sounded more hawkish” than they expected.
“[W]ith inflation set to fall back further over the next couple of months, we are sticking with our view that the central bank will cut interest rates at its next scheduled meeting in May,” said Asia economist Alex Holmes.
The London-based think tank also pointed out that the sustained fall in inflation should open doors for a rate cut, but flagged that the BSP appears “too optimistic” about the economic outlook.
Mr. Diokno said they see domestic activity remaining firm, despite snags drawn from delays in implementing the P3.757-trillion national budget that leaves new and continuing programs unfunded.
ANZ Research also said they see the central bank kicking off a series of rate cuts worth 75bp, starting with a 25bp cut on May 9 as signs clearly point to a sustained downtrend for inflation.
“Overall, we believe that the BSP is progressively becoming comfortable with the evolving inflation scenario. We concur with this comfort,” said ANZ chief economist Sanjay Mathur. “Our view is that the ongoing correction in inflation has opened the door to an easing cycle.”
For the reserve requirement, ANZ projects a cut of at least 200bps this year.
The reserve requirement ratio (RRR) also stood untouched this week, with Mr. Guinigundo said that it remains a live issue but that the Monetary Board members “want to get the timing right.”
HSBC economist Noelan Arbis said separately that it is “most prudent” for the central bank to wait until inflation is firmly back to target before touching the policy rates, as there remains risks like the El Niño phenomenon on food prices.
Mr. Arbis’ call is a 100bp cut in the RRR before a 25bp cut in the policy rate in the second quarter.
Currently, banks need to keep 18% of total deposits untouched, which is among the highest in the world. The BSP slashed this in two moves early last year, but paused as surging inflation became the biggest concern for policy makers.

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