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Gov’t debt yields drop on inflation

By Mark T. Amoguis
Researcher
YIELDS ON government securities dropped last week as market players reacted further to easing inflation expectations as well as the dovish tone of the US Federal Reserve meeting’s minutes.
Bond yields, which move opposite to prices, slipped by an average of 20.5 basis points (bp) week-on-week, according to the PHP Bloomberg Valuation Service (BVAL) Reference Rates posted on the Philippine Dealing System’s Web site on Jan. 11.
“The latest decline in PHP BVAL yields has been largely due to the continuing positive effects of the easing inflation trend and expectations of further decline in inflation that would fundamentally lead to some downward adjustments on local interest rates,” Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), said in an e-mail last week.
On the external front, Mr. Ricafort said: “More dovish statements/reiterations from Federal Reserve Chairman Jerome Powell, the Federal Reserve minutes, and from other Fed officials that suggest a possible pause in Fed rate hikes have also supported relatively lower US government bond yields.”
“The latest $1.5 billion 10-year RoP (Republic of the Philippines) bond issuance partly reduced the need to borrow from the domestic market, thereby partly leading to lower local interest rates/PHP BVAL yields [last] week,” he added.
A bond trader interviewed on Friday agreed, saying the market was still reacting to lower inflation figures for December.
“The FOMC (Federal Open Market Committee) minutes show a more dovish Fed,” the trader added.
Latest Philippine Statistics Authority data showed that headline inflation in December rose by 5.1% annually, easing from 6% in November but faster than 2.9% in the same month the previous year. This was the slowest pace since May’s 4.6% print.
This brought inflation to average 5.2% in 2018, beyond the Bangko Sentral ng Pilipinas’ 2-4% target range and the highest since an 8.2% clip in 2008.
Meanwhile, minutes of the December meeting of the US Federal Reserve’s policy-setting body FOMC released last week revealed policy makers wanting greater clarity on the state of the economy before going through the central bank’s rate hikes any further.
On the other hand, last Tuesday, the Philippines returned to the international debt market after it sold $1.5 billion in 10-year offshore dollar bonds priced 110 bps above the benchmark US treasuries and tighter than an initial 130-bp guidance.
At the close of trading on Friday, the short end of the curve saw yields on the three-, six-month, and one-year debt drop by 5.5 bps, 10.1 bps, and 12.9 bps, respectively, to close at 5.798%, 6.436%, and 6.644%.
The belly similarly dipped as two-, three-, four-, five-, and seven-year bonds saw their rates decrease by 22.8 bps, 29.9 bps, 31.9 bps, 32 bps, and 29.8 bps, respectively, to 6.513%, 6.504%, 6.494%, 6.498%, and 6.572%.
At the long end, the 20- and 25-year papers declined by 12.9 bps and 6.9 bps, fetching 7.245% and 7.303%.
For this week, “we may see a sideways with downward bias movement of yields. Market players are taking profits due to the big drop in yields,” the bond trader said.
RCBC’s Mr. Ricafort concurred: “For [this] week, the declining trend in most PHP BVAL yields could still continue, provided that the peso exchange rate continues its gradual appreciating trend vs. the US dollar (among the best in eight months recently), as this fundamentally leads to further easing of the inflation rate, amid continued foreign portfolio/hot money inflows seen since the start of 2019.”

How PSEi member stocks performed — January 11, 2019

Here’s a quick glance at how PSEi stocks fared on Friday, January 11, 2019.
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Philippine Stock Exchange’s most active stocks by value turnover — January 11, 2019.
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PEZA-registered investment falls 41% in 2018

THE Philippine Economic Zone Authority (PEZA) said investment pledges, as measured by projects registered for incentives, fell nearly 41% in 2018, with the agency blaming the uncertainty stemming from the upcoming elections and the tax reform bill that proposes to overhaul the incentives system.
“The drop is for new investments caused by the uncertainties of change of policies, incentives,” PEZA Director-General Charito B. Plaza said in a mobile message last week.
The investment promotion agency said projects registered for investment were worth P140.24 billion, down 40.97% from a year earlier.
The registrations cover 529 projects in 2018 as compared to 554 in 2017.
The second round of tax reform legislation, known as Tax Reform for Attracting Better and High Quality Opportunities (TRABAHO) Bill, hopes to rationalize the investment incentives regime by making them more time-bound and performance-based.
“New investments dropped also because of the forthcoming election where the next Congress might change again the policies!” she added.
New investment in information technology, among the key drivers for PEZA revenue, rose 32.20% in 2018 to P20.57 billion.
The number of registered projects for IT rose to 188 in 2018 from 187 a year earlier.
“IT increased also because they’re (trying to beat) the new laws and changing of policies. Also, IT can easily pull out and transfer if they’re unhappy of the new policies,” Ms. Plaza added.
She noted, however, that locators’ export income and jobs contribution increased as businesses “are maximizing their production before TRABAHO bill (comes into force).”
In the 10 months to October, revenue from exporter-locators grew 6.58% to $45.18 billion.
Employment during the period expanded 7.33% to 1.5 million.
The TRABAHO Bill’s most contentious change is to remove the option to be taxed at the 5% gross income earned (GIE) rate, as offered by PEZA.
The agency backs keeping the GIE as preserving the one-stop shop feature of PEZA particularly in dealing with local government units who receive 2% of the GIE payment. — Janina C. Lim

RCEP e-commerce provisions seen completed by June

THE Philippines expects the completion of the e-commerce provisions of the Regional Comprehensive Economic Partnership (RCEP) within the first half of the year.
“The party that gave us the deadline is the ASEAN Secretariat… and the deadline is roughly by the second round of discussions, or the first half of 2019,” Maria Lourdes A. Yaptinchay, Director for the Department of Trade and Industry’s (DTI) Bureau of Trade and Industrial Policy Research, told BusinessWorld in Makati City last week.
Ms. Yaptinchay, also the designated Philippine negotiator for the RCEP’s e-commerce chapter, said completion was originally set for last year but some countries raised unspecified objections.
The DTI’s position on e-commerce is that it significantly lowers the barriers to entry and operating costs for businesses, particularly for micro, small and medium enterprises (MSMEs), which comprise 99.6% of all registered businesses in the Philippines.
Potential members of the partnership will meet again in February to mark the first round of negotiations for this year.
The deadline for the e-commerce chapter will permit the completion of the RCEP deal “not later” than November, according to Trade Secretary Ramon M. Lopez.
The DTI earlier revealed that seven out of the 18 chapters had been concluded to date.
The completed chapters deal with Customs Procedures and Trade Facilitation; Government Procurement; Institutional Provisions; Sanitary and Phyto-Sanitary Measures; Standards, Trade Regulations, and Conformity Assessment Procedures; Small and Medium Enterprises; and Economic and Technical Cooperation.
Members are looking to conclude, among others, the core chapter which concerns market access for goods, investments and services.
The pact involves the 10 ASEAN member states, plus Australia, China, India, Japan, South Korea and New Zealand.
Once concluded, RCEP will be one of the biggest free trade agreements with the 16 participating countries accounting for almost half of the world population; 31.6% of global output; 28.5% of global trade; and a fifth of the global foreign direct investment inflows as of 2016. — Janina C. Lim

Bulacan water project starts commercial operations

THE P24.4-billion Bulacan bulk water supply project will start commercial operations on Monday, making it the first major water project to be completed under the current administration.
The Metropolitan Waterworks and Sewerage System (MWSS) said the scheduled launch marks the first stage of the project, which will initially bring potable water to four municipalities of Bulacan.
“While the Bulacan Bulk water project was started by the Aquino administration in 2012, it is the first major water project to be completed during Duterte’s term,” MWSS Administrator Reynaldo V. Velasco said in a statement during the weekend.
The project is being undertaken by Luzon Clean Water Development Corp., a unit of San Miguel Corp. (SMC), and South Korean company K-Water Resources Corp. through a public-private partnership scheme.
MWSS said it learned that President Rodrigo R. Duterte is set to formally inaugurate the project on Jan. 28, 2019.
Mr. Velasco said the “landmark completion” of the project was Dec. 17, “one month ahead of its contracted completion.” The water system initially gave free water to four areas in Bulacan: Obando, Meycauayan City, Marilao and Bocaue.
MWSS quoted San Miguel Corp. President and Chief Operating Officer Ramon S. Ang as saying that the project is aimed at providing millions of residents from 24 localities in Bulacan “ready access to fresh, potable surface water while balancing the competing needs of a growing population, industry, agriculture, and the environment in the province.”
Mr. Ang said the Bulacan water project “is just one of the many projects that SMC has in store under the Duterte administration,” adding that “with our financial resources and technical capabilities, we promise to deliver several projects that support our fast economic growth.”
Among these projects is a new international airport to be built in Bulacan.
The water system consists of three stages. Stage 1 covers six water districts consisting of San Jose del Monte, Marilao, Meycauayan, Bocaue, Obando and Balagtas. Stage 2 covers seven water districts of Guiguinto, Calumpit, Bulakan, Plaridel, Sta. Maria, Paombong and Malolos.
Stage 3 has not yet started. It covers the remaining 11 municipalities of Baliuag, Plaridel, Pandi, Hagonoy, San Rafael, San Miguel, Norzagaray, Angat, Dona Remedios Trinidad, San Ildefonso and Bustos.
MWSS said the construction is set to start in the year 2022, “or even earlier.” — Victor V. Saulon

Tech-based compliance in emerging markets

The nature of business today is very different from how it was just a few years ago. Technology, innovation and new consumption behaviors are driving disruption every day. Yet, some things – such as fraud, bribery and corruption – have remained constant. This was the main finding of the EY Global Fraud Survey 2018: Integrity in the spotlight, which focused on emerging markets.
The survey included interviews with 2,550 senior business decision-makers from 55 countries and territories to gain in-depth insights into bribery and corruption conditions. The survey yielded the following:

• 52% of respondents from emerging markets stated that bribery and corruption happen widely in their business, compared to 38% globally.

• 19% said that cash payments can be justified to help their business survive.

• 16% said that it is a common practice to use bribery to win contracts.

Levels of perceived bribery and corruption are double that of developed markets, despite many emerging markets implementing stricter anti-corruption laws, enforcement and anti-fraud frameworks. This would indicate the need for more structured, integrity-based compliance cultures backed by new technologies that can provide better data insights. Some of these digital compliance tools include predictive analytics and real-time risk alerts, integrated into a forensic data analytics (FDA) system that can improve monitoring and reporting to maintain compliance.
THE OUTLOOK FOR FRAUD IN THE DIGITAL AGE
More and more companies are embarking on digital transformation to enhance their operations in various aspects – with great implications for legal, compliance and internal audit functions. A great majority of respondents (91%) stated that their organizations will be leveraging advanced technologies – such as digital payments, Internet of Things, robotics and artificial intelligence within the next two years. A very small segment (4%) even expect to conduct transactions using cryptocurrency.
However, with the larger volumes of customer and employee data being maintained by companies, the need for greater data privacy also arises. Information governance is one of the new challenges for companies today. In the Philippines, the implementation of the Data Privacy Act spells increased vigilance for companies that are made more accountable for the data they safeguard.
While technology offers increased benefits for companies, the digital transformation also presents new fraud risks and fraud schemes using the same technologies. For example, wire transfer fraud has been increasing in recent years with more companies switching to digital payments. Fraudsters now have a wider global reach and can conduct illegal activities with more efficiency and speed. Their potential victims are frequently in emerging markets.
ARE CURRENT EFFORTS WORKING?
It is interesting to note that while respondents know of their management’s anti-corruption policies and training, whistleblower hotlines, and codes of ethics in their organizations, these seem to have had little impact on decreasing unethical behavior. The differences between management statements and employee conduct are evident in the following findings:

• While 97% of heads of compliance state that the company has anti-corruption policies in place, only 77% of sales and marketing respondents state this, implying a disconnect between high-level policies and the level of awareness of these policies in key employees.

• While 66% of internal audit, compliance and legal respondents stated that they had a customized, risk-based due diligence approach to third-parties, 29% of sales and marketing were not even aware of such due diligence approaches.

• While the penalties for misconduct are made clear to employees, less than 60% are aware of people being penalized.

• Over 25% of respondents state that people managing relationships with third parties are not required to complete fraud and compliance risk training, while only 30% of organizations incentivize third parties to act ethically.

These observations indicate that a more proactive approach is needed beyond simply laying down a compliance program which states the ethical intentions of the organization. Companies need more proactive and sustained communications and training to increase employee awareness of company policies and whistle-blowing programs.
INTEGRITY REMAINS PARAMOUNT
Nevertheless, what is encouraging is that 97% of respondents recognize the importance of integrity in their organization’s operations. Not only does this help the company avoid regulatory scrutiny and penalties, but the business also gains more competitive advantages including enhanced customer and public perception, higher business performance, and better employee retention.
What is still lacking, however, is the individual responsibility for integrity among employees. Most employees still see integrity as a function of human resources, compliance, legal or senior management, rather than a personal responsibility. This is another area where leaders need to take proactive action and communication, including:

• Clearly defining principles and behavioral standards rather than simply issuing a blanket mission and values statement.

• Leveraging verifiable data about the behavior and culture in the organization.

• Developing enhanced metrics and accountability processes that go beyond standard policies.

• Consider transitioning into a Purpose-led organization. Studies have shown that having an overarching Purpose not only helps companies perform better overall, but also help employees achieve a stronger alignment with company values and ethical behavior.

THE FUTURE OF COMPLIANCE
As business models continue to evolve, compliance functions will likewise need to transform to better detect, respond to and prevent fraud and corruption. Compliance policies and procedures, supported by training and consistent enforcement, are necessary yet often insufficient. However, the application of FDA may bring significant improvements like the use of advanced analytics for continuous monitoring and employing artificial intelligence to provide more personalized, risk-based training and communications.
Given the importance of emerging markets in driving the global economy, it is worthwhile for companies and regulators in these areas to work together to implement effective practices, consultative policies and integrity-based corporate cultures that are strongly supplemented by powerful digital platforms and forensic data technologies.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
 
Roderick M. Vega is a Partner and the Forensic and Integrity Services Leader of SGV & Co

Better a good neighbor than a distant cousin?

On the eve of his state visit to the Philippines last November, Chinese President Xi Jinping wrote that the two countries’ relations “have now seen a rainbow after the rain,” adding upon his arrival that friendship is “the only right choice.” He came bearing gifts for the people, from rice for typhoon victims to promises of scholarship awards, work permits for English teachers and more imports from the Philippines. At the end of the highly publicized visit, observers could only wonder, is there really a pot of gold for the Philippines at the end of the rainbow?
Philippine-China relationship in the past few years has been a complicated one. To recall, under the Aquino Administration, the Philippines took China to an international court in 2014 over disputed areas in the West Philippine Sea/South China Sea (WPS/SCS), a case that secured a sweeping victory for the Philippines, albeit belatedly. By the time the UN-backed Permanent Court of Arbitration in the Hague issued the award to the Philippines in 2016, the Duterte Administration was already in power. Unlike his predecessor, President Rodrigo Duterte had no interest in letting the territorial dispute define the country’s relationship with the regional behemoth, preferring a more pragmatic approach of broadening cultural and economic ties in the hope of securing Chinese funding for much needed infrastructure investments.
In a stunning “pivot” only a few months into his presidency, he directed Philippine foreign policy away from what many thought was an overly pro-US stance to what many say is an overly pro-China position. He opted to pursue bilateral talks with China, something his predecessor had refused to do, and followed China’s lead of simply setting the contentious WPS/SCS issue to one side. He managed to do this notwithstanding surveys showing the wide disparity in Filipinos’ trust for the US (“very good”) vs. China (“poor”), a popular sentiment against China’s control of Filipinos’ traditional fishing grounds in the WPS/SCS, not to mention the military’s close ties to the U.S.
Now, two years after President Duterte’s China pivot, the question that keeps cropping up is, what has the Philippines to show for pursuing friendship with China? Economically speaking, there have been advances although critics would say that they’re too little, too slow.
Philippines China
Among these are:
1. Chinese tourists are arriving in droves — almost doubling from 490k in 2015 at the height of the diplomatic chill to close to 970k in 2017. The number has reached 870k in the first 8 months of 2018, ranking second only to South Korea, and is expected to breach 1 million by yearend.
2. Bilateral trade has expanded almost 45% between 2015-17 (from $17.6 billion to $25.5 billion) and by another 16% in 1H18, not counting supply chain trade that passes through third countries. Based on this, China is now the country’s largest trading partner, accounting for over 15% of total trade. In this, China is of course as much a winner as the Philippines evident in annual import growth (>20%) far outpacing export growth (14% 2015-17 CAGR, 8% 1H18).
3. FDIs, practically non-existent a few years ago, have trickled in and from 2016 to August this year, totaled $220 million vs. about $26-billion total inflows during the period. Moreover, there are worries that some of these monies are (a) invested in the gaming industry the sustainability of which is suspect and (b) possibly, helping to fuel a real estate bubble especially with the increasing number of Chinese nationals entering and working in the Philippines.
4. As to China’s multibillion infrastructure commitments, reports indicate that to date, only two grant-financed bridges valued at $112 million have started construction and one loan agreement for an $82-million irrigation project, signed. Here, sentiments are mixed: one side criticizing the slow pace of implementation; the other side relieved at the slow pace seeing as how other countries have fallen under China’s supposed “debt trap diplomacy.”
Yet recent developments suggest that the two countries are ready to “elevate” their friendship. Right before President Xi’s visit, the Philippine government awarded the rights to operate a third telecommunications company in the country to a consortium that included state-run China Telecom. On his first day here, President Xi also witnessed the signing of 29 cooperation agreements, including the P18.7-billion ($350-million) loan agreement for the construction of a dam to provide additional water supply for Metro Manila and a Memorandum of Understanding on joint oil and gas development in the WPS/SCS.
In Manila’s small business circle, one could easily hear grumblings about the first two deals. But the third, despite providing only a framework, is perhaps the most controversial especially since President Duterte is not seen as being assertive enough about the country’s rights in the disputed waters. With it, many fear that the Philippines may play into the hands of China and validate the latter’s claims over the WPS/SCS.
For now, the President’s high popularity, which will not be challenged in next year’s midterm elections, means that he would probably get his way in dealing with China. China, on the other hand, has found in President Duterte a like-minded ally to whom it could open its doors wider to the Philippines through more trade, investments and people-to-people linkages.
I have heard President Ramos quote a Chinese saying: “Better a good neighbor than a distant cousin.” True for us? Only time will tell.
(This article is an excerpt from the GlobalSource Partners report, “Good not Great,” Nov. 13, 2018, written by Christine G. Tang and the columnist. Check out globalsourcepartners.com)
 
Romeo L. Bernardo is a fellow of the Foundation for Economic Freedom and a Governor of the Management Association of the Philippines. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com

Shut out, shut in; shut down, shut up

Shut out Mexico, US President Donald Trump insists. It had been his campaign promise from back in 2016 to “Build that wall” along the 1,954 miles (3,145 km) US border with Mexico to keep out illegal entrants into the US. We’ll make Mexico pay for it, Trump boasted then (BBC, Jan. 26, 2016). How could he have ever expected Mexican President Enrique Peña Nieto to happily say “Si!” to a wall pre-paid by Mexico to shut out Mexico from the US? “Mexico doesn’t believe in walls,” Nieto expectedly said on national television, and of course he would not spend up to $25 billion to shut Mexico out (BBC, Jan. 26, 2017).
Then shut in the US, Trump said. “Our country is under siege,” he said. For Trump, the border situation amounts to an invasion by criminals that can only be solved by more walls (AFP News, Jan 11, 2019). And so Trump had included an initial $5.7 billion in the national budget for his obsession to build The Wall. “Ninety percent of the heroin sold in America floods across from our southern border, he warned (washingtonpost.com, Jan. 10, 2019). True or not true? Media fact-checkers reported that Customs and Border Protection data show virtually all drugs confiscated by border security happen at legal ports of entry, rather than at open border spaces where a wall might be built (Ibid.).
But Trump’s budget inclusion was stopped in Congress. “I am proud to shut down the government for border security,” Trump told House of Representatives Democratic leader Nancy Pelosi and Senate Democratic leader Chuck Schumer in a televised message (Ibid.). And the US government has been shut down since Dec. 20 — 24 days now — the longest shutdown in US history since the 21-day stretch in 1995-1996, under President Bill Clinton, whose Medicare program met Republican objections (AFP News, Jan. 11, 2019).
“Shut down the government” sounds chilling. A government shutdown physically closes the nonessential offices of the government like national parks and national museums, and halts work for federal employees except in “essential” areas like the military, health, the Federal Reserve, Post Office, etc. According to a fact sheet released by the Democratic staff of the Senate Appropriations Committee, “more than 420,000 federal employees were expected to work without pay” and “more than 280,000 federal employees would be placed on furlough, effectively on leave without pay” (investopedia.com, Jan. 12, 2019). Disrupted government services and increased costs to the government due to lost labor during the 16-day 2013 shutdown over Obamacare had “taken $993 billion out of the economy and shaved at least 0.6% off annualized fourth-quarter 2013 GDP growth, according to Standard and Poor’s (ABC News, Sept. 12, 2017).
In the US, a government shutdown occurs when Congress fails to pass sufficient appropriation bills or continuing resolutions to fund federal government operations and agencies, or when the President refuses to sign into law such bills or resolutions. In European parliamentary systems, the executive must maintain the approval of the legislature to remain in power and typically an election is triggered if a budget fails to pass. In other presidential systems, the executive branch typically has the authority to keep the government functioning even without an approved budget (Zurcher, Anthony “US Shutdown Has Other Nations Confused and Concerned,” BBC News, Oct. 3, 2013).
And that is how it is, in the Philippines, that the separation of powers between the executive and the legislative is blurry, with regards to the approval of the budget and its appropriations. Same as in the US, Congress has the sole power of the purse and responsibility for appropriating government funds. An appropriations bill must be passed by both the House of Representatives and the Senate and then go to the President for approval. If the President signs the bill, it becomes law. In the US, if the President vetoes it, it can go back to Congress for a two-thirds vote or the President can stand pat and declare a shutdown. But in the Philippines, if instead the President vetoes it and the fiscal year commences, the previous year’s budget is “reenacted,” or disbursements follow the last year’s allocations, inclusive of savings. Quietly, the executive always wins.
One can say that in our country, there is no shutdown, only “Shut up,” when it comes to conflicts between the President and Congress over where our (tax) money is to be spent.
And in our politics and culture, a shutdown would perhaps be only redundant and superfluous to the tacit acceptance of the “Shut up” that settles apprehensions and conflicts between and among the distinct and independent executive, legislative and judicial powers of government on the one hand, and the common good, on the other hand. Trump declared early in the new year that he could “continue the shutdown for months or even years” to force funding of the border wall and is considering declaring a national emergency to build the wall without congressional approval, but softened later in the week when he started “grasping the consequences of an extended shutdown, including sharp reductions in SNAP payments and delays of $140 billion in tax refunds” (www.wsj.com, Jan 11, 2019). Would our President Rodrigo Duterte hesitate to declare a national emergency and use his emergency powers, anyway? Shut up!
The US government shutdown has two main teaching points for us, small democratic economies. First and most important is the separation of powers between the executive and legislative (and judicial) branches of government that ensures the common good by the ingrained system of checks and balances ruled by the Constitution. In the US, the allocation of $5.7 billion for the Mexico-US border wall goes beyond the political egos of Trump and the Republicans, vis-s-vis the Democrats. It would not even be fair to compare the cost of the shutdown versus the cost to the economy, caused by this difference in opinions about spending the people’s money on building a border wall. But it clearly shows the conflict in the American soul between two groups of political leaders: those in the level of principles, who believe in and push for the openness to human rights to life, liberty and pursuit of happiness — above and beyond race and nationality; and those who are focused on the tactical details of legal and illegal immigration, which anyway and by the way, also show opposing views on those universal human rights.
Would that the “opposition” in current Philippine politics rise to their sworn duty to analyze conflicts in governance, and act as true check-and-balance, in behalf of the common people, to the acknowledged and accepted “strong-man rule” that seems to have surreptitiously accustomed society to the “New Now” of “Shut up” as the final settlement of differences.
And connected to that is the second teaching point from the US government shutdown experience(s): the US two-party system is very strong — a political model efficient to protect the common good. From observation, the Democrats are flexibly more socially-oriented (outward, e.g., accept the “Dreamers”) and the Republicans more strict in their nationalism (inward, hence “Build that Wall”). Here in the Philippines, there is practically no party-system. The elections for Congress/Senate and local government are coming in May, and the people effectively do not vote for party stands and principles. Our elected officials can switch party affiliations so easily.
Is “Shut up” the only option?
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com

Isko Moreno: The Man with the Plan

The city of Manila has lost its competitiveness and is drowning in its own poverty. This is why the next mayoral elections is critical to its very survival.
Running for Mayor are 90-year-old Alfredo Lim who served as Mayor from 1992 to 1995 and again from 2007 to 2010; 87-year-old Joseph Estrada who has been the incumbent since 2013; and 47-year-old Isko Moreno who served as city councilor for three terms and Vice Mayor also for three terms until 2016.
We all have a stake in this mayoral race as Manila is the capital of the nation and its face to the world.
MANILA TODAY
The nation’s capital had everything going for it. It is home to the most number of universities in the land and therefore should, in theory, be a bastion of knowledge and innovation. It is the site of the country’s first central business district, Binondo, the country’s principal seaport, the Banco Sentral and the Department of Finance. All these should make it the country’s center for finance and trade. It hosts the most number of historical and cultural sites including Intramuros, the CCP complex and the national museum. Again, in theory, it should be ground zero for culture, tourism and entertainment. Lamentably, Manila is none of these.
Due to wanton mismanagement, Manila has spiraled down to new depths of poverty, urban decay, blight and squalor. It is a shadow of its former self, the Pearl of the Orient. It is widely regarded as a massive failure in urban planning and governance.
In the last two decades, neighboring cities like Makati, Taguig, Parañaque and Quezon City have all risen to become modern business hubs. They did this by developing swaths of their territories into modern CBDs like BGC, Vertis North and the ASEANA City. These CBDs have attracted multibillion-dollar enterprises which in turn, boosted each city’s tax base. Manila, on the other hand, was left to rot. Due to the lack of investment in infrastructure and the inefficient delivery of basic services, Manila’s caché of business establishments has plummeted from 60,000 in the year 2000 to some 40,000 today.
Progressive cities like Makati and Taguig are already thinking of ways to facilitate hyper-connectivity, disaster resilience and pedestrianism. The city of Manila still grapples with trash collection, a manual tax collection system and a low tax collection rate of only +/- 79%. Development-wise, Manila is 30 years behind.
Mayor Lim had his chance to reform the city but unfortunately, squandered it. Evidently, the former policeman possesses very little talent outside the realm of peace and order. It will be recalled that he was responsible for padlocking the red light district of Manila (which he thought was a good idea), only for it to mushroom in random places where it is more difficult to manage. It was a mistake.
He repressed the development of the bohemian district of Malate and was the approving Mayor of Torre de Manila, the eyesore that mars the background of Jose Rizal’s monument. By the time Lim’s term in office ended in 2013, insiders revealed that he left P800 million worth of past obligations and nearly empty coffers.
The city’s poor financial health was what prompted Mayor ERAP to raise taxes by 300% in 2013. With the windfall of cash, ERAP was able to pay for the P800 million in overdue obligations. However, he failed to invest in meaningful infrastructure and modernize the city’s management systems.
The problem with ERAP is the absence of management. ERAP is too old that his busted knee, broken hip and jaw problems prevent him from reporting for work as often as he needs to. He is an absentee Mayor who has relegated the daily management of the city to men who have neither the vision nor capability to do even a mediocre job of it.
Mayors Estrada and Alfredo Lim have had their chance to do good by Manila but made a royal mess of it. Proof positive is the sorry state of the city today. As Filipinos, we should hold them accountable and never forget the damage they have wrought on our capital city.
For them to seek another term as Mayor reeks of shamelessness and entitlement. Suffice to say that to vote for them again is akin to eating one’s own puke.
ISKO MORENO
Let me be direct about this. I support Isko Moreno not only for having the advantage of youth but also for coming to the table with a vision and a working plan. This is a basic requirement for any aspiring chief executive.
Isko is not pedigreed. As a former garbage collector, pedicab man and later on, actor, he is often dismissed by intellectuals as an opportunist who took advantage of his popularity to get into politics. I thought the same — at least until I engaged him in hours of conversation and peered into his thinking process.
Outside having finished public administration courses at Harvard and Oxford University, the man is clearly well read. Throughout our conversation, he quoted Lee Kwan Yew, Mayor Rudy Giuliani, Albert Einstein and even Adolf Hitler on numerous occasions. It was no put on. It came out naturally amid speaking with disarming honesty.
As an economist, I did not want to be impressed by an actor — but I was. Lessons derived from studying the ways of political luminaries and 21 years of public service has turned Isko into a thinker.
He maintains a pragmatic view of Manila’s situation, something that I think is very important. He offers no quick fix solutions as he admits that it would take 15 years to bring the city at par with likes of Pasig or Pasay today. He is committed, however, to lay the foundation of urban renewal from day one.
At the heart of his urban renewal plan are three pillars: Infrastructure development, attracting businesses and urban housing.
In infrastructure, Manila is unfortunate in that it is bereft of open spaces wherein a new CBD can be built. What it has, however, are sites that can be repurposed. Among them is the 12 hectare Pandacan oil depot, strategically facing the Pasig river. The property is presently dormant and owned by Petron and Shell.
Through a joint venture or PPP arrangement with the petroleum companies, Isko proposes to build a new CBD called the Pandacan Greenfield City. It is foreseen to be a vertical township that will house knowledge-based businesses and those involved in research and technology. Special incentives will be given for those who employ graduates of Manila-based universities. A 15-year tax holiday on land and business taxes will be given to the developers and its locators.
On the northwestern side of the city, a skydeck and pedestrian skywalk will connect the planetarium in Luneta to Liwasan Bonifacio and onwards to Escolta. This will mark the urban renewal of the old town.
The idea is to convert Escolta into a retail and entertainment hub similar to Clark Quay in Singapore. Owners of buildings in Binondo will be given a 10-year property tax holiday should they renovate or rebuild. The idea is to increase gross leasable areas so as to add tenancy capacity in Binondo.
Vertical parking buildings will be built in properties owned by the city along with pedestrian lanes to connect Binondo and Escolta. Encouraging pedestrianism should minimize PUV congestion.
As for the bohemian quarter of Malate, Isko hopes to attract artists, writers and the theater community back to the district. Malate is the artistic soul of the nation and it deserves to thrive, he asserts.
A modern city hall will be built on an adjacent site of the existing one through funds derived from a long-term lease of the old building. The historic city hall will be repurposed into a museum, cultural and retail center. It’s all about creating new landmarks for the city — landmarks that add value in terms of the city’s image and income, says Isko.
In housing, the city owns numerous properties in Baseco, Vito Cruz, Valderama del Pan and even in the city of Marikina. These will be the sites for which vertical mass housing complexes will be built. The financing scheme is not ironed out yet, but suffice to say it will be patterned after the socialized scheme adopted by the Home Development Board of Singapore.
These initiatives, taken collectively, are seen to attract capital, generate jobs and increase the tax base of the city while a new CBD on reclaimed land is being constructed.
Isko is well aware that none of this will come to fruition unless the city gets its operational act together.
Operational efficiency will be realized by automation and becoming ISO certified. The move will also eliminate human contact in tax collection thereby minimizing, if not eliminating, corruption.
The infrastructure plan is grand and it will require massive funding. To this, Isko plans a general amnesty program where taxpayers with obligations in arrears can pay the principal without the weight of interests and penalties. The amnesty will allow the city to collect taxes it could not otherwise collect. It is a scheme designed to raise capital through bad debts.
The city of Manila needs a new Mayor to arrest its free-fall and set it on the right path. Isko Moreno is the better option among the three contenders.
 
Andrew J. Masigan is an economist.

Tobacco Tax: Good for the tobacco farmers, too

A focus group discussion (FGD) with 23 farmer leaders from Candon and Cabigao, Ilocos Sur last Dec. 17, 2018 should be of interest to the politicians who are now deliberating the passage of the tobacco tax.
In that FGD conducted by Action for Economic Reforms (AER) and Social Watch Philippines (SWP), the respondents revealed that allocations from the incremental revenue collections of Republic Act 10351 (RA 10351), also known as the Sin Tax Law of 2012, were utilized on programs that directly contributed to support the farmers in the tobacco-growing province.
RA 10351 mandates that based on a complicated formula, about 15% of the incremental revenues from the additional tobacco excise taxes will go directly to tobacco-producing provinces to finance programs that will provide support for tobacco farmers and workers. This can be in the form of inputs, trainings, safety nets, infrastructure, livelihood, and agri-industrial projects.
According to the respondents in the FGD, the direct impact of the additional revenues from Sin Tax was felt in a major way when it comes to additional equipment and inputs provided by the local government units (LGUs) to the tobacco farmer groups. They said that this form of government support greatly reduced their cost of production. They also gave credit to the new farm-to-market roads funded by the tobacco tax, which provided an easier way for them to transport their produce.
Since the passage of RA 10351, the allocated funds for tobacco-growing regions (for both barley and Virginia tobacco producers) almost doubled from P5.6 billion allocated for 2014 to P10.7 billion allocated for 2015. For 2018, the allocated funds reached P15.813 billion. Contrary to arguments of some lawmakers (e.g. Representative Miro Quimbo) that additional taxes kill the livelihood of farmers, the taxes have actually financed programs that support the tobacco farmers.
The feedback from the FGD is also consistent with the data obtained by AER from the Department of Budget and Management. Through the Freedom of Information (FOI) portal, AER was able to retrieve data on submissions of LGUs on proposed programs that they would like to be financed using the sin tax revenues. From the data that AER collated, most of the proposed programs are directed towards construction of farm-to-market roads, purchase of inputs and equipment, and irrigation programs.
However, the farmers raised a concern that more funds from the tobacco tax revenues should be utilized for additional financial support in the form of cash subsidies or loans. They mentioned that the initial capital in farming is still a major problem. They also mentioned the need to improve health care and education programs for their families.
This new information from the FGD provides another reason why supporting tobacco tax increases shouldn’t worry politicians, especially those gunning for Senate seats this 2019 such as Senator Sonny Angara, who heads the Senate Committee on Ways and Means that is tasked with conducting committee hearings on tobacco taxation.
It can be remembered that Senator Frank Drilon, the principal author of the Sin Tax Law, ranked second in the senatorial race in 2013 even after the tax was passed into law in 2012. Senator Drilon takes pride in winning heavily in tobacco-growing provinces. The bipartisan support for the passage of the tobacco tax, as well as the certification of its urgency, should make it a lot easier for the politicians, including the reelectionists, to pass the bill.
In the proposed Senate Bill 1605 of Senator JV Ejercito, which mandates a tobacco excise tax increase to P90 per pack of cigarettes, health advocates estimate P87.31 billion in incremental revenues. Of that amount, about 15% will be used as additional funding for the farmers and others in tobacco-growing areas. The bulk or the remaining 85% will be used for the implementation of the Universal Health Care (UHC) Law, which will benefit all Filipinos.
It makes us wonder then why some politicians are afraid of passing increased tobacco taxation. It is good for the health of the entire Filipino people. It increases revenues that will be used for universal health care and for the welfare of tobacco farmers and workers.
Hence it will mean support of the people to politicians who will champion the tobacco tax. For the reelectionists, it means votes. This is not a mere opinion; it is validated by a recent Pulse Asia survey that two out of three Filipinos support higher tobacco taxes and will support politicians who will champion tobacco taxation.
To Senator Angara and his colleagues in the Senate, take heed.
 
Arjay Mercado is a fiscal policy analyst and researcher of Action for Economic Reforms.

Pimentel to push inquiry into passport data breach

By Camille A. Aguinaldo
Reporter
SENATOR AQUILINO L. Pimentel III plans to file a resolution to look into the reported passport data breach in the Department of Foreign Affairs (DFA) involving a previous contractor.
In a text message to BusinessWorld on Sunday, the senator said he told his staff to draft the resolution so “hopefully, it could be filed this week.”
In a Twitter exchange last week, Foreign Affairs Secretary Teodoro L. Locsin, Jr. said the department was “rebuilding” its files on passport applicants, which included birth certificates, after a “previous outsourced passport maker took all the data when contract (was) terminated.”
He disclosed the information on Twitter after he was addressing the concern of an overseas Filipino worker who was encountering some problems with renewing his passport.
“Because previous contractor got pissed when terminated it made off with data. We did nothing about it or couldn’t because we were in the wrong. It won’t happen again. Passports pose national security issues and cannot be kept back by private entities. Data belongs to the state,” Mr. Locsin said in a Jan. 9 Twitter post.
In another series of tweets on Sunday, Mr. Locsin said he wanted the “problem fixed” and left it to the Senate and the Department of Justice (DoJ) to investigate and to prosecute, respectively. He also mentioned that he just wanted the process of passport renewal “quickened” by removing the birth certificate requirement.
Mr. Pimentel told reporters in a separate mobile phone message that the DFA should explain how the alleged data breach occurred. He also wanted to look into the terms of contract with the previous passport provider.
“Why is there a provision that the provider should hold all the data while the DFA has no copy? And who in DFA allowed this kind of contract? Who was the Secretary at the time?” the senator said.
“We need to know what other data gathering government agencies have entered into such a contract, which is disadvantageous to the government and the people,” he added.
Former Foreign Affairs Secretary Perfecto R. Yasay Jr provided more information in a Facebook post Saturday evening, which Mr. Locsin shared on Twitter, into the change of passport makers between 2006 and 2015.
Back in 2006, the former government official said the Bangko Sentral ng Pilipinas awarded, through bidding, the production of machine readable electronic passports (MREPs) to Francois-Charles Oberthur Fiduciare (FCOF).
But in 2015, the DFA awarded the production of a new E-Passport system to APO Production Unit, Inc. (APUI), which is under the Presidential Communications Operations Office (PCOO). APUI then tapped United Graphic Expression Corporation (UGEC) for the production of the new E-passports, which Mr. Yasay said was a contract violation.
By early 2017 when he was DFA Secretary, Mr. Yasay recounted that chief presidential legal counsel Salvador S. Panelo demanded that all rights over the personal data and other information connected to the E-passport printing services “be reconveyed to the DFA or be acknowledged to be exclusively owned and controlled by the DFA.” Mr. Panelo purportedly said assigning the passport printing services to UGEC was “illegal.”
“Upon information and belief, it appears that UGEC which continues the illegal production of the E-passports has not complied,” Mr. Yasay said as he called for thorough investigation into the controversy. “Under the present scheme of things, the DFA cannot hold UGEC accountable for any breach or screw up in the printing of the E-passport.”
“Indeed this matter should be thoroughly investigated without any political bias or cover-up so that the whole truth, which the public deserves, will be exposed,” he added.
For her part, Vice President Maria Leonor G. Robredo on Sunday issued a statement calling on the government to “take action on stolen passport data.”
“It is shocking and it is scary,” the statement also quoted her in her weekly radio program.
Ms. Robredo said she agrees with Senate Minority Leader Franklin M. Drilon that the government should file a case against the former service contractor “to compel that company” to return the data.

Abolition of Road Board, budget top Congress agenda

By Camille A. Aguinaldo and
Charmaine A. Tadalan Reporters
CONGRESS RESUMES session on Monday, Jan. 14 with the proposed P3.757 trillion national budget for 2019 as the top priority measure in the Senate and the House of Representatives set to tackle the Road Board abolition bill.
“These are the only remaining administration bills pending,” House Majority Leader Rolando G. Andaya, Jr. of the 1st district of Camarines Sur said in a phone message on Saturday. “All others including tax measures are done with as regards the House of Representatives,” he added.
The government is currently operating under a reenacted budget as the 2019 General Appropriations Bill (GAB) remains pending in the Senate.
The House, for its part, approved House Bill No. 8169, or the “General Appropriations Bill for fiscal year 2019,” on Third reading on Nov. 20.
Both chambers have until Feb. 8 to tackle priority measures before it goes on break for the campaign period. The 17th Congress will then resume for three weeks beginning May 20 and will officially adjourn on June 7.
On the abolition of the Road Board, which was passed under the leadership of then Speaker Pantaleon D. Alvarez, Mr. Andaya said the chamber will designate conferees for the Bicameral Conference Committee on Jan. 14.
The Senate has yet to discuss whether it will convene the panel to amend the provisions provided in House Bill No. 7436, which it adopted.
Speaker Gloria Macapagal-Arroyo told reporters on Friday that the bicameral deliberation and ratification of the priority measures identified by President Rodrigo R. Duterte “are dependent on when the Senate will be able to finish them.”
For her part, Senator Loren B. Legarda, chair of the Senate committee on finance, said in a statement on Sunday the Senate will continue to hold marathon sessions on the GAB with 10 remaining government agencies lined up for plenary debates.
She added that the Senate is targeting to approve the GAB on third and final reading by Jan. 21. This will be followed by a bicameral conference committee and the bill’s ratification by both chambers of Congress before Feb. 8.
“We aim to have the budget signed by the President by the second week of February,” Ms. Legarda said.
Congress adjourned session last Dec. 13 with the national budget still under the period of interpellations in the plenary or pending for second approval. Senators have cited the delayed transmittal of the House of Representatives of the GAB as the reason why Congress failed to pass the GAB before the end of 2018.
Agencies that will face the Senate’s scrutiny this week include the Department of Public Works and Highways (DPWH), the Department of Tourism (DoT), Department of National Defense (DND), Department of Health (DoH), Bureau of Immigration (BI), Commission on Elections (Comelec), Dangerous Drugs Board (DDB), Philippine Drug Enforcement Agency (PDEA), Presidential Legislative Liaison Office (PLLO), and the National Commission on Indigenous Peoples (NCIP).
“While pressed for time, we will perform our duty to pass a budget that is geared towards our collective desire to provide our people with programs and services that would usher in personal growth, community development, and national progress,” Ms. Legarda said.
“We want to ensure that every peso from the people’s taxes go back to them through actual delivery of services and programs,” she added.
Senate President Vicente C. Sotto III earlier said the chamber will also hold an all-senator caucus on Monday to discuss the GAB, the issue on the abolition of the Road Board, and the Senate’s other priority measures.
Last Thursday, the Senate leader also listed the following priority bills that the chamber will pass in the four-week January-February session: proposed amendments to Human Security Act, medical scholarship bill, proposed amendments to the Public Service Act, the proposed Mindanao Railways Authority, unified uniformed personnel retirement benefits and pension Reform Act, budget reform bill, rightsizing the national government bill, value for money procurement bill, traffic and congestion crisis bill, and the salary standardization bill.

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