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Nation at a Glance — (02/19/18)

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

Digitalization of government

(First of two parts)

In almost every industry, “digital” has become the latest buzzword. The scope of digital possibilities is being explored across every business sector, from financial services, health care, to manufacturing, and many others. Given the widespread adoption of digital in business, it would be reasonable to consider the significant benefits that digital can bring to government services and its impact on its constituents.

For some reason, going digital has been on the back burner of government priorities, particularly in developing countries. In fact, few governments in developed and developing countries have attempted to adopt a digital approach in servicing their respective citizens and stakeholders, despite the obvious benefits. One notable example where digital is enhancing government services is in India, which has a national digital identification (ID) called Aadhaar.

The ID system was established for all its residents to promote inclusiveness, and which can be used as an electronic Know-Your-Customer (eKYC) tool to acquire financial products, telecommunication plans, and avail government services. The eKYC cuts significant processing times for the benefit of all parties.  While significant investments are needed for governments to digitize some, if not most, of their citizen-servicing mechanisms, the potential benefits that can be reaped cannot be underestimated.

EFFICIENCY AND COST-SAVING

Digitalization typically results in better efficiency. Various institutions have different drivers for digitalization, such as accessibility, cost-cutting, tracking, or even simply for the sake of increasing digital adoption itself. All these will — to a certain extent — lead to efficiency. In the most basic sense, a government agency that wants to go paperless (by transferring all its printed materials into the cloud) will be able to save and share space with other government agencies, as well as reduce its carbon footprint and traffic (e.g. delivery and disposal of supplies). In addition, government officers can save time when looking for specific documents due to digital indexing, which can further enhance productivity. Estonia, for example, claims to have saved 800 years of working time per year as a result of its digital campaign.

Improved social services
Digitalization can potentially improve the citizenry’s quality of life. An example would be renewing one’s driver’s license which could involve traveling to the national transportation agency, filling out forms, and waiting in long queues. The entire process can take hours instead of just minutes if the government transportation agency were to embrace a digital approach. Many processes can be accomplished online.

Promote transparency
Given how most governments are promoting honesty and transparency programs, digitizing transactions can help provide better visibility and clarity. Corruption can occur during cash transactions between citizens and government agencies. Making transactions digital will not only help state auditors monitor cash flow but will also encourage citizens and government agencies to uphold ethical practices. With digital platforms, every transaction can be effectively tracked and be monitored, while at the same time, reducing bureaucracy and corruption.

TECHNOLOGY APPLICATIONS IN DIGITAL GOVERNMENT

Big data and analytics
The main benefit of data analytics in government is to harness the enormous amount of data available, which is often underutilized. By leveraging data analytics, government agencies can speed up their decision making supported by specific data and information.

For example, one application would be to determine peak hours on certain roads to better address traffic management. In Singapore, the use of analytics during peak hours helped successfully implement the Electronic Road Pricing (ERP) program. Singapore’s government claims to have decreased the number of vehicles on the affected roads by 35,000 vehicles and traffic by 13% during peak hours. Additionally, the Singapore government was able to use the proceeds from ERP to improve public transportation and/or subsidize fares to encourage public transportation usage. Indonesia has conducted trials for the similar implementation of ERP in one of its business districts in Jakarta.

Another sample of big data application is establishing industry-specific tax benchmarking systems. The Australian Taxation Office was able to gather about a million tax returns of small and medium-sized enterprises (SME) and used predictive analytics to establish industry-specific financial benchmarks in order to spot any possible discrepancies in the income reported by the firms. The use of predictive analytics in this example is useful for any evaluation-related processes in government agencies that are prone to undervaluation practices.

Robotics Process Automation and Artificial Intelligence
Robotics Process Automation (RPA), which refers not to a physical robot, but to a type of software, is a rules-based process tool used to eliminate swivel chair processes which can cut a significant amount of time compared to regular individuals doing the job. A ‘bot’ may work with greater accuracy and can work 24/7. It can create a document, read instructions from e-mail, transfer a document from a file type to another, input text  into specified fields, and other manual, repetitive, and error-prone tasks.

RPA can be implemented in the field of new application processing and customer onboarding. For example, citizens who want to apply for government services for their PhilHealth, SSS, TIN, and Pag-IBIG accounts, need not to go to their sites to enroll. The bot will simply extract information from data submitted online, store them in the defined database, and process them for delivery of their respective IDs (detecting discrepancies, generating unique numbers, printing IDs, and initiating courier delivery order) with little to zero human intervention.

On the other hand, the purpose of artificial intelligence (AI) is to create an intelligent machine that can mimic how humans think. AI has opened the world to new possibilities, and continues to advance and gain popularity. AI may greatly assist governments in fraud detection, services delivery, and decision making among others. AI, combined with RPA, is a powerful tool called Intelligent Automation which improves the capability of the rules-based ‘bots’ to be able to create their own rules, eventually existing without the need of humans to maintain themselves.

One possible application is also to establish intelligent chatbots in various government agencies, which are capable of answering basic queries and performing basic tasks to improve service delivery. This can allow government front liners to focus on doing more complex and value-added tasks, thereby improving workforce satisfaction and resulting in better services. An intelligent bot can be tasked to answer inquiries on tax brackets and rates, schedule appointments, perform rough valuation tariff estimates on customs goods, and engage the citizens by conducting digital surveys.

As an example, the city of Los Angeles, in partnership with Microsoft, introduced a chatbot named CHIP (City Hall Internet Personality) that is able to answer more than 700 queries at the same time. In addition, it has reduced the incoming number of e-mails by 50%, so employees can focus on more complex issues instead of taking the time to respond to each e-mail.

Similarly, the State Government of Mississippi established a chatbot named “Missi” to handle inquiries about hunting and driver’s licenses, and taxes; reducing citizens’ waiting time for queries from an average of 45 minutes into less than 10 minutes.

In the second part of this article, we will discuss more areas where digitalization can create significant impact on government services.  We will also look at the current level of digitalization in Philippine government operations.

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.

Christian G. Lauron is a Partner and Irsyad Stamboel is an Associate of SGV & Co.

The conversation has started for Metro Manila’s rejuvenation

Metro Manila is a city of extreme contradictions.

Existing side by side are communities overcome by poverty and squalor and an elite whose members live in posh mansions and elegant high rises. Areas jam-packed with offices, malls, and universities are located a stones throw away from sprawling gated villages that are virtually empty during work days. The poor are deprived of parks and open spaces while the well-heeled have their country clubs and private gardens. We have decaying roads and highways, which, aside from being congested, are beset with ugly billboards, grime, and neglect.

Metro Manila, with its 25 million population, is arguably one of the toughest cities to live in.

Love it or hate it, Metro Manila is the still the capital of the nation and its face to the world. It is the nation’s economic capital comprising 37% of GDP.

As the nation goes through an era of intense transformation with successive years of unprecedented economic growth, the time has come to start the conversation on what our capital city should be. Metro Manila is ripe for an extensive urban rejuvenation not only because we can now afford it, but because not to do so will consign the city to further decay. With inaction, it will rot, like Tondo did.

STARTING THE CONVERSATION
Last week, I attended a conference organized by AECOM and the Harvard Graduate School of Design. AECOM is the world’s foremost city planners and the company responsible for the urban renewal of Shanghai, Houston, Tokyo, and Delhi. Both institutions were here to conduct a design exercise on how to rehabilitate the city’s oldest and most decrepit zones — the Baseco Compound, the Port Area, Intramuros, and the adjacent Pasig Riverfront.

AECOM’s Asia Pacific President, Sean Chiao and Harvard’s Dean of Design, Mohsen Mostafavi, addressed a group that included officials of the city of Manila (Erap was absent, as usual) and representatives from the DBM, DENR, HUDCC and the Intramuros Administration. From private enterprise, Buds Wenceslao of ASEANA City and top officials of Ayala Land, Metro Pacific, and Robinsons Land participated.

The event was held in the majestic Ayuntamiento de Manila, where interestingly, the old city of Manila was planned by the Spaniards according to European standards.

The room was packed with 700 well-meaning citizens who wished to take part in the conversation. Urban renewal advocates like Carlos Celdran, Architect Paulo Alcazaren, and Julia Nebrija were present. The strong showing of civil society goes to show how hungry the citizens are for change.

The audience were both relieved and encouraged when Sean Chiao confirmed that Metro Manila was not a hopeless case. It could still be refashioned into a livable, vibrant city, Chiao said. In fact, Chiao further opined that given the culture, heritage, and business dynamism of Metro Manila, it has the potential to be a global city.

OUT WITH URBAN SPRAWL, IN WITH COMPACT CITIES
Metro Manila was planned according to the American template called “urban sprawl”.

Urban sprawl is a type city plan wherein large portions of the city are zoned according to residential, business, and commercial use. A good example was how Makati was planned several decades ago. The more senior among us will remember how Salcedo and Legazpi Villages were strictly for office use (commercial establishments were not allowed) while Bel Air, Forbes, and Dasmariñas Villages were strictly for family dwellings. All commercial activities were found in what was called “The Center, Makati.”

Urban sprawl is still in effect in Metro Manila today, albeit in a diluted manner. Central business districts are where people work, Parañaque, Alabang, Fairview, and Antipolo are where people live while commercial activities are concentrated in massive malls.

The American template has proven to be ineffective in a city with an ever increasing population. This is because when you isolate living, working, commercial, and school zones, the land use for each purpose becomes bigger. Suburban residences use more land with their single detached homes, complete with private gardens. Larger schools are erected to accommodate the thousands of children that live in the suburbs. Mammoth malls are built to serve the commercial needs of the community.

In a city based on urban sprawl, cars, buses and jeeps are a necessity for daily living simply because nothing is near. Residential, office, and commercial zones are connected by one or two access roads that become increasingly crowded over time.

The situation is exacerbated when there is no efficient mass transit available. Residents will have no choice but to use cars which invariably leads to more congestion. Building more roads is not the answer either. Doing so only encourages the citizens to use their cars more often. It wont take long before these new roads become overrun too. This vicious cycle is where Metro Manila finds itself in today.

One of the ways in which we can solve congestion is through the creation of many “compact cities.” This is one of the proposals brought forward for the greater Manila area.

Compact cities are mixed-use zones where people live, work, shop, study, and recreate in. It is a city that is fully integrated and walkable. Compact cities do away with large highways but instead, provides multiple access roads that lead to the same destination. Bonifacio Global City and Rockwell are fine example of compact cities. Incidentally, BGC was planned by AECOM.

Compact cities need not be as massive or as swanky as Rockwell or BGC. It can be developed in various sizes and for a range of incomes. Aside from being mixed use and walkable, compact cities need to be safe, pedestrian-friendly, and have a decent amount of open space.

Studies show that walkable cities are good for local businesses given the steady flow of community customers. Over time, they evolve to become interesting cities whose shops and restaurants are entrepreneur-driven. It is also good for tourism. Studies show that the cities most visited are all walkable. New York, Madrid, and Paris all have compact cities within them (e.g. Chelsea in NYC, Salamanca in Madrid, Le Marais in Paris). Eventually, these compact cities become desirable and prosperous. Their property prices increase beyond the national average.

Having numerous compact cities within Metro Manila will greatly reduce the need for cars and invariably, result in less congestion. Further, when citizens live, work, study, and recreate in a neighborhood, interaction is encouraged and friendships are made. A sense of community is fostered.

How can compact cities be created in a mega-city like Manila?

An efficient, comfortable and dignified mass transit system is the first requirement. Without it, people will simply revert to using cars. Experts further suggest that compact cities be created around the main stops of a mass transit system. This will facilitate connectivity, sans automobiles, among the many compact cities within Metro Manila.

Inside the compact cities, however, pedestrians and bikes must have priority over cars. Cars can either be restricted or charged a toll for access. This is the trend in most European cities today.

Local government units play the lead role in the creation of compact cities. Zoning restrictions must be relaxed, pedestrian and bike lanes must be created, street parking must be prohibited, open spaces must be developed, safety and security must be ensured, investment must be made in greening the environs and in sanitation. All these necessitates political will.

The conversation has started on what Metro Manila should be.

We the citizens, now know we deserve better. We should make our demands known by writing our mayors and congressmen directly. They are duty bound to act on it.

As a mega city, Metro Manila is a reflection of the nation’s identity, heritage, achievements, and aspirations for the future. We can’t afford to make it rot like Tondo did.

 

Andrew J. Masigan is an economist

Distortions in TRAIN 1 should be corrected by TRAIN 2

The new Philippine tax law, the Tax Reform for Acceleration and Inclusion (TRAIN), has reduced personal income tax but it also created new economic distortions like higher oil and coal tax, higher sugar tax, and expanded VAT coverage.

The actual pass-through effect of TRAIN 1 will be fully felt by March 2018 but the uncertainties and expectations of even higher prices have triggered many sectors to adjust the prices of their goods and services upwards last month so that the inflation rate rose to a high 4.0% in January 2018 vs 3.3% in full year 2017.

We are still thinking about the implementation and implications of TRAIN 1 but then TRAIN 2 is already in Congress and the DoF and Malacañang hope that it will become a law before end-2018.

TRAIN 2 is focused on two things: (a) reduction of the corporate income tax (CIT) from 30% to 25% by 2022, and (b) reduction of the various tax exemptions and tax holidays. The DoF recognizes that the Philippines has the highest CIT in the ASEAN, even higher than those by developed East Asian neighbors. This represents a disincentive to businesses unless they get various tax exemptions or reduction and thus, the plan to cut CIT. Levels of foreign direct investment (FDI) inward stock are also shown in the table below.

These numbers show that the Philippines has (a) the highest CIT, (b) among the highest VAT or GST, (c) among the highest in withholding tax for dividends and interest income, and (d) has the highest withholding tax for royalties. I discussed these numbers in my recent talk at Deloitte’s TRAIN seminar last week February 15 at Ascott BGC.

The DoF notes that the country’s Revenue Productivity, computed as [(tax revenue/GDP) / CIT rate], is very low, only 12% in 2015. This is similar to Indonesia’s 11% and far out from Singapore’s 21%, Vietnam’s 29%, and Thailand’s 31%.

So aside from the Philippines Constitutional restrictions of 40% maximum equity participation of FDIs in many sectors, these high tax rates have contributed to its FDI inward stock being the lowest in the region. Well, there was significant improvement in recent years actually, the level has more than tripled in 2016 compared to 2010, but it is still low compared to what its emerging and developed neighbors get.

TRAIN 2 should target a CIT of 20% or lower soon instead of 25% by 2022 coupled with reductions in various tax holidays and exemptions, for two important reasons.

One is that regional and global tax competition is real and not fictional or drama. Singapore’s CIT of 17% is positioned near Hong Kong’s 16.5%. Vietnam’s CIT until 2015 was 22%, became 20% in 2016. Malaysia’s CIT until 2015 was 25%, became 24% in 2016. Japan’s CIT until 2014 was 25.5%, became 23.4/23.9 in 2016. And the US’s CIT until 2017 was 35%, became 21% in 2018.

If the Philippines’ CIT would decline to 25% by 2022 and be on a par with Indonesia’s 25%, Indonesia may have cut its CIT to only 24% or lower by then.

The big US cut in CIT has sent ripples to many countries around the world as many US companies located abroad are considering downsizing their operations there and strengthen their operations back in the US. These include some US companies in Singapore where the tax difference has declined from 18% (35% vs 17%) to only 4% (21% vs 17%). If Singapore would initiate a tax cut to 16% or 15% to dissuade these US and even European companies from going to the US, this will start a new round of tax competition within the ASEAN.

Two, national taxes in CIT, withholding tax and VAT should significantly decline because the Duterte administration is serious in pushing hard its federalism agenda. Some of the soon federal states will also create their CIT, VAT, and withholding taxes on top of existing national taxes. This will be dangerous for businesses as they will pay high national taxes plus high state or regional taxes. If TRAIN 2 will aim for only 25% CIT and some future states will also impose another 5% CIT, the overall CIT can go back to 30%.

The government should not be too tax-hungry because capital and people are more mobile these days. The distortions of TRAIN 1 of higher national taxes should be corrected by TRAIN 2 significant CIT cut. This will be good for entrepreneurship and job creation.

Tax Rates

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

minimalgovernment@gmail.com.

Duterte and the Hard State

While I had voted for President Duterte in 2016, I confess that I wasn’t much of a fan in his first year in office, reaching a point of possible “buyer’s remorse.”

To my mind, he didn’t do much in his first year, which was just full of bombastic, populist promises: end “endo”, free irrigation, increase in SSS pensions, free cavan of rice, etc. While his war against drugs was on point, the way he went about it was over the top, applying pure brute force to a complex problem, and costing the country in terms of international reputation.

I also thought he was naïve in entering into peace talks with the CPP-NDF, even to the point of appointing known Red activists in his Cabinet. He also failed to confront the oligarchy in his first year. How could he?

For example, he appointed a former Globe executive to head the Department of Information and Communications Technology. It was like appointing a fox to guard the hen house. He also did nothing for agriculture and instead appointed Manny Piñol as Secretary of Agriculture. Pinol’s main policy is to continue former Agriculture Secretary Prospero Alcala’s failed rice self-sufficiency policy.

The President has evolved

However, I’m glad that there’s a President Duterte version 2.0. The man has clearly evolved in office. Perhaps, attribute the evolution to his humility about his intellectual capacity (“it took me 7 years to finish high school.”) but he has shown a capacity to learn and change course.

For example, while he initially bought into Piñol’s bankrupt rice self-sufficiency policy, President Duterte later backed Cabinet Secretary Jun Evasco’s more enlightened policy to liberalize rice importation and reform the National Food Authority. That the NFA with the help of the rice syndicate is now trying to create a rice crisis to avoid being “reformed” is beside the point. The administration is officially backing legislation to remove NFA’s legal monopoly on rice importation.

There are more examples: President Duterte has allowed the hard leftists in his Cabinet not to be confirmed for office and has junked the peace talks. He fired Atty. Salalima from office and appointed a competent and honest former general as DICT OIC. (I hope former Gen. Eliseo Rio Jr. will be made permanent.) He has reached out of his small circle of Davao friends and San Beda law classmates to staff the government and has been appointing more professionals (mostly ex-military) to sensitive positions. He has tempered his populist impulses. In fact, he has stopped short of fully implementing a job-killing end “endo” policy. Further, it was legislators, and not him, who pushed for the populist free SUC (State Universities and Colleges) tuition.

Even on the drug war, he has learned. He has relaunched Operation Tokhang as “Tokhang Lite,” without the headline-grabbing EJKs (Extra Judicial Killings), which was seen as the substance of his drug war policy.

My benign, if not positive, view of the actions of President Duterte version 2.0 is that he’s trying to develop a “strong” or “hard” state.

Duterte moves against the oligarchy

In developmental literature, a hard state is one which can raise substantial revenues, provide basic services, keep law and order, and impose public policy over narrow private interests.

It’s with this prism that I view the tax reform law or TRAIN (Tax Reform for Acceleration and Inclusion). While a few have criticized TRAIN as being anti-poor because of the increased taxes and the mild inflationary effects, I see it as a big step toward a harder or stronger state. The version that finally passed may have been diluted somewhat by the legislators, but the fact is that the administration pushed for it, despite objections of powerful private interests such as car manufacturers, sugar producers, beverage and food manufacturers, and leftist groups.  The ability to impose taxes is a hallmark of a strong state.

TRAIN isn’t the only instance where President Duterte has shown political will about the state’s financial prerogatives vis a vis private interests.

He has managed to collect Php 6 billion from Lucio Tan’s Philippine Airlines, representing unpaid navigational charges, a debt previous administrations have failed to collect. He has retaken the Mile Long Property from the Prietos, previous owners of the Philippine Daily Inquirer.

Recently, he forced PLDT Chairman Manny Pangilinan to surrender telecom frequencies to the government at no cost after threatening to send tax auditors to look over PLDT’s books. Those frequencies are public property and while PLDT may have paid CURE (Connectivity Unlimited Resources Enterprises) for those frequencies, CURE obtained them without paying for them.

More bitter to PLDT, the administration intends to hand over those frequencies to a third telco player which will compete with the existing duopoly.

To try to strengthen the state, President Duterte has been attacking what he perceives to be threats to the state. One threat is the drug syndicates with their creeping influence over local, and even national, government officials and police authorities. This is the reason for his drug war. The other threats are from extremists, the first from ISIS-backed local Islamic terrorists and the second, from the CPP-NPA. On the latter, he has done a 180-degree turn.

From consorting with the communists (which he admitted started when he was Davao mayor and playing local politics), he has scrapped the peace talks, ordered the re-arrest of NDF “consultants,” and instructed the military to go on an all-out war against the NPA.

However, a skeptic told me that a significant amount of TRAIN’s revenues will go to pay for increases in military and police pay. I retorted that it’s just being consistent with Duterte’s objective to strengthen the state by strengthening its capacity to vanquish the state’s enemies.

Breaking up the duopoly

Another sign of Duterte’s evolution is that his economic policies have transitioned from populist solutions to breaking the back of monopolies and duopolies holding back the economy.

On telecommunications, he’s pushing for a third telco player to compete with the duopoly. The administration got Facebook to invest in a bypass infrastructure which will give government 2 Terrabits of spectrum capacity, more than the duopoly combined. The government will use this to enable a third player to compete.

There are more government policies, from the Public Wifi law to the Open Access Bill, which would loosen the strangehold of the duopoly on internet services and improve people’s internet access.

More significantly, the administration has supported and prioritized the passage of the Public Service Act amendment. Amending the Public Service Act to exclude telecommunications and transportation from the list of public utilities will allow foreign companies to invest up to 100% in those industries.

As I had previously said, this is the most consequential piece of economic legislation since the founding of the Republic because the prohibition of 100% foreign ownership in those industries since 1935 has led to monopolies in those sectors, starving them of capital investment and technological transfer, and made the economy uncompetitive and resulting in high prices and poor service to consumers.

By fostering economic liberalization and emasculating the economic power of local monopolies and oligopolies, President Duterte will indirectly strengthen the state. It’s therefore laudable that the administration will try to shorten the foreign investment negative list, thereby facilitating foreign investment and more competition in presently restricted areas.

His administration has also signaled its intention to liberalize rice importation and remove the NFA’s rice importation monopoly although there are still dark forces within his administration bucking the policy.

However, his drive to strengthen the state has shortcomings.

President Duterte’s activist and can-do attitude doesn’t square with a weak and inefficient bureaucracy. True, he’s trying to cure the ills of the bureaucracy by appointing more ex-military officers (more than 55 officials to date, from the Department of Environment and Natural Resources and Department of Interior and Local Government to the Metromanila Development Authority and the Housing and Urban Development Coordinating Council). It’s a sound policy because the armed forces is the biggest government institution with the most educated professionals with organizational experience.

It’s not going to be enough. This is why his government’s reliance on ODA-funded or hybrid PPPs for his infrastructure program is highly misplaced. It puts a big burden on government to perform. However, already, the public relations releases are outrunning the realities on the ground. His rail projects, such as the Subic-Clark cargo railway and the Mindanao railway, are economically unsound and will become white elephants if ever they come to fruition. Even the much touted Manila-Clark railway may reach only as far as Malolos because the DOTr has yet to secure right of ways to Clark.

Is the President spending his political capital correctly?

I’m also not sure if President Duterte is right in spending his political capital in trying to change the form of government.

Changing the form of government from unitary to federal and from presidential to parliamentary may be an admission that a strong central state is not possible but only mini-states competing against each other is.

Moreover, I don’t agree with his administration’s political attacks against Chief Justice Sereno and the Ombudsman. Successful or not, the impeachment of either Sereno or Morales will weaken the state because President Duterte is expected to make political tradeoffs to secure conviction.

If I were President Duterte, however, I would rather focus on inclusive agricultural development to strengthen the state. The widespread poverty in the countryside and the extremism it breeds is a major reason for our weak state. Because of agricultural underdevelopment and widespread rural poverty, the state is continually threatened by political extremists, whether by Islamic terrorists or NPA guerillas, and weakened by the lack of a rural middle class, resulting in dominant political dynasties.

On the other hand, abolishing the NFA rice import monopoly is in the right direction, although he has to do more. Now that the leftists in his Cabinet are gone, he has to fix the problems spawned by the CARP law (overregulation and restrictions in the rural land market). And instead of big ticket economically unsound railway projects, his Build-Build-Build program should be focused on easier to build regional infrastructure that will help agriculture.

Beyond President Duterte’s foul language and the sexist jokes, I try to focus on the big picture and I like what I see.

For too long, we have had a weak state, easily penetrated and bullied by narrow private interest.

This is why the Philippines has been left behind economically by its neighbors. This is why we lack public services and peace and order. This is why I silently applaud when President Duterte threatens to shut down Boracay because local officials have been unable to punish violators of environmental laws and to assert public rights over unscrupulous developers.

A hard state is not to be confused with an authoritarian state.

With its irresponsible elite, giving a man political monopoly doesn’t work in the Philippines. What the country needs is a hard, or developmental, state within its democratic framework that will promote sustainable, inclusive development. If President Duterte aims to achieve that, then bully for him.

Peso seen weakening vs dollar

THE PESO is seen to weaken this week as the dollar strengthens on the back of generally upbeat US economic data as well as expected hints from Federal Reserve officials on future rate hikes.

The local currency closed at P52 per dollar last Thursday, 12 centavos stronger than the P52.12 logged the previous day, as market players took profits ahead of the Chinese New Year holiday.

Week on week, the peso ended weaker than its P51.48-a-dollar finish last Feb. 9.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), said the dollar is expected to remain strong this week on the back of “generally upbeat US economic reports and possibly more hawkish hints from the US Federal Reserve.”

On Friday, the US Commerce Department said new homes to be constructed rose by 9.7% in January to a seasonally adjusted annual rate of 1.326 million units. This figure was the highest level in more than a year or since October 2016.

Building permits also climbed 7.4% to a rate of 1.396 million housing units.

On the other hand, US consumer sentiment rose to 99.9 in February, higher than the 95.7 reading a month ago as well as the 95.5 consensus among Reuters economists.

These data, Mr. Dumalagan said, will give the dollar a boost in the first three days of the week, although noting that this may be tempered by caution ahead of the Fed meeting minutes which will be released on Thursday.

However, a trader said in a phone interview that the remittances which piled up over the long weekend will give the local currency some boost.

“We have a long weekend so expect a lot of remittances to come in. We might see an early selling come Monday,” the trader said.

Meanwhile, Mr. Dumalagan said the peso-dollar pair may experience some volatility in the last trading days of the week, even as movements may still be favoring a stronger greenback.

“Hawkish hints from the US monetary policy meeting minutes and possible affirmations of more US interest rate hikes this year from some policy makers may continue to keep the dollar strong, despite possibly mixed US economic data on manufacturing, services, and existing home sales,” he said, adding that the “likely firm” inflation data from Japan as well as manufacturing and services data from the Eurozone may drive the focus out of US.

“[These data] may introduce volatility by potentially diverting some focus on the future policy actions of these two major economies. A weaker dollar against the yen and the euro sometimes translates to a stronger peso.”

For this week, the trader sees the peso moving between P51.90 and P52.30 versus the dollar, while another trader gave a slimmer range of P51.90-P52.15.

Landbank’s Mr. Dumalagan meanwhile said the peso-dollar rate would range P51.60 to P52.50, adding that the factors which could reverse the dollar’s forecasted upward bias include unexpected dovish tone from the Fed meeting minutes and from the policy makers, as well as weaker-than expected US economic reports.

“Domestically, positive updates on the government’s key projects and programs may also help control the dollar’s strength against the local currency,” he added. — Karl Angelo N. Vidal

Shares to move sideways on thin trading volume

LOCAL EQUITIES may continue trading sideways this week as foreign investors maintain their selling positions, alongside the closure of some Asian markets for the Chinese New Year.

The 30-member Philippine Stock Exchange index (PSEi) gained 0.16% or 14.33 points to end at 8,612.44 last Thursday, closing the shortened trading week with a gain of 108.75 points or 1.3%. 

The increase was supported by the mining and oil and holding firm sectors, which closed 2.5% and 2% higher week on week, respectively. The market still held a net foreign selling position for the week at P810 million, although lower than the P940-million net outflows from the week before.

“I am convinced that the market will continue to trade sideways as we build up trading volume and wait out the continued foreign selling. There are several trading gaps to be filled on the way up to retest the 9,000 level which I think we will see in a few weeks,” Eagle Equities, Inc. Research Head Christopher John Mangun said in a report.

Online brokerage 2TradeAsia.com, meanwhile, said trading could thin this week on account of the Chinese New Year.

“Volumes could thin ahead of China market’s week-long celebration of their Lunar New Year,” 2TradeAsia.com said in a weekly market note. The Shanghai Stock Exchange has been closed since Feb. 15, and will resume operations on Feb. 22 after the new year celebrations.

The brokerage also noted that investors will be seeking clarity on tariff rules, following the government’s petition to reverse the High Court of Singapore’s arbitral ruling on water tariffs involving Maynilad Water Services, Inc.

The arbitral ruling ordered the government to compensate Maynilad for its revenue losses since March 2015 after the Metropolitan Waterworks and Sewerage System refused to implement Maynilad’s tariffs.

“Cycle of legal brawls could send confusing signals to upcoming big-ticket projects, given the time element involved in recovering investments. Similarly, issues hounding the energy sector should also merit priority, as uncertainties on power supply agreement approvals could hamper existing players’ ability to support their operating cash flow needs,” 2TradeAsia.com said.

Speculations on what company will be the third telecommunications player also boosted prices of telco firms, specifically Now Corp., doubling its value to P13.98 from just P7.20 last week. Eagle Equities’ Mr. Mangun noted that there may be more trading among these speculative stocks.

“I also believe we will continue to see more action in second tier and speculative stocks in the following weeks as we wait for blue chips to pick up… Regardless if (NOW) turns out to be the third telco operator or not, the stock has shown to be a favorite among investors as it traded several billion this week, overshadowing the blue chips,” Mr. Mangun said.

Mr. Mangun placed the index’s support between 8,420 to 8,500, while resistance will be between 8,685 to 8,770. — Arra B. Francia

US eyes heavy tariffs on China, Russia to counter steel, aluminum glut

The US Commerce Department said Friday it recommended imposing tariffs on China, Russia and other countries to counter a global glut in steel and aluminum which it says threatens national security.

In a report to President Donald Trump, Commerce Secretary Wilbur Ross includes among the options a nearly 24% tariff on all products from China, Russia and three other economies.

Other options would impose either high tariffs or quotas on steel and aluminum imports.

The findings are part of an investigation into the impact of the oversupply of steel and aluminum, and whether it undermines US national security.

In each case “the imports threaten to impair our national security,” Ross told reporters in a conference call about the so-called Section 232 investigation.

China and Russia are primary targets, but many other countries are included in the recommended sanctions, which are sure to spark fears of a global trade war if implemented.

Ross said the sanctions were designed to be broad to prevent targeted countries from circumventing the limits by shipping through a third country.

He said “serial offenders can evade these orders by transshipment through another country.”

For steel, Ross recommended three possible options: a 24 percent tariff on all steel from all countries; a 53 percent tariff on imports from 12 countries, including China, Russia and Brazil; or a quota on steel from all countries.

For aluminum, he recommended either a 7.7 percent tariffs on the metal from all countries; a quota for all countries; or, perhaps the most shocking of all the options, a 23.6 percent tariffs on imports of all products from China, Russia, Hong Kong, Vietnam and Venezuela.

Ross submitted the two reports to the White House in late January.

Trump has until mid-April to decide on any possible action, which he acknowledged likely would prompt action by US trading partners in the World Trade Organization.

US industries have urged the administration to take care since high import tariffs would raise the cost of supplies for major industries.

But Commerce said the goal of the measures is to boost domestic aluminum and steel production. — AFP

Government debt at 36.4% of GDP

The country’s ratio of General Government (GG) Debt to the Gross Domestic Product (GDP) stood at 36.4% as of end-June 2017, slightly up from the 35.3% recorded in the same period in 2016, the Department of Finance (DOF) reported on Sunday, Feb. 18.

In a report submitted to Finance Secretary Carlos Dominguez III, the DOF Domestic Finance Group (DFG) said that as the National Government (NG) expenditures picked up in 2017 resulting in a higher deficit, “debt ratios reflected the increase in programmed borrowings. The National Government operations impact the most on the GG debt ratios.”

NG debt (net of the Bond Sinking Fund, or BSF) reached P5.8 trillion, up by 10.3% from P5.3 trillion from the level as of the end of June 2016.

Because the BSF can only invest in government securities, and these holdings are considered intra-sectoral and netted from total outstanding NG debt, the decline in BSF holdings, combined with peso depreciation, led to higher outstanding NG debt for the period, the DFG said.

Sites and spaces: Sculptures at the CCP

Below are excerpts from a 2013 article published in BusinessWorld‘s High Life magazine, which featured sculptural works at the Cultural Center of the Philippines. The sculptures included those made by National Artist for Sculpture Napoleon V. Abueva.

BusinessWorld high life, May 2013

By Ma. Victoria T. Herrera

EXCERPTS:
Art critic Alice Guillermo cites Napoleon Abueva as the one “who tilted the balance from the conservative classicism of Maestro Guillermo Tolentino… to modernism in the decade of the Fifties marked by artistic ferment.”

Abueva’s versatility is evident in his handling of medium and expressions.

In his more than six decades of art practice, he has explored a wide range of materials in metal, stone, and wood. But he admits to be happiest working on the rich grain and natural textures of Philippine hardwoods through the process of direct carving. Abueva’s forms are simplified and stylized representations of nature such as the carabao, the fish, rural folk, the family, and the female body. He considers his purely abstract works as a means of problem solving, capturing the essence of structure. In 1964, Abueva, together with Jose Joya, represented the Philippines when the country first participated in the prestigious Venice Biennale. His entry was similar to the Allegorical Harpoon (1964), which takes off from an improvised fishing implement with a strong directional thrust. He incorporated the element of movement, as the two horizontal sections are designed to rotate manually, as if aiming for the kill.

Abueva’s interest in the functional side of sculpture is quite Modern in perspective. He notes: “I work on functional objects on the basis of sculptural problems, rather than utilitarian objectives, as diversion from pure sculpture.” He has designed various functional works including playground elements, doors, chairs, and benches. One of his early designs may be found within and outside the CCP Main Theater Building. Abueva conceived of the “scoop out bench” as a feature for Leandro Locsin’s concrete structure, which he later translated into wooden benches.

Abueva’s Modernism remains strongly grounded in Philippine culture such as in his sculpture titled Hilojan (1981). The title refers to the stone and wood press used to mash buntal fibers extracted from the young unopened leaves of the buri or talipot palm tree. Designed to facilitate a constant rolling movement, Hilojan follows the same principles but employs weight from hardwoods-molave and narra-together with round stones anchored at the bottom. The artist originally conceived of the work as composed of various wooden components meant to fit together like a puzzle. In 1996, Abueva reinforced them with metal screws and bolts to ensure the safety of visitors.

2018 starts with smaller ‘hot money’ net inflows

By Melissa Luz T. Lopez, Senior Reporter

MORE FOREIGN FUNDS entered the Philippines in January, compared to gross inflows the preceding month and a year ago, but a bigger increase in total outflows caused net inflows to shrink in those comparative periods, according to data the central bank released on Thursday evening.

Foreign portfolio investments posted a $162.16-million net inflow last month that was nevertheless down 46.185% from the year-ago $301.33 million and 64.51% smaller than December’s $456.93 million.

These investments are more commonly known as “hot money,” as such funds enter and leave the country with ease with any development that affects investor sentiment.

January marked the third straight month of net inflows, signalling sustained investor optimism towards the Philippine economy.

“On the overall, transactions for the month yielded net inflows of $162 million attributable to investor optimism over the passage of the first phase of the government’s tax reform program, positive news on corporate earnings, and expected higher government spending for infrastructure projects,” the Bangko Sentral ng Pilipinas (BSP) said in a statement.

The much-anticipated Tax Reform for Acceleration and Inclusion Act which took effect Jan. 1 reduces personal income taxes for those earning below P2 million, alongside a simpler system for computing donor and estate taxes.

Foregone revenues will be offset by the removal of some exemptions to value-added tax; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not in the stock exchange, and stock transactions; and new taxes for sugar-sweetened drinks and cosmetic enhancements.

The higher taxes are expected to offset foregone revenues from income tax cuts and generate P82.3 billion in fresh funding this 2018. This, in turn, will help fund the P1.1-trillion infrastructure budget needed for the entire year.

On Jan. 23, the Philippine Statistics Authority also announced that the economy grew by 6.6% in 2017’s fourth quarter, which pulled full-year growth at 6.7% in 2017, well within the government’s 6.5-7.5% goal.

Investors put in $1.623 billion last month, 41.51% more than the year-ago $1.147 billion and just 0.042% up from December’s $1.559 billion, but took out $1.461 billion that was 72.75% more than the year-ago $845.83 million and 32.636% up from December’s $1.102 billion.

The first four weeks of the month saw more foreign funds entering the country against what exited, peaking with $103.50 net inflows in the Jan. 22-26 week.

Some 69.2% of these investments went into shares of stock issued by companies listed on the Philippine Stock Exchange (PSE), which resulted in $80-million net inflows. Foreign investors preferred to place their bets on holding companies; banks; property developers; food, beverage and tobacco firms; and utilities, the BSP said.

The bellwether PSE index logged nine record highs in January, ending with 9,058.62 on Jan. 29.

Meanwhile, 30.8% of the investments went into peso-denominated bonds issued by the Philippine government, resulting in $82-million inflows.

Bulk of the inbound funds came from the United Kingdom, the United States, Malaysia, Singapore, and Hong Kong.

About 79.9% of the outbound flows went to the US as a safe haven for investments.

The central bank expects $900 million in net outflows this year. In 2017, the BSP recorded $205.03-million net hot money outflows, still better than the $2.5 billion in outbound funds which they expected.

Monetary authorities said positive investor sentiment prevailed in the latter part of 2017 amid robust macroeconomic fundamentals and progress towards enactment of the first of up to five planned tax reform packages, which helped offset the impact of market jitters over local and international events that otherwise spurred capital outflows.

Laid-off workers tell Coca-Cola bottler: Don’t use TRAIN

Labor unions at Coca-Cola FEMSA Philippines, Inc. (CCFPI) have labeled the franchise bottler’s use of a new tax law as a “façade for union busting” following the management’s decision to lay off over 600 workers.

On Friday, the bottler’s labor unions issued a statement saying 23 of the 606 who will lose their jobs on March 2 are union leaders — four of them are union presidents.

The softdrinks bottler had seen several ownership changes in the past decade – the latest was in 2013, when Mexican beverage giant FEMSA S.A.B. de C.V. acquired 51% of Coca-Cola Bottlers Philippines, Inc. from Atlanta-based The Coca-Cola Company.

Coca-Cola FEMSA Philippines said last week that it “is undergoing an organizational structure assessment” that will entail cutting its headcount because of “recent developments within the beverage industry and the business landscape as a whole.”

It did not say at that time how massive the layoff will be, or specified at all what those “developments” are.

But in a statement on Friday, the company’s labor unions – which announced they’re forming a coalition – claimed that the Coca-Cola bottler’s management had told them that the “restructuring” was a consequence of a new tax on sweetened drinks.

The Duterte government’s centerpiece tax law “Tax Reform for Acceleration and Inclusion” (TRAIN) imposes among others a P12 per liter tax on drinks using high fructose corn syrup like softdrinks, and a P6 per liter tax on those with caloric and non-caloric sweeteners.

“The CCFPI management uses the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) as a façade for their union busting despite having no evidence yet of the decline in sales due to the excise tax on sugary and sweet beverages,” the unions’ statement read.

“CCFPI can never conceal the stench of union busting by hiding under the skirt of the TRAIN law.”

The labor unions said they were “cast out of the decision-making regarding the retrenchment of our co-workers,” and that the management made no mention of the plan during two meetings held in November and December last year.

“The CCFPI only informed us of its plans last January 29 and 30 as it was issuing termination papers to the affected workers.”

They said the restructuring and lay-off are violations of an agreement between the company and unions.

Alfredo Marañon, president of the Federation and Cooperation of Cola, Beverage and Allied Industry Unions, said union members will hold protests at Coca-Cola sites across the country on Feb. 20 demanding negotiation.

Sought for comment, Coca-Cola FEMSA said the company has adhered to legally mandated processes in the restructuring process.

“This restructuring has been a very difficult decision. We have the utmost respect for our employees, and we have strived for fairness in executing every facet of our reorganization. Rest assured that KOF PH strictly adhered to all legally mandated processes in restructuring the company. The methodology and criteria that informed our decision were applied fairly and equitably as we implemented the comprehensive review of our organization,” the company said in a statement.

KOF is the ticker symbol for Coca-Cola Femsa S.A.B. de C.V. that’s listed on the New York Stock Exchange.

“We have taken note of all the points raised by the KOFPH Unions, and are working to address these as we speak. We are hopeful that our present labor-related issues will be resolved fairly, peacefully, and in accordance with law.” – report from P. P. C. Marcelo

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