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Is growth sustainable?

The answer appears to be yes. After a checkered history of boom and bust cycles since the founding of the Republic in 1946, punctuated by foreign exchange crises, the Philippine economy has broken out of this pattern and achieved significant growth the past few years.

The economic picture seems healthy: consumption spending remains strong, driven by OFW remittances and BPO growth; government infrastructure spending will boost the economy further in the coming years; and investment spending is picking up. The level of Gross International Reserves remains healthy and the country’s Debt to GDP ratio continues to improve. Government has also been trying to improve tax revenue — TRAIN 1 has just been passed, with TRAIN 2 and TRAIN 3 on the way — to finance its ambitious infrastructure and social spending program. Analysts are predicting 6.5% to 7% growth this year.

The economy seems to be humming. What could possibly go wrong?

One level of concern is the growing current account deficit.

After years of surplus, the current account turned negative in 2016, posting a deficit of $1.2 billion. In 2017, the deficit ballooned to $2.5 billion.

The level of deficit, however, is presently manageable and understandable. The current account deficit is about 0.8% of GDP and reflects the country’s thirst for imports as the economy picks up.

However, the trade deficit is expected to widen further in the years ahead. The current high level of imports cannot be explained by the Build, Build, Build infrastructure program of the government as that program has yet to break ground in many instances. Therefore, imports are expected to surge further when the Build program takes off in earnest.

While imports will climb in the years ahead, the other components of the current account may face significant threats. BPO earnings, which has been a driver of current account inflows, face headwinds in the form of the emergence of artificial intelligence, constraints in the pool of educated work force as it shifts toward higher-value services, and an uncertain tax regime.

The other driver of current account inflows, OFW remittances, is continuing to see healthy growth at 4.3% to $28.1 billion. However, the growth in OFW remittances and exports may be highly dependent on the state of the global economy. Presently, the US, China, Japan and the EU are enjoying healthy growth. The US tax cuts and fiscal stimulus are further boosting global growth.

However, the big question is how long will the global economic expansion last? A looming trade war between the US and China threatens global growth. A slowdown in both economies will feed on each other and drag global growth. That means our exports and even our OFW remittances may be severely affected.

Chronic and increasing current account deficits also pose a threat to the economy. An unwelcome steep fall in the peso may be the result. Speculative attacks against the peso will surely happen and undermine confidence. The BSP may be forced to increase interest rates to slow down imports and the economy.

To head off a foreign exchange crisis and to ensure that the current account deficit poses no danger to the economy, the country must dramatically increase foreign investments. The inflows from foreign investments will finance the country’s growing current account deficits. Therefore, an important leg for sustainable growth is improving the foreign investment climate.

In this regard, Secretary Ernesto Pernia is spot on when he pushes for the reduction in the foreign investment negative list. The most important part in the reduction in the negative list is to allow foreign investments in telecommunications and transport, which is presently barred by the current law on the definition of public utilities. The Public Service Act Amendment will cure that. However, the bill is still pending in the Senate for approval on second reading. The Senate must act on it soon to facilitate the entry of a third telco player and to attract foreign investors in the capital-intensive industries of telecommunications and transport.

Of course, laws liberalizing foreign investments are necessary but not sufficient in attracting foreign investments in large numbers. Sanctity of contracts, a rule of law, ease of doing business, and peace and order are also high among the factors foreign investors consider in where to invest. The government has to keep on working for that.

However, to my mind, it’s not the current account deficit that represents a structural threat to sustainable growth. It’s the government’s inattention to the problems in agriculture.

As a recent newspaper article, “The Philippines on the Wrong Path to Agro-Industrialization,” said, the Duterte government is pursuing the failed agricultural policies of the past. It’s still focusing on rice self-sufficiency, which is unrealistic and unable to improve agricultural productivity, crop diversification, and poverty alleviation.

Why is improving agricultural productivity important for sustainable long-term growth?

First, increased incomes in the rural sector will expand the domestic market, thereby ensuring that the country is not dependent on the state of the global economy for growth.

Second, increased agricultural productivity will free up labor that can be shifted toward higher productivity manufacturing.

Third, increased agricultural productivity will mean wider and lower-costing inputs to agro-industrialization, i.e. manufacturing making use of agricultural products from soap making (from coconuts) to brake fluids (from castor beans).

Fourth, since poverty has a rural dimension, increasing incomes in the rural areas is essential to combating poverty.

Without improving agricultural productivity, the country’s march toward Ambisyon 2040, or the NEDA’s vision of most Filipinos living a middle class life of increased standards of living, will not come to pass. The sociopolitical problems alone that massive rural poverty spawns, from terrorism to stunted child development, will ensure that growth cannot be sustained.

Climate change is also a reality and is a threat to our already anemic agricultural sector.

Yet, our government officials are mired in the past: insisting on rice self-sufficiency (while the NFA is conniving to press for graft-ridden G2G or Government to Government rice imports) and burdening the agricultural sector with agrarian reform regulations that deter investment in agriculture.

What must we do?

First, we need to abandon rice self-sufficiency as a policy. We should freely allow the importation of rice and focus our resources toward developing higher-value crops, where we can have a comparative advantage.

Second, we should deregulate the farm sector from many burdensome regulations, from the restrictions on agricultural patents to the prohibition in accumulating more than five hectares of land, in order to attract investments in the farm sector.

Third, we must remove the rigidities in the labor law (e.g. minimum wages and labor security tenure) because as agricultural productivity improves, excess labor must be shifted toward higher-productivity manufacturing.

However, policies that make labor artificially expensive will prevent the growth of labor-intensive manufacturing. In other words, the growth in agricultural productivity must be accompanied by growth in labor-intensive manufacturing.

Let not the present high economic growth rates lull us into complacency. Tailwinds, such as the current global economic growth, will not last.

We have much more to do if we are to forge an economy that is strong enough and resilient enough to grow at high rates for at least two decades and achieve the goals of Ambisyon 2040 of a prosperous Philippines.

 

Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.

idea.introspectiv@gmail.com

www.idea.org.ph

Sereno’s removal does not serve Duterte’s interest

I address this to the pro-Duterte partisans and to President Rodrigo Duterte himself. I wonder whether President Duterte has weighed the costs and benefits of having Maria Lourdes Sereno removed as Supreme Court Chief Justice.

Methinks Chief Justice Sereno’s ouster is not for Duterte’s good. Why?

First, the impeachment trial puts on the back burner Duterte’s ambitious but promising legislative reform agenda. Second, it is likely that the Senate will clear, or not convict, Chief Justice Sereno. Third, even without Sereno, Duterte will not be better off.

The impeachment process is a distraction, in fact an impediment, to a legislative reform agenda that Duterte himself wants passed. Big progressive reforms have to be made — the Bangsamoro Basic Law (BBL), Universal Health Coverage (UHC), and the completion of the comprehensive tax reform package, to name a few.

These are reforms that will benefit the people. If passed under Duterte’s administration, they will become his legacy.

The said reforms are transformative, and their passage is absolutely necessary.

The BBL is the key to resolving the protracted armed conflict in Muslim Mindanao. Similarly, it is the institution that will effectively deter the alarming growth of terrorism disguised in religious fundamentalism in Mindanao. In addition, it provides the impetus for the rapid development and modernization not only of Muslim Mindanao but also of all Mindanao regions.

UHC is likewise a revolutionary reform.

As the authors in the House of Representatives wrote in their approved bill: “The State will adopt a whole-of-system, whole-of-government and whole-of society approach… for the universal health coverage.” This entails compulsory health insurance coverage of 100% of Filipinos. At present, coverage is 92%, and hence the challenge is to reach the so-called last mile. Health care benefits will be expanded, including for primary or preventive care (in the current system, the main beneficiaries are inpatients). And the value of health care benefits will increase, thus substantially reducing out-of-pocket expenses. The Senate has to act on this bill.

The comprehensive tax reform program remains incomplete.

What has been approved is the first package. Among others, it consists of the reduction of the individual income tax rates, the adjustment to inflation of the excise tax rates for oil, the lifting of many unnecessary exemptions on the value-added tax (or VAT), the increase in the excise tax for automobiles, and the introduction of an excise tax on sugar-sweetened beverages. But because of the compromises, some structural problems remain, and the revenue yield falls short of what government wants. Thus, the Executive is relentless in pursuing other tax measures.

Congress is set to tackle a second package of tax reforms.

It features the rationalization of fiscal incentives in tandem with the lowering of the corporate income tax and the further increase in alcohol and tobacco taxes. It goes without saying that this package is as equally challenging as the first.

However, the opportunity to pass the abovementioned reforms is narrow and limited. Political and economic analysts have observed that the passage of critical but hard reforms has to be done in the first half of any administration’s term. This is when the administration’s political capital remains relatively high and when the election-related issues do not hobble politicians. In the concrete, that means the critical legislative reforms must be secured in 2018. Their passage in an election year (2019) or in a more politically difficult second-half of Duterte’s term gets dimmer.

But having given priority to the Sereno impeachment, the Duterte administration has in effect sidelined its legislative reform agenda.

Once the submissive House of Representatives impeaches the Chief Justice, the Senate will devote much of its time to the trial. In short, Senate is compelled to shelve what should be urgent bills.

Indeed, we have seen how slow Congress has been in tackling the key reforms. Congress is perhaps fettered by the political brouhaha. Or maybe, taking advantage of the political distraction, it has deliberately slowed down the reform process to favor vested interests. Nothing significant has happened on the crucial reforms enumerated above in the first quarter of 2018.

But the Duterte’s forces fear the defeat of the impeachment in the Senate. That will be a terrible political setback.

Although the Senate has accommodated the Executive, the fact remains that it is sensitive to public opinion and pressure. It is very hard to muster a two-third vote in the Senate to remove Chief Justice Sereno, especially when she is being tried for unimpeachable offenses. The indication of a weak impeachment complaint is that it has taken the House of Representatives a long time to vote on the complaint. It is aware of the likelihood that the Senate will reject the infirm case.

That has led ugly minds like Solicitor General Jose Calida to pursue other legal tactics like petitioning the Supreme Court for quo warranto. This gives the Supreme Court power to remove its Chief Justice. The legal profession, including the Integrated Bar of the Philippines, is opposed to Calida’s petition. In the words of the lawyer and Inquirer columnist Oscar Franklin Tan, “this is a flying kick in a boxing match.” It breaks all rules. It violates the Constitution.

To change the metaphor, this is letting the genie out of the bottle. It destroys the separation of powers and creates disequilibrium in government. Giving such power to the Supreme Court has serious negative consequences. The unintended consequences can likewise haunt the current members of the Court and Duterte himself.

The political crisis that it will trigger will spill over to the economy and investments.

Why then does Duterte have to play a high-risk game when he really gains nothing from removing Chief Justice Sereno? The presence of Sereno in the Supreme Court does not alter the fact that Duterte still controls the Supreme Court. Within the Supreme Court, Sereno is isolated. Sadly, even her allies like Senior Associate Justice Antonio Carpio and Associate Justice Marvic Leonen are critical of her.

The only payoff for Duterte is a delight that he has been able to remove a disobedient but politically harmless Chief Justice. But the costs are high for the institutions, for the people, and even for Duterte himself.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

Some questions on the Panda bonds

In 2005 the International Finance Corporation (IFC) and the Asian Development Bank (ADB) issued the first “Panda” bonds — “a Chinese renminbi-denominated bond from a non-Chinese issuer, sold in the People’s Republic of China (xinhuanet.com, Sept. 29, 2005). “Both the IFC and the ADB believed issuance by supranationals could open up the market to other types of issuer — particularly in the rapidly expanding infrastructure sector, where China’s government alone spends $260 billion a year” (“Panda bonds explained,” GlobalCapital, Oct 19, 2005). IFC’s issue of Rmb 1.13 billion ($140 million) and ADB’s Rmb 1 billion ($123 million) at 3.4% coupon (24 basis points over the Chinese government bond) sopped up some of the excess liquidity in the domestic Chinese market and helped relieve the upward pressure on the renminbi (Ibid.).

It worked well for IFC and ADB, with the Panda scheme of getting the funding from China’s onshore investors, and then on-lending these same funds to the infrastructure projects within China. Good for the Chinese local investors, too, who enjoyed higher yields over those on regular government securities. But why did the Panda bonds not live up to the initial hype?

The Panda bonds were difficult to implement in China’s controlled economy, as it was probably seen difficult to feel the edges of how this would affect China’s obstinate currency peg. At first, “funds raised from the sales of Panda bonds would have to remain in China; issuers would not be permitted to repatriate such funds (The Wall Street Journal, July 6, 2007).” When offshore investors and outward remittances were finally allowed in 2010 (Bloomberg.com), and the Chinese fear of losing control forced even tighter regulation on the Panda bonds.

J.P. Morgan’s strategist Ying Gu analyzed the problems and benefits of overseas nonfinancial corporates and banks, as well as governments, in issuing Panda bonds (Treasury Today Jan 2017). “China is the world’s third largest bond market and provides ample liquidity to issuers,” he said. Yet “the Panda bond market accounts for only a tiny fraction of China’s $3-billion onshore debt market.” There’s a lot of funding waiting there, Gu said. Only, there are some big hurdles (Ibid.). These obstacles were also discussed in an article “Panda Bonds: Not Yet The Future Of The Debt Market” by Christopher Bickley et. al of Conyers Dill & Pearman (mondaq.com, July 11, 2016).

First, “there is very little transparency around the process and what makes a (potential issuer’s) request successful, Gu said. “Each transaction is dealt with on a case-by-case basis and documentation may be different for even similar transactions,” the Conyers analysts corroborated. And then, if and when the approval is given to an issuer, there is no official guidance on what can be done with the proceeds. If the (foreign) issuer cannot shift the proceeds offshore… there is really no benefit for them to enter this market,” Gu said.

A second big hurdle would be the requirement to provide the past three years financial statements under the Chinese Account Standards. “A lot of bond issuance is made in US dollars and filed under US GAAP (Generally Accepted Accounting Principles). Issuing a Panda bond and changing your accounting standards can be a costly and tiring exercise (Treasury Today, op. cit.).

Thirdly, a local (Chinese mainland) credit rating must be earned by the proponent-issuer — which goes back to some analysts’ queasiness about the case-to-case basis of how China would choose issuers of Panda bonds.

And so the China-based debt watcher Lianhe Credit Rating Co. Ltd gave the Philippine government an “AAA” top rating (stable outlook, lowest expectation of default risk) and the issuance of Panda bonds was approved by the People’s Bank of China and National Association of Financial Market Institutional Investors (NAFMII) on Feb. 9, as announced by Finance Secretary Carlos Dominguez III (Philippine Daily Inquirer, Feb 12, 2018). The Philippine government’s inaugural RMB 1.46 billion worth of renminbi-denominated bonds was launched in March (BusinessWorld, March 20, 2018). With a tight spread of 35 basis points above benchmark, the three-year Panda bonds fetched a coupon rate of five percent, “a reflection of confidence in the robust growth prospects and creditworthiness of the Philippines (The Philippine Star March 22, 2018).”

The Philippine government said that the renminbi-denominated debt sale affirms the country’s “improving bilateral relations” with China and the increasing relevance of its currency (BusinessWorld op. cit.). The sale followed a Philippine road show in Singapore, Hong Kong and China on March 14-16, led by National Treasurer Rosalia V. de Leon and Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo.

But the “deal” was really clinched when Secretary Dominguez signed the underwriting agreement with Bank of China (BOC) Chairman Chen Siqing in ceremonies held at Malacañan Palace on Nov. 15, 2017, witnessed no less than by the Chinese Premier Li Keqiang and President Rodrigo Duterte at China’s first-in-ten-years state visit to the Philippines.

A case-to-case basis (even a cozy one) — as the critics of the Panda bonds warn, shows a lack of transparency in standards and procedures — contrary to the teaching points on financial best practices which the IFC and the ADB wanted to impart to China as first Panda bonds issuers.

Yet steel-hearted finance people must detach from subjective judgment of possible utilitarian motivations that may later complicate objective business transactions. So, there should be no allusions to the South China Sea/Philippine Sea territorial dispute between China, the second richest country in the world (next to the US) and the Philippines, which might have been given a cuddly Panda bear to hug while crying for development funds amidst budget shortfalls.

The Republic of Korea and Canada’s Province of British Columbia were among the first sovereign issuers to tap Panda bond funding (www.scmp.com/business/markets, Dec. 23, 2015). Neither had any political complications vis-à-vis China, and local government oppositionists in Canada openly questioned China’s onshore pricing and wondered whether they needed China at all, when they had prime access to debt everywhere else, without the hot-and-cold regulation of the Chinese central bank (Read: “Concerns raised over ‘Panda Bonds’ issued by B.C. government,” globalnews.ca, July 1, 2016).

The Philippine government has programmed a P888.23-billion borrowing plan this year to fund its budget deficit that is capped at three percent of GDP. Of this amount, P176.27 billion will be sourced externally while P711.96 billion will be borrowed locally (BusinessWorld, March 20, 2018).

Proceeds of the Panda bonds will be converted into peso, to be deposited with the BSP, and will help fund the government’ infrastructure projects and other financing requirements. The government plans to spend some P8 trillion up to 2022, when President Rodrigo R. Duterte ends his six-year term, in a bid to boost gross domestic product (GDP) growth to 7-8% up to then from 2017’s 6.7% and a 6.3% average in 2010-2016 (Ibid.).

Have the cash flows, spending versus repayment of debt, been as carefully planned? Ahh, but there’s the comfy bear-hug of the great Panda, China, our leaders might assure us.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

Four constitutional reforms fundamental to a federal system

By Michael Henry Ll. Yusingco

ACCORDING to the scholar, Raphael N. Montes: “Besides its basic principles, federalism is very customizable. The peculiarities of a country would define the different features of its own brand of federalism.”

With this caveat in mind, hereunder are four constitutional reforms that are necessary to establish a viable federal system in the Philippines, to wit:

1. Subnational government framework

2. Defining the constituent units

3. Division of Competencies

4. Senate as a federal upper chamber

SUBNATIONAL GOVERNMENT FRAMEWORK
A key feature of a federal system is the presence of different levels of government, usually a central/national level and regional/subnational level with each responsible for their mandated duties and functions.

For the federal system to work in the Philippines the regional government structure itself must be configured to facilitate a community-oriented governance mind-set. Pertinently, a regional government framework meeting this requirement is found in the proposed Bangsamoro Basic Law.

Accordingly, the regional governance structure in the new federal constitution can be parliamentary with members elected through single-member legislative districts and though political party representation. The chief executive of the regional government shall then be elected by the regional parliament from its ranks.

Members of the regional executive cabinet shall also be members of the regional parliament. However, nonmembers may be designated to a cabinet post subject to confirmation by the regional parliament.

One necessary change that must be made here is to remove the supervisory power of the president over the regional executive and over local government units. This institutional link undermines the autonomy of the subnational level of government. Indeed, it is a peculiar facet of a presidential-unitary structure and has no place in a federal system.

Note however that the regional parliament shall function as the check and balance mechanism to the regional executive. Moreover, it must have oversight functions over local government units within the region.

But the federal charter must have clear mechanisms for the sub-national unit to reorganize its governance structure. This power must be vested in the regional parliaments concerned subject to concurrence of the federal parliament and the people of the region.

DEFINING THE CONSTITUENT UNITS
The shift to a federal system will be a huge challenge for all Filipinos. Hence, drawing the territorial boundaries must not result in drastic and immediate disruptions to the public. The people’s deep familiarity to the current geographical organization of the Philippines must be seriously considered in naming the constituent units of the federal republic.

Ostensibly, the regional administrative infrastructure currently existing could be the basis for defining the territorial boundaries of the constituent states of the new federal republic. This would also mean there are already working institutional offices ready to carry out any new mandates. Doing this will be relatively easier and perfunctory because these regional administrative bodies already enjoy familiarity among communities within their respective territorial jurisdictions.

But the federal charter must also have clear mechanisms for these sub-national units to reorganize themselves if they see fit. In other words, let the regions themselves decide, when the conditions are suitable, to amalgamate or to separate as well as initiate the process to do so. The power over this course of action must not be vested on the central government (i.e. federal legislature) alone like in the 1987 Constitution concerning the Cordilleras and the Bangsamoro. This power must be vested in the regional parliaments concerned subject to concurrence of the federal parliament and the people of the affected regions.

DIVISION OF COMPETENCIES
As mentioned earlier, one key feature of a federal setup is the presence of two tiers of government with each solely responsible for its assigned duties and functions. There are two vital requirements in allocating competencies to the different levels of government.

First, the assignment of responsibilities between the central and regional governments must be clear and coherent. The distribution scheme must be formulated in such a way that the designation of accountability is unequivocal. We do not want the political culture of blame-shifting and credit-grabbing to persist in the new federal regime.

Second, this division of duties and functions among the different tiers of government is very critical because the correct allocation of tax powers and other revenue-raising measures depends on it. Particularly, how the revenue-raising powers of the region are defined in the federal constitution itself.

The general rule of course is “the funds follow the functions.” Meaning, the assignment of funds must be accompanied by the appropriate revenue raising power.

Hence, if the regional level of government is given more autonomy, which means more duties and responsibilities, then it only follows that it must be given more power to raise revenues.

Whatever the fiscal arrangement may be, it must be self-evident in the new charter and self-executory as well. The details be maybe left to the appropriate lawmaking body, but the fundamental operating principles must be clear in the new federal constitution.

SENATE AS A FEDERAL UPPER CHAMBER
A federal setup is not just about the devolution of political and fiscal powers to the subnational level. It is also about institutionalizing coordinated efforts towards national development. Hence, for the federal system to work properly, mechanisms must be established to foster cooperation and collaboration among the subnational governments in addressing national concerns.

The Senate as a federal upper chamber can be this institution. In this scenario, senators shall be elected in each region. The new charter can set a minimum number of senators to be elected but there should be mechanism in place for the number to increase depending on the population growth of a given region.

DEGREE OF AUTONOMY
According to Ronald Watts, considered as the preeminent authority on federalism, “The key is not the degree of decentralization, but the degree of constitutionally guaranteed autonomy that the constituent units may exercise.”

Therefore, in designing the federal setup the autonomy of the regional government must be self-evident in the new federal charter. The reforms suggested here which directly relate to the establishment of the federal system must be self-executory. Simply put, there should be no need for an enabling law to operationalize the federal structure.

 

Michael Henry Ll. Yusingco is a lecturer at the Institute of Law of the University of Asia and the Pacific and Non-Resident Research Fellow at the Ateneo School of Government.

Peso seen sideways on profit taking

THE PESO is expected to move sideways this week as investors pocket profits ahead of the Holy Week break and amid brewing tensions between the US and China over trade policies.

On Friday, the local currency dropped to close at P52.39 versus the greenback, 19 centavos weaker than its P52.20-per-dollar finish on Thursday, as President Donald J. Trump imposed sanctions on China for trade violations.

Week on week, the peso also slumped from its P51.93-per-dollar finish last March 16.

Guian Angelo S. Dumalagan, market analyst at Land Bank of the Philippines, said in an e-mail that the dollar could move sideways with a downward bias this week “as investors might take profit ahead of the Holy Week break amid heightened concerns over a brewing trade war between the two largest economies in the world — US and China.”

On Thursday, Mr. Trump slapped new tariffs on Chinese goods worth about $50 billion following a seven-month investigation into alleged intellectual property theft.

Following this, the US is also looking at imposing investment restrictions as well as retaliatory actions at the World Trade Organization.

In response, Liu He, China’s top economic leader, warned US Treasury Secretary Steven Mnuchin in a phone call on Saturday that they are ready to defend its national interest.

On Friday, China announced it may launch a “tit-for-tat” retaliation against Washington by imposing tariffs on 128 American products including wine, dried fruits and nuts and steel pipes.

Mr. Dumalagan said these developments “increased worries over a global trade war which could potentially curtail economic growth.”

The trade sanctions came after the imposition of 25% duty on imported steel and 10% tariff on imported aluminum, also directed at Beijing.

However, Mr. Dumalagan noted that the dollar’s potential downward movement may be tempered by the collective view of several American central bankers of at least two more US rate hikes in the coming months of 2018.

According to a report by Bloomberg, Federal Reserve officials Raphael Bostic and Robert Kaplan affirmed their views of three interest rate hikes this year, saying they are open to shift their views.

“My base case continues to be three for the year, and having said that I am also open minded and we’ll see how the year unfolds. It’s certainly possible that that view will get amended,” Mr. Kaplan said.

The Federal Open Market Committee decided last week to raise its borrowing rates, lifting the benchmark overnight lending rate to 1.75% from 1.5%.

This was the sixth time the Fed raised its interest rates since it began tightening its monetary policy from the near-zero or 0.25% in December 2015.

On Thursday and Friday, foreign exchange trading will be suspended for the Holy Week break.

This week, Mr. Dumalagan sees the peso moving between P51.80 and P52.50, while a trader gave a narrower range from P52.20 to P52.50. — Karl Angelo N. Vidal with Bloomberg

‘Never again’ — Students lead huge US anti-gun rallies

WASHINGTON — Chanting “never again,” hundreds of thousands of young Americans and their supporters answered a call to action from survivors of last month’s Florida high school massacre and rallied across the United States on Saturday to demand tighter gun laws.

In some of the biggest US youth demonstrations for decades, protesters called on lawmakers and President Donald Trump to confront the issue. Voter registration activists fanned out in the crowds, signing up thousands of the nation’s newest voters.

At the largest March For Our Lives protest, demonstrators jammed Washington’s Pennsylvania Avenue where they listened to speeches from survivors of the Feb. 14 mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida.

There were sobs as one teenage survivor, Emma Gonzalez, read the names of the 17 victims and then stood in silence. Tears ran down her cheeks as she stared out over the crowd for the rest of a speech that lasted six minutes and 20 seconds, the time it took for the gunman to slaughter them.

The massive March For Our Lives rallies aimed to break legislative gridlock that has long stymied efforts to increase restrictions on firearms sales in a nation where mass shootings like the one in Parkland have become frighteningly common.

“Politicians: either represent the people or get out. Stand with us or beware, the voters are coming,” Cameron Kasky, a 17-year-old junior at Marjory Stoneman Douglas, told the crowd.

Another survivor, David Hogg, said it was a new day.

“We’re going to make sure the best people get in our elections to run not as politicians, but as Americans. Because this — this — is not cutting it,” he said, pointing at the white-domed Capitol behind the stage.

Youthful marchers filled streets in cities including Atlanta, Baltimore, Boston, Chicago, Los Angeles, Miami, Minneapolis, New York, San Diego, and St. Louis.

More than 800 demonstrations were scheduled in the US and overseas, according to coordinators, with events as far afield as London, Mauritius, Stockholm and Sydney.

‘TAKE THEIR LIBERTY AWAY’
Underlining sharp differences among the American public over the issue, counter-demonstrators and supporters of gun rights were also in evidence in many US cities.

Organizers of the anti-gun rallies want Congress, many of whose members are up for re-election in November, to ban the sale of assault weapons like the one used in the Florida rampage and to tighten background checks for gun buyers.

On the other side of the debate, gun rights advocates cite constitutional guarantees of the right to bear arms.

“All they’re doing is asking the government to take their liberty away from them without due process,” Brandon Howard, a 42-year-old Trump supporter, said of the protesters in the capital. He had a sign saying: “Keep your hands off my guns.”

Wearing a red “Make America Great Again” sweatshirt, 16-year-old Connor Humphrey of San Luis Obispo, California, said: “Guns don’t kill people. People kill people.”

Mr. Humphrey, who was visiting Washington with his family for spring break, said he owns guns for target shooting and hunting and uses them responsibly. His school had a lockdown exercise last week.

“I think teachers should have guns,” he said, echoing a proposal made by Mr. Trump after the Parkland killings.

Still, rallies for tighter firearm restrictions also sprang up in rural, Republican-leaning communities ranging from Lewiston, Idaho to Logan, Utah where there is strong support for the Second Amendment constitutional right to own guns.

CELEBRITIES BACK STUDENTS
Among those marching next to New York’s Central Park to call for tighter gun controls was pop star Paul McCartney, who said he had a personal stake in the debate.

“One of my best friends was shot not far from here,” he told CNN, referring to Beatles bandmate John Lennon, who was gunned down near the park in 1980.

Taking aim at the National Rifle Association (NRA) gun lobby, teenagers chanted, “Hey, hey, NRA, how many kids have you killed today?”

The young US organizers have won kudos and cash from dozens of celebrities, with singers Demi Lovato and Ariana Grande, as well as Hamilton creator Lin-Manuel Miranda, among those performing in Washington. Actor George Clooney and his human rights attorney wife, Amal, donated $500,000 and said they would be at the Washington rally.

The US football team the New England Patriots loaned its plane to Marjory Stoneman Douglas High School students and their families to travel to Washington.

At the march in Washington, an elementary school student from Virginia, Naomi Wadler, 11, captivated demonstrators when she spoke up for African American girls who were victims of gun violence but whose stories “don’t make the front page.”

White House deputy press secretary Lindsay Walters said the administration applauded “the many courageous young Americans” who exercised their free-speech rights.

“Keeping our children safe is a top priority of the president’s,” said Ms. Walters, noting that on Friday the Justice department proposed rule changes that would effectively ban “bump stock” devices that let semi-automatic weapons fire like a machine gun.

Also on Friday, Trump signed a $1.3-trillion spending bill including modest improvements to background checks for gun sales and grants to help schools prevent gun violence.

Former President Barack Obama said on Twitter that he and his wife Michelle were inspired by all the young people who made the marches happen.

“Keep at it. You’re leading us forward. Nothing can stand in the way of millions of voices calling for change,” Mr. Obama said. — Reuters

Facebook faces ‘Oppenheimer moment’ over Trump election scandal

PARIS — Facebook and psychologists who have worked with it are grappling with their “Oppenheimer moment,” experts say, over revelations that its data may have been used to help elect US President Donald Trump.

The scandal over the way Cambridge Analytica obtained personal information to try to manipulate US voters “is the most important moment that Facebook has faced since it went public (in 2012),” according to Professor Andrew Przybylski of Oxford University, one of the world’s leading authorities on social media psychology.

He compared their reluctance to admit the destructive potential of social media to the epiphany of the father of the atomic bomb, Robert Oppenheimer, who declared, “Now I am become Death, the destroyer of worlds.”

“With Facebook we have to acknowledge we are giving Frodo the Ring,” Mr. Przybylski told AFP, referring to the object in the Lord of the Rings which confers absolute power.

“If you gave me the Ring I would be corrupted.

“It is not that what is happening at Facebook is by its nature bad,” he added. “It is that they are using our data for products and services, but that we have no idea what they are up to.”

He called for regulation and a new “ethical framework (to ensure) that users’ rights are protected and that research is being done transparently and in the public interest.”

Mr. Przybylski said similar crises had led to the establishment of ethical standards in other areas.

‘FACEBOOK SENSE THREAT’
“Chemistry had this moment after they invented dynamite and chemical weapons, physics had this with nuclear weapons,” he argued.

Facebook and “others have been built on the shoulders of academic research… The key issue is trust. Facebook works one-on-one with psychologists and researchers and there is a fundamental asymmetry there.”

Mr. Przybylski, who has spent two days at Facebook’s San Francisco headquarters, said he told founder Mark Zuckerberg’s chief of staff “Chris Cox all this to his face,” and set out proposals on how Facebook might change the way it works.

“I am optimistic. They are receptive, they have a sense of the threat and they have a proactive mind-set,” said Mr. Przybylski, who no longer uses Facebook himself.

But Google researcher Francois Chollet has his doubts.

In a series of scathing tweets last week the inventor of the Keras open source library said “the problem with Facebook is not ‘just’ the loss of your privacy and the fact that it can be used as a totalitarian panopticon,” a prison in which all the cells can be observed from one point.

“The more worrying issue is its use of digital information consumption as a psychological control vector.”

Other experts were sceptical that fears about personal information being used to influence users would lead to an exodus from the world’s biggest social network.

But with hashtags like #DeleteFacebook and #ZuckSucks trending even on Facebook itself, they said it had suffered a major blow beyond the billions wiped off its share price.

ADDICTED TO THE ‘F’ KEY
French sociologist Nathalie Nadaud-Albertini said that with Cambridge Analytica a line had been crossed even if “people are almost inured to their data being used for commercial gain.

“That information is being used in political campaigns is far more unsettling,” she said.

“Yet whether we like it or not, we are almost obliged to have social media accounts,” she said.

Nor can addiction be underplayed, insisted Professor Eric Baumer, of Lehigh University in Pennsylvania, whose 2015 study for Cornell University showed how many Facebook users wanting to quit still found themselves reaching for the “F” key when started their computers.

Those who did leave were often tempted back, he said.

“A lot people are going to make a big fuss about quitting now… Then you’ll see a negative backlash when their friends say, ‘How am I to get in touch with you?’” he said.

No other social media “has the same critical mass. However, that could change” and there were strong signs it was already changing with younger users.

The most consistent users are now aged between 40 and 60, Mr. Baumer said, while “younger users are likely to have an account that is deactivated or to have at least thought of deactivating it.

He was now studying a growing “latent resistance” to Facebook, which may end up with a “more thoughtful engagement with a panoply of different types of social media.

“The other problem is the opacity of social media conglomerates,” Mr. Baumer argued. “People say I don’t like Facebook so I use Instagram… not realizing Facebook also owns it.” — AFP

The sorry state of the Earth’s species

Budget surplus widens in January as revenues surge

By Melissa Luz T. Lopez, Senior Reporter

THE government posted a wider budget surplus in January, the Bureau of the Treasury reported Friday, as revenues surged to outpace public spending on the back of tax reform.

The country’s budget balance logged a P10.2-billion surplus as the year opened, nearly five times wider than the P2.2-billion surfeit posted in January 2017.

Revenues jumped by 19% year-on-year to reach P238.9 billion from P200.3 billion, as both tax and non-tax collections posted double-digit increases.

“The growth was mainly driven by the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) which took effect on January 1, 2018,” the Treasury said in a statement.

The Bureau of Internal Revenue collected P175.6 billion for the month, nearly a fifth higher than the P147.4 billion raised the previous year. The Bureau of Customs also generated more funds worth P40.8 billion, up 14% from P35.9 billion during the comparable year-ago period.

Collections by these bureaus reportedly surged further in February to beat monthly targets, according to preliminary data from the Department of Finance.

TRAIN reduced personal income tax rates but has been offset by the removal of some value-added tax breaks; higher fuel, automobile, mineral and coal excise tax rates, as well as new levies on sugar-sweetened drinks and cosmetic surgery.

Meanwhile, non-tax revenues from other government agencies likewise surged to P21.1 billion, more than a third higher than the P15.7 billion collected previously.

Funds collected by the Treasury were flat at P8.1 billion, drawn from higher incomes from state deposits coupled with dividend payments made by state-run firms.

The bureau said service incomes remitted by the Philippine Amusement and Gaming Corp. and the Manila International Airport Authority added to state revenues and helped offset lower gains from the bond sinking fund.

Meanwhile, government spending also climbed to P228.7 billion, up 15% from P198.1 billion the previous year. Of the amount, P43.5 billion was spent on interest payments for outstanding debts.

“Ramped up infrastructure spending as well as the implementation of the third tranche of compensation adjustment for government employees contributed to the month’s performance,” the Treasury added.

January saw a fresh increase in wages for public sector employees as provided under Executive Order 201 signed by then-President Benigno S.C. Aquino III in 2016.

The Duterte administration intends to spend P1.068 trillion for public infrastructure this year, equivalent to 6.1% of gross domestic product (GDP). This forms part of an P8-9 trillion program for big-ticket projects until 2022, which is expected to boost economic growth while also generating more jobs and improving the ease of doing business in the Philippines.

Two analysts said January’s surplus may be temporary, but noted that faster growth largely depends on the implementation of big-ticket construction projects.

“January’s fiscal surplus is expected because of TRAIN. Usually, the fiscal gap during the first month of the year is relatively small. But I expect a fiscal deficit for February and in subsequent months similar to past experience and despite TRAIN’s additional revenue contribution,” Security Bank Corp. economist Angelo B. Taningco said when sought for comment.

“I assume that the government’s Build, Build, Build program will become more active this year in terms of boosting public infrastructure spending.”

Mr. Taningco said the government’s 7-8% growth goal is attainable, even as he is pencilling in a 6.8% forecast for 2018 given “stronger” downside risks stemming from the bureaucracy’s absorptive capacity which could hamper public spending.

“The expenditure report in January 2018 suggests that government spending is on track to contributing more to economic growth this year, aligned with the promises of the current administration,” Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, said separately.

“[I]f government spending grows steadily at double-digit pace then GDP growth for first three months of 2018 might exceed the 6.4% economic expansion recorded in the same period a year ago.”

BSP sees room to cut bank reserves further

By Melissa Luz T. Lopez, Senior Reporter

THERE is room to cut bank reserves further as more surplus funds are parked as term deposits, the country’s central bank chief said, just as the monetary authority remains comfortable with current borrowing rates.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. on Friday said the reserve requirement ratio (RRR) imposed on universal and commercial banks will be trimmed further under his watch, notwithstanding concerns of rising inflation.

The central bank kicked off the process with an “operational” adjustment of the reserve standard to 19% starting March 2. The central bank expects to shore up additional liquidity through its weekly term deposit auctions and placements in its overnight deposit facility.

Some P90 billion is expected to be freed up with every one percentage point reduction in the RRR. Mr. Espenilla said he personally wants to see the required reserves down to single-digit levels in the future.

Prior to this move, the RRR stood at 20% since May 2014 — among the highest in the world — and has been considered as an “inefficiency” to the local financial system as it made borrowing costs more expensive.

In a speech before the Money Market Association of the Philippines, Inc., Mr. Espenilla said the shift to the interest rate corridor (IRC) since mid-2016 has proven “effective,” allowing the central bank to have a better handle on money supply given the various tenors offered to banks for their idle funds.

“As with the shift to the IRC system, the phased reduction in reserve requirements is an operational adjustment and will not materially affect prevailing monetary policy settings,” Mr. Espenilla said.

“Initial evidence based on the last three TDF auctions since the first RRR cut took effect are encouraging and indicative of the potency of the IRC facilities for liquidity absorption. We can definitely do more as the system continues to mature.”

The “phased and gradual” reduction in reserves will “allow for more efficient absorption and mobilization of liquidity,” the BSP governor added.

Domestic money supply grew by 12.8% in January to reach P10.6 trillion, according to latest available central bank data. Bank lending jumped by 19.1% year-on-year that month, sustaining double-digit increases.

Still, the BSP official said they continue to hold a wide array of tools to maintain control of the local financial system, saying that policy rates as well as a “flexible” exchange rate remain potent influencers of market activity.

“[W]e can also adjust monetary conditions without necessarily changing the policy rate, by adjusting auction volumes to move the market-determined TDF rates,” Mr. Espenilla said.

The Monetary Board kept borrowing rates unchanged on Thursday, saying there was no need for a fresh stimulus on the back of robust domestic economic activity and with inflation still expected to stay within the 2-4% target band.

The first RRR cut was approved during the Feb. 8 policy meeting, but was announced a week later to demonstrate that it is different from a change in policy stance.

SEC fines PSE over ‘misleading’ disclosure

By Arra B. Francia, Reporter

THE country’s corporate regulator has penalized the Philippine Stock Exchange (PSE) over an “inaccurate, incomplete, and misleading” disclosure on broker ownership in the company.

The Securities and Exchange Commission (SEC) on Friday said it has imposed a penalty of P106,000 on the PSE for violating Rules 17.1.1.2 and 17.1.1.1.3(a) of the Implementing Rules and Regulations of the Securities Regulation Code.

The commission cited a PSE disclosure on Feb. 26, entitled “PSE signs agreement ensuring reduction in Exchange broker ownership,” as well as six news articles from various publications that supposedly contained the “inaccurate and misleading information on the impact of inactive brokers and stock rights offerings on the brokers’ collective ownership of PSE.”

Following the release of the mentioned disclosure and articles, the SEC Markets and Securities Regulation Department (MSRD) wrote a letter to the PSE directing it to make a “prompt, full, fair, and accurate disclosure.”

The MSRD also directed the PSE to show cause within five business days after receipt of the letter on why it should not be penalized on the matter.

While the PSE submitted four proposed disclosures on Feb. 27 — the final version of which was posted on the same day — to comply with the SEC’s order, the MSRD said it still found all versions “inaccurate, incomplete, and misleading.” A trading halt from 11 a.m. to 1:30 p.m. on Feb. 28 was then imposed on PSE shares.

The MSRD said it found the PSE’s reply to the show-cause order insufficient, making the fines irreversible. The penalty was computed based on a P100,00 basic fine, and an additional P500 per day for 12 days from the PSE’s reply to the show-cause order until the time the SEC found its reasons insufficient.

The PSE has initiated efforts to bring down broker ownership to less than 20% last year, in a bid to secure exemptive relief from the SEC for its acquisition of the Philippine Dealing System Holdings Corp. (PDSHC).

The bourse operator claimed the conduct of a stock rights offering, alongside the revocation of licenses from inactive trading participants, would reduce their ownership to less than 20% by March.

MSRD, however, pointed out brokers’ shareholdings stood at 25.54% based on its computation. It further noted the PSE cannot include inactive brokers in the computation unless they have removed brokering as part of their activities.

The SEC department also said even after its P2.9-billion SRO, broker ownership will still be at 22.05%, beyond the single-industry limit as per the SRC.

In contrast, the PSE in a disclosure posted on Friday said that broker shareholdings after the SRO would stand at 21.71% of 84.9 million outstanding shares.

Shares in PSE lost P2 or 0.83% to P238.80 apiece on Friday.

RLC, SPI investing P10-B in BGC condo

ROBINSONS Land Corp. (RLC) and Shang Properties, Inc. (SPI) will be pouring at least P10 billion into the development of a condominium project in Bonifacio Global City (BGC), Taguig.

In a disclosure to the stock exchange on Friday, RLC said it will be forming a 50-50 joint venture company with SPI for the project. The companies plan to develop a 9,118-square meter property owned by RLC at McKinley Parkway corner 5th Avenue in BGC.

RLC said the development will feature a mix of residential condominium units, serviced apartments, and commercial retail outlets.

Revenues from the property will be split equally between RLC and SPI. Both firms will each nominate three directors for the joint venture company’s board.

The Philippine Competition Commission, mandated to review mergers and acquisitions valued at over P2 billion, cleared the deal earlier this week.

The Gokongwei-led property developer said it intends to pursue other development projects with SPI through the joint venture firm in the future.

RLC is the property arm of JG Summit Holdings, Inc. The property developer raised P20 billion through a stock rights offering last February, which it intends to use for the expansion of its commercial, residential, office, and hospitality businesses.

Shares in RLC gained 45 centavos or 2.25% to finish at P20.45 apiece at the stock exchange on Friday, while shares in SPI were down by two centavos or 0.6% to close at P3.32 each. — Arra B. Francia

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