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Sustainable farm tech seen raising agri competitiveness

REUTERS

By Beatriz Marie D. Cruz, Reporter

THE GOVERNMENT must make it easier to trade agricultural commodities within the region while introducing sustainable farming practices to raise the competitiveness of its farms, according to the Asian Development Bank (ADB).

“I think this is something related to how we can balance the process. We, of course, need to be aware about the interests of the local farmer organizations, but same time, this is also related to the consumer side,” Qingfeng Zhang, senior director of the ADB’s Agriculture, Food, Nature, and Rural Development Sector Office, told BusinessWorld.

He cited the need for stronger regional and international cooperation through joint ventures to “scale the adoption of new technology, enhance it, reduce the cost. Then your competitiveness will increase.”

President Ferdinand R. Marcos, Jr. has ordered the reduction of rice import tariffs to 15% from the current 35% until 2028, in the face of opposition from farmers’ groups. 

“When we reduce the import tariff, we also need to increase competitiveness of producers,” Mr. Zhang said. “And in the end, we can manage inflation and the rice (price) spike.”

Continued upticks in global rice prices will pose upside risk to Philippine inflation, Mr. Zhang said, noting the impact of export bans imposed by rice producing countries, climate change, and Russia’s withdrawal from the Black Sea Grain Initiative.

Rice accounts for 8.9 percentage points (ppts) of the consumer price index (CPI) basket, while food overall makes up 34.78 ppts of the CPI, according to the Philippine Statistics Authority.

“This type of trend will continue for some time before we see some change. We always say that we need to learn from the 2008 food crisis,” Mr. Zhang said.

“We should encourage open trade. Otherwise, we are going to see this continued disruption and rice price increases,” he added.

Competitiveness in Philippine agriculture has been hindered by climate risk, land disputes, and slow modernization.

Regional cooperation should not only facilitate better trade, but also help promote low-carbon and climate-resilient agriculture, he said.

“That means we’re not only just looking at production itself; we also need to look at the farm-to-fork food system,” he said.

Low-carbon and climate-resilient farming practices include water-saving technology in rice production, social protection measures for vulnerable farmers, digital methods to cut fuel waste, and the decarbonization of transport systems, cold storage warehouses and other facilities, Mr. Zhang said.

Better rural roads and flood risk facilities, restoration of wetlands and grasslands, would also help make agriculture competitive and resilient, he added.

The environmental cost of current food systems worldwide is estimated at $3 trillion annually, according to ADB.

Establishing a natural capital accounting system, which measures the stock of a country’s natural resources, would help bring in “more financing globally to support good agricultural practice,” Mr. Zhang said.

Mr. Marcos signed Republic Act No. 11995 or the Philippine Ecosystem and Natural Capital Accounting System last month.

Monetary easing and the inflationary pressure from rice supply shortfall

There was a small item of news in the Business Section of a broadsheet entitled: “Wanted: ‘sooner than later’ Bangko Sentral rate cuts.” The author states that this will finally bring some relief to consumers and corporates who had been under the weight of the restrictive monetary policy for more than two years now.

Monetary policy is not the instrument to slow down supply-driven inflation. Most central banks have elected to address supply-driven inflation by curving market demand. The correct strategy is to expand market supply fiscally the way the Biden “Inflation Reduction Program” proposes to address the chip scarcity. But this is very long-term and by then we could all be dead. The only short-term response is by raising imports and tariff reduction.

The author noted correctly that one missing piece in the post-COVID Philippine growth story was investment. We are keeping investment at bay by high interest rates. The investment activity has remained predictably at the depressed post-COVID levels while consumption and government spending have been slowly returning to trend and been helped nudged towards the recovery levels by massive government borrowing to support market demand, resulting in inflation.

The continued reluctance of the Bangko Sentral ng Pilipinas (BSP) to lower the benchmark interest rate is due to the reluctance of the United States Federal Reserve Board (Fed) to ease monetary policy, plus the lingering inflationary pressure from the local rice shortage; though clearly, as the BSP governor observes, on the downward trajectory. Jumping the gun on the Fed easing will send foreign portfolio capital fleeing to the US dollar creating pressure on the forex reserve. The forex reserve is growing thanks to borrowing revenues. Furthermore, the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) 2, passed in 2021, lowered the corporate income tax (CIT) from 32% to 25% and was to boost private investment, but which has been presumably postponed in view of the high domestic interest rate. The Monetary Board left its overnight borrowing rate at a 17-year high of 6.5%.

This is not the first time that the rate breached P58 per dollar. In Oct. 22, 2022 it was, on average, P58.82/US$. The BSP governor hinted at monetary easing of as much as 50 basis points following the Fed easing of monetary policy. The BSP is reluctant to jump the gun on the Fed reluctance for fear of capital flight towards the dollar. We note that the investment rate in 2022 was indeed lower than regional counterpart investment rates although this state of affairs seems permanent. (See the table.)

 

Note that 2022 was a year after the 2021 tax cut which brought down the corporate income tax rate to 25% from 32%. This tax bonanza should have translated into additional private investment. Casual observation suggests it instead raised the declared dividend rates fueling consumption rather than investment, perhaps due to the high benchmark interest rate.

J.M. Keynes advocated government intervention towards a recovery of market demand which precipitated the quarrel between Keynes and his classical critics in the 1930s when he argued that the shortfall of market demand in a recession does not mend of itself without some help from the government. Indeed, Joseph Schumpeter argued in his 1939 business cycle volume that the Great Depression was due to the unfortunate confluence of short-, medium-, and long-term business cycles, which would unwind by itself. Keynes’ critics believed that supply creates its own demand — that excess supply is a temporary phenomenon and will soon be closed by market arbitrage in the short run; in the long-run; he was wont to observe, “In the long run, we are all dead.”

The Philippines’s monetary policy is structurally limited by institutional commitment to the inflation targeting. The so-called “impossible trilemma” leans on three pillars: the (1) floating exchange rate, (2) an open capital account, resulting in (3) ineffective fiscal policy — the well-known unholy trinity. After the collapse of the Gold Standard and divorce of a fixed gold-dollar exchange rate in the 1970s, central bankers were at a loss for a replacement rule, and price stability offered one way out: central banks were granted legal independence and tasked to safeguard the fixed target inflation. Market volatility could be tamed by keeping the interest rate high and, if inadequate, by allowing the forex reserves to respond.

This is what the BSP governor meant when he stated that the Philippines has enough reserves to withstand additional volatility to below P58 (now standing at P58.45/US dollar). Some economies decided that the traditional fixed exchange rate was too precious for growth to abandon and chose a hybrid, say, an intermediate exchange rate.

There was a need to endow monetary authorities with some independence to preserve price stability. But what is the goal of price stability? Price stability is defended as steps to a “balanced and sustainable growth” which will draw in investment and sustain growth. Most countries followed the lead of New Zealand which defined 2% inflation as its North Star. But 2% inflation as a North Star may be good for high-income economies but may have been suboptimal for lower income countries on a rapid growth pursuit.

When economic growth performance is the criterion, the evidence seemed to favor the fixed exchange rate. Frankel et al. (2019) found that growth performance tends to be negatively related to de facto flexible exchange rate regimes and tends to be positively related to either a de facto fixed exchange rate or “systematic managed floating” (an intermediate exchange rate regime) regimes, which enable “greater price stability… and stable investment and trade…” This is probably why so-called “currency manipulators” (a label that is given by the US Treasury or State Department to an economy characterized by persistent trade surplus and a refusal to allow the currency to appreciate) had better results than currency neutralizers. Vietnam was warned by the US State Department of currency manipulation when it refused to let the Vietnamese Dong appreciate despite an appreciation by rival countries and an emerging trade surplus in 2020. Many other considerations clearly affect the price of exports such as the cost of manufacturing in a country and its relative inflation rates.

The inflation we face today derives from the current rice shortage, which is outside the purview of monetary policy. Will easier money bring about an increased supply of rice in the market? No!

The Philippines farm sector, under the sway of the 1987 Comprehensive Agrarian Reform Law (CARL), is already under a permanent monetary squeeze. CARL prohibits ownership in excess of five hectares which disrupts the traditional loan-collateral nexus — banks would rather pay penalties for non-compliance with the agri-agra law than lend to high-risk small farmer-borrowers, mostly agrarian reform beneficiaries. Banks are obligated to meet prudential rules set by the BSP and would rather pay the associated penalties. The result is that small farms are effectively excluded from the formal financial sector and have to resort to exorbitant informal lending.

An easing of monetary policy will not raise the investment in food production. The only short-term solution is a tariff reduction. Over the long term, we need to abandon the many irrational hurdles imposed by the CARL on the farm sector and ease the way for large private capital.

 

Raul V. Fabella is a retired professor at the UP School of Economics, a member of the National Academy of Science and Technology, and an honorary professor at the Asian Institute of Management. He gets his dopamine fix from tending flowers with wife Teena, bicycling, and assiduously courting, if with little success, the guitar.

DALI Everyday Grocery operator widens net loss

DALI EVERYDAY GROCERY FACEBOOK PAGE

HARD DISCOUNT Philippines, Inc. (HDPI), the corporate entity behind the DALI discount grocery chain, reported a widened net loss in 2023 primarily due to increased operating expenses.

According to the company’s regulatory filing, HDPI recorded a net loss of P1.88 billion in 2023, marking a 110% increase from the P894.68-million loss in the previous year.

Despite the expanded net loss, HDPI achieved a revenue of P22.31 billion in 2023, a 141% surge compared to P9.27 billion in the prior year, driven by higher sales.

Operating expenses jumped by 255% to P3.01 billion in 2023 from P850.39 million in 2022, mainly attributed to increased expenditures on salaries, wages, and benefits.

As of the end of 2023, HDPI accumulated losses totaling P3.26 billion, resulting in a capital deficit of P1.29 billion for the same period.

It also disclosed that P4.67 billion worth of additional capital was infused by stockholders as of end-2023.

HDPI is a wholly owned subsidiary of HDPM Sin Pte. Ltd., a foreign company incorporated under Singaporean law. The ultimate parent of HDPI and HDPM Sin is Switzerland-founded Dali Discount AG.

“The company forecasts that profit margins will improve over the next five years resulting from the implementation of cost efficiency measures,” HDPI said.

“Management believes that with the planned increase in equity, the commitment of and continued financial support from the parent company and the projected improvement in net profit margin, the company will be able to generate sufficient cash flows from its operations to meet its obligations as and when they fall due,” it added.

In March, Singapore-based growth equity firm Venturi Partners announced a $25-million investment to fund the expansion of DALI.

DALI seeks to have up to 950 stores across the Philippines by yearend. — Revin Mikhael D. Ochave

T-bill, bond rates may be mixed on BSP cut bets

BW FILE PHOTO

RATES of Treasury bills (T-bills) and bonds (T-bonds) could be mixed this week after the Bangko Sentral ng Pilipinas (BSP) chief reiterated that their policy easing cycle could start as early as next month.

The Bureau of the Treasury (BTr) will auction off P15 billion in T-bills on Monday, or P6.5 billion each in 91- and 183-day papers and P7 billion in 364-day notes. The six-month tenor on offer this week was adjusted as its maturity date falls on a holiday.

On Tuesday, the government will offer P30 billion in reissued seven-year T-bonds with a remaining life of four years and 10 months.

The rates of T-bills and T-bonds on offer this week could track the mixed movements in secondary market yields after BSP Governor Eli M. Remolona, Jr. said the Monetary Board could start cutting benchmark interest rates by August, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Secondary market levels ended mostly lower on Friday due to bargain hunting after the BSP meeting, a trader said in an e-mail.

The trader said the T-bonds on offer this week to be “well-received amid rate cut expectations,” adding they could fetch rates ranging from 6.25% to 6.4%.

At the secondary market on Friday, the rates of the 91-day and 182-day T-bills went up by 4.35 basis points (bps) and 5.72 bps week on week to end at 5.7433% and 6.0035%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data published on the Philippine Dealing System’s website.

Meanwhile, the 364-day T-bill’s yield went down by 1.55 bps week on week to 6.0741%.

On the other hand, the rate of seven-year bond decreased by 3.31 bps week on week to 6.5392% on Friday, while the five-year debt, the tenor closest to the remaining life of the papers to be offered this week, went down by 2.46 bps to yield 6.4298%.

Mr. Remolona on Thursday said the Monetary Board is “on track” and “somewhat more likely than before” to slash rates at its Aug. 15 policy meeting, well ahead of the US Federal Reserve, which has signaled it could begin easing by December.

The BSP could cut rates by 25 bps in the third quarter and by another 25 bps in the fourth quarter, he added.

The Monetary Board’s Aug. 15 review is its only meeting in the third quarter. Meanwhile, its last two reviews for the year will be held in the fourth quarter and are scheduled on Oct. 17 and Dec. 19.

The Monetary Board on Thursday left its target reverse repurchase rate unchanged at 6.5%, the highest in over 17 years, as expected by all 15 analysts in a BusinessWorld poll. Interest rates on the overnight deposit and lending facilities were also maintained at 6% and 7%, respectively.

The BSP hiked rates by a cumulative 450 bps from May 2022 to October 2023 to help bring down elevated inflation.

An August rate cut would be the first for the BSP in over three years, which last slashed borrowing costs by 25 bps in November 2020 to bring the policy rate to a record low of 2% during the height of the coronavirus pandemic.

Last week, the BTr raised P15 billion as planned from the T-bills it offered as total bids reached P39.795 billion, or more than twice the amount placed on the auction block.

Broken down, the Treasury borrowed P5 billion as programmed from the 91-day T-bills as tenders for the tenor reached P14.81 billion. The average rate for the three-month paper was unchanged at 5.666%, from the previous week’s award. Accepted rates ranged from 5.648% to 5.675%.

The government likewise made a full P5-billion award of the 183-day securities, with bids reaching P10.71 billion. The average rate for the six-month T-bill stood at 5.93%, inching up by 1.6 bps, with accepted rates at 5.912% to 5.95%.

Lastly, the Treasury raised the planned P5 billion via the 364-day debt papers as demand for the tenor totaled P14.275 billion. The average rate of the one-year debt slipped by 1.5 bps to 6.031%. Accepted yields were from 6.029% to 6.034%.

Meanwhile, the reissued seven-year bonds to be auctioned off on Tuesday were last offered on June 20, 2023, where the government made a full P25-billion award, The papers fetched an average rate of 6.097%, 40.3 bps below the 6.5% coupon for the series.

The BTr wants to raise P215 billion from the domestic market this month, or P100 billion from T-bills and P115 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.48 trillion or 5.6% of gross domestic product for this year. — AMCS

Analysts’ June inflation rate estimates

HEADLINE INFLATION likely remained steady in June and settled within the central bank’s 2-4% target for a seventh straight month, analysts said. Read the full story.

Analysts' June inflation rate estimates

Mugwort, soybeans, deep sea water

GEOMUNDO MUGWORT LINE

K-beauty brand uses Korean natural ingredients

USED by Korean celebrities, K-beauty brand Round Lab is now in the Philippines, having been launched at Rockwell’s Balmori tent on June 26. During the event, the brand emphasized its use of natural ingredients found only in select regions in Korea.

Round Lab’s Pine Cica product line uses pine trees from Yangyang County in Gangwon Province. This line has intensive calming properties and soothing effects, with products ranging from cleansers to pads, ampoules, creams, and masks.

Meanwhile, water from the deep seas around Ulleungdo Island in Ulleung County and the Dokdo Islands in the Sea of Japan is used in the brand’s 1025 Dokdo Toner. The line includes cleansing oil, balm, gel, bubble foam, pads, ampoules, a lotion, creams, gel masks, sunscreen, an eye cream, mud packs, and peeling gel. The products are meant to be used by people with sensitive skin.

Round Lab’s Birch Juice Moisture Line uses the sap of silver birch trees of Inje County in Gangwon Province. The sap is combined with Vita Hyaluronic Acid, providing deep hydration for dewy and healthy skin. The line’s Birch Juice Moisturizing Sunscreen with SPF 50+ has been awarded multiple awards by beauty app Hwahae, and the Glowpick Beauty Awards. Aside from the sunscreen, the line includes cleansers, toners, moisturizers, ampoules, and lotions. The sunscreen comes in creams, sticks, and cushions.

Round Lab’s Mugwort line contains an extract of Sea Breeze Artemisia and Madecassoside from mugwort grown on Geomundo Island near Jeju Island. The line consists of a cleanser, a toner, a serum, a mask, and soothing gels to help calm irritated skin.

Black soybeans from Jeogson County in Gangwon-do province are used in Round Lab’s Soybean product line, which includes a cleansing oil, a nourishing toner, a serum, a cream, and a mask. These are designed to provide deep nutrition and reinforce the skin barrier.

In a speech at the launch, Younghak Lee, Round Lab Chief Executive Officer/CEO, said, “Our company operates under the slogan ‘everyday strength that changes the skin and the all-round world.’ We always develop our products with the hope that the good ingredients we find around Korea can reach our consumers’ skin. We hope to create a world that is more well-rounded for everyone. Our actions may not be large, but we operate our company with the hope that our small, environment-conscious, and neighbor-considerate activities can spread a positive influence on all around the world.”

Through an interpreter, he told BusinessWorld during a group interview that the K-pop bands Day6 and BTOB use their products. He also emphasized, “In order to maintain the Korean standard skin, using products like for cleansing, sunscreen, and toner: it’s really important.”

The products are distributed in the Philippines by Descorp, which also distributes other brands and is the maker of homegrown brand Quick FX. Its COO, Jenny Jabeguero Gozo, said, “Round Lab is a very unique product for us, because it offers a clean beauty option, which is a very big thing now amongst our Gen Z market.”

Round Lab products, ranging in price from P700 to P1,200, are available at Watsons stores. — Joseph L. Garcia

StartUp QC’s Cohort 3 offers up to P1-million grant

Following the success of its previous editions, the Quezon City Government opened applications for Cohort 3 of Startup QC Professional Category.

The program is designed to nurture the next wave of impactful startups propelling economic and innovation growth in the city.

The StartUp QC Program on-boards early-stage startups to enhance their readiness to enter the next stage of their entrepreneurial journey.

Qualified startups will engage in tailored Learning, Engagement, and Development (LEAD) sessions over three to four months and expose them to industry experts, mentors, advisors, and accelerators to help them advance from the prototype stage to develop market-ready products and services, and accelerate their business growth.

The program culminates in a Demo Day, where participants will pitch their innovative ideas to a distinguished audience of stakeholders from the startup ecosystem and will have the opportunity to receive equity-free financial grants of up to P1 million.

This initiative aligns with Mayor Joy Belmonte’s commitment to transforming Quezon City into the startup and innovation capital of the Philippines.

Through collaboration between government and nongovernment entities, the program is seen as a driver of local job creation and meaningful innovation for economic development.

StartUp QC is Quezon City Government’s initiative established under Ordinance SP-3109, S-2022, designed to support innovative startups.

The program is backed by esteemed institutions such as the Department of Information and Communications Technology (DICT), Department of Trade and Industry (DTI), Ateneo de Manila University, Miriam College, Technological Institute of the Philippines, Thames International Business School, University of the Philippines Diliman, and startup accelerators StartUp Village, and Launchgarage.

Startup applicants must have at least one member who is a resident of Quezon City and at least 21 years old. Additionally, program aspirants must have a Minimum Viable Product (MVP) that does not duplicate ongoing programs or projects as determined by the QCGov, and must submit a video pitch of up to 5 minutes along with a business plan not exceeding 10 pages.

StartUp QC Professional Category application ran until June 27.

Some Vietnam coffee farms thrive despite drought, but may not stop espresso price hikes

REUTERS

PLEIKU, Vietnam — Vietnamese coffee growers have been hit hard this year by the worst drought in nearly a decade, raising concerns of pricier espressos across the world, even as some farmers keep yields healthy with clever countermeasures.

Domestic forecasts for next season’s harvest in Vietnam, the world’s second biggest coffee producer, remain grim. The Mercantile Exchange of Vietnam expects a 10-16% fall in output because of the extreme heat that hit the Central Highlands coffee region between March and early May, according to deputy head Nguyen Ngoc Quynh.

However, a return of rains in recent weeks has improved the outlook, boosting confidence among farmers and officials. But it remains unclear whether the improved weather will help boost output and drive down prices of robusta beans, the variety most commonly found in espressos and instant coffees, of which Vietnam is the world’s top producer.

“I expect the country’s output to fall by 10-15%, but my farm will increase production,” said Nguyen Huu Long, who grows coffee in a 50-hectare plantation in Gia Lai, one of the top coffee-producing provinces in Vietnam.

To protect his trees during the heatwave, he kept the soil around the plants moist by covering it with leaves. Contrary to the local practice of cutting trees after a few years to boost soil quality, he keeps his growing for decades. As a result, plants have deeper roots and broader access to underground water reserves.

Farmers in his plantation also soften the soil around plants to improve absorption of rainwater and fertilizers, said Doan Van Thang, 39.

Tran Thi Huong, a tenant farmer who works in another plantation 20 km from Pleiku, Gia Lai’s capital, resorted to using more water than usual.

Thanks to abundant reserves from canals built by local authorities, she could keep her plants sufficiently irrigated during the heatwave.

Coffee cherries are smaller than in previous years, but she expects the overall output to be unaffected. It also helped that she timely intervened with biopesticides against bugs that were more numerous than usual because of the extreme weather.

That is in line with the forecast from the US Department of Agriculture which estimates Vietnam’s next harvest would be roughly steady versus the current season’s output — far less pessimistic than domestic projections.

Whatever the impact on the harvest will be, coffee prices for drinkers around the world are likely to rise. Wholesale prices in Vietnam and London-traded robusta futures have risen to record highs earlier this year mostly after an underwhelming harvest in Vietnam and because of fears over the country’s next harvest after the drought, according to multiple traders and analysts.

Record wholesale prices have so far had a limited impact on consumer prices, with coffee inflation up by only 1.6% in the 27-country European Union (EU) in April, according to the latest Eurostat data, and 2.5% in robusta-loving Italy.

While well below price rises from a year earlier, it was higher than 1% in the March EU reading, a sign roasters may have started to pass their higher costs on consumers.

Besides, worries about Vietnam are far from over, as insufficient rains after the drought or excessive downpours before the upcoming October harvest season could further reduce output, warned a Vietnam-based trader.

The high wholesale prices may also be there to stay, as robusta demand is growing globally and farmers have boosted their leverage in the current circumstances, with many having also replaced coffee plants with pungent smelling durian, a tropical fruit experiencing huge demand in China.

“They have the financial ability to hoard and hold on to goods, so they will not be in a hurry to sell,” said Le Thanh Son, of Simexco, one of Vietnam’s biggest coffee exporters. — Reuters

Maharlika 2: This time, PhilHealth members are the victims

Remember Maharlika?

I refer to the Maharlika Wealth Fund or Maharlika Investment Fund, now formalized in Republic Act No. 11954. It, especially its original version, was met with widespread and staunch opposition, forcing the proponents to retreat and make concessions.

The proposal was eventually passed by both Houses of Congress, but what the legislators approved was different from the original version. Congress struck out the ugliest provisions found in the original bill. So, the Maharlika we have today is less monstrous than the original bill. But it is still ugly.

The most controversial, most objectionable provision of the original Maharlika was having financial institutions like the Social Security System (SSS), the Government Service Insurance System (GSIS), the Bangko Sentral ng Pilipinas (BSP), the Development Bank of the Philippines (DBP), and the Land Bank of the Philippines (LANDBANK) transfer a substantial amount of their funds to capitalize Maharlika.

That would impair the operations of the financial institutions in fulfilling their core mandates. And for SSS and GSIS, that would have meant going into uncharted waters and exposing the contributions of members to unjustified elevated risk.

But because of the ensuing firestorm, Congress excluded the SSS, GSIS, and the BSP from contributing to Maharlika’s startup fund. Sorry for DBP and LANDBANK. Consequently, DBP and LANDBANK had to seek regulatory relief from the BSP because their capital infusions into Maharlika resulted in non-compliance with their minimum capitalization requirements.

Maharlika continues to haunt us. Now, a Maharlika 2 has reared its ugly head.

This time, the Maharlika is expressed through a provision in the Fiscal Year (FY) 2024 General Appropriations Act (GAA), stating that excess fund balances of Government-Owned and/or -Controlled Corporations (GOCCs) can become the funding source for Unprogrammed Appropriations (UA).

Unprogrammed Appropriations, to quote the Department of Budget and Management, “are standby appropriations outside the approved government fiscal program….” As such, they “are not automatically allocated, and can only be released if several funding conditions are met, such as when the government… is able to collect excess revenue in the total tax revenues or any of the identified non-tax revenue sources from its revenue target, or new revenue from new tax or non-tax sources, or should foreign or approved financial loans/grants proceeds are realized.”

But unlocking the funding for the UA faces problems. The administration frowns upon increasing taxes (even refusing efficient ones, which have popular support like the sin taxes). And excess revenue from current taxation is unlikely as the Bureau of Internal Revenue (BIR), despite serious effort, is struggling to meet its collection target for 2024. Excise tax collection, for example, is below the target.

Hence, the resort to an “innovation,” which is to obtain the excess fund balances of GOCCs. This is a Maharlika redux.

GOCCs are constrained by their own charters. Some able to generate surpluses may need those funds for their future upkeep or investments to meet their goals. In other words, GOCCs have different specific characteristics, and thus a cookie-cutter approach by the National Government to extract excess funds from them is unsuitable, harsh, and inconsiderate.

And there is one GOCC whose mandate is to spend the funds it gets on its members. Surpluses should not be diverted elsewhere. We refer to the Philippine Health Insurance Corp. or PhilHealth.

But a Department of Finance (DoF) Circular (numbered 003—2024) regarding the fund balance of GOCCs argues otherwise. The DoF is being directed by the FY 2024 GAA, specifically Section XLIII (1) (d) on Unprogrammed Appropriations, to issue the implementation guidelines for the financing of UA sourced from the “[F]und balance of the GOCC from any remainder resulting from the review and reduction of their reserve funds to reasonable levels taking into account the disbursement from prior years.”

In pursuit of the above, the DoF Circular targets the excess funds of PhilHealth. The basis is that PhilHealth’s reserve fund by 2023 stood at P463.7 billion, and premium income since 2018 has substantially exceeded benefit claims and operating expenses. A further basis is that between 2021 and 2023, the cumulative unutilized government subsidy for the indirect contributors amounted to P89.9 billion. (The indirect contributors consist of indigents, beneficiaries of the Pantawid Pamilyang Pilipino Programs, senior citizens, persons with disabilities, Sangguniang Kabataan officials, individuals identified at point-of-service or those sponsored by local governments and other Filipinos aged 21 years old and above without capacity to pay premiums.)

The DoF arguments, which proceed from the above, are summarized as follows:

1. The unspent money is a benefit denied to Filipinos, and the unused subsidies have opportunity costs in terms of funding unappropriated programs.

2. The National Government, the DoF claims, “is in a better position to effectively utilize the unused subsidies for programs that directly and immediately benefits (sic) the Filipino people.

3. The National Government in the future has the flexibility to increase subsidies once PhilHealth has shown the capacity to speed up the use of its huge reserves for benefit payments.

4. Using the unutilized National Government subsidies to fund UA is a disciplining mechanism for PhilHealth “to use the funds or lose it.”

But here’s the rub: The DoF Circular is violating the law and is undermining Universal Health Care (UHC) for all Filipinos.

But let’s review Chapter III (National Health Insurance Program), Section 11 (Program Reserve Funds) of Republic Act No. 11223 (An Act Instituting Universal Health Care for all Filipinos):

“That whenever actual reserves exceed the required ceiling at the end of the fiscal year, the excess of the PhilHealth reserve fund shall be used to increase the Program’s benefits and to decrease the amount of members’ contributions.” (Underscoring mine.)

In short, the reserves PhilHealth has accumulated that “exceed the ceiling equivalent to the amount actuarially estimated for two years’ projected Program” must be used to increase benefits or services and reduce members’ contributions. The subsidies cannot be used for other purposes, like what the DoF Circular wants to do.

It must likewise be clarified that the government subsidies to PhilHealth are for the indirect contributors, mainly the poor. Thus, removing the subsidies to them is tantamount to degrading the indirect contributors.

The funds from the direct and indirect contributors are pooled to benefit everyone. The pooling of funds is an expression of solidarity. Pooled funds from the direct and indirect contributors likewise create economies of scale and strengthen government, including PhilHealth, to become a national strategic purchaser of health services. This results in reducing costs, achieving efficiency, and enhancing cost-effectiveness. In this regard, pulling out the subsidies to indirect contributors hurts everyone— not only the indirect contributors but also the direct contributors.

The DoF Circular also violates another law, Republic Act No. 11467, which earmarks revenues from sin taxes to the implementation of the Universal Health Care Act of 2019 (Republic Act No. 11223). Section 288-A of Republic Act No. 11467 stipulates that 60% of the total revenues from excise taxes on alcohol shall be earmarked for UHC, which includes PhilHealth contributions. For the tobacco excise tax, half of the revenues are earmarked for health, in which 80% of the health earmarking goes to PhilHealth.

Another law, Republic Act No. 10963 (or the TRAIN Law), mandates that from half of the excise taxes collected from sweetened beverages, 80% shall be designated to PhilHealth.

Said differently, the said laws which subsidize PhilHealth prevent National Government from using the earmarked revenues for other purposes.

To be sure, the PhilHealth leadership must be made accountable for its gross negligence and incompetence for not using PhilHealth’s substantial excess funds to increase the benefits and services for its members and reduce the members’ premium payments. But the DoF must likewise be called out for mocking existing laws, undermining PhilHealth’s mandate, and hurting the health interests of all Filipinos, all members of PhilHealth.

The DoF Circular must be exposed as a new but still ignominious Maharlika, a Maharlika 2. All members of PhilHealth, the media, and Congress must politically and legally challenge the DoF Circular and push it back.

 

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

www.aer.ph

ACEN to power ADB headquarters with 100% RE

AYALA-LED ACEN Corp.’s supply retail arm has signed a deal with the Asian Development Bank (ADB) to power the latter’ headquarters in Mandaluyong with 100% renewable energy (RE).

ACEN Renewable Energy Solutions will power ADB’s facilities using renewable energy from its portfolio, including solar and wind sources, it said in a statement on Sunday.

“As Asia and the Pacific’s climate bank, ADB is committed to lowering its carbon footprint. This includes sourcing electricity from renewable energy sources such as solar and wind,” said Bruce Gosper, ADB vice-president for administration and corporate management.

Lakshmi Menon, ADB director general for corporate services, said that the development bank has continued to source power from renewable energy sources since 2014 as part of its sustainability efforts.

“ADB has been instrumental in driving the growth of our renewable energy portfolio in the Philippines and around the region through sustainable financing,” ACEN President and Chief Executive Officer Eric T. Francia said.

ACEN currently holds about 4.8 gigawatts (GW) of attributable renewables capacity in operation and under construction, as well as signed agreements and won competitive tenders worth over one GW.

With this, the company said it has already effectively surpassed its original goal of reaching five GW of renewables by 2025. — Sheldeen Joy Talavera

Financial firms grappling with AI’s gifts and perils, execs say

REUTERS

CHICAGO — The spread of artificial intelligence (AI)-based systems offers big opportunities for financial services firms, executives say, but asset managers also face higher stakes than other consumer-facing businesses because they manage sensitive information.

For example, AI systems could be better than humans at explaining to clients why they arrived at recommendations like portfolio allocations or lending decisions, said Zack Kass, a former head of business partnerships at OpenAI. People, he said, are not good at explaining subconscious biases that could affect such decisions.

“AI should make that a ton better. The problem is, if we’re not careful, it will just make it worse,” Mr. Kass said at an investor conference staged by Morningstar last week in Chicago where the rise of AI systems was a frequent topic of discussion.

In theory AI, will simplify many routine tasks like filling out compliance forms or developing portfolios that are not so complex, leaving financial professionals more time to focus on human interactions or problems that require deeper thinking, said several investors and technology experts.

“There are some things that the machines could smooth over, and then a financial adviser could spend more time servicing their client,” said Karen Zaya, a Morningstar senior research analyst who follows investment managers’ use of technology.

But the depth of human interactions with AI will vary, she said. While AI-powered chatbots have become common for tasks like helping to choose an airline seat or to check a bank account balance, she said, the variables are much more complex for things like arranging investments in a retirement plan.

“I don’t think that’s on the agenda for the industry right now,” Ms. Zaya said. “All these firms we’ve spoken with are being very thoughtful and careful in how they implement these things. They want to be very considered.”

US regulators are seeking public comments about the use of AI by financial companies, looking to promote inclusive and equitable access to their services. Treasury Secretary Janet Yellen warned last month that the use of AI in finance could lower transaction costs but comes with “significant risks.” 

The spread of AI could tempt companies to cut jobs in areas such as at call centers or in software-development facilities, but it is still likely they will need human workers to handle more complex questions, said Margaret Vitrano, portfolio manager for ClearBridge Investments.

“AI could be used to develop code, but that doesn’t mean you lay off all your developers. Maybe you use it to develop the first pass of code, and then you still need someone who’s sophisticated and knows code to look at it and say, let’s think about the user experience here,” Ms. Vitrano said.

Brenda Ingram, a Chicago-based financial adviser, said she hopes AI systems could save time and expenses on preparing things like compliance reports.

“The mundane, if you can get the AI to do it, I think we’re going to like it,” she said. — Reuters

Accelerating Asia Ventures looks to invest in 10 high-growth startups by 4th quarter of the year

Singapore-based venture capital accelerator Accelerating Asia Ventures has officially opened applications for the 10th Cohort of its flagship accelerator program — a milestone achievement for one of the longest running regional accelerator-VCs.

With a portfolio of over 80 startups, the flagship 100-day accelerator has helped many startups achieve significant growth. Startups accelerated have collectively raised over US$64 million in funding and seen on average a 300% growth in their business during the 100-day program.

Founded by Amra Naidoo and Craig Dixon in 2018, Accelerating Asia Ventures invests up to US$250,000 in each startup accepted into the program. Apart from the investment and the program, successful startups gain access to qualified mentorship opportunities, access to a global network of investors and industry experts, access to private portfolio investor networking events and join a thriving alumni community of over 150 founders.

Accelerating Asia Ventures works closely with angel investors, family offices and other institutional investors who are looking for diversified investment opportunities into early-stage startups. Through the accelerator program, the Accelerating Asia Ventures team works hands-on with these startups and provides opportunities to investors, benefiting both startups and investors in our network.

Accelerating Asia Ventures identifies startups with tech-based solutions, revenue and early traction; that are in high-growth, underserved Southeast Asia and South Asia markets; and are falling in the seed-pre-series A funding gap.

“Accelerating Asia Ventures is the Y Combinator of Southeast Asia, with a more relevant program for Founders in the region. After the accelerator we were better able to focus on building and scaling our business,” said Anggia Meisesari, co-founder of TransTrackID in Indonesia.

“The Accelerating Asia Ventures team helped us sharpen our messages and approach to fund-raising and to accelerate our growth. The program is tailored to the needs of each startup, so people that go through the program get maximum benefit for their stage,” added Tim Davies, co-founder of Waitrr, based in Singapore.

“Accelerating Asia Ventures successfully melds a highly skilled and passionate team who are not hesitant to share their knowledge, a smart and engaging accelerator program with useful startup resources, and a strong network of investors, mentors and alumni,” noted JT Solis, co-founder of Philippines’ very own Mayani.

“We really like the no-nonsense approach that was the key thing, and the second was the help with fund-raising. The reason we joined the accelerator was because we are first-time founders. There are a lot of things, we don’t know what we don’t know, and that is the gap we wanted to bridge with the accelerator program,” said Dirk-Jan ter Horst, co-founder of Drive-Lah.

“[While] there is a ton of generic information available about running a startup, at Accelerating Asia Ventures the focus is on immediately actionable tactics,” Project Pro Co-Founder & CEO Binny Mathews added. “It also really helps that the Accelerating Asia team is a set of people who genuinely want us to succeed so they are hustling for us every day.”

In Accelerating Asia Ventures’ accelerator program, cohorts set the goals and priorities for the week; review progress from the past week; gain insights from fellow founders and leverage the knowledge, power and value of the cohort.

There are also master-classes with mentors, each of which are tailored to address the needs of the cohort, from SEO deep dives to financial modeling and capital-raising. These are coupled with customized one-to-one sessions with entrepreneurs-in-residence for deep dives on fund-raising strategy, business models, growth loops and product, and storytelling and pitch coaching designed to better communicate startups investor value proposition.

The accelerator program also offers operational support to ensure startups from all markets across the region have solid company and governance practices to make them international investor-ready.

The program also connects and introduces cohorts to active angels ready to invest now and later-stage VCs to shore up opportunities for follow-on investment.

For any startup looking to apply to the program, a webinar is set on July 3, where Accelerating Asia Ventures’s Co-Founder and General Partner Amra Naidoo will answer questions in an “Ask Me Anything” session. Interested participants may visit https://www.acceleratingasia.com/events/ama-with-amra-naidoo to register.

The application deadline for Cohort 10 is July 5. Interested applicants may submit by visiting https://www.acceleratingasia.com/programs/accelerating-asia-flagship-program.

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