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Managing the risks of AI use in business education

WANGXINA-FREEPIK

In the Philippines, the Commission on Higher Education (CHED) has adopted an outcomes-based education approach with the primary goal of developing key competencies among college students. Because of its mandate to “promote relevant and quality higher education,” CHED calls on higher education institutions to produce not just graduates, but highly competent professionals ready to contribute effectively to national development.

In business education, this outcomes-based approach takes on a particularly crucial role. Business schools, under the guidance of CHED, have outlined specific learning outcomes in their curricula. These are not mere academic targets but are crucial skills intended to prepare students for the real-world challenges they will face as entrepreneurs and business professionals.

LEARNING OUTCOMES FOR BUSINESS PROGRAMS
The Revised Policies, Standards, and Guidelines for BS Business Administration (CMO 17, series of 2017) stipulate that business graduates will be able to, among others (explanations mine):

  1. Select Proper Decision-Making Tools: This objective is vital in today’s fast-paced business environment. Business graduates are expected to critically, analytically, and creatively solve problems and drive tangible results. The emphasis here is not just on efficient outcomes but on sound decision-making processes with the use of the right tools.
  2. Exercise High Personal Moral and Ethical Standards: Perhaps now more than ever, the business world needs leaders who are not just effective but ethically grounded. This learning outcome goes beyond technical competence, instilling in students the value of ethics and morality in their professional conduct. This objective aligns closely with the global shift towards more sustainable and ethical business practices.

These two learning outcomes reflect a commitment to nurturing graduates who are not just proficient in their field but are also dedicated to the critical pursuit of truth and ethical problem-solving.

The Philippine Qualifications Framework further specifies expected learning outcomes for the baccalaureate degree:

  1. Demonstrated Knowledge and Skills: Graduates are expected to have a broad and coherent understanding of their field of study, equipping them for professional work and lifelong learning. This implies a depth of knowledge that goes beyond rote learning, emphasizing comprehension and application.
  2. Professional/Creative Work or Research: The application of knowledge in a specialized field of discipline is key. Whether in professional environments or further studies, the ability to apply what has been learned in practical, real-world situations is crucial.
  3. Independence and Team Collaboration: The expectation is for graduates to demonstrate a substantial degree of independence and the ability to work in teams, often with minimal supervision. This outcome speaks to the development of leadership skills and the ability to collaborate effectively, which are essential in any professional setting.

INTEGRATING AI INTO BUSINESS EDUCATION: OPPORTUNITIES AND CHALLENGES
With these well-defined outcomes, the introduction of artificial intelligence (AI) chatbots in the educational landscape presents particular challenges. General-purpose AI tools, like ChatGPT, Microsoft Bing, and Google Bard, offer unprecedented access to information and analytical capabilities. However, their integration into the educational process must be handled with care to ensure that they facilitate, rather than undermine the learning outcomes CHED and business educational institutions strive for.

Since the public release of AI chatbots like OpenAI’s ChatGPT in November 2022, followed by Microsoft Bing, Google Bard, and others, the landscape of academic research and learning has been significantly altered. The advanced AI software, based on generative pretrained transformer architecture, gives students easy access to plausible and impressive text responses for complex queries. However, their unguided use by students has opened a Pandora’s box of risks.

Students in higher education have quickly adopted these AI chatbots for academic assignments, viewing them as helpful tools for enhancing their knowledge work. However, this widespread use of AI chatbots raises several critical questions. Are these chatbots appropriate academic tools? Do they fulfill any educational purpose? Have they been rigorously tested for academic use and risks?

These AI chatbots are often perceived merely as “tools,” rather than replacements for the critical judgment and analytical skills that students are expected to develop. However, it is critical to note that an effective academic tool must be fit for purpose and safe for use, with clear guidance provided on its proper application and potential risks.

THE MISMATCH BETWEEN AI CHATBOTS AND ACADEMIC STANDARDS
A fundamental issue with the current generation of AI chatbots is their poor alignment with the principles of sound academic research and critical thinking. Academic claims should be subject to rigorous evaluation and traceable to verifiable sources. However, AI chatbots, trained on vast, often opaque datasets, sometimes lack this traceability and verifiability. Their “black box” nature means that the information they provide may not always be grounded on accurate or verifiable source text. This can lead to the dissemination of misinformation or “hallucinations,” where the chatbot confidently presents false statements.

The reliance on AI chatbots poses several risks to students:

Misinformation: The lack of sufficiently verifiable research sources means students may base their academic work on incorrect information.

Dependency: The efficiency and fluency of AI chatbots might lead to an over-reliance on these tools, thereby diminishing students’ independent research skills.

Erosion of Critical Thinking: There is a risk that students will lose their ability to critically evaluate digital information.

Moral and Ethical Degradation: Relying too heavily on AI for academic work can lead to a degradation in commitment to truth, honesty, integrity, and accountability.

These risks threaten the intended competencies and learning outcomes for business students, such as critical problem-solving and adherence to high ethical standards. If unchecked, this could compromise the country’s broader goals of national development and competitiveness.

ADDRESSING AI RISKS IN ACADEMIC ENVIRONMENTS
In response to these challenges, standards like the NIST AI Risk Management Framework, ISO/IEC 23894:2023, and IEEE Ethically Aligned Design emphasize the need for transparency and governance in AI development and deployment. Applying these standards to AI chatbots is crucial to mitigate risks and ensure that they contribute positively to human well-being.

Given the challenges and risks associated with the use of AI chatbots in higher education, it is imperative to approach their integration with caution, yet decisively. Here are some recommendations for schools, CHED, and AI developing companies to effectively integrate AI into the educational framework.

For Schools:

  • Introduce AI Literacy Programs. Schools should implement courses that focus on the capabilities and limitations of AI chatbots. Such programs would provide students with a critical understanding of how these tools can be used effectively as knowledge tools in academic work.
  • Establish AI Usage Guidelines. Clear guidelines are needed to define when, how, and which AI chatbots should be used in academics. These guidelines should consider ethical issues and involve stakeholders in their development and implementation.
  • Encourage Critical Thinking. Schools must promote skills that help students verify AI-provided information with credible sources. This can help maintain academic rigor and integrity.
  • Monitor AI Use. The implementation of tools and policies to ensure the ethical and appropriate use of AI chatbots is crucial. Schools must vigilantly monitor the use of these tools to prevent misuse.
  • Uphold Academic Integrity. Reinforcing the importance of ethics in academic work is essential. Students should be reminded of the value of original thought and the dangers of over-reliance on AI-generated content.

For CHED:

  • Develop Standards for AI Tool Usage. CHED should develop norms and standards for the use of AI tools in higher education, ensuring that these align with intended educational outcomes and ethical standards.
  • Assess AI Impact. A regular evaluation of the impact of AI on educational processes and outcomes is necessary. CHED can play a pivotal role in updating policies based on these assessments.
  • Collaborate with AI Developers. Facilitating partnerships between Higher Education Institutions (HEIs) and AI developers can lead to the creation of more educationally suitable AI tools.
  • Train Educators. Providing training for educators on the effective and ethical use of AI in teaching and learning processes is essential.

For AI Development Companies:

  • Promote Transparency. Companies should be transparent about the sources of information, algorithms, training methods, and limitations of their AI chatbots. This transparency is crucial for trust and reliability.
  • Create Educational AI Versions. Developing AI tools specifically tailored for academic use can help mitigate many of the risks associated with generic AI chatbots.
  • Offer Detailed Guidelines. Providing comprehensive instructions for the use of AI tools in education, developed in consultation with educational institutions and CHED, is essential.
  • Engage with Educational Institutions. Understanding the specific needs of the educational sector and modifying AI tools accordingly can greatly enhance their utility and safety in academic settings.
  • Enforce Safety and Ethics. Regular updates of AI models for accuracy and ethical compliance are necessary to ensure they remain beneficial and safe for educational use.

By following these recommendations, the integration of AI into business higher education can be done in a manner that maximizes its benefits while minimizing its risks. It requires a collaborative effort from educational institutions, CHED, and AI developers to ensure that AI chatbots serve as effective and ethical tools in the realm of higher education. The ultimate goal is to enhance the learning experience without compromising the integrity and quality of education.

CONCLUSION
As AI continues to permeate the educational sector, it is crucial for stakeholders in higher education to recognize and address the potential harms associated with AI chatbots. While they offer promising avenues for enhancing learning and research, their use must be carefully managed to ensure that the core competencies and ethical standards expected of business graduates are not compromised.

This balance is urgently needed to maintain the integrity and quality of business higher education in the face of rapidly advancing technology in order to achieve our national development goals.

 

Dr. Benito “Ben” L. Teehankee is chair of the Management Association of the Philippines (MAP) Shared Prosperity Committee and a member of CHED’s Technical Committee on Business Administration, Entrepreneurship and Office Administration. He is a full professor of Management and Organization at De La Salle University.

map@map.org.ph

benito.teehanke@dlsu.edu.ph

Reality Bites at 30: why the Gen X classic still stands up today

ETHAN HAWKE, Winona Ryder, and Ben Stiller in Reality Bites (1994) —IMDB.COM

“I WAS really going to be something by the age of 23,” says Lelaina Pierce, played by the radiant Winona Ryder in the 1994 Gen X classic Reality Bites.

She was voicing an anxiety many would say was born in the post-boomer demographic of the film’s disenfranchised central characters – but it is still a familiar anxiety today, 30 years on from the film’s release.

Reality Bites was the first feature for director Ben Stiller, then known mostly for his TV comedy work, and the first script penned by then 20-something writer Helen Childress, drawing from her own life experience.

Lelaina is a dissatisfied university graduate confronting the realities of life after graduation while making a documentary about her equally disaffected friend group.

Despite graduating at the top of her class, Lelaina is stuck in a producer’s assistant role on a Houston morning show — until she is unceremoniously fired. Complicating matters, she is also trapped in a love triangle with corporate Michael (played by Stiller) and slacker Troy (Ethan Hawke), two men who represent a key philosophical fork in the road for many Gen Xers: to “sell out” or not.

Reality Bites continues to resonate with new generations of viewers. It is a timeless story of young adults navigating love, friendship, and career uncertainties.

At the time of release, The New York Times’ Frank Rich declared: “This is the movie that has been both praised as the last word on X-ers and damned as Hollywood’s slickest effort yet to exploit them.”

There are however genuine joys, despite the slickness critique. Among them, the acerbic humor of Janeane Garofolo and Steve Zahn, in memorable roles; the killer ’90s soundtrack, featuring Lisa Loeb, Crowded House, and World Party; and two career-defining roles for Ryder and Hawke, who may be more familiar to younger audiences for Stranger Things and The Black Phone. Hawke’s brooding intellectual and Ryder’s luminous yet sardonic girl-next-door established personas for the duo that persisted throughout the decade.

The themes of the film are surprisingly relevant given the generational differences between audiences of the early ’90s and today. Although the film examines the complicated issues of the AIDS crisis and homophobia of the era, it also adeptly examines the universal anxieties of identity crisis, disillusionment, and the search for authenticity.

Despite clear generational differences in fashion, lifestyle, and music, the response to the film by new audiences tends to be one of resonance and recognition.

A timeless premise for a romantic drama, the love triangle at the center of Reality Bites remains compelling. Following Lelaina’s meet-cute car accident with TV executive Michael, the couple start dating. But Lelaina can’t overcome her attraction to Troy, who positions himself as the anti-Michael; he’s more interested in his amateur band and just hanging out than he is in starting a career.

When he and Lelaina finally come together in the aftermath of a fight with Michael over commercializing her documentary, it’s presented as soulful and deeply romantic. However, Troy is unable to handle the intimacy of their burgeoning relationship and walks out on her the following morning. Spoiler Alert: Lelaina forgives him for leaving, and their embrace and kiss is one of the final images of the film.

What has struck me upon multiple rewatches over the last 30 years is how much my personal reaction to Lelaina’s eventual decision to dump Michael in favor of Troy has shifted. Troy is shown throughout the film to be callous, self-centered and in need of therapy, while Michael is generous and kind, if a little dorky.

When I first watched the film as a teenager it was easy to get hoodwinked into aligning with Lelaina’s choice of Troy. Watching the film as an adult who is closer in age to Lelaina’s parents, the choice is less clear. Were Michael’s actions so egregious?

In hindsight, the Gen X obsession with selling out no doubt played a significant role in how Michael and Troy were perceived at the time of release. Michael’s attempt to turn Lelaina’s creative work into money was seen as inauthentic, while Troy’s lack of aspirations for his music career were perceived as rebellious and genuine.

A contemporary generation of media creators are seemingly less critical of attempts to monetize their artistry. The act of personal “branding” and building an audience are common to platforms such as TikTok and YouTube, in a manner that Troy and Lelaina would likely find shameful.

But I’m certainly not the first to make the case that Lelaina made an error.

At the Tribeca Film Festival’s 25th anniversary screening, Ryder herself admitted she thought Lelaina would end up in a lesbian relationship with Garofalo’s Vickie after Troy’s novelty faded.

Whichever side you end up taking, the film’s rocking soundtrack, charming performances, and snarky humor make it a worthy rewatch.

Adam Daniel is an associate lecturer in Communications, Western Sydney University.

PAGCOR says e-gaming sector yields P58.16 billion

THE COUNTRY’S electronic gaming sector generated P58.16 billion in revenues in 2023, the Philippine Amusement and Gaming Corp. (PAGCOR) said on Monday.

“There was a phenomenal rise of over 90% in online gaming activities in 2023 compared to the previous year,” PAGCOR Chairman Alejandro H. Tengco was quoted as saying in a statement.

Data from PAGCOR showed that the e-gaming sector recorded P58.16 billion in revenues in 2023, up by 92% from the P30.24 billion in the previous year. This comprises e-games, e-bingo, specialty games, and sports betting.

“The e-games contribution to 2023 gross gaming revenues (GGR) is also a new record, surpassing the previous high of P32.24 billion posted in 2019 before the pandemic outbreak,” PAGCOR added.

Mr. Tengco said that PAGCOR also recorded 1,000 licensed e-gaming sites last year, with more pending in the pipeline.

“Because of the policy changes implemented by the current management, there was a considerable increase in gaming sites. We also approved reductions in (licensing) rates that contributed to the spike in approved sites,” he said.

“More policy tweaks — including further lowering licensing rates — and the growing integration of technology in gaming should allow the e-games sector to continue fueling the growth of the local gaming industry with its projected P61.75 billion in revenues in 2024,” PAGCOR added. — Luisa Maria Jacinta C. Jocson

Gov’t increases T-bill award before RTB auction

BW FILE PHOTO

By Aaron Michael C. Sy, Reporter

THE PHILIPPINE government on Monday boosted its Treasury bill award with mostly higher rates amid strong demand before the rate-setting auction for the 30th tranche of retail Treasury bonds (RTBs) on Tuesday.

The Bureau of the Treasury (BTr) raised P17 billion from the T-bills, higher than the P15-billion program as bids hit P49.292 billion — more than thrice the amount on the auction block.

The Treasury fully awarded P5 billion of 91-day T-bills as tenders reached P10.72 billion. The three-month debt paper was quoted at an average of 5.506%, 4.5 basis points (bps) higher than last week. Accepted rates ranged from 5.475% to 5.55%.

The bureau also raised P5 billion as planned from 182-day securities as bids hit P15.79 billion. The average rate for the six-month T-bill was 5.861%-5.879%, up by 1.8 bps from last week, with accepted rates at 5.858% to 5.895%.

The BTr also borrowed P7 billion via the 364-day debt paper, higher than the P5-billion program, as demand hit P22.782 billion. The average rate of the one-year T-bill fell by 1.1 bps to 6.064% from last week. Accepted yields were 6.048% to 6.075%.

The 91-, 182- and 364-day T-bills were quoted at 5.4610%, 5.8095% and 6.0577% on the secondary market on Monday before the auction, based on PHP Bloomberg Valuation Service Reference Rates data provided by the Treasury.

Rates rose on Monday before the retail Treasury bond sale on Tuesday, which could siphon off excess peso liquidity from the financial system, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The Treasury will hold its rate-setting auction for five-year RTBs due in 2029, from which it seeks to raise at least P30 billion.

“The higher rates continue to reflect the prospects of delayed policy rate cuts from the Bangko Sentral ng Pilipinas (BSP), while the BTr has likely opted to award larger volumes today for short-term issuances as domestic liquidity might be diverted away from the expected flows toward the upcoming RTB-30 issuance,” a trader added in an e-mail.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank is unlikely to cut rates in the first half, and there is still room to raise interest rates amid risks to inflation and robust economic growth.

The Monetary Board raised borrowing costs by 450 bps from May 2022 to October 2023, bringing the policy rate to a 16-year high of 6.5%. It will decide on policy on Thursday.

Fifteen of 17 analysts in a BusinessWorld poll last week expected the Monetary Board to keep the target reverse repurchase (RRP) rate at 6.5% on Thursday.

The Treasury will cancel the auction for seven-year Treasury bonds on Tuesday due to the retail bond sale.

The bureau plans to raise P210 billion from the domestic market this month — P60 billion in T-bills and P150 billion in T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year or P1.39 trillion.

DBP BONDS
Also on Monday, the Development Bank of the Philippines (DBP) said it had raised P8.7-billion from fixed-rate Series 5 bonds due in 2025.

The state lender said there was strong demand for the debt, which was more than four times oversubscribed from the original P2-billion target.

The bonds were listed on the Philippine Dealing & Exchange Corp. (PDEx) on Monday. The proceeds of the bond sale would be used for development initiatives and loans to infrastructure projects, DBP President and Chief Executive Officer Michael O. de Jesus told reporters.

China Bank Capital Corp. was the issue manager, sole arranger and bookrunner of the bond sale. It was also a selling agent, along with DBP.

The primary market has reached P82.05 billion of new listings this year, PDEx President and CEO Antonino A. Nakpil said in a speech at the enrollment ceremony for the bonds in Makati City. “This is a positive sign for the economy and bodes well for the rest of the year.”

DBP might issue another bond later this year or in early 2025, Mr. De Jesus said.

“This is not the last time that we’re going to raise bonds. We’re going back to the capital markets to raise [funds] because we need to finance our developmental projects and we’re going to remain independent,” he said in a separate speech.

DBP Senior Vice-President Mario Rey T, Morales said the bank has not decided whether it would be a vanilla, sustainable or Tier 2 bond.

The bank could also issue an environmental, social and governance (ESG) bond to fund existing and upcoming ESG projects, Mr. De Jesus said.

He added that DBP expects loans to grow by 10% this year.

“We have a lot of big deals in the pipeline, especially power projects, and also lending to local government units and infrastructure,” he said. “As in the past, it’s always selective lending. We want to make sure that these are good projects that are viable.”

Mr. De Jesus also said DBP Director Philippe G. Lo would replace Dante O. Tinga as chairman.

“The nice part is the new chairman is an existing board member so there will be less disruption,” he said. “It’s always good to have directors who are businesspeople. We want directors who understand risk because we are in the risk business.”

Mr. Tinga’s term as DBP chairman will end on June 30.

DBP’s net income rose by 60% in the first half of 2023 to P4.42 billion, driven by gains from foreign exchange and the sale of properties.

Removal of restrictive provisions or removal of ‘EDSA’ Constitution?

FREEPIK

The restrictive economic provisions in the 1987 Constitution were not the product of the EDSA Revolution as the People’s Initiative for Reform Modernization and Action (PIRMA) implied in its TV infomercial “EDSA Fuera.” Rather they are the reaction to the American exploitation of our country’s natural resources as per the 1935 Constitution.

The preamble of the 1987 Constitution says: “We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society, and establish a Government that shall embody our ideals and aspirations, promote the common good, conserve and develop our patrimony, and secure to ourselves and our posterity, the blessings of independence and democracy under the rule of law and a regime of justice, freedom, love, equality, and peace, do ordain and promulgate this Constitution.”

The Merriam-Webster Dictionary defines a “preamble” as the introductory part of a constitution or statute that usually states the reasons for and intent of the law. The Britannica Dictionary describes it as a statement at the beginning of a legal document that gives the reason for what follows.

To conserve and develop our patrimony, the 1987 Constitution provides that: “All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.” (Article XII National Economy and Patrimony, Section 2.)

The Senate Committee on Constitutional Amendments and Revision of Codes invited economists to its hearing on the proposed amendments in the economic provisions of the Constitution. Among those who came to the hearing on Feb. 5 was Gerardo Sicat, the first director-general of the National Economic and Development Authority (NEDA), which was created by President Ferdinand Marcos shortly after he placed the country under martial law. According to Mr. Sicat, the restrictive economic provisions in the Constitution are the main cause for why the Philippines is still lagging behind its neighbors in the Southeast Asian region. “Those provisions have hampered this progress because we failed to invite or bring in foreign capital that is so critical to a country that has an insufficient amount of savings to generate that high level of development,” said he.

He explained that the country’s ASEAN peers — Singapore, Thailand,  Malaysia, and Indonesia — have one thing in common, a fundamental law that is focused on the aspirations of the nation, the structure and form of government, the duties and responsibilities of the main officers of government. This contributed to their economic success as the financial policies and laws that were no longer attuned to the times were easily changed. “If they made mistakes, ordinary laws are so easy to adjust. They (can) correct them within a year or two. In our case, we made mistakes, we cannot make the changes. (It has been) three decades since the people power revolution… and we have not been able to correct them,” added Mr. Sicat.

At the same Senate hearing, Margarito Teves, Secretary of Finance of President Gloria Macapagal Arroyo, said, “We believe that the removal of these restrictive economic provisions would send a clear and compelling message to foreign investors signaling a warm welcome to their investments and business operations in the Philippines.” Mr. Teves is an officer of the Foundation for Economic Freedom (FEF), which has been advocating for the lifting of the restrictive economic provisions in the 1987 Constitution, seeing these as a binding constraint to the country’s economic growth and development. Mr. Sicat is a member of the advisory board of the FEF.

Mr. Teves was a delegate to the 1971 Constitutional Convention that crafted the 1973 Constitution, the preamble of which was, “We, the sovereign Filipino people… in order… to conserve and develop the patrimony of our Nation…” That constitution had a provision similar to Article XII of the 1987 Constitution — Article XIV, the National Economy and the Patrimony of the Nation. Section 3 provides, “The Batasang Pambansa shall… reserve to citizens of the Philippines or to corporations or associations wholly owned by such citizens certain traditional areas of investments when the national interest so dictates.”

Section 5, says, “No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60 per centum of the capital of which is owned by such citizens…”

I do not recall eminent economists like Messrs. Sicat and Teves advocating for the removal of those restrictive provisions from the Constitution during the 13 years that that Constitution was the basic law of the land.

The only substantive difference between the 1973 and 1987 constitutions is the term of office of elected officials. The 1973 constitution has no term limit. The 1987 Constitution limits the president to only one term of six years, the senators to two terms of six years each term, and the representatives and local official to three terms of three years each term.

The 1935 Constitution likewise had an article on the nation’s patrimony — Article XIII, Conservation and Utilization of Natural Resources. That was in accordance with its preamble, which stated, “The Filipino people… in order to… conserve and develop the patrimony of the nation…”

Section 1 of that article provides, “All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy and other natural resources of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines or to corporations or associations at least 60 per centum of the capital of which is owned by such citizens…”

So, the restrictive economic provisions in the 1987 Constitution were not the product of the EDSA Revolution as the People’s Initiative for Reform Modernization and Action (PIRMA) implied in its TV infomercial “EDSA Fuera.” Rather they are the reaction to the American exploitation of our country’s natural resources as per the 1935 Constitution.

It is said that the negligence of Spain’s colonial rule in developing the country’s economy preserved our patrimony for future generations of Filipinos but America’s colonial regime exploited it to the hilt. The major agricultural export crops — sugar, copra, and hemp were — controlled by American interests. The sugar barons of California reached into the sugar mills of Pampanga and Negros Occidental and made their fortune from the sweat and tears of Filipino labor.

Despite those restrictive provisions in the 1935 Constitution and the devastation wrought on the country by the Japanese invasion and occupation in the 1940s, the Philippine economy prospered during the postwar period. The year 1950 marked the return to post-war levels of activity of most of the economic sectors. The growth of the economy from 1950 to 1966 was significant.

The economy began to slow down when Ferdinand Marcos assumed the presidency in 1966. His administration depended heavily on foreign loans to finance its massive infrastructure program. He established monopolies for his cronies. The main agricultural crops of sugar, copra, and banana, plus resin, cigarettes, cigarette filters, construction, and mass media came under their control. Using his cronies as dummies, he took over flourishing private enterprises, discouraging successful entrepreneurs from growing their businesses bigger for fear of their being grabbed by the power that be.

So, it is not necessary to change the entire 1987 Constitution to attract foreign investments for foreign companies to establish operations here. Even after the 1987 Constitution — with its restrictive economic provision — was promulgated, many foreign companies put up manufacturing plants in the industrial parks in the Calabarzon region. Foreign companies with long-established operations here like Unilever and Procter & Gamble expanded their operations. But some of them, like Intel, left while others, like Colgate-Palmolive, moved their manufacturing plants to another country.

The major reasons for leaving the country entirely or relocating their plant were inadequate infrastructure, high power cost, slow broadband connections, changing regulatory rules, low respect for formal contracts and agreements, high crime rate, highly corrupt bureaucracy and an unstable government. Talk of charter change, especially with the Marcos-Romualdez family back in power, will also deter foreign investment as foreign investors would not know what the political and economic environment in the Philippines would be until the new charter shall have been promulgated and ratified by the people. That could be a few years from now.

Or do those pushing for charter change really just want the “EDSA” Constitution removed from the psyche of the Filipino people just as Feb. 25, the anniversary of the EDSA Revolution, has been removed from the calendar of official holidays?

 

Oscar P. Lagman, Jr. is an avid reader of Philippine history.

Sony Buys Michael Jackson Music for $600 Million — Billboard

BAD: CDS & VINYL — AMAZON.COM

SONY Group is acquiring a half interest in pop star Michael Jackson’s music catalog from the late singer’s estate for at least $600 million, Billboard reported, saying it’s the largest such deal ever.

The agreement may also include songs from other artists that are part of the Mijac publishing catalog, the music industry publication reported, citing sources it didn’t identify.

The assets include ownership of master recordings and publishing for Jackson’s share of his songs, as well as the Mijac catalog. Jackson’s estate had earlier sold its half interest in Sony/ATV Music Publishing, a joint venture that included the Beatles songs.

Michael Jackson, one of the top selling artists in pop music, died in 2009, leaving an estate worth hundreds of millions of dollars but large debts to work out.

According to Billboard, a new biographical movie on the singer, titled Michael, is scheduled for release next year. — Bloomberg

NCR Q1 residential vacancy rate seen at 18%

ALEXES GERARD-UNSPLASH

THE VACANCY RATE for residential property in Metro Manila will likely hit up to 18% in the first quarter of 2024 due to the sizable completions of new condominium units, Colliers Philippines said.

“Residential vacancy definitely will not drop below 17%. Between 17.5-18%, that’s the vacancy that we’ll likely see for the first quarter of 2024,” Colliers Philippines Research Director Joey Roi H. Bondoc told BusinessWorld on the sidelines of a briefing last week.

“You still have sizable number of completed units on the market so it will take time before the vacancy drops,” he added.

According to Mr. Bondoc, there is a “lukewarm demand” in the pre-selling or primary market due to higher interest rates and mortgage rates which discourage investors to buy completed condominium units.

“Let’s see if the central bank signals or cuts interest rates starting second half of this year. That will likely result in lower mortgage rates, but even if that happens, we’re only likely to see marginal improvement because we don’t see a drastic interest rate cut from the central bank,” he said.

In December, the Bangko Sentral ng Pilipinas kept its policy rate unchanged at 6.5% for a second straight meeting after the 25-basis-point (bp) off-cycle hike in October.

It had raised borrowing costs by a total of 450 bps between May 2022 and October 2023.

In a BusinessWorld poll of 17 analysts last week, 15 analysts expect the Monetary Board to maintain its target revenue repurchase rate at 6.5% this week.

“If they implement such a cut, it will definitely be marginal and it will not have substantial impact on the take-up of these completed condominium units in Metro Manila,” Mr. Bondoc said.

In a report, Colliers said that the vacancy in the secondary residential market dropped to 16.8% as of end-2023 brought by the improved vacancies across all sublocations.

The property consultancy firm recorded a take-up of about 23,400 condominium units in the National Capital Region (NCR) pre-selling market, an improvement from the 21,600 units sold in 2022.

It is expecting completion of more than 7,000 new condominium units this year.

“Vacancies, slow tempered launches, and then marginal correction in rents and prices — that might still happen for 2024, especially given on these significant number of condos to be completed this year,” Mr. Bondoc said. — Sheldeen Joy Talavera

Unilever Philippines targets to exceed GDP growth in sales 

UNILEVER.COM.PH

CONSUMER GOODS company Unilever Philippines is aiming to surpass the country’s gross domestic product (GDP) growth in sales this year, focusing on core brands and product innovations, its chairman said on Monday.

Sales have always surpassed the GDP growth and may continue this year, Fredy S. Ong, chairman and chief executive officer (CEO) of Unilever Philippines, said during a briefing.

“Consistent with what our global CEO said that we have to deliver high-quality growth, definitely, Unilever Philippines will be counted on globally as one of the countries that will deliver high growth,” Mr. Ong said.

“Our growth has always been above GDP, [and] that’s what I can commit… you will see the official numbers from this year in April, but we will continue to deliver high growth,” he added.

The Philippine economy grew by 5.6% in 2023, falling short of the government’s full-year target of 6-7% and the 7.6% expansion in 2022.

Meanwhile, the Development Budget Coordination Committee is targeting GDP to grow by 6.5-7.5% this year and 6.5-8% from 2025 to 2028.

The main growth drivers, according to Mr. Ong, include the company’s established brands like Sunsilk, Creamsilk, Knorr, and Selecta ice cream, alongside its latest product innovations.

“What we intend to do is to invest heavily in our core brands, that’s the first thing that we plan to do. The second one, we have to make our products the best in the category which means delivering the best benefits right to our consumers… and the third one, we should continue to innovate,” he said.

“We plan to scale up all the innovation plants that’s available to different countries, but we want to pick those that are relevant to the market. Innovation is new products, it’s something that will help grow the category and hopefully upgrade people to premium portfolios,” he added.

Mr. Ong also said that the Philippines continues to be among the top ten markets for Unilever globally, as emerging markets contribute to 58% of Unilever’s global turnover.

“Emerging markets contribute to close to 60% of total Unilever global sales and the Philippines happens to be part of that group so our role is very important because we continue to drive growth for Unilever globally,” he said. — Justine Irish D. Tabile

Local banks responding more to policy decisions

By Keisha B. Ta-asan, Reporter

MONETARY POLICY in the Philippines could have a greater influence on the credit channels of domestic lenders amid increasing competition from foreign bank branches, the Bangko Sentral ng Pilipinas (BSP) Research Academy said.

In a discussion paper written by Laura Britt-Fermo and Neil Fidelle G. Lomibao, the BSP said changes in central bank regulation and bank market structures have policy implications.

“With bank concentration increasing over time, and with the onset of increased entry and competition from foreign bank branches and affiliates, our results suggest that monetary policy could have more power through the credit channel particularly via domestic banks in the future,” it said.

“It is therefore important that the monetary authority is well informed on how best to tap this influence via bank credit and lending rates in the transmission channel,” according to the paper.

BSP has been the most aggressive central bank in the region after hiking benchmark interest rates by 450 basis points (bps) since May 2022 to tame inflation and stabilize the peso.

The Monetary Board hiked borrowing costs by 350 bps in 2022, before delivering another 100 bps last year. This brought the target reverse repurchase (RRP) rate to 6.5%, the highest in 16 years.

Bank lending slowed for the most part of 2023 due to the BSP’s rate increases. Latest central bank data showed outstanding loans by big banks rose by 7% to P11.701 trillion at end-December, which was unchanged from November and the slowest in three months.

In the report, the BSP research academy said domestic banks respond more to policy rate changes than foreign bank branches as far as lending rates go because foreign lenders have access to additional funds from parent companies.

“With the caveat of external validity in mind, we find that domestic banks are more sensitive to monetary policy, bank characteristics and inflation than foreign banks, while foreign banks are more responsive to real GDP (gross domestic product) growth than domestic banks,” it said.

Foreign bank branches in the Philippines have a parent holding company overseas that allocates funding based on the macroeconomic fundamentals of the countries where it operates.

“Their information on the Philippines rely heavily on macroeconomic data and how they evolve over time, similar to the kind of information most available to global investors,” according to the report.

Foreign bank branches also rely on macroeconomic data in deciding how much to price loans and how much of the funds go into lending, similar to international investment banks, it said.

The global financial crisis exposed the vulnerability of foreign banks to the weaknesses of their parents, and this has raised questions about the impact of bank branches on monetary policy choices and the transmission mechanism in emerging markets like the Philippines, it said.

“This is especially important to examine now, given that foreign ownership limits on local banks have been increased recently in the Philippines.”

The Philippine bank liberalization law took effect in 2015, removing the 60% foreign ownership limits on local banks. Banks in Asia, Europe and the Middle East have expressed interest in coming to the Philippines.

“As of the end of 2015, in the same year the new banking liberalization law took effect, four foreign bank branches from Japan, Korea and Taiwan started operations in the Philippines,” the BSP unit said.

Amid a global coronavirus pandemic, geopolitical uncertainties, surging commodity prices and rising interest rates, a couple of foreign banks opted to leave the country.

In April 2021, Citigroup, Inc. announced the sale of its consumer banking business in the Philippines and other Asia-Pacific markets, while keeping its corporate banking presence.

It came to an agreement to sell its consumer banking arm to Union Bank of the Philippines (UnionBank). UnionBank will drop the Citi brand this quarter after completing the P72-billion buyout of Citi’s consumer banking business in the country.

The Manila branch of Dutch bank ING Bank N.V. also left the Philippine retail banking market in 2022 amid uncertain global conditions that affected its operations. However, it will keep its wholesale banking unit and global shared service operations in the country.

OWNBANK
Meanwhile, OwnBank, the online banking platform of the Rural Bank of Cavite City, Inc., has partnered with Mastercard for a physical and virtual debit card.

“OwnBank and Mastercard’s collaboration expands digital payment options, enabling customers to access a wider array of digital financing solutions with Mastercard’s technology for secure, efficient and convenient online transactions,” the lender said in a statement.

The OwnBank virtual debit card would be launched this quarter, while the physical debit card would be launched in the second quarter, OwnBank said. It will also start a series of deals and offers for the debit card.

OwnBank users will get a free virtual debit card, while those who have fully upgraded their accounts and have met certain criteria will be eligible for a physical debit card.

The debit cards will feature contactless payment options and a Europay, Mastercard and Visa chip for enhanced security. Users can freeze their card, set transaction limits and reset their card PIN through the OwnBank app.

OwnBank entered the Philippine banking market in October and is regulated by BSP and insured by the Philippine Deposit Insurance Corp. — with Aaron Michael C. Sy

The 20 Most and Least Profitable Corporations in 2022

The 2023 edition of the BusinessWorld Top 1000 Corporations in the Philippines contains the country’s largest companies with a combined net income of P1.8 trillion in 2022. This infographic shows the 20 companies with the best and worst bottom lines in 2022.

The 20 Most and Least Profitable Corporations in 2022

Visit https://bworld-x.com/product-category/top-1000-print, contact us at 8527-7777 local 2649/2650, or e-mail circ@bworldonline.com or bworldx@bworldonline.com to get your copy of the latest BusinessWorld Top 1000 Corporations in the Philippines magazine.

Low inflation, low unemployment, high growth — this is the Philippines

Last week, the Philippine Statistics Authority (PSA) released two important monthly reports, on the country’s unemployment rate for December 2023, and the inflation rate for January 2024. They show really good results — unemployment is at a 19-year low, inflation at a three-year low. See these stories in BusinessWorld: “Inflation sharply drops to 3-year low” (Feb. 7), “Jobless rate hits record low in 2023” (Feb. 8).

I am updating this column’s monthly monitoring of global and regional inflation and unemployment data. I have put together in Group A the G7 industrial countries, in Group B are the big South Asian nations, and in Group C are the big East Asian countries (see the table).

Budget Secretary Amenah F. Pangandaman has asserted again the optimistic trajectory of the Philippine economy, saying that “We are now in a low inflation, low unemployment, high growth path, the best situation that any economy can hope for. Our budget priorities will remain on improving both the hard and soft infrastructure for our people that will further raise their productivity, income and social well-being, their overall quality of life in the long term.”

Well said, Madam Secretary. In fact many G7 countries now have higher inflation than the Philippines — the UK, the US, Canada, France, and Germany. And the G7 unemployment rates are all higher than the Philippines’ except for Japan. High inflation, high unemployment, and low growth (even contraction in Germany) is the worst combination that any economy would wish to have.

One disturbing trend globally is that food inflation is higher than overall inflation. For instance, in January 2024, food inflation and overall inflation rates were, respectively: Germany, 4.2% and 2.9%; France, 5.7% and 3.1%; Italy, 5.9% and 0.8%; South Korea, 5.9% and 2.8%; Taiwan, 4.1% and 1.8%; Indonesia, 5.8% and 2.6%; and the Philippines, 3.5% and 2.8%.

These countries’ agriculture, climate, and energy policies have made big contributions to this ugly trend. Imposing high taxes on diesel (used by tractors, harvesters, trucks, irrigation pumps, fishing boats, etc.), for example, raises the cost of farming and transportation of produce. The Philippines’ diesel tax until 2017 was zero, then it became P6/liter after the TRAIN law of 2018 (RA 10963) was passed. And then there is land conversion from agriculture to solar farms.

Also last week, on Feb. 5, the Development Budget Coordination Committee (DBCC) held its first meeting this year, with new members Finance Secretary Ralph Recto and Special Assistant to the President for Investment and Economic Affairs Frederick Go, joining the old members, Economics Secretary Arsenio Balisacan, Budget Secretary Amenah Pangandaman, and the Bangko Sentral representative.

Secretary Recto postulated that economic targets should be revised towards more realistic levels and rates. See another story in BusinessWorld: “Growth, fiscal goals need to be ‘more realistic,’ says DoF chief” (Feb. 12).

Given the declining trend in growth globally, a mild reduction in the Philippines’ growth target, from 6.5%-7.5% to 6%-7%, is not a bad idea, to avoid future disappointment if targets are high and not attained a few months later.

There are three important policy measures that I think must be held and sustained.

One, control spending and limit public borrowings, from P2.2 trillion/year average in 2020-2023 to below P1.8 trillion/year in 2024-2028. This way, the target of reducing the Debt/GDP ratio, from 60% in 2023 to possibly 40% to 45% by 2028, has a higher chance of being attained.

Two, distortionary policies in agriculture and energy must be revisited if not reversed. This is to help reduce food inflation and, hence, overall inflation rates.

And three, avoid any new tax hikes in 2024 and possibly beyond. The Philippines’ current situation of high growth (3rd highest GDP growth in 2023 among the top 40 largest economies in the world), low inflation, and low unemployment (as discussed above) happened without any tax hikes.

On controlling spending, I want to mention that we should not entertain the lobby of the country’s defense establishment and their allies in media, academe, and think tanks, to purchase $36 billion (P2.016 trillion at P56/$) worth of military hardware (submarines, new battleships, missiles, and jetfighters). Excluded in their P2-trillion costly and impractical budget are spending for ammo, spare parts, and training. The Philippines should focus on diplomacy and negotiations, not war mongering.

And not only the military establishment but also the police, coast guard, and other agencies will be lobbying for their own trillions of pesos for additional acquisitions and manpower expansion. The Philippines may not prosper anymore as the agencies will just invent new spending, new borrowings, and new taxes.

If the military and various agencies push hard for their trillions of extra spending, one possible option is the massive, large-scale privatization of the land and assets of the Armed Forces of the Philippines, the Philippine National Police, and the Philippine Coast Guard. Use the proceeds of this privatization for their costly modernization, don’t pick the money from the taxpayers’ pockets.

 

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers. He is an international fellow of the Tholos Foundation.

minimalgovernment@gmail.com

Dune: Part Two director decided to tell sequel story his own way

JOSH BROLIN (R) and Timothée Chalamet in a scene from Dune: Part Two. — IMDB.COM

LOS ANGELES — Canadian director Denis Villeneuve is inviting audiences back to the desert planet Arrakis for Dune: Part Two, the second installment of the sci-fi epic starring Timothée Chalamet and Zendaya.

The Dune franchise is based on author Frank Herbert’s highly acclaimed 1965 novel of the same name.

Dune: Part Two, distributed by Warner Bros WBD.O, arrives in US theaters on March 1. It opens in Philippine cinemas on Feb. 28.

The first Dune film, which was also directed by Mr. Villeneuve came out in 2021, followed the character Paul as he went from being the noble heir to House Atreides to being stranded with his mother, Jessica, on the planet Arrakis.

Eventually, Paul is revered as the messiah of the Arrakis locals, called the Fremen.

For the second film, Mr. Villeneuve decided to go with a different timeline than Herbert originally did, making Dune: Part Two pick up right after the first film ends, rather than replicating the two-year time jump from the novels.

His cinematic sequence of events lends his version of the story a unique look that is new to both book fans and movie audiences.

However, Mr. Villeneuve feels his take is closer to Herbert’s lore.

“When Frank Herbert wrote the book and when the book was out, he was disappointed how people perceived Paul’s character. He felt that people thought that Paul was a hero and for him, Paul was an anti-hero, he was a dark figure, he was a danger,” he said.

Mr. Villeneuve said that Mr. Herbert intended Dune to be a cautionary tale about charismatic figures, eventually writing Dune Messiah to be an epilogue that corrects the misconceptions of Paul in his first books.

“So when I wrote the adaptation, I made sure to try to make sure that I was closer to Frank Herbert’s initial intentions,” the 56-year-old filmmaker added.

While he continues to adapt Mr. Herbert’s books, Mr. Villeneuve makes his own strategic decisions for the films.

The first two films are an adaptation of just one book from Mr. Herbert, and Mr. Villeneuve is eager to keep the Dune franchise going.

“My goal in the beginning was to adapt Dune, the first book. I finished it. It would make sense to me to finish Paul Atreides’ arc with Dune Messiah, the second book, and make a trilogy,” Mr. Villeneuve said.

“So, that’s in the work right now, and when I have a solid screenplay, there’s a strong chance that I go back to Arakkis,” he added. — Reuters

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