Addressing high inflation in the Philippines

December 19, 2022 | 5:49 pm

vegetable-public market — PHILIPPINE STAR/ WALTER BOLLOZOS

This policy memo was submitted to the Harvard Kennedy School as final requirement to API 121 Recession, Growth and Macroeconomic Policy under Professor Karen Dynan. A copy of this was forwarded to the Department of Finance, the Senate, and the House of Representatives for their consideration in addressing high inflation in the Philippines which is at 8% for November 2022.

INTRODUCTION
While contractionary monetary policy seems to be the preferred method of controlling inflation, a cyclical slowdown in economic growth to avoid recession (or what economists refer to as “soft landing”) is hard to pull off. Thus, fiscal policy tools are recommended to ease the task of monetary policy (i.e., increasing interest rates) in reducing inflation. This is owing to the fact that high inflation tends to worsen inequality and poverty because it hits income and savings harder for the poor and middle-income earners.

BACKGROUND
According to the Philippine Statistics Authority (PSA), our gross domestic product (GDP) posted a growth of 7.6% in the third quarter of 2022. In spite of the 14-year high inflation of 7.7% in October 2022, GDP continues to expand mainly because of household consumption which contributes more than 70% of economic growth on the demand side while the services sector contributes about 67% on the supply side.

Higher annual growth rate in the index for food and non-alcoholic beverages at 9.4% contributed to the October inflation. Other commodity groups also contributed to the overall inflation like housing, water, electricity, gas and other fuels with a 7.4% increase.

Following the US Federal Reserve’s (Fed) aggressive stance against high inflation, the BSP (Bangko Sentral ng Pilipinas) further increased its policy rate from 5% to 5.5% making the cost of borrowing in the Philippines more expensive. The BSP is now targeting inflation of 5.8% in 2022 and 4.3% in 2023. Prior to the expected policy rate increase in December to 5.5%, BSP Governor Felipe Medalla already offered forward guidance, saying the BSP would prefer to match any rate increase by the Fed to maintain a 100 basis points differential between the BSP interest rate and the Fed’s policy rate.

With the November annual inflation surging to 8%, both fiscal and monetary policies may be needed to temper the increasing prices of food, electricity, and agricultural products. In many emerging markets and developing countries (EMDC), fiscal restraint can lower inflation while reducing debt.

Supply shocks, like high fuel prices, natural disasters, the Russia-Ukraine conflict, and the continuing impact of COVID-19, among others, disrupt supply chain and production, resulting in lower productivity and higher costs. Initial data shows that these supply shocks may be causing the “cost-push” inflation and that contractionary monetary policy may not be enough to temper it — notwithstanding the responsive policy rate adjustments made by BSP, inflation has continued to rise.

In view of this, the following fiscal policy tools are recommended to the Philippine government, through the Department of Finance, with the aim of easing the hardship brought by high inflation especially to the poor and low-income earners: 1.) increasing excise taxes on non-essential goods, 2.) imposing corporate income tax to non-resident foreign tech giants, 3.) improving tax collections through digitalization, 4.) cutting government spending, and, 5.) other government interventions.

INCREASING TAXES
While increasing taxes may be politically challenging, Congress can enact a law to increase taxes on non-essential goods like luxury cars, alcoholic drinks, cigarettes including vapes, which are not considered basic commodities. Revisiting the Tax Reform for Acceleration and Inclusion (TRAIN) Law to further increase excise tax on luxury cars from 60% to 200% will generate more revenues from the top 10% of households in terms of income as this is a highly progressive tax. There may be an initial slowdown in the sales of cars, alcohol, and cigarettes but it will quickly recover as it did in the past once inflation is brought back down to healthy levels.

IMPOSING CORPORATE INCOME TAX
Congress is presently considering the imposition of the 12% value-added tax (VAT) on digital services, expecting that it will generate an estimate of P19 billion in revenues or less than 0.1% of GDP. Instead of doing that, however, imposing an income tax or digital service tax to non-resident foreign tech giants and digital transactions including cryptocurrency may yield higher revenues without burdening the low-income earners. How it will be collected may still be a question but it’s worth pursuing rather than simply imposing a 12% VAT on digital services which will burden local consumers.

IMPROVING TAX COLLECTIONS

Revenue collections from audit and investigation contribute less than 2% to the total tax collections. The government must instead prioritize the full digitalization of the Bureau of Internal Revenue (BIR) so that they can catch up with the fast-paced developments in the e-commerce and digital economy. This will require at least an additional 10% of their P11.12-billion fiscal year 2022 budget and a reallocation of Personnel Services which comprised 72% of its total budget. This can be used to fund full digitalization and the hiring of software engineers, developers, and data analysts to support its new IT infrastructure.

Implementing a general tax amnesty and lifting the Bank Secrecy Law will also generate more revenues without relying on regular audit and investigation. This will allow the BIR (Bureau of Internal Revenue) to run after big-time tax evaders since they would no longer be able to hide behind the Bank Secrecy Law.

However, both pieces of legislation will require more political will from the President to make it a priority bill of his Administration.

A risk-based audit will also generate more tax collections than the random audit. Using data analytics and industry benchmarking, the BIR can allocate their resources in auditing high-risk industries and taxpayers, especially large corporations which contribute more than 60% of the total tax collections.

CUT GOVERNMENT SPENDING
While checks and balances are in place, the government must cut spending, address loopholes in budget allocation, and deal with procurement issues that led to an average of P1-trillion unused and misused/abused annual budget from 2010-2020. Transparency and accountability must be upheld, especially given the proposed P5.268-trillion budget for 2023 and the increasing debt at P13.5 trillion as of November 2022.

Targeted subsidy and financial support to farmers and fisher folk must also be prioritized to increase domestic productivity which will reduce prices and importation of agricultural products.

OTHER GOVERNMENT INTERVENTIONS
While subsidies are helpful, it is high time to revisit the Oil Deregulation Law in order to give the government the power to intervene when there is a prolonged increase of oil prices.

RECOMMENDATIONS
Addressing high inflation requires a whole-of-government approach. It requires fiscal consolidation through budget rationalization and more tax revenues. While the BSP uses monetary policy to temper inflation with the least possible job losses, the government must exercise fiscal restraint to lower inflationary pressures.

First, government deficits and debts must be lowered. Rationalizing the government budget will not only cut unnecessary spending but also reduce the budget deficit. PPP (public-private partnerships) may also be helpful in funding infrastructure projects to avoid incurring more foreign debts.

Moreover, revenue efforts must be increased through tax policy and administration reforms. Increasing the excise tax on non-essential goods will serve as both a revenue and a health measure, and imposing corporate income tax or a digital service tax on non-resident foreign tech giants will generate more collections from the digital economy.

Fiscal consolidation aimed at taxes and spending that help the rich can help reduce inflation. There could be trade-offs in terms of jobs to a slower economy but inflation is already hurting the poor and vulnerable. Thus, keeping targeted subsidy will help ease their hardships while the government continues to address high inflation.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.

Raymond “Mon” A. Abrea is an MPA/mason fellow at the Harvard Kennedy School. He is a member of the MAP Tax Committee and the MAP Ease of Doing Business Committee, co-chair of Paying Taxes on Ease of Doing Business Task Force, and chief tax advisor of the Asian Consulting Group.

map@map.org.ph

mon@acg.ph

The economic team: Deodorant that has lost its fragrance

December 19, 2022 | 5:49 pm

As presidential candidate Bongbong Marcos avoided the public debates during the presidential campaign period, he kept the people in the dark as to how he will lead the country’s recovery from the severe economic downturn caused by the pandemic.

The appointment of Vice-president–elect Sara Duterte-Carpio as his secretary of Education and Congressman Jesus Crispin Remulla as Secretary of Justice intensified the anxiety. Neither Duterte-Carpio nor Remulla is cut in the mold of their predecessors. Not only that, both Duterte-Carpio and Remulla belong to political dynasties and both have been politicians themselves for many years. The business sector feared President-elect Ferdinand Marcos, Jr. would appoint his political allies to his economic team.

The business sector was much relieved when the presumptive president announced that his economic team would be composed of Benjamin Diokno as Secretary of Finance, Felipe Medalla as Governor of the Bangko Sentral ng Pilipinas (BSP), and Arsenio Balisacan as Director-General of the National Economic and Development Authority (NEDA). The Philippine Stock Exchange Index gained 47.76 points, to 6,645.52 while the broader All-Shares Index went up by 14.61 points to 3,568.65.

All three earned master’s degrees in Economics from the University of the Philippines (UP), Diliman, and doctoral degrees in Economics from prestigious American universities. Diokno is a Professor Emeritus of the School of Economics of UP, Medalla and Balisacan had been dean of the School of Economics of UP, Diliman. All three had held Cabinet-level positions in previous administrations and had performed creditably.

If the members of the economic team were meant to deodorize the Marcos II administration, they proved to be ineffective. They may have even lost much of their fragrance shortly after they took over the management of the economy.

A shortage of supply of sugar in the domestic market was noted in late July this year, leading to an increase in the price of the commodity. On Aug. 9, the top officials of the Sugar Regulatory Administration (SRA) placed an order for the importation of 300,000 metric tons of sugar to fill the gap in production. Leocadio Sebastian, Undersecretary of the Department of Agriculture, signed the order on behalf of President Marcos, who is Secretary of Agriculture and concurrently SRA chairman. But the day after, Press Secretary Trixie Cruz-Angeles released a statement that the President did not authorize or sign the order.

The President said we need not import sugar as we have enough. In support of the President’s statement, government functionaries claimed that the sugar shortage was caused by some traders hoarding supply to raise the price and rake in profits. The people expected the economic managers, they with impressive academic credentials and long experience as government economists, particularly Arsenio Balisacan, who has a master’s degree in Agricultural Economics, to say what the real situation is with regard to the country’s sugar supply.

If they agreed with the President, Cruz-Angeles would have flooded mass media with releases that said the economic team affirms the President’s statement. That there was no such affirmation published or broadcast in mass media only indicated that the economic team disagreed with the President’s assessment of the sugar supply situation. But the economic managers chose to remain silent, perhaps to keep their jobs.

Now comes House Bill No. 6398 that proposes the creation of a Sovereign Wealth Fund (SWF). It was proposed in the Lower House of Congress by no less than Speaker Martin Romualdez, first cousin of the President, Senior Deputy Majority Leader Alexander Marcos, son of the President, Togon Party-list Rep. Yedda Romualdez, wife of Speaker Romualdez, and three other members of the Lower House of Congress. Albay 2^nd District Rep. Joey Salceda, vice-chair of the Ways and Means Committee, said, “We need support, and this is an order of the President.” Marikina 2^nd District Rep. Stella Quimbo, who is a PhD in Economics, helped Salceda steer the legislative effort.

Sovereign wealth funds usually solve a problem of excess. Some examples are excess revenues in a situation of consistent large budget surpluses, windfall revenues from booming extractive industries, and excess foreign currency reserves from enduring balance of payments surpluses. They are invested abroad to help stem currency overvaluation. But the Philippines does not have any excess. On the contrary, the country has a heightened fiscal deficit, a so-so export performance, and has not enabled the major commodity exports to bolster foreign currency reserves. Although the country is rich in mining resources, they remain undeveloped because of restrictive laws.

Immediately following the public announcement of the proposal by Salceda, policy groups, prominent economists, and business leaders issued a joint statement against House Bill No. 6398. The group said: “There is at present no gap nor ‘missing institution’ in the economy that needs to be solved by the creation of an SWF. The country does not have a bonanza of commodity surpluses that need to be deployed.”

Among the policy groups that signed the statement are the Foundation for Economic Freedom, the Financial Executives of the Philippines, the Management Association of the Philippines, the Institute of Corporate Directors, the Makati Business Club, the UP School of Economics Alumni Association, and the Philippine Women’s Economic Network.

Economic think tank Action for Economic Reforms said that a number of former government officials, faculty members and professor emeriti of UP and the Ateneo de Manila University, and some representatives of the civil society and private sector have released a statement calling for the junking of the proposed SWF. They opposed the bill on the grounds of its lack of principles of prudential regulation and risk management, conflict-of-interest avoidance, transparency and accountability.

Among the signatories to the statement are former NEDA director generals Solita Collas-Monsod, Cielito Habito, Dante Canlas, Ernesto Pernia and Emmanuel Esguerra, former BSP Deputy Governor Diwa Guinigundo; and former Department of Finance Undersecretary Milwida Guevara.

The Philippine Chamber of Commerce and Industry joined other major business groups in criticizing the proposed Maharlika Wealth Fund.

BSP Governor Felipe Medalla initially raised the alarm against the plan, hinting it could be used for corrupt practices. He cited Malaysia’s experience with 1Malaysia Development Berhad which raised billions of dollars in bonds for investment projects and joint ventures However, it is believed more than $4.5 billion were misappropriated for criminal schemes. He also was concerned about the possible effect on the independence of the BSP.

National Scientist in Economics Raul Fabella said in an interview with ANC, “We had sovereign wealth fund bills in the past. They did not get traction at all, it got traction only when BBM (Bongbong Marcos) became president, and the Speaker of the House is of course very close (to him). It gives you a lingering suspicion that something is being rushed before we wake up. That is very, very disturbing, in the Philippines, the concentration of funds tends to disappear because of our weak rule of law.” He cited the Malampaya fund, which he said could have been “a proper fit” but was embroiled in the fertilizer scam, a controversy which no high-ranking official has been held accountable for.

In spite of the strong objections of eminent economists, financial and management executives, former Cabinet members, and business tycoons to House Bill No. 6398, the country’s economic managers Diokno, Medalla, and Balisacan have issued a statement in favor of the bill, urging its immediate enactment. They explained that the objectionable parts of the bill have been removed. One of the changes is the replacement of Marcos Jr. as chairman of the fund by Diokno.

Raul Fabella, who earned a doctoral degree in Economics from Yale University, maintained that no amount of tweaking could repair the bill because its flaws were fundamental: the moral hazard arising from unnecessary state intervention and the unjustified economic backdrop. At the heart of the bill, he said, was the consolidation of resources under one umbrella which would be wielded by a group of people who did not own them.

I have had misgivings about Diokno. He has been in the high echelons of government so long that I believe he has been infected with the kind of politics the top government officials he has been dealing with practice.

In 2018, he declared, “The budget is a political tool to reward administration allies and punish political enemies. If you’re with us, then you get something. If you’re not with us, then you don’t get something.”

Rumors had it that Diokno was initially hesitant to accept his appointment as secretary of Finance as it meant leaving the central bank where he had fewer headaches and got the fabulous pay of P3 million a month. The BSP governor serves a term of six years and cannot be removed without cause. Yet Diokno agreed to leave his BSP position to head the Department of Finance. That suggests that he is either submissive to Marcos Jr. or that he has struck up a big deal.

Based on the Diokno Dictum, if the economic managers are not with the President, they lose their job. If they are with him, they get a big deal. The economic team originally meant to deodorize the Marcos II administration has completely lost its fragrance.

Oscar P. Lagman, Jr., is a retired corporate executive, business consultant, and management professor.

China officially reports 1^st COVID deaths in weeks amid virus wave

December 19, 2022 | 5:12 pm

China-Shanghai Stock Exchange — A worker wearing a protective suit takes body temperature of a man inside the Shanghai Stock Exchange building in Shanghai, China Feb. 28, 2020. — REUTERS

BEIJING — China officially reported on Monday its first COVID-related deaths since the government began dismantling strict anti-virus controls earlier this month, feeding anxiety that this could be the start of a grim trend as the virus rips through the country.

Monday’s two deaths were the first to be reported by the National Health Commission (NHC) since Dec. 3, days before Beijing announced it was abandoning curbs which had largely kept the virus in check for three years but triggered widespread protests last month.

Though on Saturday, a Reuters journalist in Beijing saw hearses bearing dead lining the driveway to a designated COVID-19 crematorium, and about 20 yellow body bags containing corpses on the floor of an adjacent funeral parlor. Reuters could not immediately establish if the deaths were due to COVID.

Officially China has suffered just 5,237 COVID-related deaths during the pandemic, including the latest two fatalities, a tiny fraction of its 1.4 billion population and very low by global standards.

The NHC also reported 1,995 symptomatic infections for Dec. 18, compared with 2,097 a day earlier. It stopped reporting asymptomatic cases last week citing a drop in mandatory PCR testing after China’s policy shift.

And there is growing doubt that China’s data is capturing the fast-worsening situation on the ground.

A hashtag on the two reported COVID deaths quickly became the top trending topic on China’s Twitter-like Weibo platform on Monday morning.

“What is the point of incomplete statistics?” asked one user. “Isn’t this cheating the public?” wrote another.

Workers at a dozen funeral homes in Beijing told Reuters on Saturday that they were busier than normal.

Respected Chinese news outlet Caixin on Friday reported that two state media journalists had died after contracting COVID, and then on Saturday that a 23-year-old medical student had also died. It was not immediately clear which, if any, of these deaths were included in official death tolls.

The NHC did not immediately respond to questions from Reuters on the accuracy of its data.

As China moves to align with a world that has largely opened up in an effort to live with the virus, it may now pay a price for shielding a population that lacks natural immunity and has low vaccination rates among the elderly, health experts say.

Some say China’s COVID death toll may rise above 1.5 million in the coming months.

In the Shijingshan district of Beijing, medical workers have been going door-to-door offering to vaccinate elderly residents in their homes, China’s Xinhua news agency reported on Sunday.

Officially, China’s vaccination rate is above 90%, but the rate for boostered adults drops to 57.9%, and to 42.3% for people aged 80 and above, according to government data.

But it is not just the elderly that are wary of vaccines in China.

“I don’t trust it,” Candice, a 28-year-old headhunter in Shenzhen told Reuters, citing stories from friends about health impacts, as well as similar health warnings on social media. Candice spoke on condition that only her first name be used.

Overseas-developed vaccines are unavailable in mainland China to the general public, which has relied on inactivated shots by local manufacturers for its vaccine rollout.

While China’s medical community in general doesn’t doubt the safety of China’s vaccines, some say questions remain over their efficacy compared to foreign-made mRNA counterparts. — Reuters

South Korea flags economic slump deepening for while

December 19, 2022 | 5:10 pm

South-Korea-face-mask — A MAN walks along a nearly empty street in Seoul, South Korea, July 12, 2022. — REUTERS

SEOUL — South Korea on Monday flagged a deeper economic slowdown than expected at least through the first half of next year, and extended sales tax breaks on some fuel oil products and passenger cars by a few months.

“Our economy’s growth is expected to slow next year due to the effects from a global economic slump, and the difficulty will be focused on the first half,” Finance Minister Choo Kyung-ho said at a meeting with the ruling party leadership, adding the economy was slowing at a more rapid pace than expected.

The government is expected later this week to announce its economic policy strategies for next year, which will be the first full-year statement for President Yoon Suk-yeol’s administration since its launch in May.

South Korea’s economy, the fourth-largest in Asia, relies heavily on exports ranging from cars and ships to chips and smartphones. It is widely expected to see growth fall below 2% next year from close to 3% this year.

The central bank last month cut its projection for next year’s economic growth to 1.7% from the previous 2.1% in its scheduled revision, citing falling exports and the resultant reduction likely in corporate investment.

As the economy has now to rely more on domestic consumption to offset cooling export demand, the finance ministry has extended by as much as six months tax breaks on fuel oil products and passenger car sales beyond their original end-2022 expiry.

The ministry is due to unveil its 2023 economic projections and strategies on Wednesday.

President Yoon, struggling against low approval ratings, says exports are the best choice for the manufacturing-heavy country to overcome its slump.

A problem is that China, South Korea’s top export market, is facing its own problems as its economy feels the impact of years of strict controls to fight COVID-19. — Reuters

Britain is ‘resolute’ on nurses’ pay, minister says

December 19, 2022 | 5:09 pm

England, Britain-Nurse-Stethoscope — A STETHOSCOPE belonging to a nurse is seen in the pocket of her uniform at a hospital in north west England, Britain, March 3. — REUTERS

LONDON — The British government is “resolute” it will not budge on nurses’ pay, senior minister Oliver Dowden said on Sunday, ahead of a planned second nationwide walkout by the profession over an average pay offer of 4% while inflation runs at more than 10%.

An estimated 10,000 nurses in the state-funded National Health Service in England, Wales and Northern Ireland plan to walk out again on Tuesday after staging strikes on Thursday in protest over the pay increase that they have been offered.

“We will be resolute in response to this because it will be irresponsible to allow public sector pay and inflation to get out of control and we owe a wider duty to the public to make sure we keep our public finances under control,” Dowden told the BBC’s Sunday With Laura Kuenssberg.

However, The Guardian reported on Sunday that British health secretary, Steve Barclay, is expected to contact health unions to urge fresh talks aimed at averting further strikes.

The British Department of Health and Social Care didn’t immediately respond to a Reuters request for comment.

The Royal College of Nursing (RCN) union, which says its members’ real term earnings have fallen by 6% in the last decade, has called for a pay rise of 5% above the RPI rate of inflation, which stood at 14% in November.

Its leader Pat Cullen said on Friday that unless ministers “start playing ball by taking part in meaningful negotiations” over pay, nurses would continue to take action.

“Governments have had every chance to act but they have chosen to turn their backs on us,” she said.

Mr. Dowden said nurses’ pay was recommended by an independent pay review body, which had determined that nurses would receive a minimum rise of 1,400 pounds, equating to about 4% on average.

Britain is facing a wave of industrial action this winter, including rail and postal services as well as healthcare.

Ambulance staff in England and Wales are planning to strike on Wednesday and on Dec. 28, and Border Force staff working in passport control are also walking out in periods over Christmas.

The government has drafted in about 1,200 members of the military and 1,000 government officials to try to minimize disruptions to ambulance and border services. — Reuters

Vatican dismisses Trump-supporting, anti-abortion leader from priesthood

December 19, 2022 | 5:09 pm

AERIAL VIEW of St. Peter’s Basilica, Vatican City — ALAN LIU-UNSPLASH

VATICAN CITY — Father Frank Pavone, a leader of the US anti-abortion movement and a strong supporter of former president Donald Trump, has been dismissed from the Catholic priesthood for “blasphemous” social media posts and disobedience to bishops.

The Vatican defrocked Mr. Pavone in November, according to a letter sent to US bishops from its ambassador to Washington. The letter, seen by Reuters, says Mr. Pavone will not be allowed to appeal. Mr. Pavone was defrocked for “blasphemous communications on social media and of persistent disobedience of the lawful instructions of his diocesan bishop,” the letter says.

In the 2016 presidential campaign he released a video of an aborted foetus on an altar and urged Catholics not to vote for Democratic candidate Hillary Clinton, who later lost to Trump.

His defrocking was first reported by the conservative Catholic News Agency (CNA).

Mr. Pavone, 63, a New Yorker, has had a scratchy relationship with many of his bishop superiors during his clerical career, often over actions they deemed too political.

After Mr. Trump lost to Joseph R. Biden in 2020, Mr. Pavone was among Trump supporters who questioned the validity of the elections.

In a one hour, 40-minute video on Sunday, Mr. Pavone, still wearing a priest’s collar, said he had been “persecuted in the Church for decades” and derided his critics as “the dumbest in the world”.

In a Twitter post in 2020, he spoke of “supporters of this goddamn loser Biden and his morally corrupt, America-hating, God-hating Democrat party”.

He referred to that episode in his Sunday video, saying “I used the word G-D in a response to somebody in a Tweet and for that they want to throw me out of the priesthood.”

During the 2020 presidential campaign he was reprimanded for suggesting that Catholics who voted for Democrats should not be absolved of their sins in confessions.

In his video on Sunday, he accused his critics of “spouting Democrat talking points”.

He said he still had not received any official communication from the Vatican on his dismissal and criticized the Vatican for “talking to the media before you talk to the priest”.

He added: “I’m never going to leave the priesthood”. — Reuters

Coming home for Christmas: An OFW returns amid the pandemic

December 19, 2022 | 3:35 pm

Reyan Jose D. Acurantes, who has been working in the oil and gas industry in the United Arab Emirates for 15 years, is coming home this Christmas, amid loosened coronvirus disease 2019 (COVID-19) restrictions and an uncertain economy.

“The crisis is still ongoing but silently,” he said of the pandemic. “I will just enjoy and think about it next year.”

He is one of 1.83 million Overseas Filipino Workers (OFWs) making a living abroad to provide for their families in the Philippines.

“Compared to 2019, airfare is now 20 to 30% higher,” he said. “The exchange rate has also risen to 15 to 16 dirhams from 13 dirhams … it greatly affects the spending habits of my family.”

Total OFW remittances sent in 2021 reached P151.33 billion, higher than the P134.77 billion in 2020.

“It doesn’t get better every year; it actually gets worse,” he said, talking about the lengthy separations that have marked his relationship with his two children. “You miss a lot of opportunities.”

Interview by Patricia B. Mirasol. Editing by Earl R. Lagundino and Sam L. Marcelo.

[B-SIDE Podcast] The red flags raised by the Maharlika Investment Fund

December 19, 2022 | 2:54 pm

The Maharlika Investment Fund (MIF) is plagued by problems including bad timing, unfulfilled requirements, and governance red flags, according to economist and Action for Economic Reform convener Filomeno S. Sta. Ana III. “Right now, there’s a lot of volatility, so even if we have some level of comfort with our foreign exchange reserves, we must still build our reserves,” he tells BusinessWorld report Brontë H. Lacsamana in this B-Side episode.

TAKEAWAYS

The Philippines doesn’t have surplus funds needed for a sovereign wealth fund.

Although the two major pension funds, the Government Service Insurance System (GSIS) and the Social Security System (SSS), have been withdrawn as sources of seed money for the MIF, the central problem of the fund remains.

“For a sovereign wealth fund (SWF) to exist, an essential feature is that the sovereign or the country has a huge surplus or an excess, resulting from mineral resources, booming extractive industries, or strong export performance,” Mr. Sta. Ana explained.

“The question is, does the Philippines have excess? The answer is no,” he said.

Despite the country’s foreign exchange reserves being relatively comfortable at the moment, the level is still insignificant compared to countries with bigger reserves.

There are other tools that can be used to increase financing.

Since legislation has since been altered to remove GSIS and SSS as sources for funding, Bangko Sentral ng Pilipinas (BSP) has been designated as the main source.

Mr. Sta. Ana said that the MIF merely transfers resources from one pocket to another: “The problem is, these are institutions that don’t have excess either. They might have surpluses but these are intended for other purposes.”

BSP’s reserves must be built because of the volatility in the present environment. Meanwhile, its profits are already being translated into dividends for the national government, with or without the BSP’s explicit participation.

Optimizing existing government corporations’ ability to grow money, following a fiscal consolidation program, and borrowing can be alternatives for pooling funds, he said.

Bad provisions for regulatory oversight open up issues of trust and corruption.

Because the bill was formatted with bad provisions, specifically exempting the Maharlika corporation from being under the oversight of the body that deals with government-owned corporations, problems of trust and corruption have been created.

The government’s past mistakes when it comes to transparency also give rise to feelings of mistrust regarding the MIF.

“We just cannot avoid being suspicious. It is understandable for people to think that something is going to happen … that this is going to be a vehicle for another Pharmally, but a Pharmally that is much, much bigger,” said Mr. Sta. Ana.

Recorded remotely on Dec. 5, 2022. Produced by Joseph Emmanuel L. Garcia and Sam L. Marcelo.

Musk launches poll on whether he should quit as Twitter CEO

December 19, 2022 | 1:47 pm

Twitter Chief Executive Officer (CEO) Elon Musk launched a poll on the social media platform on Sunday asking whether he should step down as head of the company, adding that he would abide by the poll results.

The poll is scheduled to close around 1120GMT on Monday although the billionaire did not give details on when he would step down if the poll results said he should.

Should I step down as head of Twitter? I will abide by the results of this poll.

— Elon Musk (@elonmusk) December 18, 2022

Replying to one Twitter user’s comment on a possible change in CEO, Mr. Musk said “There is no successor.”

Mr. Musk told a Delaware court last month that he would reduce his time at Twitter and eventually find a new leader to run the company.

The poll comes after Twitter’s Sunday policy update, which prohibited accounts created solely for the purpose of promoting other social media firms and content that contains links or usernames for rival platforms.

Minutes before the poll, Mr. Musk apologized and tweeted “Going forward, there will be a vote for major policy changes.”

A few hours later, Twitter started a poll asking users if the platform should have a policy preventing accounts that advertise other social media platforms on Twitter.

The policy update would impact content from social media platforms like Meta Platforms’ Facebook and Instagram, along with Mastodon, Truth Social, Tribel, Nostr, and Post while allowing cross-content posting, Twitter support said in a tweet.

Former Twitter CEO Jack Dorsey, who recently invested in social media platform Nostr, replied to the Twitter support post with one word: “Why?”. In a reply to another user posting about
the Nostr promotion ban, Mr. Dorsey said, “doesn’t make sense.”

Short video-platform TikTok, owned by China’s ByteDance Ltd, was not included in the list.

Last week, Twitter disbanded its Trust and Safety Council, a volunteer group formed in 2016 to advise the social media platform on site decisions.

The policy change follows other chaotic actions at Twitter since Elon Musk, who is also the CEO of Tesla, bought the social network. He fired top management and laid off about half of its workforce, while seesawing on how much to charge for subscription service Twitter Blue.

Mr. Musk also suspended the accounts of several journalists over a controversy on publishing public data about the billionaire’s plane.

Mr. Musk reinstated the accounts after criticism from government officials, advocacy groups and several journalism organizations on Friday, with some saying the microblogging platform was jeopardizing press freedom. — Reuters

‘I don’t trust it:’ Vaccine hesitancy lingers even as China COVID cases surge

December 19, 2022 | 1:35 pm

SHENZHEN, China — Headhunter Candice knows the coronavirus disease 2019 (COVID-19) infections engulfing Beijing and much of China will soon hit her home of Shenzhen city, but she would rather face it without a vaccine booster, saying she fears potential side effects more than the virus.

The 28-year-old took two doses of Sinovac’s CoronaVac last year, hoping it would make travel easier, but she has since grown more skeptical, citing stories from friends about health impacts, as well as similar health warnings on social media.

“I don’t trust it,” she said, speaking on the condition that only her first name be used. Candice said she has refused to participate in recent vaccination drives organized by her local community.

Candice is part of a group that demonstrates how vaccine hesitancy still runs deep in mainland China, academics say, which poses a growing headache for Beijing as it tries to persuade more to get vaccinated in the face of a spike in infections after the lifting of strict anti-COVID measures.

Officially, China’s vaccination rate is above 90%, but the rate for boostered adults drops to 57.9%, and to 42.3% for people aged 80 and above, according to government data, prompting warnings that the country could see over 1.5 million deaths after lifting curbs such as lockdowns and mass testing that held most virus spread at bay.

In September, an article by a publication under the Chinese Center for Disease Control and Prevention (CDC) acknowledged coverage of older adults was poor, and that the absence of local doctors in vaccine drives, poor medical understanding and a lack of insurance for potential side effects all dampened enthusiasm.

“It’s a very special case in China because people felt very safe for a long time,” said Stephanie Jean-Tsang, an assistant professor at Hong Kong Baptist University who specializes in messaging around health.

“People need to realize what the risks are and how beneficial the vaccines are — it took time for Hong Kong citizens and the elderly to realize this as well.”

Authorities have not made vaccination mandatory amid signs that the public would push back against any such move. Last week China said it would start to offer a second booster — or fourth shot — for high-risk groups and people over 60 years old.

Overseas-developed vaccines are unavailable in mainland China to the general public, which has relied on inactivated shots by Sinopharm, Sinovac’s Coronavac and other domestically developed options for its vaccine rollout and which the medical community has found to be safe. It has also yet to introduce its own version of an mRNA vaccine.

While China’s medical community in general doesn’t doubt the safety of China’s vaccines, questions remain over their efficacy compared to foreign-made mRNA counterparts, said Kelly Lei, a doctor in the southern Chinese city of Shenzhen.

In late November, the hashtag “Sinovac vaccine counterfeit” surged to five million views on the Twitter-like Weibo platform, with many posts discussing lumps and hair loss allegedly caused by the locally made vaccine.

“At least a half of doctors and educated people wanted to get the mRNA ones and refused to get the Chinese ones,” Dr. Lei said.

“After a while, people see no hope and also they are kind of forced to get the Chinese ones, so they had to accept it. Some doctors talked to me, and said it’s useless anyway, why waste the money.”

Dr. Lei said many of her friends are looking to visit the neighboring Chinese territory of Macau, where mainlanders can receive mRNA vaccines.

Demand has surged in recent weeks, visitors to Macau say, with the online booking platform for vaccination showing no bookings available until Jan. 21.

But after jettisoning some of the world’s toughest anti-COVID curbs last week, China is now experiencing a wave of infections across the country, prompting some unable to travel to Macau or abroad to opt for the Chinese vaccines in desperation.

“In Guangzhou … things have started to get wild. They at least want something for some protection,” Dr. Lei said. — Reuters

North Korea confirms ‘important’ spy satellite test for April launch

December 19, 2022 | 1:20 pm

SEOUL — North Korea’s state media KCNA said on Monday the country conducted an “important, final phase” test on Sunday for the development of a spy satellite, which it seeks to complete by April 2023.

The report was released a day after the South Korean and Japanese militaries reported the isolated North’s launch of two intermediate-range ballistic missiles towards its east coast.

Pyongyang’s National Aerospace Development Administration (NADA) conducted the test at its Sohae satellite launching station in the northwest to review its capability of satellite imaging, data transmission and ground control systems, according to KCNA.

A vehicle carrying a mock satellite, which also included multiple cameras, image transmitters and receivers, a control device and a storage battery, was fired at the “lofted angle” of 500 km (311 miles).

“We confirmed important technical indicators such as camera operating technology in the space environment, data processing and transmission ability of the communication devices, tracking and control accuracy of the ground control system,” a NADA spokesperson said in the KCNA dispatch.

The spokesperson called the test a “final gateway process of launching a reconnaissance satellite” which will be completed by April.

KCNA also released two black-and-white, low-resolution images of the South Korean capital Seoul and nearby port city of Incheon, which it said were taken during Sunday’s launch.

North Korea has conducted an unprecedented number of missile tests this year, including an intercontinental ballistic missile (ICBM) designed to reach the US mainland, in defiance of international sanctions.

On Friday, the North tested a high-thrust solid-fuel engine which experts said would facilitate quicker and more mobile launch of ballistic missiles, as it seeks to develop a new strategic weapon and speed up its nuclear and missile programs.

Pyongyang has tested satellite systems during several rocket launches, and leader Kim Jong Un has said its pursuit of a spy satellite is meant to provide real-time information on military actions by the United States and its allies.

South Korea’s presidential office strongly condemned the North’s latest launch, saying its continued provocations and nuclear and missile development would only endanger its own regime. — Reuters

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