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Philippine Long Term Investment Fund: insulated from politics

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(Part 3)

When the Senators start to deliberate on the Maharlika Investment Fund, they should make it a point to avoid wasting their time raising objections to features of the old version that have already been eliminated precisely in response to the very valid criticisms by some top leading economists, lawyers, bankers, and other experts on the issue of savings and investments. These criticisms were solidly based on evidence-based comments contained in a “Statement on the Maharlika Wealth Fund” dated Dec. 7, 2022, signed by leading former government officials, economics professors, and professional economists.

As originally drafted, the Maharlika Wealth Fund bill assumed that there was excess long-term investment funds in the Philippines as can be found in countries with consistent large budget surpluses, windfall revenues from booming extractive industries, and excess foreign currency reserves from enduring balance of payments surpluses. None of these conditions exist in the Philippines. The Philippine economy today is suffering from a heightened fiscal deficit, ballooning balance of payments deficits, and mediocre levels of foreign currency reserves. Worst still, the Philippines has the lowest Gross Domestic Savings to GDP at 9% compared to the average of East Asian countries of between 25% to 35%. The Philippines has no alternative but to attract foreign savings in the form of Foreign Direct Investments. Our borrowing capacity has been severely limited by the increase in our debt-to-GDP ratio to dangerous levels exceeding 60%.

Proponents of the Maharlika Investment Fund (MIF) must convince the Senators that it will be an efficient vehicle to “create jobs, promote trade and investments, strengthen connectivity, expand infrastructure, achieve energy and food security.” One way of doing so is to relate it to the amended Public Service Act (PSA) that allows as much as 100% foreign ownership of such capital-intensive infrastructure as international airports, railways, subways, telecom facilities, data centers, and green energy facilities. The proposed MIF can own minority shares in these infrastructure investments in order to assure the foreign investors that they will be helped by a National Government agency to overcome the usual red tape and bureaucracy that foreign investors usually encounter when they come to the Philippines.

Contrary to what the Statement on the Maharlika Fund issued by some leading economists and former government officials declared, to continue the Build, Build, Build program started during the Duterte Administration, the government’s goal of promoting infrastructure can no longer be efficiently facilitated through annual appropriations, concessional lending, or public-private partnership (PPP). Infrastructure spending will have to compete with the huge amounts required for improving the quality of basic education (increase the education budget to 6% of GDP) as well as that needed for healthcare, not to mention what will be needed to boost agricultural productivity. In fact, these necessary increases in the budgets of the education and health sectors show why it is unwise for the MIF to use the dividends of the Central Bank as a source of capitalization. Those dividends, if channeled to support the government’s annual budget, can help improve the salaries and benefits of teachers, nurses and health workers.

As regards PPP with domestic investors, we are witnessing a drying up of long-term capital among leading PPP proponents like San Miguel Corp., First Metro, DMCI, and Megawide.

There is no alternative to FDIs, which fortunately, even in 2021 when the pandemic was still raging, reached a level to $12 billion. It is encouraging to note that, as the Financial Times recently reported, a rebound in the global capital markets has led to a flow of $1 billion a day into stocks and bonds of emerging markets. With a very attractive domestic market of 112 million consumers, the Philippines is definitely going to be one of these emerging markets if we get our act together.

Fortunately, in the revised bill passed by the Lower House, the Government Service Insurance System and Social Security System, better known as GSIS and SSS, are no longer going to be required to invest in the MIF. Investments from the Development Bank of the Philippines (DBP) and the LANDBANK can be justified if, in addition to physical infrastructure, the MIF will be a vehicle for partnering with foreign direct investors in large-scale agribusiness investments and in renewable energy projects — which belong anyway to the mandate of both the DBP and the LANDBANK.

In this regard, the Senators should seriously consider the recommendation of former Finance Undersecretary Romeo Bernardo (BusinessWorld, Jan. 30, 2023) to tweak the MIF so that it could attract generous grant and soft loans from donor countries, multilaterals, and private sector investors that will fund green energy projects. In his proposed scheme, funding will primarily come from donor countries, multilaterals, and private institutions that have already pledged or set aside “COP” (the Conference of the Parties summit on the United Nations Framework Convention on Climate Change) funding and would like to support the climate adaptation components of the Philippine economic program.

Also to address climate change, the MIF can be a vehicle to attract FDIs to replicate the success story of Malaysia in utilizing the “nucleus estate” model to invest heavily in large-scale corporate farming in palm oil and rubber. In this case, the nucleus estate approach will be applied to the more than 3.5 million hectares of coconut farms which can be consolidated into 20,000-hectare units as proposed by foreign-owned and operated Lionheart Farms in Palawan, which has successfully adapted the nucleus estate model to 3,500 hectares of coconut farms. Not only will the replication of this model in at least five more coconut regions around the Philippine archipelago result in a significant improvement of the living standards of small coconut farmers (among the poorest of the poor), it will result in the Philippines earning huge amounts of carbon credits since large-scale coconut farming can be readily combined with agro-forestry — as Lionheart Farms has already demonstrated in the municipality of Rizal, Palawan.

Under this “Maharlika Green Investment Fund” concept proposed by Dr. Romeo Bernardo can be subsumed the plans of a good number of foreign investors who are ready to invest in renewable energy projects in the Philippines.

The Ambassador from Denmark already announced in an investment forum in Palawan that a Danish company intends to invest $2 billion in a solar energy project in the Philippines. One of the largest infrastructure companies in Spain, Acciona, is considering investing heavily in solar energy in the country. If and when the decision is made to rehabilitate the Bataan Nuclear Power Plant (BNPP), the MIF can partner with the Korean company that has expressed its interest in investing and operating the BNPP. In fact, the National Economic and Development Authority (NEDA) should go through the 3,600 infrastructure projects worth $372 billion in its list, to find out which of them can attract FDIs that can have the MIF as its local minority shareholder.

Especially for the big-ticket items in this NEDA list, Secretary of Finance Benjamin Diokno has singled out the unique advantage of the Maharlika Investment Fund in reducing the risk of administrative and legal challenges compared with financing through the national budget or through proposals for ODA funding which are usually slowed down by lengthy negotiations, court challenges, and more careful appraisal. The amended Public Service Act in tandem with the MIF as a vehicle for financing will do wonders for the Build, Build, Build program under the Administration of President Marcos Jr.

If we have the best and brightest people in finance and investment banking designated to run the MIF, helped by the four independent directors envisioned in the law, there is no reason why the MIF cannot be insulated from politics, as suggested by a study of the US-based Milken Institute. There will be no politician involved in its operations (since the President is no longer the Chairman). This completely professional team will ensure that the recommendation of the Milken Institute will be followed: that the MIF will be equipped with a long-term investment strategy, along with performance benchmarks that are aligned with short- and long-term goals, minimal currency risk, as well as a range of indicators to measure financial performance, ESG risk, and developmental goals. With this guarantee of professional and competent management, the MIF will be one of the most powerful instruments for the Philippines to attain the goal of increasing its investment to GDP ratio to over 30% (from the present low of 23%). This is the only way we can accelerate our annual GDP growth rate from the 6-7% to the range of 8-10%, which is what we need to reduce poverty to single-digit of 9% or less by the end of the Marcos Jr. administration.

In FDI terms, this would mean reaching the level of annual FDI flows that Vietnam already reached in the last five years: $15 billion to $20 billion. Thanks to the amendment of the Public Service Act, we are now in a position to compete with Vietnam in attracting FDIs, not in manufactured export products, but in infrastructures, green energy projects, and large-scale agribusiness ventures.

 

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

bernardo.villegas@uap.asia

Strengthening our defense posture with allies

PHILIPPINE STAR/KRIZ JOHN ROSALES

United States Defense Secretary Lloyd Austin III, during his visit to Manila last week, reaffirmed his country’s commitment to help the Philippines strengthen its defense posture. The US would support the Philippines in case of attacks, he said. Citing the deep, strong, and lasting ties between the two countries, Mr. Austin and his Philippine counterpart, Defense Secretary Carlito Galvez, Jr., discussed concrete actions to address destabilizing activities in our archipelagic territory.

Secretary Austin went as far as describing the Philippines as more than an ally. “We’re family,” he said.

These words provide a measure of comfort as we look for the best way to respond to China’s continued aggression — and deceptive narratives — in the West Philippine Sea (WPS). Last month, just a few days after Chinese leader Xi Jinping assured President Ferdinand Marcos, Jr. that Filipino fishermen would not be prevented from fishing in the WPS and that a dedicated communication line on the issue would be established between the two capitals, reports broke out that a ship belonging to the Chinese Coast Guard had driven Filipino fishermen away from Ayungin Shoal.

The diplomatic protests and notes verbale have been many. Too many, in fact. Clearly, protesting China’s incursions using words is not enough. Clearly, too, we need to understand and anticipate the designs of our giant neighbor before we can find the most effective way to deal with it.

The Stratbase ADRi-organized roundtable forum among geopolitical experts held on Jan. 31 suggested ways for the Philippines to move forward. The situation is becoming increasingly tense and volatile, not only in the waters surrounding our archipelago, but in the entire Indo-Pacific region. This is a region which China, judging by its actions over the years, is bent on projecting its influence. The question is: how prepared are we to protect our interests?

One of the panelists in the forum, Lowy Institute Senior Analyst for East Asia Richard McGregor, believes that a crucial, fundamental step is understanding the complex dynamic of China and its leadership. He discussed how the current leader, Xi, who recently won a fresh five-year term, has successfully entrenched himself in power. He described how the top leadership of the Communist Party are all loyal to Xi and is above the law, how term limits have been eliminated with blurred the lines of succession, and how China is asserting economic power and technology on the international stage.

Given its disputes with numerous countries, however, China “simply does not have the trust of its neighboring countries to allow it to exercise the kind of role that Americans have. China will never be able to enjoy the influence of the United States on the rest of the world,” he said.

Still, China will keep on flexing its military might, as well as building on its economic influence. And this is why the next few years will bear watching.

“It will be highly unstable in the next decade or two,” Mr. McGregor said. Aside from China’s expansionist stance involving countries like South Korea, Japan, Vietnam, Brunei, Malaysia, Indonesia, and its violations of our sovereignty and territorial rights in the West Philippine Sea, it also has simmering tensions with Taiwan which lies just to the north of our country.

Another geopolitical expert and panelist at the forum, Rear Admiral Rommel Jude Ong (Ret.), Professor of Praxis at the Ateneo School of Government and Trustee of the Foundation for National Interest, said the Philippines is considered “strategic real estate,” hence its crucial role and location in the Indo-Pacific. He identified the main maritime security challenges faced by the Philippines and outlined the components of a sound archipelagic defense posture that will allow us to address these challenges — a whole-of-nation/whole-of-government maritime defense strategy, interagency maritime security strategy, alliance/partnership management strategy — specifically with the US, Japan, Australia, and the European Union, especially France — and a whole-of-government supply chain strategy with countries like India and South Korea.

Mr. Ong acknowledged China’s efforts to influence local governments and businesses through sister-city engagements and investment pledges and warned about the so-called “hotline” between Manila and Beijing. “Optics,” he said. He cited the need for counterintelligence and synergy for the many maritime agencies tasked to protect and defend Philippine waters.

For his part, Richard Heydarian, non-resident Fellow of the Stratbase ADR Institute and Senior Lecturer at the University of the Philippines-Asian Center said the Philippines cannot be neutral in this ongoing game of deterrence, being an ally of the United States. He said we should focus on intelligence and security, with the guidance and help of countries like the US, Australia, Japan, and France.

All these point to one thing: Given the current threat that China poses to the Philippines and, to a wider extent, to the Indo-Pacific region, it’s the help of countries that share our values that will help us maintain our defense posture.

President Marcos always says that only “national interests” will govern the foreign policy of his administration. In this case, the national interest dictates that we defend our sovereignty and protect what is rightfully ours, secure our marine resources, and refuse to allow others to bully our fishermen and mock international law.

In upholding this interest, we must engage other states that share our values and principles. Specifically, we must bolster our intelligence and security capability, empower our maritime agencies, and conduct joint patrols with our allies.

We live in a complex and volatile world, made more challenging by the hegemonic ambitions of China. It is up to the rest of the international community, especially among countries that share the same values and principles, to work together to preserve a rules-based order that respects everyone and does not condone territorial infringement.

 

Victor Andres “Dindo” C. Manhit is the president of the Stratbase ADR Institute.

We’re not even close to running out of green minerals

KUMPAN ELECTRIC-UNSPLASH

FOR THOSE BETTING against the world’s ability to kick its carbon addiction, the commodities boom of the past few years has provided fresh ammunition.

Tesla, Inc.’s Model 3 contained 4.5 kilograms of cobalt in its power pack in 2018, materials analyst Benchmark Minerals Intelligence estimated at the time. Scale that up to the 7.8 million electric vehicles sold last year — 10% of the global market — and then project forward into a future where that share rises toward 100%, and you can quickly see the world running into a supply problem.

Sure enough, prices for lithium-ion batteries rose last year for the first time since at least 2010 as materials pushed up the price, according to Bloomberg. You would hardly be surprised if things got worse as green investments in the US, European Union, and China ramp up over the coming years.

The metals demand from the energy transition “may top current global supply,” the International Monetary Fund warned in a 2021 analysis. Difficulty securing materials such as lithium, cobalt, tellurium, and copper could hamper the shift to cleaner energy, Imperial College London’s Energy Futures Lab wrote in December.

New data from the US Geological Survey (USGS) show why some of those fears are likely to be overblown. Each year, the USGS analyzes almost every commodity on earth, from iron ore to indium and palladium to peat, to get a handle on whether production is sufficient to meet the world’s — and in particular, America’s — needs.

The latest figures show a boom in supplies of many of the most important minerals for the energy transition. Lithium reserves are up 18% from last year. Cobalt has seen a 9.2% gain. Rare earths, which have a range of high-tech applications including magnets in electric car motors and wind turbines, saw reserves up 8.3% after standing still for at least five years.

Part of this is a mathematical result of the rising prices that pushed lithium carbonate to nearly $80 a kilogram ($36 a pound) last year, from a range of $10/kg to $20/kg previously. “Reserves” measure minerals =that can be profitably mined, so when price expectations increase, the reserve base will grow as well. Mostly, however, it comes from miners going out and doing what miners do when the market prices of their commodities go through the roof: Dusting off old geological results and drilling rock to find new deposits.

This process is aided by the sums of money that have flowed into battery materials in recent years as fears of supply tightness have grown. The small volumes involved in elements such as lithium, cobalt, and battery-grade nickel have meant that major mining companies tended to ignore them to focus on the vast cashflows that can be generated from iron ore, copper, aluminum, and (until recently) coal.

Automotive companies, which have most to lose from a supply shortfall, have stepped in, too. General Motors Co. last week invested $650 million in Lithium Americas Corp., which hopes to produce 80,000 metric tons of lithium carbonate from a mine in Nevada — equivalent to more than 10% of global production last year. Tesla, meanwhile, has reconfigured its batteries so that half of its cars contain no cobalt or nickel at all, helping to shave demand even as supply increases. Goldman Sachs Group, Inc. argued last year that the battery materials boom had already peaked, with huge supply investments likely to push prices into a slump until the second half of this decade.

The same goes for the effect of all these materials on another non-renewable resource — the atmosphere’s carrying capacity for carbon dioxide emissions. Building all the power sector infrastructure needed to give the world a two-thirds chance of keeping global warming to 1.5 degrees Celsius would use up between 1% and 9% of the world’s carbon budget, according to a study in the science journal Joule last month by researchers led by Seaver Wang of the Breakthrough Institute, a climate-related US think tank. In 84% of the scenarios the researchers examined, all the wind turbines, cement foundations, solar panels, and steel frames installed up to 2050 would use up about six months’ worth of current emissions, while decarbonizing a sector that accounts for as much as 40% of our annual carbon pollution.

In that, the market for transition materials is just repeating a pattern that’s held since the Biblical Pharaoh dreamed of seven years of plenty turning to seven years of famine. Fears of catastrophic shortfalls aren’t so much a prophecy of doom, as a corrective that ensures the right investments are made to guarantee supply always meets demand. Even a once-in-history switch to low-carbon power won’t be enough to break that eternal rule.

BLOOMBERG OPINION

Quake death toll rises past 4,400 in Turkey, Syria

A woman stands near a collapsed building after an earthquake in Kahramanmaras, Turkey Feb. 6, 2023. — REUTERS

ANTAKYA, Turkey — Overwhelmed rescuers struggled to save people trapped under the rubble as the death toll from a devastating earthquake in Turkey and Syria rose past 4,400 on Tuesday, with despair mounting and the scale of the disaster hampering relief efforts.

In the Turkish city of Antakya near the Syrian border, where 10-storey buildings crumbled onto the streets, Reuters journalists saw rescue work being conducted on one out of dozens of mounds of rubble.

The temperature was close to freezing as the rain came down and there was no electricity or fuel in the city.

The magnitude 7.8 quake hit Turkey and neighboring Syria early on Monday, toppling thousands of buildings including many apartment blocks, wrecking hospitals, and leaving thousands of people injured or homeless.

In Turkey, the death toll climbed to 2,921 people, Turkey’s Disaster and Emergency Management Authority (AFAD) said.

The death toll in Syria, already devastated by more than 11 years of war, stands at more than 1,500, according to the Syrian government and a rescue service in the insurgent-held northwest.

Freezing winter weather hampered search efforts through the night. A woman’s voice was heard calling for help under a pile of rubble in the southern Turkish province of Hatay. Nearby, the body of a small child lay lifeless.

Weeping in the rain, a resident who gave his name as Deniz wrung his hands in despair.

“They’re making noises but nobody is coming,” he said. “We’re devastated, we’re devastated. My God … They’re calling out. They’re saying, ‘Save us’ but we can’t save them. How are we going to save them? There has been nobody since the morning.”

Families slept in cars lined up in the streets.

Ayla, standing by a pile of rubble where an eight-storey building once stood, said she had driven to Hatay from Gaziantep on Monday in search of her mother. Five or six rescuers from the Istanbul fire department were working in the ruins — a sandwich of concrete and glass.

“There have been no survivors yet. A street dog came and barked at a certain point for long, I feared it was for my mother. But it was someone else,” she said.

“I turned on the lights of the car to help the rescue team. They took out only two bodies so far, no survivors.”

In Kahramanmaras, north of Antakya, families gathered around fires and wrapped themselves in blankets to stay warm.

“We barely made it out of the house,” said Neset Guler, huddling with his four children. “Our situation is a disaster. We are hungry, we are thirsty. It’s miserable.”

AFAD said nearly 8,000 people have been rescued from 4,758 buildings destroyed in the tremors a day earlier.

It said 13,740 search and rescue personnel were deployed and more than 41,000 tents, 100,000 beds and 300,000 blankets had been sent to the region. “The delivery of personnel and vehicles continued uninterrupted during the night,” it said.

AFTERSHOCKS
The earthquake, which was followed by aftershocks, was the biggest recorded worldwide by the US Geological Survey since one in the remote South Atlantic in August 2021.

Another earthquake of 5.6 magnitude struck central Turkey on Tuesday, the European Mediterranean Seismological Centre said.

Monday’s quake was the deadliest in Turkey since one of similar magnitude in 1999 that killed more than 17,000. Nearly 16,000 were reported injured in Monday’s quake.

Poor internet connections and damaged roads between some of the worst-hit Turkish cities, homes to millions of people, hindered efforts to assess the impact and plan help.

Turkish President Tayyip Erdogan, preparing for a tough election in May, called the quake a historic disaster and said authorities were doing all they could.

In the Turkish city of Iskenderun, rescuers climbed an enormous pile of debris that was once part of a state hospital’s intensive care unit in search of survivors. Health workers did what they could to tend to the new rush of injured.

“We have a patient who was taken into surgery but we don’t know what happened,” said Tulin, a woman in her 30s, standing outside the hospital, wiping away tears and praying.

In Syria, the effects of the quake were compounded by the destruction of more than 11 years of civil war.

In the rebel-held northwest, the death toll stands at more than 740 people, according to the Syrian civil defense, a rescue service known for digging people from the rubble of government air strikes.

The civil defense said hundreds of families were trapped under the rubble and time was running out to save them.

A top U.N. humanitarian official in Syria said fuel shortages and the harsh weather were creating obstacles to its response.

“The infrastructure is damaged, the roads that we used to use for humanitarian work are damaged, we have to be creative in how to get to the people … but we are working hard,” U.N. resident coordinator El-Mostafa Benlamlih told Reuters in an interview via video link from Damascus.

The Syrian health ministry said the death toll in government-held areas stood at 764 people. — Reuters

Indonesia GDP growth races to 9-year high

INDONESIAN national flags fly at a business district in Jakarta, Indonesia, Feb. 5, 2021. — REUTERS

JAKARTA — Indonesia’s economic growth climbed to its strongest in nine years last year fueled by revived spending from the lifting of pandemic restrictions and as a global commodity boom sent exports to a record high.

But momentum slowed in the final quarter as prices moderated, and weaker global demand, higher inflation and a rise in interest rates could pose a drag on activity this year.

Southeast Asia’s largest economy expanded 5.31% in 2022, Statistics Indonesia data showed on Monday, its best annual growth rate since 2013, and faster than the 5.29% expected in a Reuters poll.

In the fourth quarter, gross domestic product (GDP) expanded 5.01% on an annual basis, compared with 4.84% growth predicted by the poll and 5.72% in the previous three months. The annual rate was the slowest since the third quarter of 2021, the statistics agency said.

The resource-rich economy gained from high global commodities prices in the aftermath of the Russia-Ukraine war that aided the rupiah and improved the country’s current account, but global demand is faltering.

“We expect growth to slow further over the coming quarters. Exports will struggle due to weaker global growth and lower commodity prices,” Capital Economics analyst Shivaan Tandon said.

“Global commodity prices have dropped back since late last year, and we expect further falls over the coming months. Meanwhile, despite the rebound now underway in China, we expect global growth to struggle this year as the US falls into recession.”

Indonesia’s exports grew on the back of soaring commodity prices last year, with shipments reaching a record high of $292 billion. The country is a major supplier of thermal coal, palm oil and nickel steel.

STRONG CONSUMPTION
Household consumption, which accounts for more than half of Indonesia’s GDP, accelerated last year, especially supported by travel-related spending as COVID-19 restrictions eased.

Indonesia removed most movement curbs last year after daily cases dropped and vaccination rates rose, driving up household consumption. All remaining measures were lifted at the end of the year.

Investment grew 3.87% last year, similar to 2021’s growth but is yet to return to pre-pandemic levels, the statistics bureau said.

Meanwhile, government spending in 2022 contracted as Jakarta started to ease back from pandemic-era health and social spending.

This year’s growth would likely be supported by household consumption amid continued improvement in people’s mobility, Bank Mandiri economist Faisal Rachman said, predicting growth of 5.04% in 2023.

The recent tightening of monetary policy may drag on growth prospects, analysts said, although Indonesia’s central bank has signaled that its rate hike cycle was ending as inflation has cooled.

Bank Indonesia has raised its policy interest rate by 225 basis points since August. Myrdal Gunarto of Maybank Indonesia predicted that the policy rate will be kept at the current level of 5.75% until the end of 2023 to uphold growth.

Jakarta has set a target of 5.3% for economic growth in 2023. — Reuters

Big Tech not doing enough to remove fake news — NGO

FREEPIK

BRUSSELS — Twitter, Google’s YouTube, Meta Platform’s Facebook, Microsoft’s LinkedIn and TikTok are not doing enough to remove fake news from their platforms, raising doubts about their ability to comply with new European Union (EU) online content rules, activist NGO Avaaz said on Tuesday.

The companies are due to present reports this week on the measures they have taken to comply with the updated EU code of practice on disinformation which is linked to the online content rules known as the Digital Services Act (DSA) that came into force last November.

Avaaz said it analyzed a sample pool of 108 fact-checked pieces of content related to a 2022 American anti-vaccine film and found efforts by the social media platforms including Meta’s Instagram to remove disinformation fell short.

“Overall, just 22% of disinformation content we analyzed was either labeled or removed by the six major platforms,” Avaaz said.

It said the companies did not do enough to tackle disinformation in languages other than English.

“Despite explicit platform commitments in the code to improve their services in all EU languages, our research found that in certain EU languages — Italian, German, Hungarian, Danish, Spanish and Estonian — no platform took any action against violating posts,” Avaaz said.

“This study suggests that most of the major platforms are failing to comply with their Code of Practice commitments and might infringe upcoming DSA obligations,” the group said.

Meta, Alphabet, Twitter and Microsoft last year vowed to take a tougher line against disinformation after committing to the updated EU code.

Companies face fines up to 6% of their global turnover for DSA violations. — Reuters

Record-breaking 2022 for North Korea crypto theft — UN report

Bitcoin cryptocurrency representation is pictured on a keyboard in front of binary code in this illustration taken Sept. 24, 2021. — REUTERS

UNITED NATIONS — North Korea stole more cryptocurrency assets in 2022 than in any other year and targeted the networks of foreign aerospace and defense companies, according to a currently confidential United Nations (UN) report seen by Reuters on Monday.

“(North Korea) used increasingly sophisticated cyber techniques both to gain access to digital networks involved in cyber finance, and to steal information of potential value, including to its weapons programs,” independent sanctions monitors reported to a U.N. Security Council committee.

The monitors have previously accused North Korea of using cyber attacks to help fund its nuclear and missile programs.

“A higher value of cryptocurrency assets was stolen by DPRK actors in 2022 than in any previous year,” the monitors wrote in their report — submitted to the 15-member council’s North Korea sanctions committee on Friday — citing information from U.N. member states and cybersecurity firms.

North Korea has previously denied allegations of hacking or other cyberattacks.

The sanctions monitors said South Korea estimated that North Korean-linked hackers stole virtual assets worth $630 million in 2022, while a cybersecurity firm assessed that North Korean cybercrime yielded cybercurrencies worth more than $1 billion.

“The variation in USD value of cryptocurrency in recent months is likely to have affected these estimates, but both show that 2022 was a record-breaking year for DPRK (North Korea) virtual asset theft,” the U.N. report said.

A US-based blockchain analytics firm last week reached the same conclusion.

The U.N. report noted: “The techniques used by cyberthreat actors have become more sophisticated, thus making tracking stolen funds more difficult.”

The report is due to be released publicly later this month or early next month, diplomats said.

EXTORTION
The monitors said most cyber-attacks were carried out by groups controlled by North Korea’s primary intelligence bureau — the Reconnaissance General Bureau. It said those groups included hacking teams tracked by the cybersecurity industry under the names Kimsuky, Lazarus Group and Andariel.

“These actors continued illicitly to target victims to generate revenue and solicit information of value to the DPRK including its weapons programs,” the U.N. report said.

The sanctions monitors said the groups deployed malware through various methods including phishing. One such campaign targeted employees in organizations across various countries.

“Initial contacts with individuals were made via LinkedIn, and once a level of trust with the targets was established, malicious payloads were delivered through continued communications over WhatsApp,” the U.N. report said.

It also said that, according to a cybersecurity firm, a North Korean-linked group known as HOlyGhOst had “extorted ransoms from small- and medium-sized companies in several countries by distributing ransomware in a widespread, financially motivated campaign.”

In 2019, the U.N. sanctions monitors reported that North Korea had generated an estimated $2 billion over several years for its weapons of mass destruction programs using widespread and increasingly sophisticated cyberattacks.

SANCTIONS BUSTING
In their latest annual report, the monitors also said Pyongyang continued producing nuclear missile materials at its facilities and launched at least 73 ballistic missiles, including eight intercontinental ballistic missiles last year.

The United States has long been warning that North Korea is ready to carry out a seventh nuclear test.

North Korea has long been banned from conducting nuclear tests and ballistic missile launches by the Security Council. Since 2006, it has been subject to U.N. sanctions, which the Security Council has strengthened over the years to target Pyongyang’s nuclear and ballistic missile programs.

But North Korea has continued illicit imports of refined petroleum and exports of coal, evading sanctions, the monitors said. They also said they have started an investigation into reports of ammunition exports by North Korea.

The United States has accused the Russian mercenary company Wagner Group of receiving arms from North Korea to help bolster Russian forces in Ukraine. North Korea has rejected the accusation as groundless and Wagner’s owner, Yevgeny Prigozhin, denied getting arms from North Korea.

Last May, China and Russia vetoed a US-led push to impose more U.N. sanctions on North Korea. This included a proposed asset freeze on the Lazarus hacking group.

The Lazarus group has been accused of involvement in the “WannaCry” ransomware attacks, hacking of international banks and customer accounts, and the 2014 cyber-attacks on Sony Pictures Entertainment.

The United States linked North Korean hackers to the theft of hundreds of millions of dollars’ worth of cryptocurrency tied to the popular online game Axie Infinity, the United States said in April. Ronin, a blockchain network that lets users transfer crypto in and out of the game, said digital cash worth almost $615 million was stolen on March 2022. — Reuters

Bed Bath & Beyond moves to raise $1-billion to avoid bankruptcy

Bed Bath & Beyond Inc. said on Monday it was planning to raise some $1 billion through an offering of preferred stock and warrants in a last-ditch effort to stave off bankruptcy.

The home goods retailer said in securities filings that if it can’t complete the complex transaction, it would “likely file for bankruptcy protection.” The chain has said in recent weeks that it had defaulted on a loan and may not be able to remain in business, raising concerns about its future.

Bed Bath & Beyond held talks in recent days with an investment firm to underwrite a significant portion of the proposed offering, two people familiar with the matter said.

Shares of the retailer, which closed up 92.1% at $5.86 in a roller-coaster session, were down 33.5% in extended trading after news of the proposed offering.

Bed Bath & Beyond has been part of the meme stock phenomenon, with shares skyrocketing as much as 400% last year when activist investor and Gamestop Corp chairman Ryan Cohen took a stake and sought changes.

Bed Bath said it was planning to raise just over $1 billion through sales of preferred stock and warrants and from securities when the warrants are exercised.

Bed Bath will receive a waiver on its recent bank default should the proposed offering succeed, the company said.

The embattled retailer said it would use the proceeds of the offering to repay outstanding revolving loans which it would then use to make an interest payment on bonds it missed on February 1. It also plans to draw an additional $100 million from a first-in-last-out loan from investment firm Sixth Street, that takes priority for repayment in a possible bankruptcy.

Los Angeles-based investment bank B. Riley Securities is the sole book runner on the deal, earning up to a maximum fee of $10 million.

Bed Bath & Beyond also appointed Holly Etlin, a bankruptcy expert, as interim chief financial officer.

The Union, New Jersey-based home goods retailer, which shot to popularity in the 1990s as a go-to shopping destination for couples making wedding registries and planning for new babies, has seen demand drop off in recent years as its merchandising strategy to sell more store-branded products flopped.

In January, the company raised doubts about its ability to continue as a going concern just months after it announced more than $500 million in new financing, as well as job cuts and 150 store closures.

On Monday, Bed Bath said it planned to close an additional 150 stores, on top of 250 previously announced store closures.

Bed Bath & Beyond said in January it had defaulted on a loan from JPMorgan Chase Bank N.A. Bloomberg News reported that the company’s efforts to find a buyer had also stalled.

After it had filed for bankruptcy protection, rental car provider Hertz Global Holdings HTZ.O attempted to sell new shares but pulled the offering after the U.S. Securities and Exchange Commission (SEC) raised concerns without elaborating on specifics.

“It’s a similar situation in which a deeply financially distressed company is attempting to sell securities,” said Lynn LoPucki, a professor at the University of Florida. “The same considerations are operating in both situations. The fact that one is in bankruptcy and the other is not, would not make any difference in terms of SEC regulation.”

Sources have told Reuters that Bed Bath & Beyond has lined up liquidators to close additional stores unless a last-minute buyer emerges. – Reuters

Philippine stock rally losing steam on inflation worries

REUTERS

After a robust start to the year, the Philippine stock market is losing steam, as investors worry rising inflationary pressures and higher interest rates will crimp profit growth and cap stock prices.

The Philippine stock index has been one of the beneficiaries of China dismantling its zero-COVID curbs in late 2022, with the index up 20% in the past four months on optimism around the reopening of the world’s second-biggest economy.

Also helping lift sentiment has been investors betting that the U.S. Federal Reserve is reaching the end of its monetary tightening policy. The index, which fell about 8% overall in 2022, just had its best January performance in four years.

But worries over sticky inflation, which is at a 14-year high, have driven the stock market down in the past couple of weeks.

Prashant Bhayani, chief investment officer at BNP Paribas Wealth Management, said profit-taking had followed the rally in Philippine stocks.

Share prices were not pricing in the risk of the United States and Europe suffering a deeper recession than expected, he said, noting his firm was neutral on Philippine equities.

The consumer price index (CPI) in January was 8.7% higher than a year earlier, topping the 8.1% annual inflation rate seen in December, which central bank had expected to be the peak. The data increases the chance that the Philippine central bank will lift interest rates again when it meets on Feb. 16, having raised rates by 350 basis points last year.

Estella Villamiel, head of the Institutional Research Department at First Metro Securities in Manila, said that in her base the Philippine stock index would trade at 6,700 by the end of 2023, about 3% below the current level.

“We prefer to lighten positions on Philippine equities toward the second half, as the market discounts the lagged impact of policy tightening on the economy and earnings.”

DBS Bank expects the aggressive monetary tightening cycle and resulting pick-up in borrowing costs to hurt corporate net profit margins and delay the private sector’s capital expenditure plans.

Philippine companies’ net profits are expected to grow just 10% this year, much less than their estimated growth of 21% in 2022, according to Refinitiv data. Across Asia, company profits are expected to grow 13.1% in 2023.

Furthermore, China’s reopening has had a negative as well as positive impact on the Philippine market. It has drawn money into Chinese equities and away from Southeast Asia, say HSBC equity strategy analysts.

In January, foreigners bought $9.5 billion worth of Chinese equities via Stock Connect, a key cross-border link between the mainland and Hong Kong exchanges. They bought only a net $122 million of shares in the Philippines and $178 million in Vietnam while selling $203 million worth in Indonesia. — Reuters

NYSE plans to compensate brokerage claims after glitch

The New York Stock Exchange (NYSE) on Monday said it plans to reimburse investors who incurred losses due to a trading glitch last month that caused widespread confusion and resulted in thousands of trades being nullified.

NYSE members had submitted compensation claims for losses, and the exchange could potentially face additional claims from regulators, New York Stock Exchange-owner Intercontinental Exchange Inc said earlier this month.

“In accordance with our rules, we expect to reimburse members 100% for all impacted orders that were received by the exchange,” an NYSE spokesperson said in an emailed statement.

“This is part of the protections that come with trading on a transparent, public exchange.”

Bloomberg News, which first reported the exchange’s move, said the NYSE has notified clients in recent days that it will cover all losses for orders posted or routed to NYSE, while loss-making trades triggered on other venues will not be covered.

The bourse will only reimburse roughly 60% of the claims filed, one of three sources told Bloomberg News.

Retail brokerages submitted thousands of claims to NYSE, seeking compensation for the losses incurred due to a trading glitch on Jan. 24, including brokerages like Charles Schwab and Virtu Financial, Bloomberg reported last week. – Reuters

Boeing says it will cut about 2,000 white-collar jobs in finance and HR

REUTERS

WASHINGTON – Boeing Co. expects to cut about 2,000 white–collar jobs this year in finance and human resources through a combination of attrition and layoffs, the US airplane maker confirmed Monday.

Last month, the Arlington, Virginia-based company announced it would hire 10,000 workers in 2023 after hiring 15,000 people in 2022, but said some support positions would be cut.

The company confirmed a Seattle Times report Monday it expects “about 2,000 reductions this year primarily in finance and HR through a combination of attrition and layoffs.”

Boeing also confirmed it is outsourcing about one third of those jobs to Tata Consulting Services in India.

Boeing shares closed up 0.4% to $206.81 and were up 0.5% in after hours trading.

Boeing said Monday it will “continue to simplify our corporate structure.” Last month, Boeing said it will “lower staffing within some support functions” – a move meant to enable it to better align resources to support current products and technology development.

Last year, Boeing said it planned to cut about 150 finance jobs in the United States to simplify its corporate structure and focus more resources into manufacturing and product development. – Reuters

Many airlines will not meet US 5G upgrade deadline -IATA

L FILIPE C SOUSA-UNSPLASH

WASHINGTON – Many airlines will be unable to meet looming US deadlines to retrofit airplane altimeters to ensure they are not susceptible to 5G wireless interference, the world’s biggest airline trade body warned authorities, saying it could impact the summer international travel season.

In a letter to the Federal Aviation Administration and Transportation Secretary Pete Buttigieg, seen by Reuters, International Air Transport Association (IATA) Director General Willie Walsh said “many operators will not make the proposed July 2023 (and in some cases the March 2023) retrofit deadline owing to supply chain issues, certification delays and unavoidable logistical challenges.”

The letter from the IATA, which represents more than 100 carriers that fly to the United States, was dated Feb. 2 and also sent to the chief executives of Boeing BA.N, Airbus AIR.PA and other aerospace manufacturers.

“It is critical that we acknowledge and accept that fact and move collectively to change our approach to this issue now, before many carriers are unable to continue to serve the US market during the peak summer travel season,” the letter added.

The FAA last month said it was proposing a requirement that passenger and cargo aircraft in the United States have 5G C-Band-tolerant radio altimeters or approved filters by early 2024.

Concerns that 5G service could interfere with airplane altimeters, which give data on a plane’s height above the ground and are crucial for bad-weather landing, led to disruptions at some US airports last year involving international carriers.

The Transportation Department did not comment, while the FAA said in response to request for comment on the letter “the FAA has made its position clear.”

Verizon and AT&T in June voluntarily agreed to delay some C-Band 5G usage until July 1, 2023 as air carriers work to retrofit airplanes to ensure that they will not face interference.

The proposed airworthiness directive is similar to one that took effect in December 2021, prohibiting passenger and cargo flight operations in the vicinity of 5G C-Band wireless transmitters unless the FAA specifically approved them.

The December 2021 FAA directive relied on the voluntary agreement.

The FAA, Verizon and AT&T are now negotiating to reach a new agreement that seeks to extend some voluntary mitigations beyond July 1, sources told Reuters.

The FAA is also proposing a requirement that airlines revise airplane flight manuals to prohibit low-visibility landings after June 30 unless retrofits have been completed on that airplane.

Some airlines have questioned the FAA’s cost estimates. The FAA estimated last month the retrofits will cost the industry $26 million and of 7,993 airplanes covered by the directive and the FAA estimates that almost 7,000 airplanes “are already equipped or are being retrofitted.

The FAA plans to hold a briefing on Capitol Hill Tuesday on the 5G discussions for the House Transportation committee said Representative Rick Larsen, the top Democrat on the committee.

Airlines for America, a trade group representing American Airlines, Delta Air Lines, United Airlines and others, said last month “carriers are working diligently to ensure fleets are equipped with compliant radio altimeters, but global supply chains continue to lag behind current demand. Any government deadline must consider this reality.” – Reuters

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