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Chief justice rallies judges to tap technology to improve Philippine legal system

PHILSTAR FILE PHOTO

THE COUNTRY’S chief justice has urged judges to adopt technological innovations to improve the Philippine legal system, citing in particular the important role of first-level courts as “frontliners” of the judiciary.

“Technology is very important, with your support, we will be able to achieve these innovations that we want to introduce,” Chief Justice Alexander G. Gesmundo said in a statement on Feb. 18 after leading the oath-taking of the newly appointed officers and directors of the Philippine Judges Association (PJA). 

Mr. Gesmundo noted that he has been pushing for technology-driven court processes such as online filings and hearings since his appointment last year. 

“We might say that the ambition of the Court is hard to reach but if we decide and we have the will, we can do it,” he said.

The Supreme Court chief stressed that municipal and metropolitan trial courts are the first stop of litigation and their performance reflects the entire judicial system. 

“As frontliners, ideally and under normal circumstances, you are the first contact persons of the litigants, especially the first level courts,” Mr. Gesmundo said. “For that reason, we must assure that people transacting with the court involving cases must be satisfied with the way you are doing things at the trial court, because if they are frustrated it reflects on the entire Judiciary.” — John Victor D. Ordoñez

Party-list group asks gov’t to include inter-island banca operators in fuel subsidy program

BW FILE PHOTO

SEA TRANSPORT operators, especially for small inter-island boats and fishing vessels, should also be included in the government’s fuel subsidy program, Marino party-list said in a statement released over the weekend. 

“The pandemic has brought distress to all sectors of the country, but we see less emphasis to meeting the needs of our Filipino domestic shipping operators, including banca operators and fishermen, in these difficult times,” said Marino, which represents Filipino seafarers.

“As such, we call on the national government, as well as our colleagues in the House of Representatives and the Senate, to include our domestic shipping operators and fisherfolk in the Fuel Subsidy Program of the government that is scheduled for release this year.”

Marino said that the government should have a more holistic approach in helping the transportation industry, and not just focus on helping land-based sectors such as jeepneys and tricycles. 

“The high cost of gasoline isn’t only felt on the streets but also in the seas and the oceans… If not for our fishermen and small boat operators, many Filipinos would not have any food to serve their families,” the party-list said in Filipino. — Jaspearl Emerald G. Tan

IBP denounces attack on lawyer in Surigao del Sur

THE PHILIPPINE’S official organization of lawyers condemned the recent gun attack on the residence of a lawyer in Surigao Del Sur, the latest incidence of violence directed at a member of the legal sector. 

“The threat to a lawyer’s personal safety and life may unduly compromise his zeal in representing his client to the fullest extent under the law,” said the Integrated Bar of the Philippines (IBP) in a statement issued by its Board of Governors on Feb. 19.

Unidentified assailants opened fire at the vehicle of IBP Surigao del Sur Chapter President Florante T. Sanico, which was parked inside his home. While no injuries were reported, IBP maintained that the attack was a clear message of coercion to an officer of the court.

“Apart from instilling fear and restlessness in the hearts and minds of the family of Atty. Sanico, such scheme clearly undermines the administration of justice, which is one of the hallmarks of our free and civilized society,” IBP said.

The group called on authorities, particularly the Philippine National Police and the National Bureau of Investigation, to thoroughly investigate the incident and provide the necessary protection to Mr. Sanico and his family. 

“The IBP stands beside Atty. Sanico on his quest to bring the perpetrators to justice and in his fidelity to the oath he gave as a member of the bar,” IBP said. — John Victor D. Ordoñez

To the next administration: Primum non nocere (‘first, do no harm’)

WIKIPEDIA
WIKIPEDIA

In a two-part column last year, “The First 365 days” (https://www.bworldonline.com/the-first-365-days-2/), I wrote a wish list for the first year of the next administration, a collective work of a handful of economist and subject matter expert friends from the Foundation for Economic Freedom, the Management Association of the Philippines (MAP), the Makati Business Club, the Philippine Disaster Resiliency Foundation.

Last week, I had the privilege of moderating a MAP forum on the Philippine economic outlook, featuring three most knowledgeable and articulate economists — current Socioeconomic Planning Secretary Karl Chua, professor and former Socioeconomic Planning Secretary Ciel Habito, and World Bank Senior Economist Rong Qian.

There was good alignment in their basic analyses and thrusts, and richness in their recommendations. As I concluded in the forum, “I so hope national candidates and/or their teams were tuned in.” Here is the video recording for the benefit of readers, maybe including some candidates: https://youtu.be/XB0LoxxOu4E.

What struck me most is how much we are in agreement on “what not to do,” and that surfaced sharply especially during the open forum. I summarize: “Don’t reverse reforms that have been done over successive regimes that strengthened Philippine macro stability and resilience, and improved productivity and global competitiveness, and helped contain inflation by opening up the economy.”

This is important to keep in mind as politicians are under pressure to promise the moon during the campaign period, and worry about delivery later on. Many may know the adage that “one should never hold to their word three kinds of people: those who are drunk, those who are proposing marriage, and those running for public office.” However, with the prevalence of recording and social media, candidates may have boxed themselves into having to do shortsighted populist measures, despite being inimical to long-term broad public interests.

What are these past reforms that need preserving?

1) Tax Reform for Acceleration and Inclusion (TRAIN) Law, Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, and other tax reform measures over several administrations that have made the tax system more buoyant, equitable, and investment-friendly. These have provided us the fiscal space to manage the pandemic, as the pre-COVID public debt-to-GDP ratio was brought down over time to a record low of 40% in 2019. Today it is now up to 60%, on account of much needed COVID-related spending, the lower tax revenues that raised the public debt numerator, and the contraction in GDP that accompanied restricted mobility over two years that depressed the GDP denominator.

Candidates have been promising suspending one tax or another, generous fiscal incentives for one deserving sector or another. And yes, side by side with massive spending programs — from free houses for all to legislated minimum wages that are multiple the current levels. Clearly a recipe for fiscal disaster and a debt crisis.

What is needed instead is what Dr. Qian said during the forum:

“To regain policy space, the government will need to start a gradual, fiscal consolidation process, the pace of fiscal consolidation needs to be studied. Too fast consolidation might slow down growth, which will be counterproductive to reduce debt-to-GDP ratio. Too slow, it will dampen confidence in government’s commitment to consolidate, while the higher interest payment will prevent productive investment.

On the revenue side, the government can introduce new taxes, increase existing taxes, and expand tax collection. As for spending, the government could spend less in areas that produce fewer jobs so it could spend more in areas that do, such as education. The government could also spend better by trying to use fewer resources to get the same outcome.

Finding the right mix to achieve the inclusive growth agenda needs to be a priority for the next government.”

2) Rice Tariffication Law and other liberalization in imports of food (pork, chicken, fish) that have helped contain inflation especially in the past two years. More fundamentally — as well discussed in the columns of Dr. Ciel Habito, University of the Philippines Economics Professor Ramon Clarete, and Agriculture Undersecretary Dr. Fermin Adriano — this milestone reform will improve the nutrition of the poorest quarter of our people (addressing physical and mental stunting), prevent the past fiscal wastes, leakages and rent seeking of the National Food Authority and its patrons, redirect public spending and implicit subsidies towards more productivity-enhancing activities, esp. within the agriculture sector.

This will also enable us to be more wage competitive, since our high cost of food is pushing up wages — a drag on investments and job creation economy-wide.

Finance Secretary Carlos G. Dominguez III and the whole economic team working with reform minded legislators deserve our gratitude and congratulations for this difficult milestone reform — started over three decades ago — that rent seekers are now actively lobbying to reverse; and at least one national candidate has embraced harking back to a flawed reading of economic history, so-called rice self sufficiency in the ’70s. (See, for example, the column of Dr. Clarete: https://www.bworldonline.com/rtl-can-modernize-the-countrys-rice-industry-and-lock-in-rice-security/ )

3) Opening up the economy to more FDI (foreign direct investment). Credit again to the economic team and progressive legislators for bringing to the finish line three investment liberalization laws for economic recovery. More FDIs will mean more jobs, increased competition to bring down prices and improve productivity. These have just hurdled both houses of Congress and are awaiting the President’s signature.

a) amendment of the Public Service Act — opens up to 100% foreign investors such essential infra as shipping, telcos, rail, ports, transportation, digital services, etc.

b) amendment of the Retail Trade Liberalization Act — that lowers the minimum capital investment by foreign investors.

c) amendment of the Foreign Investment Act — excluding the “practice of professions” from the coverage of the law and reducing the number of required direct local hires of foreign investments in small and medium enterprises from 50 to 15.

d) The Regional Comprehensive Economic Partnership (RCEP), negotiated by Trade Secretary Mon Lopez, signed by Pres. Duterte, and now awaiting ratification by the Senate — As I wrote in a column a year ago: “… RCEP with the lower tax regime under CREATE along with proposed amendments to the Public Services Act (PSA), the Foreign Investments Act (FIA), and the Retail Trade Liberalization Act (RTA) strung together would send a powerful signal of the Philippine’s readiness to welcome foreign capital to help with post-pandemic recovery, offering a light at the end of the current gloomy tunnel.” (https://www.bworldonline.com/legislation-in-aid-of-investments-jobs-recovery/)

4) Energy sector reforms

a) Oil deregulation done during the Ramos Administration. Christine Tang and I wrote a case study on this for the World Bank Growth Commission chaired by Nobel Laureate Michael Spence (https://openknowledge.worldbank.org/handle/10986/28020).

We concluded in 2008, a time when oil prices were surging like we are again seeing today.

“… The benefits of oil deregulation became evident during the most recent run-up in world oil prices. The full pass-through of world oil price increases to domestic oil prices helped to shield the fiscal sector from the burden of providing oil subsidies at a time when government finances were most fragile. Other benefits have included (i) increased competition in the industry with the entry of new players; (ii) less politicization of oil pricing; (iii) proper market response to high oil prices, including conservation and the search for substitutes like biofuels; and (iv) clean and good restrooms at service stations all over the country as a byproduct of introducing competition in the industry, helping support tourism.”

b) Electric Power Industry Reform Act (EPIRA) — there have been noises about government getting back into power generation, to address the high cost and possible shortage of power. This will be a big mistake. As I have written in the past, the way forward is to fully and properly implement EPIRA. (See https://www.fef.org.ph/opinion/the-way-forward-for-the-power-industry/, and https://www.bworldonline.com/power-regulation-in-the-dark/)

My appeal to the next administration: preserve our gains; build on what has been built by past administrations, that have, until COVID came along, propelled our economy to a higher and more inclusive growth path. Primum non nocere, “first, do no harm.”

Former Pres. Gloria Arroyo in her 2002 State of the Nation Address paid homage to Dr. Jose Rizal and her father who captured poetically what is the job of a President:

“Jose Rizal wrote: ‘A life not dedicated to a great ideal is useless; a mere pebble in the field that forms no part of an edifice.’”

Diosdado Macapagal touched on this theme as he assumed the mantle of national leadership 40 years ago: “No President can build the whole edifice of a nation. All that he is called upon to do is add a fine stone to that edifice, so that those who shall come after him may add other fine stones that will go for a strong and enduring structure.”

 

Romeo L. Bernardo was finance undersecretary during the Cory Aquino and Fidel Ramos Administrations. He is a trustee/director of the Foundation for Economic Freedom, Management Association of the Philippines, and FINEX Foundation.

romeo.lopez.bernardo@gmail.com

Marcos: Bad for OFWs and remittances

PHILIPPINE STAR/MIGUEL DE GUZMAN

I worry over the news that overseas Filipino workers (OFWs) will vote for Ferdinand “Bongbong” R. Marcos, Jr. Hence, I attempt to explain why Ferdinand Marcos, Jr. is bad for them. (And why Marcos Jr. is bad for everyone.)

The Philippines is on the “grey list” of the Financial Action Task Force (FATF). This has negative effects on the country’s capital flows, including the remittances of OFWs. Being on the grey list translates into higher transaction fees for remittances and delays in remittances because of tighter scrutiny. It, too, undermines our creditworthiness, trade, and flow of investments.

The grey list, says the FATF, covers those jurisdictions that are “under increased monitoring” because of “strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.” A country on the grey list is committed to cooperating with the FATF in addressing the “strategic deficiencies” within an agreed timeframe.

Kapronasia, a leading Asia fintech consulting firm, wrote on Aug. 25, 2021, why the Philippines is on the grey list:

“FATF has been urging Manila to toughen up its AML [anti-money laundering] and CFT [Combating the Financing of Terrorism] controls for several years now, with a focus on enhancing risk-based supervision in non-financial businesses (especially casino gambling and real estate), cracking down on unregistered and illegal remittance operators, increasing money laundering investigations and prosecutions and strengthening the targeted financial sanctions framework for both terrorist and proliferation financing.”

The FATF wants an amendment of the anti-money laundering law, which reformers in government, the private sector and civil society support. Said Kapronasia, this “will give the Philippine central bank stronger investigative powers, making it easier for the regulator to examine suspicious bank accounts, and impose heavy penalties.”

BusinessWorld (Oct. 23, 2021) reported that the government has “to strengthen and streamline the access and accuracy of beneficial ownership information that are used by law enforcement agencies.”

To be removed from the grey list, the Philippines has to take concrete steps to comply with 40 FATF recommendations. In turn, each recommendation has a set of criteria to be met.

The Asia Pacific Group (APG) on Money Laundering evaluates whether a member country is effectively implementing the FATF standards against money laundering, financing of terrorism, and proliferation financing. In August 2021, the APG released a “2nd Follow-up Report: Mutual Evaluation of the Philippines.” It acknowledged the progress of the Philippine government in addressing the FATF’s 40 recommendations.

Nonetheless, the Philippines remains partially compliant in some areas and still has to meet full compliance in other areas. Examples where the Philippines shows partial compliance include: 1) addressing deficiencies related to the cross-border declaration system and 2) having restraints on currencies and bearer monetary instruments. Such will require Philippine Congress to amend existing laws.

Another area of concern pertains to the vulnerabilities associated with virtual asset service providers (VASP), the scope of VASP activities, and the VASP’s wire transfer provisions.

To meet the many FATF recommendations and criteria, the Philippine leadership must muster political will. On the other hand, inaction makes the country’s financial system suffer from tighter scrutiny, delayed processing of transactions, higher transaction costs, and even a downgrading of the country’s credit rating. The latter in turn will jack up interest rates and slow down investments, jobs, and growth.

The question is whether the next administration has the will to complete the reforms that will strengthen the country’s anti-money laundering law and put in place other complementary measures to fight money laundering, tax evasion, and terrorist financing.

Investors, creditors, and financial institutions fear that a Marcos Jr. presidency will not deliver the reforms. Their concerns include the history of corruption, non-filing of tax returns, tax evasion, and money laundering of the Marcos family. Add to all that Marcos Jr.’s uninspiring governance record and his unsound economic program.

The UK-based Capital Economics says that Marcos Jr.’s plans are “far from encouraging.” In the same breath, it says: “It is unlikely the situation will improve under Mr. Marcos and could easily get worse.”

Pantheon Macroeconomics, another UK-based think tank, says that a victory of Marcos Jr. in the 2022 elections would “carry significant event risk.”

Nomura Global Research views Marcos Jr. as lacking national political experience, not being market-friendly, and lacking fiscal discipline.

The report of Fitch Solutions Country Risk and Industry Research states that a Marcos Jr. presidency is “posing risks of increased authoritarianism.”

Consider, too, the following:

Marcos Jr. has flip-flopped on disclosing his Statement of Assets, Liabilities and Net Worth (SALN). Is he hiding anything?

Despite the international and domestic pressure to strengthen the Anti-Money Laundering Law (AMLA), Marcos Jr. when he was a senator, voted for a softer, deficient AMLA in 2012.

To toughen anti-money laundering, LexisNexis Risk Solutions Asia Pacific Managing Director Bharath Vellore proposed a three-pronged approach: legislation, supervision, and prosecution. That goes against the self-interest of the Marcos family.

Marcos Jr. has been convicted for tax evasion, specifically the non-payment of taxes from 1982 to 1985.

In October 2012, a US Court of Appeals for the Ninth Circuit upheld a contempt judgment against Marcos Jr. and his mother Imelda, being the executors of the estate of Ferdinand E. Marcos. This was in relation to a human rights class suit against the dictator Marcos.

Marcos Jr. and Imelda violated an injunction that prohibited them from dissipating the assets of the Marcos estate. The judgment amounted to $353.6 million, which the Marcoses have refused to pay. The Court can issue a warrant to compel the Marcoses to appear in order to comply with the judgment.

Switzerland’s Federal Supreme Court ruled that Marcos assets hidden in Swiss banks had criminal ownership. Following the Court’s order, the Swiss government transferred to the Philippines bank deposits amounting to $627 million in 1998.

During the Rodrigo Duterte administration, in 2018, the Sandiganbayan convicted Imelda Marcos on seven counts of graft for laundering $231 million in Swiss accounts. She named herself and her children as the beneficiaries of the Swiss accounts.

In 2016, investigative journalists revealed the Panama Papers, containing loads of information on how the ultra-rich, including Filipinos, created shell corporations to secure their assets and taxes. The leak included the listing of Marcos Jr.’s sister Irene Marcos Araneta and her husband Gregorio Araneta III as officers of Orient Wind Development Limited, registered in the British Virgin Islands, a tax haven.

Bloomberg Tax (May 7, 2021) said: “The use of shell companies means that the ownership and financial history of these assets can be hard to determine.” Many of these shell corporations may be able to escape charges of tax evasion, but they surely are examples of deplorable tax avoidance. To quote Bloomberg Tax again: “Although shell corporations are not illegal in and of themselves, their anonymity and lack of transparency mean that they can be used for tax evasion, fraud, and evading sanctions.”

All the facts and circumstances above lead to this conclusion: Marcos Jr. and family lack transparency in disclosing assets and taxes. Marcos Jr. does not have the credibility to fight money laundering and tax evasion. Marcos Jr. does not have the high level of political commitment to undertake the reforms for the country to be removed from the grey list.

The US government’s Financial Crimes Enforcement Network (FinCEN) closely monitors the Philippines in light of our country being on the grey list. The FinCEN treats the Philippines as a high-risk jurisdiction for money laundering and other financial crimes.

FinCEN’s heightened vigilance towards the Philippines and actions it can take to penalize bad behavior will have a negative impact on Filipino citizens. The US is the largest source of overseas Filipino remittances. Moreover, financial transactions from other countries that use the US currency also flow to US financial centers. They are all subject to the tight scrutiny and discipline of FinCEN.

The situation becomes all the more dangerous when government is bereft of a reform agenda. The worst scenario, God forbid, is a Marcos Jr. presidency rolling back the previous measures to fight financial crimes. This is plausible, for the Marcoses want to preserve the ill-gotten wealth, which the government has yet to fully recover.

This scenario makes possible the Philippines being included on the FATF black list. That means the global community is called upon “to apply counter-measures” against a country violating the FATF standards. Currently, two countries are on the black list, namely Iran and North Korea. Blacklisted countries are subject to more restrictive measures and economic sanctions.

Being on the black list brings terrible consequences. It damages the credibility and creditworthiness of a country. Thus, investments will be diverted, loans will be subject to higher interest rates, and trade will be disrupted.

OFWs will be inconvenienced by the delay in remittances brought about by stricter due diligence measures. Worse, the cost of making remittances will increase.

To the OFWs and their families, beware of Marcos Jr. We do not want to punish the remittances. And we do not want our economy to become a North Korea.

 

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

www.aer.ph

NEDA’s post-pandemic scenario

PHILIPPINE STAR/ MICHAEL VARCAS

Is the pandemic finally behind us? The National Economic and Development Authority (NEDA) would like to think so. In a recent conference with the Management Association of the Philippines, Socioeconomic Planning Secretary Karl Chua outlined our path to full recovery.

As we are painfully aware, the economy contracted by a massive 9.6% in 2020 due to government’s heavy-handed approach to contain the virus spread. The wide militaristic lockdown paralyzed supply chains across the archipelago, disrupted manufacturing, and consigned our vibrant consumer-driven economy to a state of coma. All these could have been avoided if only government had mobilized a testing campaign at the onset coupled with a functional tracking and tracing system. The absence of a testing, tracking, and tracing mechanism left the authorities with no choice but to resort to debilitating lockdowns. But this is all water under the bridge now.

Last year was much better for us as the economy slowly opened up, albeit with heavy restrictions in April and May and again in August and September. All things told, the economy grew by 5.6% in 2021, well within government’s forecast. Unemployment declined from a high of 17.6% in the second quarter of 2020 to 6.5% in November 2021. At the rate we are going, the economy will finally reach its pre-pandemic level six months from now. The economy took a beating but the worst seems to be behind us. Now is the time to rebuild.

As this administration nears the end of its mandate, NEDA commits to vigorously complete our economic recovery and above all, restore the jobs that were lost. It laid out a 10-point plan designed to make the country bounce back stronger whilst preparing our institutions for future health emergencies. Here are the components of NEDA’s plan:

First, change the matrices used in deciding restriction levels. From basing decisions on gross caseloads, NEDA proposes that decisions be based on the cases that require hospitalization. Further, instead of looking at gross number of deaths, decision makers will be made to look at the ratio of case fatalities. All these are meant to better calibrate the level of restriction against realistic threats.

Second, accelerate vaccination. As of Feb. 20, a total of 133 million vaccinations have been administered. Sixty-two million are fully vaccinated, and 9.5 million received their booster shots. The vaccination drive will continue until the entire population is inoculated. Booster shots will be made available every year.

Third, increase hospital bed capacity. Hospital bed capacities have increased seven-fold over the last two years to 40,250 beds. Despite the spike in Omicron cases, the bed occupancy rate was only at 44.4%.

Fourth, quantify the impact. NEDA had quantified the impact on economic output (through GVA, or gross value added) and employment for all five restrictions levels. Knowing the impact will allow the authorities to be more judicious when adjusting restriction levels. For perspective, when Alert Level 5 is raised, P133.5 billion worth of GVA and 2.29 million jobs are lost per week in Metro Manila Plus alone. Whereas when we are on Alert Level 2, only P11.2 billion of GVA and 191,000 jobs are lost.

Fifth, education. The Duterte administration dropped the ball on education. Lamentably, they failed to act fast enough nor did they realize the urgency of reopening of schools. Even worse is the disconnect in policy. While schools remain closed, children were allowed to visit malls on Alert Level 2.

NEDA hopes to replicate the system of the European Union where schools remain open but are subjected to the strictest safety protocols and a staggered attendance arrangement. Decisions on school closures will be devolved to local government units (LGUs). Mental health support will be established in every campus and communication campaigns will be made more efficient between LGUs, students, and parents.

Sixth, domestic travel. Tourism contributes 12.5% of GDP and provides jobs for 5.4 million of our countrymen. To activate domestic travel, NEDA proposes that the gamut of requirements imposed by airlines, hotels, and LGUs be eliminated. In its place, a vaccination card and an inter-scannable QR code will be made the only requirements.

Seventh, international travel. The idea is to realign inbound and outbound travel requirements with global standards. Whereas before, only inbound travelers from “green” countries are exempted from quarantine, very soon, quarantine will no longer be a requirement for fully vaccinated travelers, regardless of origin. In addition, inbound flights and passenger quotas will be lifted.

Eighth, accelerate the digital transformation. Digitizing government’s operations will make it more agile. Fundamental is the quick implementation of the Public Service Act to expand telecommunication services. This will have to be supported by the full implementation of the Executive Order liberalizing satellite services, the Philippine Space Act, and Balik Scientist Act, among others. Still awaiting passage is the Open Access in Data Transmission Act and Internet Transactions Act.

While the process of digitization has started, experts estimate that it will take at least six years for the entire bureaucracy to complete the migration.

Ninth, enact the pandemic flexibility bill. We should never be caught flatfooted again when future medical emergencies strike. The pandemic flexibility bill will complement the existing Philippine Disaster Risk Reduction and Management Act in that it allows budget flexibility. It also allows data privacy relaxation and better alignment of protocols between the national and local governments.

Tenth, learn from our experience. NEDA is in the process of creating a “pandemic playbook” to lead us through the next health emergency. Based on our COVID experience, the playbook will provide a step-by-step guide on action points suitable for various circumstances. It will also provide best practices and insights learned.

The country paid a steep price for being unprepared for COVID. We applaud NEDA for not letting this learning experience go to waste and using it to better prepare for future emergencies.

Meanwhile, there is a lot to do to put our economy back on track and generate the jobs that were lost. NEDA’s transition plan will enable us to recover faster.

 

Andrew J. Masigan is an economist

andrew_rs6@yahoo.com

Facebook@AndrewJ. Masigan

Twitter @aj_masigan

A tax hike in Singapore is inconvenient but opportune

REUTERS

WHEN Singapore’s goods and services tax (GST) last went up in 2007, the city’s economy was basking in the warm glow of sizzling global growth. The SARS (severe acute respiratory syndrome) virus had faded from public memory. The US subprime mortgage crisis was still a year away. Finance was booming. Real estate was hot. Unemployment was low and falling. It was the right time to increase the levy, to 7% from 5%, to pay for a lower corporate tax rate that would almost match the level in archrival Hong Kong.

Fifteen years later, the GST is set to rise further, perhaps to 9%, but in a world ravaged by a far more stubborn pathogen. Global growth is uneven, uncertain and held back by inflationary supply shortages. Finance and real estate are still surging, but they’re propped up by an unprecedented global monetary expansion that’s now set to recede rapidly.

Singapore still faces at least two very expensive internal challenges: an aging population and climate change. Which is why it’s likely to raise the tax again in Friday’s budget, though the timing is far from convenient. Nomura Holdings, Inc., which believes there’s a 55% chance of a single-shot increase effective from July, predicts core inflation to quicken to 4.3% this year from such a move, exceeding the central bank’s recently raised forecast of 2% to 3%.

The GST will add to the cost of living, and the government will help households deal with it by tapping an already-earmarked S$6 billion ($4.5 billion) fund set aside two years ago. But the impact of GST on inflation may not ebb quickly if wages firm up in a tightening labor market. The jobless rate has fallen to 2.4% and is set to drop further to pre-COVID-19 levels of around 2%. The Monetary Authority of Singapore, which uses the exchange rate to manage financial conditions, may aim for a stronger appreciation in the local currency than it has indicated so far.

Above all, though, effecting a tax increase at this delicate juncture — and making it palatable for the citizens — are good problems to have. They showcase the island economy’s resilience, and paint a picture that’s in stark contrast with Hong Kong where unemployment is 1.5 percentage points higher. The Chinese special administrative region’s annual budget next week is likely to show it stuck in the knots of a Beijing-inspired “dynamic zero” mandate for new infections, a strategy that’s proving hard to defend in the face of the fast-spreading Omicron variant. Singapore has firmly closed that chapter by deciding to live with COVID-19.

When it comes to citizen services such as public housing and old-age security, Singapore already has an edge. But now it’s trumping the formerly laissez-faire Hong Kong in ease of doing business as well. From multinationals to startups, firms are taking note. Citigroup, Inc. is moving some senior equity staff to Singapore and other economies. As activity in the Southeast Asian city-state starts humming back to life, its market for office space is poised for a recovery, while commercial property in Hong Kong remains mired in a glut — amid a threat of even harsher lockdowns.

Both cities have dipped liberally into their vast reserves to fight the pandemic, but where Hong Kong will have to remain in crisis mode, Singapore’s policy makers have won the fiscal space for using tax policy to addressing longer-term challenges.

Government spending on healthcare had tripled in the decade before COVID-19, with patient subsidies alone rising by 62% in five years to S$6.5 billion. Expect the growth to continue as the population of 5.5 million demands more and better quality of care, especially for the swelling ranks of the elderly. Almost one in every four citizens will be aged 65 years or above by 2030, from one in 10 in 2011. Last year, the government decided to raise the healthcare subsidy for a three-generation household earning median income to S$10,200, a 10% increase.   

Then there’s climate change. The vital business district and some of Singapore’s most valuable infrastructure is at risk of sinking. Saving the city from rising sea levels could cost S$100 billion or more over the next century. Increasing the current carbon tax rate of S$5 per ton of emissions will go some way toward mobilizing resources. But it won’t be enough.

It remains to be seen if the blow of a higher GST on ordinary people is equalized by some kind of a tax on the capital of rich asset owners. In this, too, Singapore has the scope to act because a risk of capital flight to Hong Kong — the obvious alternative, since it taxes neither capital nor consumption — is no longer a serious threat.

How tightly Asia’s rich are hugging Singapore can be gauged from the slight increase in their participation in new home sales in January even though in December the so-called additional buyer’s stamp duty on foreigners was raised to 30% from 20%. What’s more, 43% of their purchases were in the S$3 million-plus range, up from 32% in December, according to Ohmyhome Research.

The timing of the GST increase may be inconvenient, but it’s not inopportune. Unless a new variant of the coronavirus puts paid to Singapore’s reopening plans, the city’s policy makers have all the room in the world to set their policies very differently from those in gloomy Hong Kong.

BLOOMBERG OPINION

Soaring gasoline bad timing for Asian governments facing voters

REUTERS

SOARING gasoline prices are fanning inflation and causing a headache for governments and central banks worldwide. In countries with elections coming up, they’re an extra headwind for the incumbents.

While the US mid-terms in November are the prime example of fuel prices feeding into the political sphere, upcoming votes in Asia may also be affected. Voting is already underway in Indian state elections and South Korea holds a presidential poll in early March. There’s also an Australian general election and a contest for the upper house in Japan in the next few months.

Oil’s relentless march toward triple figures has already prompted political action from incumbents. India cut retail taxes on gasoline and diesel in November and there’s been an unofficial freeze on prices since. South Korea enforced a temporary 20% drop in fuel levies in October through April, which may be extended, while Japan is subsidizing refiners to make motor fuel.

Governments in economies where wage levels are lagging behind inflation are most vulnerable to a gasoline-induced political backlash, according to Sonal Varma, chief economist for India and Asia ex-Japan at Nomura Holdings, Inc.

“If a country has low-income growth and high inflation, then it becomes a double-whammy, and then it could have both economic and political repercussions,” she said. It’s especially a concern in Asia, given that all of the major economies in the region are net oil importers, Ms. Varma said.

Australian retail gasoline have risen by 80% since early May 2020, while in Japan they’re up 37%, as oil recovered from the depths of the pandemic. In India, there are expectations the big state-owned fuel retailers will hike prices sharply following the elections that end next month.

Voters there are going to the polls in elections that run through early March in five states, most notably Uttar Pradesh, the largest state with more than 200 million people. Inflation, which breached the central bank’s 6% tolerance limit in January, points to a tough challenge for Prime Minister Narendra Modi’s Bharatiya Janata Party. Rural wages haven’t kept pace, rising only 3.31% in December from a year earlier, Bloomberg Economics data show.

South Korea elects a new president on March 9. Incumbent Moon Jae-In isn’t allowed to run for another term, and polls are indicating a tight race between candidates from his party and the opposition. Average wages rose 4% last year, while year-on-year inflation was 3.6% in January, so price gains may not play as big role in the vote as elsewhere.

Australian Prime Minister Scott Morrison must call a general election before the end of May and polls show he could be facing a landslide loss. Consumer sentiment has taken a hit as households struggle with soaring gasoline prices, with the Reserve Bank of Australia forecasting core inflation will rise above 3%. Average wage levels climbed 2.2% in the third quarter of 2021 from a year earlier, according data from the statistics bureau.

In Japan, more than half the seats in the Upper House are up for grabs in a vote in July, which could affect Prime Minister Fumio Kishida’s chances of staying in office. Inflation expectations among households are at the highest since 2008, while average monthly cash earnings actually dipped slightly in December from a year earlier. Mr. Kishida said Thursday that more policies to ease the effect of high oil prices on households were being discussed.

The growing political focus on trying to lower oil prices represents a shift away from commitments made at the COP26 meeting late last year to accelerate efforts to phase out fossil fuel consumption. The higher oil prices are swelling the coffers — and influence — of  Saudi Arabia and Russia, and reinvigorating an industry that had been moving toward cleaner sources of energy.

“High fuel prices have been a persistent problem in the global inflationary environment since 2021,” said Vandana Hari, founder of Vanda Insights, an oil market analysis provider in Singapore “Of all categories of consumer goods, fuel prices are an especially politically sensitive issue.” — Bloomberg

Australia accuses China of ‘act of intimidation’ after laser aimed at aircraft 

REUTERS

MELBOURNE — Australian Prime Minister Scott Morrison accused Beijing of an ‘act of intimidation’ after a Chinese navy vessel directed a laser at an Australian military surveillance aircraft last week.

A P-8A Poseidon maritime patrol aircraft was illuminated on Thursday while flying over Australia’s northern approaches by a laser from a People’s Liberation Army–Navy (PLA-N) vessel, potentially endangering lives, the defense department said.

Mr. Morrison said his government will demand answers from Beijing.

“I can see it no other way than an act of intimidation, one (…) unprovoked, unwarranted,” Morrison said at a briefing. “And Australia will never accept such acts of intimidation.”

Defense Minister Peter Dutton called the incident “a very aggressive act” that took place in Australia’s exclusive economic zone.

“I think the Chinese government is hoping that nobody talks about these aggressive bullying acts,” Mr. Dutton told Sky News television. “We’re seeing different forms of it right across the region and in many parts of the world.”

The Chinese vessel was sailing east with another PLA-N ship through the Arafura Sea at the time of the incident, the department said. The sea lies between the north coast of Australia and the south coast of New Guinea.

Relations between Australia and China, its top trade partner, soured after Canberra banned Huawei Technologies Co Ltd. from its 5G broadband network in 2018, toughened laws against foreign political interference, and urged an independent investigation into the origins of coronavirus disease 2019 (COVID-19). — Reuters

Ukraine president has tough message for nation’s allies: Do more

Ukrainian President Volodymyr Zelenskiy — REUTERS
Ukrainian President Volodymyr Zelenskiy attends a meeting during the Munich Security Conference in Munich, Germany, Feb. 19, 2022. — MATT DUNHAM/POOL VIA REUTERS

AMID a US warning that Russia has decided to potentially invade his country and attack the capital, Ukrainian President Volodymyr Zelenskyy flew to Munich to deliver a tough message to his allies.

The former TV comedian cracked few jokes on Saturday as he accused the US and Europe of allowing the continent’s security infrastructure to collapse. He noted that Russian President Vladimir Putin used the same platform — the Munich Security Conference of 2007 — to deliver a speech in which he openly challenged the post-Cold War order.

“How did the world respond?” Mr. Zelenskyy asked. “With appeasement.”

While Russia has repeatedly denied any plans to invade Ukraine, Zelenskyy sought to portray his country as holding the front line of security for European countries to the west.

Ukraine, Mr. Zelenskyy said, shouldn’t have to beg for arms to defend European security against one of the largest militaries in the world. “Those are not noble gestures for which Ukraine must bow low,” he said. “It is your contribution to European and the world’s security.”

Mr. Zelenskyy said he was grateful for the diplomatic, financial and military aid Ukraine’s Western allies have offered since Russia seized Crimea and stoked an armed insurgency in eastern Ukraine. The US says it has delivered $2.7 billion worth of military aid since 2014, including modern anti-tank weapons. In recent months, other NATO allies have sent shoulder-fired anti-aircraft missiles and specialized anti-tank missiles for use in urban warfare.

Still, if allies really want to help, they should “set up a fund for stability and reconstruction for Ukraine, and a lend-lease program, supply new weapons, machinery, equipment for our army — an army that protects all of Europe,” Mr. Zelenskyy said.

SANCTIONS NOW
Recalling that Ukraine gave up its nuclear deterrent in exchange for security guarantees from Russia, the UK and US, in a 1994 memorandum, Mr. Zelenskyy said: “We have the right to ask for a move from the appeasement policy to action.”

He called for clear road maps for Ukraine’s membership in NATO and the European Union (EU), and criticized allies for being unwilling to sanction Russia now or even name sanctions measures in advance to better deter Mr. Putin, while loudly predicting an imminent Russian invasion.

European leaders are concerned that the deterrent effect of sanctions would be lost if they were imposed before the action they’re designed to stop.

“We don’t need your sanctions after the war starts and we have no borders,” Mr. Zelenskyy said.

While Mr. Zelenskyy didn’t name names, his chief target appeared to be Germany, which has resisted arming Ukraine. The government in Berlin says that would mean bending its strict rules on arms sales, and that it has instead taken a lead in delivering financial aid to support Ukraine’s beleaguered economy.

The US and the EU have promised tough sanctions on Russia should it invade without saying what those would be or what level of Russian action would trigger them.

Ukrainian Foreign Minister Dmytro Kuleba said it was essential for his country and its allies agree now on what those triggers should be.

“It shouldn’t be at the moment when Russian soldiers in Russian uniforms, waving Russian flags cross the border for the cameras,” Mr. Kuleba said at a lunch on the conference’s sidelines. “This is not that kind of war.”

Mr. Zelenskyy’s speech came as something of a cold shower at the annual gathering of the trans-Atlantic security officials in Munich, where US Secretary of State Antony Blinken and German Foreign Minister Annalena Baerbock touted what they called unprecedented levels of unity allies have shown on Ukraine, specifically on sanctions.

A Zelenskyy dig at Germany — he said a delivery of 5,000 helmets fell short of Ukraine’s request — didn’t go over well with a Berlin official, who expressed surprise at his country’s aid being belittled. — Bloomberg

US FDA considers approving a second COVID-19 booster shot

REUTERS

US HEALTH REGULATORS are looking at authorizing a potential fourth dose of a COVID-19 vaccine in the fall, the Wall Street Journal reported on Saturday, citing sources familiar with the matter.

The Food and Drug Administration has been reviewing data to authorize a second booster dose of the messenger RNA vaccines from Pfizer Inc and partner BioNTech SE and vaccines from Moderna Inc, the report added.

The FDA did not immediately respond to a request for comment.

The agency last month cut the interval to get a booster dose of COVID-19 vaccines from Pfizer and BioNTech as well as from Moderna, in a bid to provide better protection sooner against the Omicron variant.

The planning is still in early stages, and authorization would depend on determinations as to whether the second booster should be authorized for all adults or particular age groups, and whether it should target the Omicron variant or be formulated differently, the report said.

It added that no decision was final and that it could be necessary to make booster shots available earlier if a new variant appears.

The United States reported 2,323 COVID-19 deaths on Friday, bringing the total count to 936,523. — Reuters

Paris 2024 to be ‘light at the end of the tunnel,’ says next Games chief

BEIJING — After two Games clouded by coronavirus disease 2019 (COVID-19) restrictions, Paris 2024 is looking to launch a new momentum for the sporting extravaganza, promising an Olympic “light at the end of the tunnel.”

One hundred years after France last hosted the Summer Olympics amid the post-World War One Années Folles (crazy years) period, Paris aims to be the stage for a carefree Games as they return to Europe for the first time in a decade.

“We want to take the Games out of the stadiums, with a ceremony out in the city and a marathon open to the general public,” Tony Estanguet, a triple canoeing Olympic champion who was France’s flag-bearer at the 2008 Beijing Games opening ceremony, told Reuters.

Some 600,000 people are expected to attend the opening ceremony with around 160 boats setting off on the Seine on July 26 from the Pont d’Austerlitz for a six-kilometer journey to the Pont d’Iena.

While the lower part of the river bank will be subject to ticketing, there will be free access to the upper part with spectators able to see holograms on the water, dancers on the roofs of nearby buildings and aerial shows.

“We are very ambitious, we want to break new ground and offer a popular and spectacular Games,” said Estanguet of the Paris Olympics.

“With Milan-Cortina two years later, this is an opportunity for us to start a new cycle in Europe.”

The Winter Games were last staged in Europe in 2014 in Sochi, Russia, after London hosted the 2012 Summer Olympics.

EIFFEL TOWER
At Beijing 2022, crowds have been extremely limited as authorities sought to keep COVID-19 out of the country by segregating athletes and Games workers from the general public with a strict “closed loop” system.

Just 97,000 people attended events at the Beijing Games, while Pyeongchang in 2018 attracted more than a million spectators, organizers said at the time.

The Tokyo Olympics also took place under similar restrictions. Beijing closes with a ceremony on Sunday.

In Paris, the whole city will embrace the Games, with some events staged at the foot of the Eiffel Tower.

The Place de la Concorde will be the stage of new events — breaking and skateboarding — while the Chateau de Versailles will host equestrian competitions, and the Grand Palais will welcome taekwondo and fencing.

Three of those four venues are all within walking distance of each other.

“We want this Games to be popular, close to the people,” said Estanguet.

“For a lot of people, the Paris Olympics are the light at the end of the tunnel, there are a lot of expectations in these Olympics.

“The Games will change everything that has been done before, we’re going to experience something unprecedented.”

With great expectations come great responsibilities.

“We like that kind of pressure, we like to question ourselves. We’re going to do everything so that these Olympics make history,” Estanguet said.

“The Games changed my life, I hope these Games can change other lives and that France will magnify the Olympics.” — Reuters

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