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Hybrid seed supplier backs five years of farm subsidies

SCREENGRAB FROM YOUTUBE/SL AGRITECH CORPORATION

By Luisa Maria Jacinta C. Jocson, Reporter

SUBSIDIES to farmers will be critical in the first few years of the new administration, which has set a goal of expanding agricultural output, until farmers achieve a measure of self-sufficiency, according to an official from a company that produces high-yielding hybrid rice.

“Government subsidies are critical to growth in agriculture. Not forever, (but) maybe the first five years. At the moment, we need to subsidize them,” SL Agritech Corp. Chairman and Chief Executive Henry Lim Bon Liong said in a Zoom interview.

“President Rodrigo R. Duterte (also provided subsidies) but the budget isn’t enough so there have been lots of issues,” he added. “Subsidies are not bad, every country does it. Even the United States in the early 19th century provided millions for agriculture (including) cotton. Subsidies have always been a way for farmers to become progressive. It is what China is doing now, focusing on agriculture… I think we should follow that.”

SL Agritech develops hybrid rice seed varieties that are suitable for the Philippines and provides technical support to farmers that use its seed.

“Rice is a pollinating flower and plant. In order for this rice to be hybrid then in nature there must be a flower that is self-sterile. If the rice flower is sterile then it cannot self-pollinate. If you cannot self-pollinate, then other male flowers will fertilize the plant thus leading to a hybrid,” Mr. Lim Bon Liong added.

SL Agritech products include the SL-8H, SL-12H, SL-19H, SL-20H, and SL-68H Super Hybrid Rice Seeds.. These hybrid rice varieties can thrive in both wet and dry seasons. For consumers, it offers premium milled rice brands such as Doña Maria Premium Quality Rice and Willy Farms Rice.

“The prices of our variety have not increased, about P5,000 to cover one hectare. We made a lot of farmers millionaires. If you look at Nueva Ecija farmers, they are mostly returning overseas Filipino workers (OFWs). The returning OFWs are really the best farmers because they are educated and know the different techniques,” he added.

The company is developing more varieties to help people with the rice crisis, according to Mr. Lim Bon Liong.

“The Doña Maria program is exporting to many countries like the Middle East. We are putting back Filipino rice to countries around the world,” he said.

During the company’s earlier years, Mr. Lim Bon Liong said he went to China in order to further study and research hybrid rice.

“When I went to China, they were able to feed their entire population and still have some to export…  More than 40 million people died of hunger in China in the sixties. From there I spoke with experts and I learned that agriculture will help the population, but with limited land what do you do? You turn to high yielding rice,” he said.

“When I came back to the Philippines. I met with the International Rice Research Institute. Unfortunately, hybrid rice can only be planted 70 degrees above the equator. The Philippines is a tropical country so it is very difficult to plant it here and I was disappointed,” he said.

Mr. Lim Bon Liong then began experimenting with 75 varieties of hybrid rice from China.

“I started in Laguna, but after one season it was a total failure. It is so hot in the Philippines that it kills the flowering, making it too early so the grains are empty. I was about to give up but my mother told me to make my own variety of hybrid rice,” he said.

In 1998, he started looking for land to establish a research facility. By 2001, he was able to eventually develop hybrid rice that was compatible with the Philippine climate.

Moving forward, SL Agritech will continue its initiatives to attain rice self-sufficiency and increase rice yields with the help of the government.

“We hope to talk to the current President to allow us (to supply) seed for the Masagana programs,” he added.

PHL gross borrowing declines 40.59% at end of June

BW FILE PHOTO

GROSS BORROWING dropped 40.59% from a year earlier to P1.022 trillion in the first half as the government tapped less debt as the economy reopened.

The Bureau of the Treasury (BTr) said that in June, it raised P138.64 billion, down 13.3% from a year earlier.

The government borrows from domestic and foreign creditors to finance the budget deficit, which widened after the pandemic stalled the economy and depressed tax collection.

New domestic debt in June fell 28.71% year on year to P96.45 billion, including P7.51 billion in Treasury bills (T-bills) and P88.94 billion in Treasury bonds (T-bonds).

In June, the Treasury made no redemptions using the government’s Bond Sinking Fund.

External gross borrowing rose 55.83% to P49.72 billion in June. This consisted of P47.53 billion in new program loans and P2.19 billion in project loans.

The government settled P7.17 billion in outstanding foreign debt that month, reducing net external borrowings to P42.55 billion.

The P1.022 trillion in first-half debt included P741.26 billion in domestic debt, down 55.02% from a year earlier.

Domestic debt consisted of P535.38 billion in T-bonds, P457.8 billion in retail T-bonds, and P73.6 billion in T-bills.

During the period, the government paid down P251.92 billion worth of T-bills.

Excluding the P1.09-billion debt that was repaid and obligations settled via the Bond Sinking Fund, the government’s net domestic borrowing was P740.18 billion.

Gross borrowing from foreign creditors rose 15.58% to P329.34 billion in the first half, including P136.6 billion in program loans, P117.33 in global bonds, P46.85 in project loans, and P28.55 in Samurai bonds.

The BTr paid down P47.76 billion in foreign loans during the period, bringing net foreign borrowing to P281.57 billion.

In July, Finance Secretary Benjamin E. Diokno said that the government intends to increase the share of domestic borrowing in the borrowing mix to 80% to reduce its foreign exchange risk.

Gross borrowing in the first half accounted for 41.32% of the P2.47 trillion the government is planning to raise this year from both domestic and foreign lenders. The budget deficit is expected to hit 7.6% of gross domestic product.

In the first six months of 2022, revenue collection increased 15.91% to P1.73 trillion, while expenditure rose 8.85% to P2.4 trillion.

The Philippines’ debt stock hit P12.495 trillion at the end of May. — Diego Gabriel C. Robles

Former Trade Secretary touts RCEP as ‘enabling’ economic recovery

RATIFYING the Regional Comprehensive Economic Partnership (RCEP) trade deal should be a priority because it will help accelerate the economic recovery and ensure food security, former Trade Secretary Ramon M. Lopez said.

Mr. Lopez said RCEP will help the Marcos administration achieve goals laid down in the President’s State of the Nation Address (SONA).

Regarding President Ferdinand R. Marcos, Jr.’s food security goals and promoting agriculture — “The RCEP is an enabler of those objectives… the risks of not getting RCEP ratification would be immense,” Mr. Lopez said on the sidelines of a media briefing in Pasay City last week.   

“I am confident that the thinking, even in the legislative (branch), would be supportive this time of RCEP,” he added.  

The RCEP, which started taking effect in various jurisdictions on Jan. 1, is a free trade agreement (FTA) involving Australia, China, Japan, South Korea, New Zealand and the 10 members of the Association of Southeast Asian Nations.

The Philippines has yet to finalize its participation after the Senate did not give its concurrence as the previous Congress stepped down. Some senators expressed concern over the lack of safeguards for the agriculture sector.

Mr. Lopez said that the RCEP provides more opportunities for the agriculture sector than risks.

“The RCEP’s too specific to be mentioned in the SONA. But that doesn’t mean there is no support. What is important is that the policy direction is very clear and that it is supportive of economic recovery,” Mr. Lopez said.  

“The policy pronouncements and direction-setting mentioned by the President in his SONA are good enough to ensure that RCEP will be a part of the agenda,” he added.

Trade Secretary Alfredo E. Pascual has said that the Department of Trade and Industry will push for the RCEP’s ratification and that of other FTAs to encourage more foreign investment that will aid the economic recovery.  

“Without these FTAs and RCEP, the Philippines would not be an attractive location for such types of export-oriented enterprises,” Mr. Pascual said. — Revin Mikhael D. Ochave

NCR building materials price growth sustained in May

THE GROWTH in retail prices of construction materials in Metro Manila continued in May to its highest level in more than 13 years, driven by the higher cost of imports and the reopening economy.

According to preliminary data from the Philippine Statistics Authority, the National Capital Region’s (NCR) construction materials retail price index (CMRPI) rose 6.2% year on year in May, against the 6.1% posted in April and the 1.2% growth rate from a year earlier.

The 6.2% rate was the highest for building materials prices in Metro Manila since the 7.4% growth reported in January 2009.

Metro Manila’s construction materials retail price index

The May 2022 outcome also matched the February 2009 building materials retail price growth.

This brought the NCR’s CMRPI for the first five months to 4.7%, against the 1.2% in the year-earlier period.

Security Bank Corp. Chief Economist Robert Dan J. Roces attributed the increase in May to the cost of imported construction materials, which is rising due to supply chain issues, with the economy’s reopening also adding to inflation pressures.

“However, it may also be a function of the reopening story, which is doing well, and with activities at or very near pre-pandemic levels,” Mr. Roces said in an e-mail interview.

Global oil and commodity prices started rising even before Russia invaded Ukraine in February. The invasion eventually pushed prices of oil above $100 per barrel.

Another factor is China’s Covid containment policy, which produced congestion at the port of Shanghai, the world’s busiest. This also stalled operations at major technology and financial hubs, dampening activity in manufacturing and trade.

China’s countermeasures against the coronavirus have battered its economy.

Metro Manila and other parts of the Philippines have been placed under Alert Level 1, the most relaxed quarantine setting, since March.

Retail price growth in construction materials for most of the commodity groups increased in May led by carpentry materials, where prices were 2.1% higher in May, against the 1.5% growth rate logged in April.

Retail prices in the following categories also increased: masonry materials (3.9% from 3.3%), painting materials and related compounds (4.1% from 3.7%) and tinsmithry materials (8.3% from 8.1%).

Price growth in plumbing materials and electrical materials was unchanged from the prior month at 7.9% and 4%, respectively.

Price growth in miscellaneous construction materials slowed to 10.2% in May from 10.6% in April.

Retail construction prices reflect demand from small-scale building projects, including do-it-yourself builders and small contractors.

Construction activity is expected continue picking up assuming no further lockdowns, Mr. Roces said. — Abigail Marie Pelea Yraola

Consumer values in a world in crisis

(First of three parts)

The past three years have been an unwelcome rollercoaster ride for consumers everywhere. People prioritized their health when the pandemic initially broke out and drastically changed their actions and attitudes towards purchasing goods and services. As the pandemic’s effects on the economy became more pronounced, consumers began to focus more on accessibility and living expenses. As the crisis slowed, people began to give more importance to a new set of “post-crisis” ideals, particularly those related to sustainability.

However, the post-crisis period has not yet begun. Inflation has returned on a scale not seen in decades, interest rates are rising, the global economy is slowing down, geopolitics is being played out on a grand scale, and new COVID-19 variants keep appearing. It’s unclear if this confluence of events is ushering in a new crisis or merely escalating what we currently have, but the distinction will not likely matter in the eyes of customers.

The most recent edition of the EY Future Consumer Index demonstrates how accustomed people are to living in a constant state of crisis and uncertainty. Consumers globally are concerned about the future; as much as 63% do not see economic recovery within the next 12 months, and 62% anticipate an increase in living expenses during the following six months.

The EY Future Consumer Index examines shifting consumer attitudes and behaviors over a range of time horizons and across international markets, revealing the emergence of new consumer segments.

The Index has been tracking five main consumer segments since the pandemic began. These five segments describe the consumers that organizations will have to engage with beyond the pandemic. They reflect the different ways that people make their choices, how they will live their lives, and what truly matters to them.

Of these segments, two highlight the way consumers focus on living within their means and looking after the health of their families and themselves (“Affordability first” and “Health first”). Two other segments refer to the way some consumers prioritize environmental and social concerns (“Planet first” and “Society first”). The final segment identifies those who focus on living within the moment and maximizing their experiences (“Experience first”).

As people react to a chaotic world, the proportion of customers who fit into each sector has fluctuated over the past year. They are actively responding to — or at least attempting to respond to — the never-ending waves of change and uncertainty rather than merely reacting passively. Even while the world keeps presenting them with new obstacles, people are becoming more and more motivated to take charge of and mold their lives around their own wants and objectives. In fact, 58% of people say they feel more in charge of their lives, a situation they wish to maintain and sustain.

FUNDAMENTAL CHANGES IN THE CONSUMER LANDSCAPE
Consumers now have greater control over how they organize their time due to the rise in remote working, but they also want more control over other aspects of their lives including how they spend their money and disclose their personal information. While they are growing more frugal with their money, they are also feeling more confident about acting to defend their lifestyles and values. There are three key shifts in play that can be identified compared to previous financial crises:

1. Customers are more adaptable due to the pandemic experience.

People are becoming accustomed to instability and uncertainty. Nowadays, many people have what is known as the “always on emergency mindset.” They are more willing to give up long-held habits and adopt new ones because they are accustomed to making significant changes to how they live, from daily decisions to long-term objectives. They have discovered levels of resilience they were unaware they possessed.

2. They have more options thanks to the digital world.

The online world was a startlingly undeveloped place in 2008 and 2009, during the previous major financial crisis. The smartphone was a basic device and broadband connections moved slowly. Today, consumers can obtain information, discover alternatives, share their experiences, collaborate, and learn from one another much more easily. However, the digital age can simultaneously increase anxiety, intensify uncertainty, and overwhelm people with too much knowledge, ideas and new concepts, especially given the speed of digital transformation.

3. Consumer values have fundamentally changed.

Previous versions of the Index demonstrated how drastically consumer values have shifted as a result of the pandemic. Particularly, people’s interest in material possessions has diminished as they became more committed to leading ecological lifestyles. The most recent data demonstrate that despite the impact on their household budgets, people are unwilling to simply give up on their new beliefs. Instead, they want to find new ways to convey them.

What ramifications do these shifts pose for corporate executives? When a company’s ideals and activities are in line with the customers it hopes to serve, it succeeds; when they are not, it fails. Customers want to see their concerns and priorities mirrored back at them when deciding which brands to purchase. They increasingly focus on the company behind the brand rather than just the product, asking questions such as: what influence is it having on the globe, and is that impact consistent with its values?

In the second part of this three-part article, we discuss the key trends in consumer behavior identified by the Index: cost-cutting, where consumers substitute instead of sacrifice; sustainability, where consumers prioritize their values in living affordably and sustainably; and digital, where consumers are increasingly turning to emerging technology to take control of their finances.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Maria Kathrina S. Macaisa-Peña is a business consulting partner and the consumer products and retail sector leader of SGV & Co.

How to sell economic reforms

BENJAMIN DAVIES-UNSPLASH

I can sympathize with President Ferdinand “Bongbong” Marcos, Jr.’s dilemma: there are no good answers politically to the problem of food security. On the one hand, it’s nice to project that we won’t rely on food imports, as the previous administration did, and be self-sufficient. On the other hand, there is the reality that domestic supply is short of overall demand and decades-long structural problems in agriculture can’t be fixed overnight.

The result is political waffling: trying to give a nod to the protectionists but without really giving a solution to the domestic supply problem.

My advice is to level with the Filipino people: there’s no quick fix and we face shortages in fish, pork, chicken, corn, sugar, and rice because domestic production isn’t enough. There’s no alternative but to import and to do so quickly at enough volumes to arrest surging food price inflation.

The fact of the matter is that this food insecurity and food inflation are self-imposed: we still impose quantitative restrictions on the importation of fish, corn, pork, chicken, sugar, and other agricultural commodities and impose very high tariffs on the amount that we do allow to come in. In other words, while the masses are going hungry and food inflation is taking off, we are limiting supply! This is an utterly crazy policy, yet the noise is about cracking down on smuggling and increasing interest rates, as if that will bring prices down.

One example of this crazy policy is sugar. Our sugar is the second most expensive in the world, about eight times the price of Thailand’s, and yet we refuse to liberalize sugar importation. Our local producers of beverages, bread, biscuits, candies, three-in-one coffee, and the like pass on this high price of sugar to consumers ostensibly in the name of sugar self-sufficiency. Therefore, our inflation is also self-inflicted and no level of interest rates can cure that problem.

Incidentally, the Bangko Sentral ng Pilipinas (BSP) hints as much in its July 14 press statement, announcing an off-cycle increase of interest rates by 75 basis points. “At the same time, the BSP continues to urge timely non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices.”

While the short-term answer to surging food inflation is to allow more imports (abolish quantitative restrictions and impose a low tariff on imports), the long-term answer is even more controversial: amend the 1987 Agrarian Reform Law. This is also why there’s political waffling.

If you listen to the noisy so-called farmers’ organizations that are not really led by farmers, the long-term answer is to increase the agricultural budget, i.e., money, money, money!

However, money isn’t going to solve the problem. Proof? During the time of former President Benigno “Noynoy” Aquino III, the agricultural budget was doubled and corresponded to the total budget of three previous administrations. Let me quote the Department of Agriculture’s own press release at that time: “The DA received a total budget of P339 billion from 2011 to 2015, the highest budget ever allocated to the department in a span of five years. This corresponds to the budget allocated under three previous administrations — from the time of President Ramos in 1994 to the last year of President Arroyo in 2010.”

What was the result? The average agriculture growth during that time when the budget was doubled was 1.2% per annum, even lower than the average population growth and lower than the agricultural growth of the past five years. All that increased money just went down the drain, or is it down to the pockets of agricultural officials despite “walang korupt, walang mahirap”?

There was also that research study done by Melinda Limlengco, formerly of the University of Nagoya and currently at the International Rice Research Institute, which showed an insignificant correlation between the Department of Agriculture’s expenditures and agricultural production. In other words, we might as well abolish the DA because the organization has no effect on agricultural production. Give its budget away directly to the farmers and the farmers will be better off.

Any solution to the problem of food security must confront this bitter reality: the structure of our agriculture is traditional and small scale: the average farm size is one hectare or less, the average age of farmers is 55, and the average educational attainment is Grade 5. Most are part-time farmers because farming isn’t profitable.

More money isn’t going to change this structure. Neither will more protectionism.

The way forward is commercial agriculture or agri-business: the application of science, technology, management, and capital to increase farm productivity.

However, commercial agriculture is hindered by the restrictions in the Comprehensive Agrarian Reform Law (CARL). Agrarian reform beneficiaries (ARBs) are prohibited from selling or leasing their land if they still owe the government money from the land transferred to them. Most (at least 75% of all agrarian reform beneficiaries) are unable to pay (how can they, with small farm sizes, a high debt burden, and no access to financing?) This means that commercial farms can’t get any access to land because of these restrictions on leasing and sale of rural land.

Furthermore, the law prohibits successful farmers from expanding! Land retention limits are capped at five hectares. This is another crazy rule that self-imposes limits on increased supply. The law is telling the successful farmer who is producing say, eight tons of palay per hectare, that he has no right to buy out the neighboring farmer who produces an average of three tons per hectare so that he can increase the yield on the neighboring farm to also eight tons per hectare. No wonder young people are turning their backs on farming — the law is telling them they aren’t supposed to succeed.

The usual argument against amending CARL and promoting commercial agriculture is the bleeding-heart argument: Pity the poor farmer. He will be dispossessed of his land. The fallacy of this argument rests on the assumption that the farmer will become worse off — but will he? First, he won’t be forcibly dispossessed. He will just be given the freedom to sell or lease it. If he chooses to lease it, he will have a lease income. It’s possible for the lease income to increase over time as the land becomes more productive under commercial farming. Second, he will probably be better off as a farm worker on a commercial farm, entitled to minimum wages and social security benefits than if he were on his own, earning marginal incomes and facing weather-related and biosecurity risks.

How to sell reforms then? Perhaps, the Rice Tariffication Law and the CREATE (Corporate Recovery and Tax Incentives for Enterprises) bill give us the template: compensate the losers or give some, take some. In the Rice Tariffication Law, the tariff revenues went into a competitiveness fund. In CREATE, the rationalization of fiscal incentives was accompanied by a reduction in the corporate income tax rate. Not everybody is happy, but at least not everybody is unhappy.

In the case of amending the CARL, perhaps the give is the debt condonation to agrarian reform beneficiaries amounting to P58 billion. However, this won’t result in cash losses to the government, but is a mere write-off in its books (the debt is not being paid anyway.) Instead, it will serve the public good: the farmers will invest more now that they have been freed from the debt, but more importantly, it will free them to sell or lease their land — if they so choose. A freer rural land market is a necessary condition for commercial farming (and increased productivity) for the country to prosper.

This template can also be used for labor market reforms. Package portability of pensions, for example, in exchange for amending the labor security provisions in the Labor Code. Establish labor employment zones with no minimum wages in areas of high unemployment in exchange for a closed shop rule (mandatory membership in unions).

It would be a mistake to only give one part, say debt condonation, without using the opportunity to amend the CARL.

The status quo is untenable. But motherhood statements alone won’t make the problems go away. There must be a disruption of the status quo, so some will be unhappy. The vested interests are probably the noisiest. President Bongbong Marcos and his economic team will be tested, not by their technical know-how, but by how they sell the reforms and get them done.

 

Calixto V. Chikiamco is a member of the board of IDEA (Institute for Development and Econometric Analysis).

totivchiki@yahoo.com

A balanced view of the Marcos Jr. SONA

PRESIDENT Ferdinand R. Marcos, Jr. delivered his first State of the Nation Address during the joint session of the 19th Congress at the House of Representatives, Batasan complex, Quezon City, July 25. — PHILIPPINE STAR/KRIZ JOHN ROZALES

Just before President Ferdinand Marcos, Jr. presented his State of the Nation Address (SONA), I received a text message from my politically irreverent friend, Boom Buencamino. He said: “Even before [Marcos] delivers his SONA, I will already predict that his speech will live up to the expectations of both his supporters and critics.”

That was his usual self — dishing out ridicule and provoking people. But Boom was right. The behavior of Marcos Jr.’s supporters and critics was predictable. The supporters hailed his SONA; the critics disparaged it.

But Boom, comparing Marcos Jr.’s SONA to Rodrigo Duterte’s previous SONAs, was appreciative. “Thank God, ‘I will kill you’ was absent in Marcos’ SONA,” he said.

Marcos Jr.’s SONA likewise surprised the economists I know. Their threshold for a satisfactory SONA was low. In unison, they were relieved that Marcos Jr. didn’t mention the reversal of critical reforms. Prior to SONA and especially during the election campaign, Marcos Jr. said he favored the amendment of the Rice Tariffication Law (RTL) and the suspension of fuel taxes. Those proposals, while having populist appeal, would only increase the prices of food (in case RTL is reversed) and would trigger a fiscal crisis (if fuel taxes were suspended).

With regard to what the SONA contained, the priorities for legislation will, at the very least, do no serious harm.  That’s reassuring.

We can dispute, for example, the urgency or appropriateness of the National Government rightsizing program and the mandatory ROTC (Reserve Officers’ Training Corps) program, the favorite bills of President Marcos Jr. and Vice-President Sara Duterte, respectively. But these measures, even if debatable, will not result in causing more harm than good.

Marcos Jr. presented a laundry list for his first SONA. He enumerated a total of 19 bills. In truth, these 19 proposed measures are not on equal footing. For practical reasons, the administration must assign the proper weight and rank each according to preference. This prioritization can then guide Congress in making the timetable and sequencing the bills for deliberation.

Marcos Jr., too, wants to fund many programs and projects that encompass health and nutrition, agriculture, education, digital connectivity, infrastructure, social protection, and others. Some are questionable. Controversial is the idea of building specialty hospitals in places outside Metro Manila (the most applauded in Marcos’ speech!). The risk of serious harm is perhaps manageable, although one can argue that the opportunity cost for such undertakings is huge.

The emphasis given to specialty hospitals suggests a bias of Marcos Jr. to carry on his father’s legacy of establishing the Philippine Heart Center, the National Kidney and Transplant Institute, and the Lung Center. But in light of limited resources, creating more specialty hospitals will deprive much-needed resources for the pillar of universal healthcare coverage, which is primary healthcare. New resources will likewise be needed for pandemic resiliency like the creation of the Virology Institute, the National Disease Prevention Management Authority, and the Medical Reserve Corps.

The main challenge then is how his administration will fund all the programs and projects, including new ones, given a narrowing fiscal space. The fiscal space is further threatened by the hostile global environment characterized by a persistent pandemic, geopolitical conflicts, economic slowdown, higher interest rates, and supply shortages. While the Philippine’s debt remains manageable, further government borrowing can only be credible upon the administration showing it will significantly raise tax revenues.

The Marcos Jr. administration has included important parts of the fiscal consolidation program drafted by the Department of Finance (DoF) during the term of Sonny Dominguez. This is laudable. This shows policy continuity.

In particular, the Marcos Jr. administration will pursue at the outset the remaining packages of the Duterte tax reform, namely real property valuation reform and passive income and financial intermediary taxation. It must be clarified nevertheless that these revenue packages, designed to enhance equity and efficiency, are revenue neutral in the short run.

To augment the fiscal consolidation program, the administration wants to ensure that digital transactions are subject to the value-added tax (VAT). This is welcome because digital services remain under the radar of indirect taxes. However, per the estimate of government, the tax on digital transactions can yield P11.7 billion, an inadequate amount to support the increasing budget for old and new programs.

In this light, the DoF itself — echoed by prominent economists (see for example the columns of Diwa Guinigundo) — has recommended the increase in tax rates for sin products like alcohol, cigarettes, and electronic nicotine devices. The sin taxes are a reliable source of increasing revenues. These taxes also discourage the consumption of harmful goods. And they are efficient taxes, for they internalize the full social costs of products harmful to health.

To summarize, even as Marcos Jr.’s SONA contains the right elements, the essentials that will squarely tackle the binding constraints are lacking. On health, the overarching framework that is primary healthcare needs elaboration. On agriculture, we cannot discern a coherent plan that will provide access to affordable food and that will boost productivity. And on financing growth and development, we expect a bolder strategy to generate much higher revenues.

In closing, I share another friend’s insight. Preferring to remain anonymous, he said: “At best, his agenda struck me as motherhood statements with no clear strategies mentioned. I pray that he will be enlightened by the Holy Spirit to nevertheless do the right things for the people.”

 

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

www.aer.ph

The SONA I did not expect

PRESIDENT FERDINAND R. MARCOS JR. delivered his first State of the Nation Address during the joint session of the 19th Congress at the Batasan complex in Quezon City, July 25. — PHILIPPINE STAR/KRIZ JOHN ROSALES

It was a good SONA. President Ferdinand Marcos, Jr.’s first State of the Nation Address (SONA) was the least populist I’ve heard in a very long time. Save for one instance where he proposed to condone unpaid amortization owed by agrarian reform beneficiaries, the President did not pander to any other sector or constituency throughout his speech. In fact, he even proposed certain laws that railroad the interest of his closest allies. These laws include the enactment of the National Land Use Law, the amendment of the EPIRA Law (Electric Power Industry Reform Act), the Internet Transaction Act, and Tax Valuation Reform Bill. The SONA inspired cautioned confidence, especially for those who thought that crony capitalism will be making a comeback.

The President’s assessment of the country’s state of affairs was fairly accurate. On the economy, he recognized the need to raise national revenues and rationalize expenses to better manage the budget deficit and heavy debt load. To this, he proposed to raise funds by imposing VAT on the digital economy, and outlaw the under-declaration of taxable transactions and smuggling. On the expense side, he proposed right-sizing the bureaucracy and spending prioritization. All these, I concur with.

The President clearly defined his quantitative goals for the next six years. By 2028, he aspires to reduce the poverty rate to 9%; to ease inflation to 3%; to trim the budget deficit to 3% of GDP; and to maintain the peso to dollar rate at P55 to $1. He further aims to expand the economy by 6.5% to 8% from 2022 to 2028. All these I find realistic except for the exchange rate which is tied to external forces, not the least of which are the defensive policies of the US Federal Reserve.

He proposed the establishment of a Medium-Term Fiscal Strategy which spans six years. Said strategy is envisaged to be the basis for future budget appropriations by congress. It promotes transparency while ensuring the continuity of projects and spending efficiency. I concur with this too.

What I found lacking, however, is the aspiration to stage a manufacturing resurgence and to make the Philippines a prime investment destination and manufacturing hub to match Vietnam. While he did mention, in passing, that we must attract more foreign direct investments (FDIs), he failed to stress its importance nor elaborate on how it will be accomplished.

There is no getting away from it — we must increase our intake of foreign direct investments to accelerate our industrialization, decrease import dependence, and generate more export revenues. We must wean ourselves from being a predominantly consumer-lead economy to one balanced by production. It is through FDI’s that we can establish our supremacy not only in manufacturing but also in artificial intelligence, robotics, virtual and augmented reality, and nano-technology. Only then can we generate real wealth and realize the President’s quantitative goals.

That said, ease in doing business and lowering the cost of manufacturing must be high priority areas. We should also put teeth to the Inter-Agency Investment Promotional and Coordination Committee to focus on outward investment promotions.

On infrastructure, I laud his commitment not to suspend any of the projects that are in the pipeline and to sustain infrastructure spending at 5-6% of GDP. It is a wise decision too to harness private capital through Public-Private Partnerships.

The President spoke extensively about the importance of railways and his commitment to their development. He failed, however, to tackle the issue of airports, specifically NAIA’s congestion. How are we supposed to cope with the acute congestion when the Bulacan airport is still seven years away? And if the Caticlan airport is any indication of how San Miguel builds airports, I think we will find ourselves with a festering problem of operating with badly built, barebones edifices. It seems sensible for the government to pursue its plan to privatize NAIA and modernize it.

On energy, the selection of Raphael Lotilla as secretary inspires confidence. We were even more encouraged when the President called for the rationalization of the EPIRA Law while instructing the Department of Energy to build more power plants using a mix of traditional and renewable sources. He also called for the improvement of our transmission and distribution network. All these, taken collectively, should reduce power costs once and for all.

The President spoke about the possibility of including nuclear energy in our power source mix. Perhaps this was more a political statement than anything else. As we are all aware, most economies are veering away from nuclear due to its cost, safety concerns, and its environmental impact.

Tourism was singled out by the President not only as a driver of national revenues but also as a chance to improve our country branding. The President correctly stated that branding translates to national pride and a strong national identity. Branding also redounds to soft power or the ability to influence global decisions not through coercion but by persuasion.

No one knows the power of branding better than the Marcoses. We hope that within the next six years, the Philippines can re-establish its global gravitas in the areas of culture and heritage, good governance, our positive reputation, our diplomatic alliances and global connections, our openness for business, our technology adoption, the strength of our diplomatic missions abroad, and the level of talent of our people.

On education, many were relieved when the President declared that face-to-face classes will resume this August. He spoke about improving classrooms and augmenting learning tools with internet connectivity and gadgets. We can only hope that the Department of Information and Communications Technology can accelerate broadband connectivity in far flung islands and the national budget can support the capital outlay for gadgets.

The president reiterated the need to maintain our children’s proficiency in English. I totally agree. He spoke fleetingly about the need to improve STEM (science, technology, engineering, and math) learning which I consider critical for future competitiveness.

The problems of the education sector are complex. Suffice to say that all of the Department of Education’s programs need to be reviewed and rationalized. Among the problematic programs are the performance-based bonuses grated to teachers and auditors; curricula for primary and secondary levels; School-Based Management Program; Mother Tongue-Based Multilingual Education; (the lack of) High-Touch High-Tech learning; and teacher’s heavy administrative load, to name a few.

In foreign policy, the President declared, in no uncertain terms, that he will not allow even one inch of our sovereign territory to be subsumed by any foreign power. To this, I gave rousing applause, even if I was watching the SONA alone in my office.

President Marcos’ SONA exceeded my expectations. It was professional, comprehensive, and well-articulated. Above all, the 19 proposed priority bills were well considered. We hope for more of this style of governance. Marcos Jr. is off to a good start.

 

Andrew J. Masigan is an economist

andrew_rs6@yahoo.com

Facebook@AndrewJ. Masigan

Chile’s failed pensions are Neoliberalism’s badge of shame

IGNACIO AMENABAR-UNSPLASH

CHILE embraced neoliberalism more than almost any other nation, with its 1980 privatization of pensions a hallmark of its paradigm shift. The World Bank and International Monetary Fund were quick to laud General Augusto Pinochet’s government for the move, which more than two dozen nations copied, at least in part. Yet now the need for pension reform is one of the few issues on which Chile’s politicians and policymakers, whether right or left, agree. The system simply hasn’t delivered on its promises for retirees and taxpayers. And both as a symbol and a reality, this failure by a former economic star has fueled the widening rejection of neoliberalism and market-driven approaches in other policy areas.

Chile’s justification for eliminating public pay-as-you go programs (like Social Security in the US) and sending workers into a privately managed system of individual accounts was twofold: First, private funds would grow more and compound faster due to better management, meaning more money for retirement; second, the change would keep down public costs.

Four decades later, Chile’s system hasn’t worked as promised or expected. The creators anticipated that the average worker would save enough to earn 70% of their salary in retirement; the reality has been closer to one-third. They thought the new system would expand the number of workers with retirement funds; instead, nearly 40% of Chileans have nothing to fall back on.  Rather than improve the lives of Chile’s elderly, most pensioners live on less than the minimum wage, with women hit harder than men.

The private system hasn’t let the government off the financial hook either. The transition period was always going to be expensive as the government footed the bill for those retiring on the public dime without receiving payroll taxes (as these contributions all headed to private accounts). But the government has also had to backstop far more of the new system’s retirees than expected. Officials thought less than 10% of wage earners would rely on public largesse for a minimum pension. Today, more than 40% need the government to step in.

The biggest beneficiary turned out to be Chile’s capital markets. Pension fund managers invested tens of billions of dollars accumulated in individual accounts into local equities and bonds, expanding and deepening these markets. This helped domestic and international investors, as well as large corporations. It did less, at least directly, for the savers.

Why did Chile’s experiment fail? The low private payouts to retirees reflect in part low contributions. Unlike in the US, Europe, and other places, employers were not compelled to contribute. That was left to employees. At 10% of their salaries, the inflows often aren’t enough to retire on, even after compounding for years. Small sums in means small sums out.

Add to this the years many workers don’t contribute at all. With one in four jobs in Chile off the books, many workers will, at some or many points in their economically active lives, not contribute. The self-employed also could choose whether to join, and many didn’t. Sporadic contributions lowered retirement nest eggs too.

And particularly in the program’s early years, excessive fees cut the initial pot that could grow over workers’ lives. Chile’s pension funds charge on flows not assets. Many funds were initially taking 25 or even 30 pesos of every 100 off the top (rather than say one peso a year for 25-30 years). Commissions have fallen significantly since then. Still, many charge 10% or more of the initial payroll deposits as their fee. In contrast, the administrative fees for US Social Security are less than 2% (in part because there are no marketing costs). With fewer pesos invested and compounding over time, the non-wealthy have found it hard to accumulate enough for a decent pension, even with good returns.

Which gets to the biggest drawback of private accounts for social security: They don’t, and indeed can’t, pool risk across the population. Social insurance originated with European labor unions and mutual aid societies in the 19th century, with workers and participants contributing to support their own retirees. While the pooled funds benefited the poorest or unluckiest among them the most, the better off voluntarily paid in more than they got back for the peace of mind that, if their fortunes were to deteriorate, they too would rely on these excess contributions of the more well-to-do among the group. Public social security systems do this on a national scale, pooling risk across workers of all industries and redistributing the funds among all those that have retired (and met minimum requirements).

Private accounts, in contrast, only distribute risk over the lifetime of a particular individual. You save in your working years to fund your work-free ones. High income earners contribute more and get more, while minimum wage earners are often unable to save enough to avoid penury.

In the end, privately managed systems can’t help those who need more support in their final years. Pooling risk across the entire working population is more important in more unequal economies and societies, as income disparities are bigger and more consequential.

Previous governments in Chile have tried to fix these problems. In 2008 Michelle Bachelet’s government created public pensions for those whose savings didn’t amount to enough for a minimum pension, as well as those outside of the private system, expanding to nearly six in 10 wage earners. In 2021, President Sebastian Pinera, whose brother was one of the private system’s designers, expanded the public component even more to cover the bottom 80% of retirees.

Chile’s new president and congress look to go further. President Gabriel Boric will put forward a bill in August to raise the minimum pension from just under $200 to match Chile’s minimum wage of roughly $300 a month and make it available to all retirees. He would all but end the current private system by making a public pay-as-you-go system the main pillar of social security. Private accounts would be relegated to a more 401K-style option for voluntary retirement contributions.

But reforming the pension system is harder and more expensive today as Chileans are already quite old: There are just four workers for every retiree. This ratio looks to worsen in the years to come, surpassing that of the US by 2050. Boric wants employers to contribute too, increasing the amount of money set aside to fund retirement. He also is proposing specific non-payroll taxes to underwrite pensions and other social policies, including new mining royalties and a potential wealth tax.

Pensions were never a good fit for strictly private management, as basic building blocks of the welfare state are definitive public goods. Yet the failure of the system has reverberated beyond the retirees trying to make ends meet. Pensions became a leading cause for the millions of Chileans who took to the streets in protest in 2019, spurring the formation of a Constituent Assembly to write a new Constitution that will be voted on in September.

The best path for pensions would be a reform that ensures adequate retirements for more Chileans. This requires a more robust public system with dedicated funding to sustain it. If legislators can make this happen, they can reduce the financial hardship too many of Chile’s elderly now face. And, to the benefit of democracy in both Chile and its neighbors, they could also thereby restore at least some of the political legitimacy that the old system helped to put in doubt.

BLOOMBERG OPINION

Russia invites UN, Red Cross to investigate Ukraine jail deaths

Army soldier figurines are displayed in front of the Ukrainian and Russian flag colors background in this illustration taken, Feb. 13, 2022. — REUTERS/DADO RUVIC/ILLUSTRATION

KYIV — Russia on Sunday invited United Nations and Red Cross experts to probe the deaths of dozens of Ukrainian prisoners held by Moscow-backed separatists, while Ukraine’s president ordered the evacuation of residents in the eastern region of Donetsk.

President Volodymyr Zelensky said hundreds of thousands of people were still exposed to fierce fighting in the Donbas region, which contains Donetsk and Luhansk province.

“Many refuse to leave but it still needs to be done,” Mr. Zelensky said in a televised address late on Saturday. “The more people leave the Donetsk region now, the fewer people the Russian army will have time to kill.”

Ukraine and Russia have traded accusations over a missile strike or explosion early on Friday that appeared to have killed dozens of Ukrainian prisoners of war in the front-line town of Olenivka in eastern Donetsk.

Russia invited experts from the U.N. and Red Cross to probe the deaths “in the interests of conducting an objective investigation,” the defense ministry said on Sunday.

The ministry had published a list of 50 Ukrainian prisoners of war killed and 73 wounded in what it said was a Ukrainian military strike with a U.S.-made High Mobility Artillery Rocket System (HIMARS).

Ukraine’s armed forces denied responsibility, saying Russian artillery had targeted the prison to hide mistreatment there. Foreign Minister Dmytro Kuleba said on Friday Russia had committed a war crime and called for international condemnation.

Reuters journalists confirmed some of the deaths at the prison, but could not immediately verify the differing versions of events.

The U.N. had said it was prepared to send experts to investigate if it obtained consent from both parties. The International Committee of the Red Cross said it was seeking access and had offered to help evacuate the wounded.

Ukraine has accused Russia of atrocities against civilians and identified more than 10,000 possible war crimes. Russia denies targeting civilians and war crimes in the invasion it calls a “special operation”.

UKRAINIAN COUNTEROFFENSIVE
Ukraine’s military said on Saturday more than 100 Russian soldiers had been killed and seven tanks destroyed in the south on Friday, including the Kherson region that is the focus of Kyiv’s counteroffensive in that part of the country and a key link in Moscow’s supply lines.

Rail traffic to Kherson over the Dnipro River had been cut, the military’s southern command said, potentially further isolating Russian forces west of the river from supplies in occupied Crimea and the east.

South of the town of Bakhmut, which Russia has cited as a prime target in Donetsk, the Ukrainian military said Russian forces had been “partially successful” in establishing control over the settlement of Semyhirya by storming it from three directions.

Defense and intelligence officials from Britain, which has been one of Ukraine’s staunchest allies since Moscow invaded its neighbor on Feb. 24, portrayed Russian forces as struggling to maintain momentum.

Ukraine has used Western-supplied long-range missile systems to badly damage three bridges across the Dnipro in recent weeks, cutting off Kherson city and — in the assessment of British defense officials — leaving Russia’s 49th Army highly vulnerable on the river’s west bank.

Reuters could not independently verify the battlefield reports.

Officials from the Russian-appointed administration running the Kherson region earlier this week rejected Western and Ukrainian assessments of the situation.

On Friday the British ministry described the Russian government as “growing desperate”, having lost tens of thousands of soldiers in the war. British MI6 foreign intelligence agency chief Richard Moore added on Twitter that Russia is “running out of steam.” — Reuters

China air force, referring to Taiwan, vows to safeguard its ‘territorial integrity’

CHESS PIECES are seen in front of displayed China and Taiwan’s flags in this illustration taken Jan. 25, 2022. — REUTERS

BEIJING — China will “resolutely safeguard national sovereignty and territorial integrity,” an air force spokesman said on Sunday, referring to Taiwan, as tensions rise over the self-ruled island.

Air force spokesman Shen Jinke was quoted by state media as saying at a military airshow that the air force has many types of fighter jets capable of circling “the precious island of our motherland”.

US House of Representatives Speaker Nancy Pelosi, number 3 in the line of presidential succession, signaled on Friday she was embarking on a trip to Asia. She did not mention Taiwan, but speculation of a visit there has intensified in recent days, fueling tensions beyond the Taiwan Strait.

Beijing claims democratically ruled Taiwan as a Chinese province.

Chinese President Xi Jinping warned his US counterpart Joseph R. Biden on Thursday that Washington should abide by the one-China principle and “those who play with fire will perish by it.”

Shen said on Sunday: “The air force has the firm will, full confidence and sufficient capability to defend national sovereignty and territorial integrity.”

White House national security spokesperson John Kirby said on Friday the United States has seen no evidence of looming Chinese military activity against Taiwan. — Reuters

The ‘Great Resignation’ worked: Most job-swappers got a raise

COLIN WATTS-UNSPLASH

FOR THE MAJORITY of people who quit their job in search of higher pay elsewhere, the wager paid off.

Even as inflation soared, 60% of those who quit between April 2021 and March 2022 realized real wage gains, according to a new report by the Pew Research Center. Less than half of workers who remained loyal to their employers can say the same.

The so-called Great Resignation has brought massive upheaval in the labor market, with quit rates at highs possibly not seen since the 1970s. An average of 4 million workers quit each month from January to March this year, for an annual turnover rate of nearly 50 million workers — about 30% of the workforce — according to Pew’s analysis, which assumes workers don’t change jobs more than once a year.

The report analyzed data from the US Census Bureau, Bureau of Labor Statistics and a survey of about 6,000 American adults conducted in June and July of this year.

As employers have struggled to cope with chronic staffing shortages brought on by rapid turnover, most workers who quit did not immediately jump into a new job. For those who quit this year from January to March, two-thirds were not with a new employer the following month. Instead, almost half left the labor force, while another 18% remained unemployed.

Women who quit were more likely than men to take a break from the labor force, according to the research. Men with children were the least likely to do the same.

The window of opportunity for potential job-switchers may be closing. With fears of recession mounting, many considering a change may stay put for fear that a new, higher-paying gig may be more difficult to get. According to the report, about 20% of workers say they’re likely to look for a new job in the next six months, though nearly 40% say they think landing one will be difficult.

Those with the least sense of stability are more inclined to move, according to Pew, with 45% of those with little job security likely to look for work elsewhere, relative to just 14% of workers who feel most secure. Almost 30% of workers who are financially insecure are likely to consider a change, nearly twice as many who are financially stable. — Bloomberg

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