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Legislator asks power regulators to extend no-disconnection policy to end of January

A SENIOR PARTY-LIST legislator asked power-industry regulators to implement an installment-payment policy on power bills until Jan. 31, instead of allowing power companies to disconnect customers  who have fallen behind on their payments.

Representative Alfredo Garbin, Jr. of AKO BICOL, who co-chairs the House committee on justice, asked both the Energy Regulatory Commission and the National Electrification Administration to extend the no-disconnection policy, and also made a similar appeal to the government body managing the pandemic.

“I implore the Inter-Agency Task Force on Emerging Infectious Diseases (IATF-EID) to make no-disconnections its unequivocal policy so that no MSMEs (micro-, small-, and medium-sized enterprises) or retail consumers will have to needlessly suffer,” Mr. Garbin said over the weekend, noting that disconnections will affect countryside residents’ ability to engage in online learning or make contactless payments.

“We need more solar and wind power and mini-hydro power generation in the provinces. We need alternatives to coal, gas, and diesel-fueled power plants,” he added.

Separately, Albay Rep. Jose Maria Clemente S. Salceda said the new House leadership is working on measures that would lower energy costs.

“Most interested Japanese (investors) are in manufacturing, so if we can get energy costs down, we can amplify our other strengths, to attract them here and create well-paid jobs for Filipinos,” he said.

Mr. Salceda also urged Congress to pass the Corporate Recovery and Tax Incentives for Enterprises bill and investment liberalization measures such as the Public Service Act,  Foreign Investments Act, and Retail Trade Liberalization Act.

“The House has already approved them. All are pending in the Senate,” he said. “Unless we get all four items passed on time, we will remain among the most investment restrictive economies in the world.

The Organisation for Economic Co-operation and Development has ranked the Philippines as the most FDI-restrictive nation in ASEAN. — Kyle Aristophere T. Atienza

Makati passes right-of-way ordinance for subway project

THE Makati City government has passed an ordinance authorizing the acquisition of right of way covering the underground portions of nine roads affected by its subway project with Philippine Infradev Holdings, Inc.

The roads that will be affected by the project, according to Makati City’s Ordinance No. 2020-204 approved on Oct. 21, are: Sen. Gil Puyat Avenue, South Avenue, J.P. Rizal Avenue, J.P. Rizal Extension, Pablo Ocampo Sr. Extension (Vito Cruz Extension), Kalayaan Avenue, Epifanio de los Santos Avenue (EDSA), C-5 Road (Carlos P. Garcia Avenue), and San Guillermo Avenue.

The city ordinance said subsurface right of way needs to be acquired for the “staging, construction, operation, maintenance and development of the Makati Subway Project.”

It said the nine roads are in the road and bridge inventory of the Department of Public Works and Highways (DPWH) and fall under the jurisdiction of the department.

“Considering the importance of acquiring the easement of right of way of the subject roads for the benefit of the citizens of Makati, the City Government of Makati is constrained to acquire, through voluntary agreement or expropriation proceedings, an easement of right of way of the subject roads,” it added.

It cited Section 19 of the Local Government Code of 1991 or Republic Act No. 7160 as authorizing expropriations if needed.

Makati City said it has entered into negotiations with and made a “valid and definite offer” to the DPWH for the acquisition of right of way.

Philippine Infradev is building a $3.5-billion subway that will traverse the central business district of Makati City. The project will have 10 stations across a 10-kilometer line.

In September, the company signed a $1.21-billion engineering, procurement and construction contract with China Construction Second Engineering Bureau Co. Ltd. for the subway project.

Originally scheduled for completion in 2025, the subway is expected to carry about 700,000 passengers daily and reduce road traffic in the business district. — Arjay L. Balinbin

Insurers evaluating pay-per-use, small payments as users tighten belts

PHILSTAR/MICHAEL VARCAS

INSURERS said they are adjusting to the economic damage sustained by their clients during the pandemic by evaluating products like pay-per-use auto coverage and offering schemes that feature smaller payments.

The Philippine Insurers and Reinsurers Association (PIRA) said pay-per-use in auto insurance is a timely response to higher unemployment.

“With the domestic unemployment rate, fewer people can afford annual premiums. The premium may be smaller but the risks we’re going to cover are also reduced. With that the volume should also increase,” PIRA Executive Director Michael F. Rellosa said in a recent webinar.

The Insurance Institute for Asia and the Pacific (IIAP) said that the pay-per-use scheme also reflects the driving behavior of consumers.

“There are many ways to skin a cat. Consumes usually insure the most expensive car they’re going to use. In the Philippines, your most expensive cars are used only on Sundays, so just insure it for weekends,” IIAP Executive Director Francisco D. Papa, Jr. said in the webinar.

PIRA sees mobile applications like chatbots driving growth in pay-per-use auto insurance, saying the digital tool has the potential to “grow on you” over time.

Amir Shevat, the webinar’s guest speaker and a former Microsoft Corp. and Amazon.com, Inc. executive, said more chatbots are now designed to offer low-cost insurance in small transactions.

“In our study in India, the minimum amount for apps at that time was $1. We switched to 5 cents minimum and they were willing to pay but are willing to pay in small chunks. Look at how people are willing to spend less but transactions (that) will last for a long time,” Mr. Shevat said.

He said technology firms are upgrading chatbots to equip them not also with human-like intelligence but also feelings. He added chatbots can now detect stress or sadness in users, potentially helping insurers adjust their selling pitches.

“They give it human traits and so the user will not understand it’s a robot but just a service that is always polite and willing to listen to their long stories. We found a lot of people tend to have positive feelings toward chatbots which use emotions in the text,” Mr. Shevat said.

He said chatbots will likely attract younger clients.

“For young people, talking to software is more intuitive. For voice-enabled gadgets like Alexa and Siri, they tend to go to the young population,” Mr. Shevat said. — Kathryn Kristina T. Jose

Energy dep’t approves formation of new WESM compliance committee

A NEW committee overseeing the electricity spot market will be formed soon to monitor its operations and adjudicate rules breaches, the Department of Energy (DoE) said.

The DoE effected the changes via amendments to the Wholesale Electricity Spot Market (WESM) rules.

In a circular published in a newspaper over the weekend, the DoE approved a new provision that creates a compliance committee, to be supported by the existing Enforcement and Compliance Office.

The Philippine Electricity Market Corp., the governance arm of the WESM, will be appointing the committee members, who must not have ties to the power industry and are not in government.

The unit’s responsibilities include reviewing and monitoring the compliance of the Independent Electricity Market Operator of the Philippines, or the market operator, and the system operator in regard to their functions and obligations under the WESM rules and manuals.

The compliance committee will also preside over investigations into rules breaches after fact-finding by the Enforcement and Compliance Office, and will recommend sanctions.

It will also have the power to propose future amendments to the market’s rules and manuals.

Pending the formation of the committee, its responsibilities will be performed by the market surveillance committee.

The rule and manual changes in WESM are part of its transition to a new system that is targeted for launch in December. — Adam J. Ang

Energy committee chairman flags P2.5B in unliquidated subsidies to rural utilities

THE National Electrification Administration (NEA) violated its own policy of halting subsidies to rural utilities with a backlog of unliquidated previous funding, the chairman of the Senate energy committee said.

Senator Sherwin T. Gatchalian said P2.5 billion in subsidies remain unaccounted for between 2016 and 2019, citing reports from the Commission on Audit.

He said the NEA apparently violated its own 2016 order, which states that “no new subsidy fund will be released to the EC (electric cooperatives) for new Sitio Electrification Program or Barangay Line Enhancement Program projects unless the previously funded projects are completed and funds are fully liquidated.”

The NEA in its response said the bulk of the amount, or P2.3 billion, involves ongoing projects while the completed ones still require inspection prior to acceptance by the agency.

“Only around P200 million are due for liquidation,” said Milagros A. Robles, NEA’s Financial Services Department manager, during a Senate committee hearing on its proposed budget for 2021.

“There must be some end to this because this is a hanging issue,” Mr. Gatchalian said, noting that the agency kept lending to electric cooperatives despite unliquidated balances.

“In 2021, we need to make sure that this does not happen again, and you (will) have reforms implemented so these (unliquidated balances) will not grow,” he added.

Due to travel restrictions imposed during the pandemic, the agency cannot conduct physical inspections of completed projects. Earlier in the month, it adopted virtual checks of electrification projects in remote communities.

The NEA has yet to update the number of unaccounted subsidies issued to rural utilities.

In 2021, the government has allocated P1.6 billion for the electric cooperatives’ Sitio Electrification Program, sufficient for 1,085 sitios, according to NEA. There are still some 12,000 rural villages or 1.7 million households that are yet to be energized.

The agency initially requested P7.5 billion from the Budget department for the program next year, and has said it needs around P15 billion to achieve full electrification by 2022.

As of June, there were 13.85 million powered households out of 14.34 million still unenergized communities, based on data from the 2015 census. — Adam J. Ang

Digital transactions on the rise: Are they taxable?

(Second of two parts)

In last week’s article, we discussed the rise of digital transactions, House Bill No. 7425, and how it proposes to add another section in the Tax Code, which requires non-resident Digital Service Providers (DSPs) to collect and remit the VAT in transactions that go through its platform. We also defined DSPs as a provider of a digital service or goods to a buyer through operating an online platform for the purpose of buying and selling of goods or services, or by making transactions for the provision of digital services on behalf of any person.

In the second part of this article, we will discuss how a VAT-registered non-resident DSP may issue an electronic invoice or receipt to substantiate transactions; the proposed amended VAT exemption on the sale, import, printing or publication of books; and the state of our digital tax laws compared with neighboring ASEAN countries.

ELECTRONIC INVOICING
A VAT-registered non-resident DSP may issue an electronic invoice or receipt to substantiate a transaction. Note that the TRAIN Law requires taxpayers engaged in e-commerce, among others, to issue electronic receipts or sales invoices in lieu of manual receipts or invoices within five years from the effectivity of the TRAIN law (on or before Jan. 1, 2023, subject to the establishment of a reliable system capable of storing and processing the required data). The e-invoicing will effectively create a mechanism for the BIR to properly monitor transactions conducted over the internet and increase the efficiency of tax administration.1

The BIR is also required to establish a simplified automated registration system for nonresident DSPs. However, a transitory period of 180 days from the effectivity of the Act is provided to enable the BIR to establish implementation systems before VAT is imposed on the DSPs.

There may be challenges to ensure the proper monitoring and compliance of non-resident DSPs with the required BIR registration and payment of the appropriate tax. A similar challenge also applies to resident suppliers of electronic or online sale of services.

The BIR was given only 180 days to create a simple yet efficient automated registration system for non-resident DSPs.  Is this enough time for the BIR?

Without efficient monitoring, it may be very difficult to implement and properly collect taxes. We also note that although most of the amendments are seemingly focused on VAT, it is not the DSPs that are being taxed but the consumers with the DSPs acting as a medium to collect VAT from their buyers.

BOOKS SOLD ELECTRONICALLY OR ONLINE
Another provision that the House Bill seeks to amend is on VAT exempt transactions. Currently, the Tax Code provides VAT exemption on the sale, import, printing or publication of books, newspapers, magazines, reviews or bulletins. RMC No. 75-2012 clarified that to be exempt, these should be materials in hard copy. The VAT exemption does not cover those in digital or electronic format or computerized versions.

However, under the proposed House Bill No. 7425, it amended Section 109 (Exempt Transactions) to include books, newspapers, magazines, journals, reviews and bulletins that are sold electronically or online as VAT exempt.

With schools now conducting online classes as the new normal, both educators and learners will need more convenient access to e-books or other educational materials in digital format. The proposed amendment will greatly support the academe in providing affordable quality education.

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
It is also worth mentioning that over the years, there have been global developments in digital tax. In 2015, the OECD published the Base Erosion and Profits Shifting (BEPS) Action 1 Report which recognized the broader tax challenges of the digital economy, in relation to nexus, data and characterization.

In 2019, the members of the OECD or G20 released a Program of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalization of the Economy which focused on a Two-Pillar Approach. Pillar One covers the allocation of taxing rights and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules, while Pillar Two focuses on the remaining BEPS issues. A final report which will set out the technical details of the consensus-based solution is targeted to be released by the end of 2020. The Philippines may very well follow suit in the near future.

CATCHING UP WITH ASEAN MEMBER COUNTRIES
The additional tax compliance requirements will certainly have an impact on businesses involved in digital services, especially non-residents. These requirements may be daunting and may pose additional burdens to doing business in the Philippines. On the other hand, the proposed bill may be seen as setting the country out on the right track.  Our digital tax laws need to catch up with those of our ASEAN neighbors, which have started imposing either VAT or GST on digital transactions.

Indonesia introduced Reg 48/2020 in May which imposes a 10% VAT, effective July 1, 2020, on cross-border digital transactions. Singapore implemented a new Overseas Vendor Registration (OVR) system which requires foreign digital service providers to register and be charged 7% GST starting Jan. 1, 2020.

Malaysia imposed a 6% Digital Service Tax effective Jan. 1, 2020, on its foreign digital service providers. Laos has been implementing a 10% VAT on supplies of goods and services by electronic means since December 2018, upon effectivity of its amended VAT law.

In Thailand, a draft amendment to the Revenue Code has been approved by the cabinet which would require foreign electronic service providers to pay 7% VAT on digital services. The draft has yet to be approved by parliament.

In this evolving digital era where technology constantly transforms and businesses continue to innovate, the tax ecosystem may falter if its laws fail to adapt to the changing times. Modernization and digitization challenge antiquated tax laws. Progress dictates that such laws be revisited for the benefit of national development.

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.

 

Jan Kriezl M. Catipay is a Tax Senior Director from the Global Compliance Reporting Service Line of SGV & Co.

The long road to reform

 

Policy reform is a complex undertaking in our country. The weakness of our institutions and the bureaucracy’s vulnerability to political pressures often lead to constraints imposed on activists and reformers.

In recent years, circumstances surrounding reform have become more complicated. While President Rodrigo Duterte brands himself as a populist and, in the past, has supported bills enhancing social protection (universal health care and free tertiary education in state universities, for example), his authoritarian politics tells us a different story. Under his regime, there have been rampant human rights violations, attacks on truth and democracy, and an all-out war against the poor and vulnerable, to name a few.

Although many factors arising from Duterte’s presidency serve as opportunities and imperatives for reform, it can be challenging to push for transformative policy reform in the context of our struggling democracy and fragmented political arena.

It is within these political challenges that non-governmental organizations pursuing policy reform find themselves situated. In the book Thinking and Working Politically in Development: Coalitions for Change in the Philippines, Jaime Faustino and John T. Sidel narrate the story of The Asia Foundation’s Coalitions for Change (CfC) program from 2012-2018 and the political obstacles it faced in the long, winding, multiple paths to policy reform. CfC started in 2012 as a partnership with the Australian Embassy, in an effort to “do development differently” and “think and work politically.”

There is much insight to gain from the diverse policy reform initiatives, ranging from the sin tax reform campaign led by Action for Economic Reforms (AER), to pushing for education reform and classroom decongestion in partnership with the Department of Education, to electoral reform with Legal Network for Truthful Elections, Parish Pastoral Council for Responsible Voting (PPCRV), and other civil society organizations.

While the book highlights the genuine transformations and policy gains brought about by CfC and its diverse, committed coalitions, it also doesn’t shy away from discussing its failures.

For example, in 2012, CfC provided support to the PPCRV in re-registering Autonomous Region in Muslim Mindanao (ARMM) voters to reduce ghost voters and electoral fraud. They “cleansed” almost 600,000 fictitious or underage voters from ARMM. However, these gains were quickly reversed by 2016 when entrenched local political bosses were reelected, and suspiciously high voter turnouts prevailed in the region, implying that voters were still susceptible to vote buying and manipulation. Faustino and Sidel identify the problem with this engagement: CfC was responsive to the PPCRV initiative rather than proactive. They didn’t change the electoral process nor overcome the political obstacle of deeply entrenched warlordism. Thus, it was not as effective, sustainable, or impactful as their other projects.

Still, the bright spots in CfC outweigh the disappointments. It triumphed in reducing school congestion, releasing public school teachers from compulsory election day duties, enabling titling of land for public schools and government buildings, and creating new procedures for persons with disabilities  in elections, among others.

What the CfC program shows us is that transformational change is rooted in politically contextualized, independent, iterative, adaptive policy advocacy work. Faustino and Sidel noted that when CfC worked autonomously, rather than supporting a predetermined agenda, it was more likely to produce a greater impact.

In the case of its informal settler family relocation program, for example, it was limited by its role within the parameters of the pre-existing government program. It was not able to adapt and overcome the tense political dynamics involving the Housing and Urban Development Coordinating Council, Department of the Interior and Local Government, Department of Social Welfare and Development, and local government units, and thus did not succeed.

Rather, CfC succeeded when it was able to innovate and work autonomously. When it did innovative and adaptive policy work by revising the rules of the National Disaster Risk Reduction and Management fund in Republic Act (RA) 10121, it successfully led to more proactive funding to support local government units.

Faustino and Sidel stressed that in “thinking and working politically,” there is no one cookie-cutter approach nor one-size-fits-all. There are many disappointments and delays in the process of pushing for policy reform. Thus, the need for flexibility, adaptation and iteration — the openness to test, re-test, learn and respond accordingly.

What does it mean to think and work politically in development? Perhaps the key insight I picked up from the book was the need for compromise. Most reforms will receive opposition, like AER’s push for higher sin taxes, which was highly contested by the powerful tobacco industry and the politicians from the Northern bloc of tobacco-growing provinces.

With so many conflicting interests and political constraints, locking in policy reform often entails being realistic and picking one’s battles, knowing when to toe the line and compromise. The lessons from CfC emphasize the need to pursue initiatives that are, in Faustino and Sidel’s words, “technically desirable and politically feasible.”

 

Pia Rodrigois the communication officer of Action for Economic Reforms (www.aer.ph). The book Thinking and Working Politically in Development: Coalitions for Change in the Philippines can be downloaded here: https://asiafoundation.org/wp-content/uploads/2020/07/Thinking-and-Working-Politically-in-Development_Coalitions-for-Change-in-the-Philippines_Faustino_Sidel.pdf.

Vietnam rising: Does being a ‘currency manipulator’ matter?

The great buzz in the COVID-19 pandemic era apart from the COVID-19 crisis itself, and one that we will recall long after the COVID-19 crisis has receded, is how Vietnam is doing it. R. Sharma writes in the New York Times (Oct. 13, https://www.nytimes.com/column/ruchir-sharma) the rhetorical question, “Is Vietnam the Next ‘Asian Miracle’?” In 2020, Vietnam is set to grow at 3% while the Philippines is set to contract at 7-9% along with other countries. But there is no mystery about how Vietnam is doing it. Sharma states it plainly: “For now, Vietnam looks like a miracle from a bygone era, exporting its way to prosperity.” Bygone because Vietnam’s recipe for success is the very same one that was ridden by the East Asian miracle economies: the East Asian model. In the wake of the 1998 Asian Financial Crisis, western pundits and the Western thinking-dominated multilaterals, notably the IMF and the World Bank, silently rejoicing at the stumble of East Asian exceptionalism, had declared it dead.

Now multinational corporations of every stripe and color are flocking to Vietnam’s export processing zones. Chinese multinational corporations (MNCs) — fleeing both the higher labor cost and US trade sanctions on China — have joined the frenzy. Ironic that Chinese MNCs are hardly a presence in the Philippines after all the courting of Xi by Malacañang. Vietnam knows China is the template and that means going big on slipstream industrialization as an export platform. Vietnam’s exports grew on average 16% a year for decades now, twice the growth of Philippine exports of 8.6%. Today about 80% of Vietnam’s exports come from companies with FDI elements. As late as 2005, about 50% of China’s own exports were produced by foreign investors finding export platform comfort in the People’s Republic of China! Salient among them was, and still is, Foxconn Corp., then a fledgling Taiwanese original equipment manufacturer that located in China in 1988 which is now the largest manufacturing company in the world. Even multinationals with a presence in Philippine economic zones are finding it congenial to expand in Vietnam. Philippine FDI contracted 33% from January to October while Vietnam’s rose by $9 billion from January to June this year!

More indications that the East Asian Model is alive and kicking: Vietnam’s infrastructure spending is 8% of GDP, which dwarfs the Philippines’ at hardly 5%. Foreign capital pouring into Vietnam largely finances durable export factories creating durable jobs in Manufacturing, rather than fickle portfolio capital and debt instrument-based dollar inflows often celebrated as newsworthy in the Philippines. Vietnam is rapidly growing while exhibiting a growing trade surplus — the unfailing footprint of East Asian miracle economies! Never had a trade surplus graced the Philippine economy in recent memory.

In the past, Western developed countries took offence over growing trade deficits against other developed countries but hardly against poor countries. Now, in the twilight of the West’s economic hegemony, retaliation is foisted even against poor countries. The US State Department has launched a currency manipulator inquiry against Vietnam (Financial Times, Oct. 3, https://www.ft.com/content/ec3c8461-09ce-47dc-91fc-2e1473422685) because of its persistent trade surplus against the USA. Proof unfailing that Vietnam is doing right by its people. Would that someday the Philippines too will earn the coveted mantle of currency manipulator! Judging by the monetary and fiscal policies being laid down in 2020, it will be a long wait.

We now have the longest COVID-19-related lockdown; we are now top of the heap in prospective economic contraction between 2019 and 2025; our farm sector is top of the region in producing poverty. We were the worst performing country in the last PISA (Program for International Student Assessment) math and science ranking. We seem to get great comfort from being top of the heap in the wrong things! Look at our exchange rate.

The Philippine peso leads the region in currency appreciation even as the economy confronts the worst economic contraction in history. Figure 1 shows the peso-dollar exchange rate falling from P52 per US$ in late 2019 to P48.5 per US$ in September 2020. The government spins this as spelling confidence in our economy. But it is just a simple case of the collapse in demand for dollars falling faster than its supply and resulting in a rising forex reserve (now at $100 billion): imports have collapsed but foreign borrowing has risen.

The stronger the domestic currency of an emerging economy, the weaker is its economic prospect. The stronger peso makes our exports less competitive; heftily rewards importers and smugglers, especially of basic products (chicken, luya (ginger), fruits); makes foreign investors sneer at our export platform drive.

By way of contrast, Figure 2 from the same source gives the trajectory of the Vietnamese Dong against the US$ during the same period. Despite the burgeoning trade surplus, the Vietnamese monetary authority not only kept the appreciation pressure of the Dong in check but even had a depreciation spell in April 2020. Reminiscent of what the Chinese did for the Yuan during much of the last two decades! Vietnam, following its mentor China, has now earned the “currency manipulator” label from the US — much coveted since it seems to predict subsequent success. Past currency manipulators according to the US State Department are South Korea, Taiwan, China, and India. Not for Vietnam is our Bangko Sentral’s and the US State Department’s beloved mantra: “market-determined exchange rate.” Like us, Vietnam enjoys monetary independence; but unlike us, it is aggressively deploying it to lift its poor from poverty!

Moreover, our economic authorities are about to hit foreign investors with higher income tax with the mandatory shift to corporate income taxation of 25% in CREATE for Philippine Economic Zone Authority (PEZA) locators: the equivalent of the 5% gross income tax currently enjoyed by PEZA locators is 17% corporate income tax (CIT). The noise from the political center on the rule of law only makes matters worse: the Philippine government keeps foisting expropriation threats upon private companies who, though playing by agreed rules, do not fit its arbitrary definition of populist corporate behavior.

Indeed the Vietnamese and Chinese successes with relatively fixed exchange rates may not be the exception. New evidence now strongly suggests that “less flexibility” in exchange rate regimes does better for long-term growth than the so-called “market determined exchange rate.” J. Frenkel et al. (2019, https://scholar.harvard.edu/frankel/publications/impact-exchange-rate-regimes-economic-growth-continuous-classification-de-facto) reports that relatively fixed exchange rate regimes perform better than more flexible regimes in economic growth for a large panel data starting from Bretton Woods era.

How sad that the Philippines will soon be huffing and puffing in Vietnam’s dust reprising the breathing problem we had when we moved into the rear-view mirror of Thailand and Indonesia. We still haven’t learned our lesson!

 

Raul V. Fabella is a retired professor of the UP School of Economics, a member of the National Academy of Science and Technology and an honorary professor of the Asian Institute of Management. He gets his dopamine fix from bicycling and tending flowers with wife Teena.

Debt at a time of coronavirus

It might have been death by coronavirus as the COVID-19 pandemic choked the economy and strangled many businesses to bankruptcy. But more than the abstraction that is the economy, or the corporate fiction that a business could be, the flesh and blood individual struggling with his threatened physical health even while anxious over dwindling material wealth is COVID’s ultimate victim.

The Bayanihan to Recover as One Act or Bayanihan II was passed by both houses of Congress and signed into law by President Rodrigo Duterte on Sept. 11. For the main aspects of Bayanihan II under his implementation, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said at a press conference, “the 60-day loan payment moratorium provides much-needed relief to consumers and businesses as they rebuild their way out of this crisis. The BSP supports bold measures meant to steer the country towards inclusive economic recovery.”

The BSP has ordered all supervised financial institutions — universal and commercial banks, thrift banks, rural banks, cooperative banks, savings and loan associations, and pawnshops, including credit card companies — “to implement this mandatory, one-time, 60-day grace period to all loans of individuals and entities that are existing, current and outstanding, falling due, or any part thereof, on or before Dec. 31, 2020.”

These institutions shall not charge or apply interest on interest, penalties, fees or other charges during the mandatory grace period to future payments or amortizations of the borrowers, and are likewise prohibited from requiring their clients to waive the application of the provisions of the Bayanihan II law, which aims to provide relief to various sectors of the economy reeling from the coronavirus pandemic. Loans that are considered past due as of Sept. 15, 2020 are not eligible for the mandatory grace period.

Regular interest will be charged per installment period, based on the outstanding principal balance of the loan, and shall continue to accrue during the grace period, payable on the new due date following the 60-day grace period, unless the borrower may voluntarily want to pay the accrued interest on a staggered basis until the end of this year.

The mandatory 60-day grace period, in effect, moves the payment due dates of the entire loan, thereby extending the loan maturity. This reprieve is certainly a blessing for borrowers, in this time when cash inflows have been drying up, and priorities are for health and survival. But what happens after Dec. 19, when payments mature and amortizations resume?

After tensions have been eased, and borrowings pushed back in memory, will there be the wherewithal to step up to fulfill financial obligations that then insinuate back into tight (or negative) budgets? Beneficiaries of the moratorium will have spent the money elsewhere that should have paid for loans in the reprieve. Will some dramatically improved economic scenario have presented itself in the 60 days of grace, to override the restraints of the coronavirus on productive activities? Will businesses have revived? Will the unemployed have found jobs?

The original proposed bill in the House of Representatives was for a year-long moratorium on loan payments but this was opposed by banks and government regulators, citing the potential risks to the banking system and the Philippine economy of a prolonged delay in loan payments. The Senate wanted a 45-day moratorium, until the 60-day compromise was reached during the bicameral conference committee meetings. Can the optimal duration of the loan moratorium as a reprieve for the suffering people ever be determined when it is not even known when a vaccine for COVID-19 will be found to ease anxieties and fears for health and survival, such opacity haranguing hopes for economic recovery in the foreseeable future?

Yet the BSP’s Diokno urges banks to lend to medium, small and micro-enterprises or MSMEs, which he said account for 63% of all employment and 99% of all firms in the country. A boost to the economy. But a check with an account officer in one of the biggest commercial/universal banks in the country said the interest rates for loans have not changed — the rates before the declaration of the COVID-19 pandemic in March are the same interest rates now, in the prevailing general community quarantine (GCQ).

Banks can lend to SMEs and MSMEs at 6% to 7% p.a., usually amortized over 10-15 years, at 80% of appraised collateral value, and based on projected income capacity. Personal loans (clean) are at 1.2% down to 0.98% per month, auto debited from deposit accounts. Unpaid credit card payables are to be charged 2% per month or 24% per annum all-in, now the maximum allowed effective Nov. 3. Auto loans are for five years effectively at 26.98% total interest paid for the five years. Housing loans are like business loans at 6%-7% at 0.8 collateral and amortized over 10-15 years, renewable.

Deposit rates have stooped to below 1% p.a. (to 1.3% for time) while lending rates stood firm even as the BSP dropped the key reference rate to 2.25%, the lowest in history, “to support the economy amid the ill effects of the COVID-19 crisis.” Government securities plunged to measly rates and yields of 1.0+%, not quite covering estimated inflation of 2.3%, which has been held down by lower world crude prices and a stronger peso.

The economy is officially in a recession following a steep 16.5% contraction in the second quarter that followed a 0.7% slide in the first three months of 2020, officials reiterated in October. “The Duterte administration expects to return to its old growth path of above 6% in 2021, but banks and development institutions are not as optimistic. The World Bank pointed out that the rebound will depend largely on the government’s ability to contain local COVID-19 infections,” a CNN Philippines news-analysis concluded (Oct. 1).

Banks are not as optimistic, it is said. Noblesse oblige it was, for the banks and financial institutions to accede to the 60-day loan moratorium orders of the BSP under Bayanihan II, for how could they have said no to the challenge to help out in the pandemonic coronavirus crisis? Good that the mandated moratorium was shortened from the original one-year that House representatives so magnanimously first proposed, so presumptively in their behalf. In August, before HB 6953 was decided, even Diokno was one with the Bankers’ Association of the Philippines (BAP) and the Management Association of the Philippines (MAP) that the then-proposed 365-day loan moratorium “will pose serious risks to the soundness of banks and financial stability in general” and will deter economic recovery.

MAP Chief Francis Lim noted that “based on available figures, at least P11 trillion, or roughly 78% of the total P14-trillion deposits have been loaned to the public. Around 70% of the depositors are nonborrowers.” In May, banks already worried about possible increase in the number of non-performing loans (NPLs — loans past due for 90 days) as businesses reel from the effects of the COVID-19 pandemic. Diokno said then that “banks’ NPL is just 2.1% of their total loan portfolio, and 5% will still be manageable… Our banking system remains adequately capitalized and stable and has adequate buffers to withstand the impact of the COVID-19 situation,” he said (ABS-CBN, May 7).

Comparatively, China’s pre-COVID NPL ratio was 1.8%; Hong Kong’s 0.6%; and Singapore’s 1.3%, according to the International Monetary Fund. The NPL ratio in India, the third-largest economy in the region behind China and Japan, was 8.9% at the end of last year’s first quarter, and in the United States, it was 0.9% before COVID. But way back in February, the South China Morning Post quoted credit ratings agency Moody’s Investor Service that NPLs will increase in the coronavirus pandemic, and banks will have to set higher provisions for higher risks of default.

Borrowers may not have “buffers” or relief, even with a 60-day loan moratorium. They will have to pay their debts and accrued interests anyway and anyhow on Dec. 19, just before the lost Christmas in the time of the coronavirus.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

Lessons learned in innovation and intrapreneurship

Businesses were so complacent in the pre-COVID days that innovation was something done only when absolutely necessary. Most companies resisted innovation as it usually entailed large investments and required management to step out of their comfort zones. Innovation is always expensive and hard.

Only when businesses are desperate do they actively pursue innovation. We faced that desperation two years ago when a competitor entered the market with a new concept and grabbed market share from us. The threat of competition forced us to rethink our entire business model and compelled us to strengthen the areas where we were less competitive.

The pandemic accelerated the need for top to bottom innovation. Overnight, customer preferences reverted to the bare basics, concerns over hygiene became more important than price, government regulations turned more stringent, and channels of sales shifted from brick and mortar stores to online platforms. And because consumer demand weakened drastically, organizations needed to down-size and restructure.

In one fell swoop, business conditions took a 180 degree turn and companies had to figure out how to make their products align with the needs of customers today and how to make their services stay relevant. Our company was not exempt from the COVID-19 tidal wave. As most of my readers know, one of my businesses is a restaurant group and it was severely affected by the pandemic. It reached a point where the very survival of our business depended on how fast we could innovate and adapt to the new normal.

As the chairman of the company, I needed to ignite a culture of innovation within our organization — and there was no time to waste. Everyone had to participate in the effort. It was then that I decided to launch our own intrapreneurship program.

Champions of innovation within an existing organization are known as “intrapreneurs.” They are employees who think like entrepreneurs but work in an established organization rather than on their own. For them to thrive, they must be given the time and freedom to develop their projects as an entrepreneur would. They should also be given the liberty to leverage the company’s resources for testing their ideas.

Developing intrapreneurs requires a change in paradigm. See, most corporations, like ours, train their employees to follow rules, to be team players and to conform to standard procedures. Non-conformists are frowned upon and deemed not a match to the company culture. To create an environment conducive to innovation, we needed to change the people’s mindsets and encourage employees to question the status quo.

Promoting intrapreneurship is a way of unlocking the wealth of ideas among employees that otherwise remain untapped. On the employee’s side, it makes them feel empowered and trusted. It helps boost morale and retention. It is a win-win situation.

I knew I was treading a slippery slope when I first embarked on an intrapreneurship program. Done carelessly, the change in mindset could confuse our employees and/or drive them to act recklessly. This is why I was very deliberate from the get go as should anyone doing the same. Let me share some of the best practices that worked for us.

A safe environment. We made it a point to assure our employees that it is safe to think outside the box and challenge the norm. No one will be judged or castigated for it.

Transparency is key. We purposely conveyed our intent to break apart the present systems and spelled out the reasons why we needed to do so. We made sure that our employees understood the rationale of the program as well as our goals and desired outcomes.

Setting directions and parameters. New ideas are great, but we made it clear that our employees should focus their time and energies on ideas that enhanced the company’s core business. Our senior managers sat down with our intrapreneurial teams and discussed our problems and what needed to be solved. We described the types of ideas, solutions and changes we were looking for. This gave our people the direction and the baseline with which to work.

Work in teams. Intrapreneurs work best in teams, this is why we formed innovation clusters based on the complementary skill-sets of each member.

Islands of Freedom. The teams were given islands of freedom and the resources to conduct experiments to test their ideas. They were set free and not micro managed. Note, we realized that too much freedom could be dangerous. Since intrapreneurs do not own the resources they are working with, the likelihood of them being careless with it was high. This is why we instilled a sense of urgency among the teams to fix problems, large or small, before they escalate. The teams were made accountable for mistakes borne out of carelessness.

Competition is good. Like entrepreneurs, intrapreneurial employees need healthy competition to get motivated and do the best job they can. Thus, we made the teams compete with each other. We made it clear, however, that the success of one team is intertwined with the success of the entire organization.

Reward and remunerate. In any intrapreneurial program, the company will end up owning the intellectual property rights for all innovations or inventions. Similarly, the company has all the rights to the profits derived from the intrapreneur’s work. That said, we made a commitment to give both recognition and financial recognition to those whose ideas were implemented.

Our intrapreneurship program was a success. After three months, we were able to roll-out new menus for our restaurants, reposition our concepts to attract new customers, expand to an online platform and work with fewer staff on the back of more efficient systems. Although the pandemic is far from over, we are in a better position to see it through to the end than we were six months ago. We literally innovated our way out of the COVID-19 crisis and I believe we are a stronger company for it.

Establishing an intrapreneurship program to find creative solutions to complex problems is a powerful management tool which I highly recommend.

 

Andrew J. Masigan is an economist

Rays rally for two runs in 9th to stun Dodgers, 8-7, even series

BRETT Phillips singled to send home the game-winning runs in the bottom of the ninth inning as the Tampa Bay Rays rallied past the Los Angeles Dodgers 8-7 in Game 4 of the World Series on Saturday night at Arlington, Texas.

Phillips, who came on as a defensive replacement in the top of the inning, singled home Kevin Kiermaier with two outs. Randy Arozarena also scored on an errant throw from center that got away from the catcher, as Tampa Bay completed the comeback off Kenley Jansen (0-1) to knot the series at two wins apiece.

Game 5 will take place today.

Brandon Lowe hit a three-run home run for the Rays, and Arozarena, Hunter Renfroe and Kiermaier each hit solo shots. John Curtiss (1-0) earned the win in relief.

Corey Seager had given the Dodgers a 7-6 lead in the eighth. He finished with a home run and four hits, as did Justin Turner. All seven Los Angeles runs were scored with two outs.

The Dodgers led 4-2 entering the bottom of the sixth before Lowe hit his third homer of the series the opposite way off Pedro Baez for a one-run Rays lead.

Los Angeles wasted no time battling back as Seager singled and Turner doubled to start the seventh. After two strikeouts, Cody Bellinger was intentionally walked to load the bases for pinch-hitter Joc Pederson. Pederson’s two-run single off the glove of Lowe at second gave the Dodgers a 6-5 edge.

Kiermaier knotted the score at six with a homer off Baez in the bottom of the inning.

Turner homered in the first inning for the second straight game—a first in World Series history. The homer was his 12th as a Dodger in the playoffs, a new franchise record.

Seager slugged his eighth blast in the third to temporarily tie for the single postseason record, but Arozarena grabbed sole possession of the mark when he hit his ninth of the playoffs to lead off the fourth.

With three hits, Arozarena also tied Pablo Sandoval in 2014 for most hits in a postseason with 26.

Max Muncy’s RBI single in the fifth gave Los Angeles a 3-1 lead before Tampa Bay got back within one on Renfroe’s homer in the bottom of the inning. An Enrique Hernandez run-scoring double in the sixth made it 4-2 Dodgers.

Julio Urias started for Los Angeles, allowing two runs on four hits in 4 2/3 innings. He struck out nine. Ryan Yarbrough surrendered two runs on five hits in 3 1/3 innings for Tampa Bay.

AROZARENA SETS HR RECORD
Tampa Bay Rays rookie Randy Arozarena set an MLB record when he hit his ninth home run of the postseason in Game 4 of the World Series on Saturday night.

Arozarena went deep on the first pitch he saw from Los Angeles Dodgers left-hander Julio Urias to lead off the bottom of the fourth inning of the contest played at Globe Life Field in Arlington, Texas. Arozarena had tied the record shared by Nelson Cruz (2011), Carlos Beltran (2004) and Barry Bonds (2002) when he homered in the ninth inning of Game 3.

Arozarena, who singled in his first at-bat, also singled in the sixth to match Pablo Sandoval’s record for most hits in a single postseason at 26. Sandoval set the mark in 2014. Arozarena also holds the record for total bases in a postseason with 58.

Arozarena, 25, made his season debut for the Rays in late August after overcoming COVID-19. He hit .281 with seven homers in 23 regular-season games, carrying his success over to the postseason, where he entered Saturday batting .354 with his eight homers and 11 RBIs.

Earlier Saturday night, Dodgers shortstop Corey Seager hit his eighth homer of the playoffs to match the previous record held by Arozarena, Bonds, Beltran, and Cruz. — Reuters

Pagdanganan in 2nd place heading into final round of LPGA Driving On tourney

FILIPINO golfer Bianca Pagdanganan positioned herself to win a title in her maiden Ladies Professional Golf Association (LPGA) season heading into the final round of the LPGA Driving On Championship-Reynolds in Greensboro, Georgia, Monday (Manila time).

Ms. Pagdanganan, 22, shot a 3-under 69 in round three of the tournament on Sunday to take her total to 12-under 204, just as a rung below current leader Ally McDonald (13-under 203) of the United States, with one round left to play.

It was a continuation of her impressive showing in the first two rounds of the LPGA Driving On Championship, part of her debut campaign on the LPGA Tour.

In the previous two rounds, she tallied a 68 and 67 to be among the leaders.

She actually took the lead in the third round after birdying the second hole before bogeys in the third and fifth holes slowed her down.

But Ms. Pagdanganan regained her footing the rest of the way to stay within striking distance of the top spot.

If she gets to bag the LPGA Driving On, it would highlight an eventful last year for her, which includes her winning a gold medal for the Philippines in the 30th Southeast Asian Games.

Completing the top five heading into the final round are Danielle Kang (205)of the US, Carlota Ciganda (206) of Spain and Katherine Kirk (207) of Australia. — Michael Angelo S. Murillo

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