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Tax-wary online merchants reminded of perks that come with gov’t registration

GOVERNMENT registration for online businesses is necessary to regulate the industry and protect consumers, and comes with benefits like incentives, subsidies, and tax breaks, a legislator said.

Valenzuela Rep. and House Trade and Industry Committee Chairman Weslie T. Gatchalian said in a statement Monday that the industry’s concerns that the government is readying a tax crackdown are offset by the benefits, which also include recognition as a registered business which allows them to more easily deal with banks.

“The DTI (Department of Trade and Industry) encourages registration of online businesses to ensure consumer protection and to build trust and confidence in the use of these online platforms. By legitimizing one’s business through registration, it becomes eligible to avail of loans, subsidies and tax breaks from the DTI and other government agencies,” he said.

Mr. Gatchalian was addressing the backlash to the Bureau of Internal Revenue’s (BIR) order for online sellers to register and pay tax.

The BIR issued Revenue Memorandum Circular (RMC) 60-2020 on June 1 ordering businesses earning income “through the use of any electronic platforms and media, and other digital means” to register and settle taxes on or before July 31.

The BIR warned that online merchants who fail to meet the deadline are subject to penalties. In 2013, the BIR issued RMC 55-2013 reminding taxpayers that online sales are taxable, but only the latest circular imposed a deadline to settle these taxes and warned that surcharges may apply.

Ways and Means Committee Chairman Jose Maria Clemente S. Salceda said he does not expect the registration of online merchants to yield incremental revenue for the government in the near term.

“For now, zero. And that’s absolutely okay. Because the economy benefits more by them being eligible for credit and other stimulus benefits like the wage subsidy,” he said in a statement Monday.

Mr. Salceda said that he supports the move to encourage online businesses to register, provided that they are able to benefit from the tax exemptions and benefits set forth in relevant laws including the Tax Reform for Acceleration and Inclusion Act (TRAIN) and the Barangay Micro Business Enterprise (BMBE) law.

Under TRAIN, those with annual taxable income below P250,000 are exempt from paying personal income tax.

Meanwhile, the BMBE law exempts all micro businesses from all taxes arising from their operations and from the minimum wage law. Micro businesses are those with total assets not exceeding P3 million.

Mr. Salceda also called on the BIR and DTI to automate filing and payment of taxes for online businesses.

“The DTI should also make Negosyo Centers accessible online. BMBE accreditation is still onsite. We can digitize this process. SEC application is already fully online, and there are more requirements in registering a corporation, so there is no reason we cannot digitize this process,” he said.

Mr. Salceda said that online businesses are “crucial” to the government’s stimulus and recovery plans in the face of the pandemic.

“They move faster than most bigger enterprises. They require very little capital to operate. They have been efficient uses of the tangible assets in Filipino households. They employ even stay-at-home mothers. And they encourage people to stay at home. I can’t think of a more efficient recipient and multiplier of our supply-side interventions,” he said. — Genshen L Espedido

Budget cuts seen delaying projects, dampening growth in construction industry

FITCH Solutions Country Risk & Industry Research has downgraded its growth forecast for the Philippine construction industry, noting that projects under the “Build, Build, Build,” program will likely be delayed following the reduced budget for infrastructure this year.

In a commentary issued Monday, Fitch Solutions said it lowered its 2020 growth forecast for the sector by 0.7 percentage points to 2.9%, largely due to the redirection of infrastructure funding to the government’s coronavirus disease 2019 (COVID-19) containment effort.

It now sees the infrastructure sector posting year-on-year growth of 3.2% this year from the 5.4% forecast it gave previously.

“The latest round of budget reductions for infrastructure would also mean that more government-funded BBB (“Build, Build, Build”) projects could face delays in 2020, and construction activity could be further reduced as a consequence,” it said.

“In light of lower projected infrastructure disbursements and budget cuts, we have made a downward adjustment to our forecast for Philippines’ construction sector,” it added.

Despite higher projected infrastructure spending for next year at P1.13 trillion as announced on June 7, a sharp 45% increase from this year’s estimates, Fitch Solutions said it will keep its forecast for 2021 unchanged at 8.5% in expectation of possible adjustments this year.

Citing a presentation by Finance Secretary Carlos G. Dominguez III last month, Fitch Solutions said projected capital outlays for 2020 were reduced to P725.1 billion on May 12 and “finalized” to P775.1 billion on May 27, from the initial program of P800.6 billion.

However, Budget Undersecretary Laura B. Pascua in early June said the infrastructure spending target now stands at P833 billion, reduced from P989 billion previously.

“This move came despite the government’s commitment made in April 2020 to utilize infrastructure development as a key strategy to boost economic activity following the COVID-19 pandemic,” Fitch Solutions said.

Data from the budget department also showed budgets set aside for the country’s two major infrastructure-implementing agencies were reduced as the allotments were reallocated to respond to the pandemic.

The Department of Public Works and Highways saw its budget slashed to P457.9 billion, from the initial P580.9 billion while the budget for the Transportation department was cut to P90.5 billion from P99.4 billion.

Infrastructure spending also fell in the first quarter, dropping 12.4% from a year earlier to P156.1 billion and 18% short of P191.1-billion target for the period.

“This was mainly due to limitations in construction and project progression after the ECQ (enhanced community quarantine) was imposed by the government,” it said.

It said deeper budget cuts for this year are still possible as the COVID-19 outbreak is still being contained while its forecast for the industry “remains significantly weighted to the downside,” with uncertainties over the duration and the overall impact of the pandemic.

“Furthermore, with the BBB program also reliant on private and foreign investments for funding, a slowdown in the global economy could result in a decrease in the amount of foreign direct investments (FDI) into the infrastructure sector,” it added. — Beatrice M. Laforga

DoH proposes P21.5-B Northern Luzon budget for 2021

THE Department of Health (DoH) in Regions I, II and the Cordillera Administrative Region (CAR) proposed to Congress a P21.5-billion budget for 2021.

A virtual hearing of the House committee on the North Luzon growth quadrangle on Monday heard a DoH-Region I proposal for a P4.3-billion budget for 2021, P798 million higher than the proposed budget in 2020.

“The difference accounts for the health facilities that we need to undertake including the manpower the region needs for 2021,” DoH-Region I Director Valeriano Jesus V. Lopez said.

The P4.3 billion will be used for maintenance and other operating expenses (MOOE) amounting to P1.04 billion and capital outlays amounting to P3.26 billion. No provision was allotted for personal services.

Meanwhile, DoH-Region II proposed a P10.6-billion budget for 2021 for personal services worth P3.23 billion, MOOE of P3.15 billion, and and capital outlays of P4.28 billion.

DoH-CAR proposed P6.65 billion in 2021, P201 million higher than the proposed budget for 2020. Personal services will get P2.48 billion, MOOE P670 million, capital outlays P3.49 billion and retirement and life insurance premiums P9 million.

Since Region I has the smallest proposed budget for 2021 in Northern Luzon, Pangasinan Representative Tyrone D. Agabas asked Mr. Lopez to reassess the proposal, saying that there’s a “growing need” for health facilities and equipment in the region.

“In my district alone, for 2020, zero equipment for BHS (barangay health stations) and there are a lot of BHS na nakatiwangwang (that are left unused) because we don’t have the equipment,” he said.

Regions I, II and CAR make up 9.9% of the total population, according to Philippine Statistics Authority data from 2015. As of June 14, total COVID-19 (coronavirus disease 2019) cases in these regions amounted to 233 out of the 25,930 national cases.

La Union Rep. Sandra Y. Eriguel asked the DoH to increase the benefits package under the Philippine Health Insurance Corp.(Philhealth) for COVID-19 patients.

“Prior to April 15, Philhealth covered everything. Now (there is a limit of) P700,000. Pwede po kaya sana i-increase po (Can’t this be increased)?” she said.

Health Assistant Secretary Maria Francia M. Laxamana said the DoH will bring up the suggestion to Philhealth.

“We will do our best to propose that to Philhealth kasi meron naman po sila mga bagong mga case rates at benefit package na ginagawa po ngayon (it has prepared new case rates and benefit packages). We will try to bring that up with them,” she said.

According to Philhealth’s website, patients confirmed with COVID-19 that develops into severe illnesses will be compensated as follows: mild pneumonia P43,997; moderate pneumonia P143,267; severe pneumonia P333,519; and critical pneumonia P786,384. — Genshen L. Espedido

Transfer pricing issues from COVID

Businesses today are confronted with numerous and wide ranging concerns as a result of the COVID-19 pandemic. There are pressing issues on production or client servicing, supply chains, human resources, cash flow, market demand, financing, or survival at the extreme. Tax obligations, likewise, have to be dealt with regardless of the company’s financial position.

For companies transacting with related parties, transfer pricing is another concern.

Except for a few strategic industries or sectors, most businesses anticipate a reduction in profits or even losses due to the lockdowns and continued slowdown in business activity.

CAN A COMPANY WITH RELATED-PARTY TRANSACTIONS INCUR LOSSES?
Revenue Audit Memorandum Order (RAMO) No. 1-2019 or the Transfer Pricing Audit Guidelines provide guidance to taxpayers on losses for companies with related-party transactions. RAMO 1-2019 mentions the need to establish that the losses are commercial in character and aligned with the nature of the business and the company. RAMO 1-2019 also requires taxpayers to maintain contemporaneous documentation of the factors that contributed to the losses. It is crucial to prove that non-transfer pricing factors are the cause. In the case of a 2020 transfer pricing audit, it is not sufficient to claim that the losses or reduced profits resulted from the COVID-19 outbreak.

CAN A COMPANY TRANSACTING EXCLUSIVELY WITH RELATED PARTIES INCUR LOSSES OR REDUCED PROFITS?
RAMO 1-2019 cites the case of a contract or toll manufacturer that only produces the product in volume and quality, and on schedules as ordered by the related-party customer. Since it does not perform other functions, such as operational strategy setting, product research & development, and sales, the contract manufacturer is expected to maintain a consistent level of profitability. Fluctuations in the profit margins, whether up or down, are only enjoyed or suffered by the entities with the entrepreneurial functions.

Most business process outsourcing (BPO) companies are in the same category. They perform the specified services, and are assured of compensation, usually on a cost-plus basis. The markup is generally fixed and is determined based on the arm’s-length markup of comparable independent companies. They are equally affected by the crisis. Their clients may have experienced business slowdown; hence, reduced demand for services. On the other hand, even if the demand for services was unaffected, the problem could be with servicing clients. Employees are unable to go to the office, and work-from-home arrangements had to be put in place. Some employees are unable to work from home, because of poor internet connection or unsuitable working space. Are they allowed to incur losses or reduced profits?

RAMO 1-2019 notes that the contract manufacturer can still incur losses as long as these are not arising from the related-party transaction. However, if the contract manufacturer deals exclusively with related parties, there could be few non-transfer pricing factors to which the losses can be attributed.

HOW MUCH REDUCTION IN PROFITS CAN BE ALLOWED?
2020 is not a typical year that can be benchmarked against information from prior years. The arm’s-length level of profitability may only be determined once the financial statements for 2020 become available, which is Q3 2021. If the company will have reduced profits, it is best to test the level once the information for benchmarking can be accessed.

Typically, reductions in profit margins for contract manufacturers and BPOs can also be justified if there are changes in the functions, assets, and risks they shoulder for the transaction. To address disruptions brought about by the COVID-19 pandemic, some multinational groups have considered restructuring the functions of the different entities across various jurisdictions to take advantage of the availability of resources or ease of doing business where quarantines are less strict. Such restructuring may require a reexamination of the transfer pricing policy.

The same issues and analysis apply in the case of shared services among local conglomerates.

For those who have put up transfer pricing documentation for their related-party transactions, justifying the changes against the established policy would be easier than where a benchmark is not available.

If you thought you could take a long rest after settling your company’s annual income tax obligations as of yesterday, taxation is far from over.

Your organization’s annual income tax return could be the subject to a BIR audit in as soon as a few months. A transfer pricing audit may also be looming for companies with related-party transactions. The company has to document and justify any changes in profitability in preparation for such an examination. It is always worthwhile investing in a comprehensive transfer pricing documentation.

Let us still hope, though, that tax authorities will be more considerate when tackling compliance for the years affected by the COVID-19 situation.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Lina P. Figueroa is a Principal of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com

Philippine agriculture and COVID-19 impact

The Philippine economy is on a downward trajectory. The main culprit: the COVID-19 pandemic which has also affected over 120 countries.

In 1998, the economy declined by 0.5% due to the Asian financial crisis and the El Niño dry spell. The drought brought down agriculture by 7%. This year, the economy contracted by 0.2% in the first quarter, the first time in more than two decades. The turnout was somehow affected by the Taal Volcano eruption in January. Agriculture slid by 0.4%.

For the second quarter, the situation could be worse as the government imposed a lockdown in mid-March. There are possible ill effects caused by the drought in Mindanao and Typhoon Ambo.

Almost simultaneously, supply chain disruptions and demand compression fanned out. Supply chain lockdowns affected the flow of goods from farms to urban markets. Agricultural labor faced mobility issues. The reduction in local demand and export demand is pervasive as families lost buying power.

This article will focus on agriculture. Supply chains extend some 500 kilometers (km) from Tuguegarao to the National Capital Region (NCR) for grains by land and for fresh produce, longer at 1,400 km from Cagayan de Oro to Manila.

Local demand has reduced purchasing power due to job and livelihood losses. The lower class is heavily burdened and to a lesser extent, the middle class. Some 75% of the lower class’ (30%) spending goes to food as compared to an average of 42% spend on food for all families. Food demand reverberates to food processing and logistics services.

Agriculture accounts for less than 10% of the gross domestic product (GDP), food manufacturing like flour milling contributes another 10%. Agro-services (packaging, transport, trade warehousing, trade, etc.) add about 15%.

Agricultural exports are taking a beating, too. Cavendish banana volume is down as China traders have backtracked in the season of peak prices. Iran reportedly stopped buying with the collapse of oil prices.

Vegetables and fruits are mostly perishables. Lockdowns have affected deliveries like vegetables from North Luzon to Manila and other regions. Some areas are able to manage in that their harvests are being bought by the local government units, private sector and non-government organizations for relief distribution. Others are not as lucky, and they just let their produce rot in the fields due to the absence of buyers.

Fishery contracted in the first quarter of 2020. It is unlikely to quickly recover soon since the first semester is fishing season.

Livestock: Hogs production is down due to the African swine fever since 2019. The earlier lockdown on hog movement affected supply chains, from breeding to fattening.

Poultry production is up for at least two factors: a shift in demand from pork and heavy engagement of integrators like San Miguel and Bounty. However, UBRA’s Gregorio San Diego urged the government in a recent interview to stop chicken importation. There is an oversupply with the lack of demand as a large part of consumption comes from hotels, restaurants, and institutions which are closed due to the enhanced community quarantine period. The cold storages are full as demand has slackened. Egg production appears doing well.

Treecrops or permanent crops led by coconut, rubber, and coffee are unlikely to be affected as they are already standing crops, but world prices and demand have a strong influence on income.

Altogether, the sector’s annual target for the year is compromised. That goes for rural poverty alleviation, too.

What is next?

The Department of Agriculture is pushing for a P66-billion stimulus package to address the impact of COVID-19 on the sector. Some P31 billion is intended to go to its food security program called Ahon Lahat, Pagkaing Sapat (ALPAS) Kontra sa COVID-19; P20 billion to improve logistics and food markets; and P15 billion for its cash-for-work program.

The Philippine Chamber of Agriculture and Food (PCAFI) argued that the stimulus package should refocus towards programs that will improve output for poultry, hogs, fisheries, dairy and feed crops as demand slowly recovers.

Rice, meat, vegetable, and fish constitute the main basket for food security. The lack of supply could cause inflation. Rice appears well-supplied with local produce and contracted imports. But the other crops need to be revived to address food security.

Finance Secretary Carlos G. Dominguez III also recommended five priority measures to stimulate domestic consumption and jumpstart the economy despite the pandemic. Among these measures are the Build, Build, Build program; the promotion of manufacture of products with “strong and inelastic demand,” especially food production and logistics; and support to the whole food production value chain, including the setting up of food markets for more efficient distribution.

GLOBAL COMPETITIVENESS
COVID-19 or no COVID-19, the issue of global competitiveness remains. There are products with import substitution possibilities. Intercropping of 3.5 million hectares of coconut trees, and the planting of short gestating dwarf varieties remain in the doldrums. It will be an endearing legacy of President Rodrigo Duterte if the coconut issues are addressed.

Food systems have become increasingly globalized. The Economist reports, “The trade in agricultural goods amounts to $1.6 trillion annually, or 10% of total global trade.”

To compete, the Philippines must address long-term structural problems.

Investors find the Comprehensive Agrarian Reform Program’s (CARP) five-hectare retention limit a barrier to economies of scale. The sector suffers from a management deficit. In my talks with moneyed people, they need 20 hectares or more for sustainable operation.

After 34 years of CARP, Philippine crop productivity and diversification, agricultural exports, and rural poverty lag those of the ASEAN. Food processing is behind, too, due to lack of raw materials.

Meanwhile, the Local Government Code of 1991 failed to provide robust extension systems by giving autonomy to weak municipalities, instead of the provincial local government units.

Where do we go from here? Who will address these issues? Any innovative solutions from the Left and the Right?

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

 

Rolando T. Dy is the Co-Vice Chair of the MAP AgriBusiness Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia& the Pacific.

map@map.org.ph

rdyster@gmail.com

http://map.org.ph

PH Debt: All’s well that swells

By Rosario Guzman

LENDERS have offered to defer debt payments for those severely affected by the lockdown. The World Bank has encouraged the Group of 20 nations to postpone repayment of official bilateral credit, although it has not yet considered suspending debt payments owed it. The International Monetary Fund has approved debt relief to its 25 poorest member countries. Commercial banks have offered a 60-day grace period for loans, including for household debts borrowed through credit cards. Even informal moneylenders in the Philippines’ urban poor communities have reportedly stopped collecting loan installments for a while.

These are not necessarily all done out of sheer goodwill. In many cases they seek to stop debtors from succumbing to a severe debt-driven crisis due to the pandemic which would stop them from paying anything at all in the future. In short, they are also favorable to the creditors.

The Duterte government, with its much-brandished good credit standing, could have moved for debt relief too but instead, at the height of the COVID-19 pandemic, it started borrowing more. The finance department underscores the need for the government to borrow from foreign sources to fund its economic recovery plan. Multilateral and country creditors have unsurprisingly exploited the situation and recycled funds to lend.

Do we really need to borrow for COVID-19 response? People have asked. How are we going to pay for all of these debts?

ACCUMULATING DEBT
The Duterte administration’s Philippine Program for Recovery with Equity and Solidarity (PH-PROGRESO) is worth P1.7 trillion, P561 billion ($11 billion) of which is targeted by the Department of Finance (DoF) to come from bilateral and multilateral loans and global bonds. There is another P404 million ($8 million) in foreign grants.

From March 14 to June 4 this year, based on IBON monitoring, the Duterte government has already obtained foreign commitments of $3.95 billion in loans, $17.3 million in grants, and $5 million in technical assistance (TA) — all for addressing the COVID-19 pandemic. The Philippine-headquartered Asian Development Bank (ADB) accounts for $2.1 billion of the loans plus all of the TA and much of the grants. The World Bank accounts for $1.1 billion, and the China-led Asian Infrastructure Investment Bank (AIIB) for $750 million. There are $9.3 million in grants from USAID. In sum, there are seven project loans, two grants, and one regional TA so far.

Loans amounting to $3.95 billion are, at the current exchange rate of P50.05 to a US dollar, equivalent to P197.7 billion. This increased the outstanding national government debt, which has already risen from P7.7 trillion by the end of 2019, to an astounding P8.6 trillion by April 2020. The P869-billion increment in the last four months far surpasses the full-year increments of the last three years.

Government securities increased by P436 billion, while the Bangko Sentral ng Pilipinas used its repurchase facility to lend P300 billion to the national government for COVID-19 response. Meanwhile, external debt increased by P133.1 billion from December 2019 to April 2020. In April 2020, the Duterte government’s foreign debt grew 16.5% year-to-date and 16.4% year-on-year, or the biggest increase in the last four years.

The Duterte government has already reached 66% (or P919.5 billion) of its P1.4 trillion projected gross borrowings for the year. If the planned foreign financing for PH-PROGRESO alone is realized, the government would already go over its borrowing projection. This does not yet include the uncontrollable increase in domestic debt due to the continuous issuance of government securities. Domestic debt comprises 68% of the outstanding national government debt.

For whose sake, really?

The loan commitments are specified for strengthening healthcare, augmenting funds for socioeconomic relief, and providing economic stimulus for agriculture and micro-, small- and medium-enterprises (MSMEs). There are also wage subsidies for small enterprises and support for repatriated overseas Filipino workers (OFWs).

These are urgent things to attend to during the pandemic that the Duterte government has not competently addressed. Instead, we have only witnessed how the government’s policy of health privatization, neglect of essential economic sectors, and myopic understanding of the poor have made it ill-prepared for an emergency such as COVID-19.

COVID-19 is unplanned thus the need to apply for a loan — that has been the official line. Are the loans meant to help us cope with the coronavirus, while the government opts to keep spending for its neoliberal policies and to protect business? Actually, these urgent loan-financed items are part of a larger package which includes even bigger support for businesses who get financial relief in the form of tax deferrals, low-interest loans, and credit guarantee schemes.

The country’s creditors are more straightforward. They will provide budgetary support so that the country’s economic managers can continue spending on the administration’s Build, Build, Build (BBB) infrastructure projects, foreign investment attractions, tourism, and other boosters of the otherwise slowing, and now contracting, economy.

The ADB has pledged $1.5 billion from its COVID-19 Active Response and Expenditure Support (CARES) program for fiscal management, among others. The AIIB’s $750- million loan is co-financed with CARES. The AIIB only has loan facilities for infrastructure investment and does not have a “development financing” orientation. It recently launched a COVID-19 recovery facility but even this is oriented towards addressing liquidity problems, providing fiscal and budgetary support in partnership with multilateral banks, and building health infrastructure — all so that governments can focus on COVID-19 impacts and leave infrastructure funds alone.

The more recent P400-million loan commitment of the ADB to strengthen domestic capital markets and investments is more explicit. This is to enable the Duterte government to fund infrastructure at lower cost and to enable the private sector to raise infrastructure funds from capital markets.

COVID-19 is unplanned, while the Duterte administration’s focus is unchanged. The government is still fixated on burnishing the economy’s image to attract foreign investors, and will only address the emergency by as much as it can borrow. This reinforces the country’s vicious spiral of debt and shallow economic growth. Creditors are complicit in this neoliberal COVID-19 response.

PROTECTING PROFITS
But what really demolishes the argument that the government needs to take out a loan for COVID-19 is that there are viable sources of money that the government chooses to forego on behalf of big business. Case in point is the DoF-backed Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, the renamed second package of the unpopular Tax Reform for Acceleration and Inclusion (TRAIN) Law. The first package taxes consumption goods by the poor and relieves the rich of paying income taxes. CREATE in turn reduces corporate income tax from 30% to 25% from July 2020 until 2022 and thereafter 1% yearly cut until 20% by 2027. This gives corporations up to P667-billion worth of tax breaks over the next five years, which is the largest in the country’s history.

CREATE is at the core of the administration’s recovery plan, PH-PROGRESO. It also proposes P133.7 billion in loans and guarantees, P142.8 billion in other tax cuts and foregone revenue, and P233.3 billion in additional liquidity. PH-PROGRESO declares prioritizing the resumption of BBB. To do so, it incentivizes big business with tax cuts and liquidity and equity infusion through government intervention and borrowing in the guise of helping them recover from the pandemic recession. The creation of jobs and recovery of incomes of the poor and vulnerable are an afterthought.

Indeed, the government has to revive the economy from the unnecessary lockdown, but this has to start with what is truly essential. The COVID-19 crisis is an extraordinary opportunity for the government to strengthen national production in agriculture and industry — a surefire way to stimulate employment and consumption. But agriculture and the MSMEs that make up the majority of the country’s enterprises are extremely marginalized.

In the House-approved P1.3 trillion Accelerated Recovery and Investments Stimulus for the Economy (ARISE) bill, agriculture gets a paltry P66 billion and MSMEs are allocated only P125 billion in loans and guarantees. The COVID-19 crisis is also a golden chance to bridge the chasm between rich and poor, which has become stark especially during COVID-19. But quite to the contrary, the Duterte government has relieved the rich and increased borrowing to sustain such an economic order — an addition to the mounting burden of the poor.

UNPAYABLE FUTURE
The DoF reiterates that the debt is payable and that the country is in no way headed to a debt crisis. It says that the debt-to-gross domestic product (GDP) ratio was only around 39.6% at the end of 2019 and 43.3% as of March 2020. The ratio indicates manageable levels, says the government, and is much less than in 2000-2010 when the debt-to-GDP ratio hovered around an annual average of 60% until it started going down in 2011 at the start of the country’s high growth episode.

But those days are gone. Fast economic growth peaked in 2012-2016 then steadily declined since the start of the Duterte presidency. Before COVID-19, the administration tried to but could not cover up the slowing economy. The GDP growth slowed from 6.9% in 2016, 6.7% in 2017, 6.2% in 2018, and to just 6% in 2019, the slowest in eight years. The economy shrank in the first quarter of 2020 by 0.2%, and the economic managers are seeing a severe decline in full-year real GDP growth to -0.6% to 4.3%.

All the sources of economic growth that the government has relied on — OFW remittances and foreign direct investment in BPOs and export manufacturing — have slowed down since the beginning of the Duterte administration. And these are definitely headed into a tailspin as the global economy sinks deeper into crisis.

The Duterte government has never considered the erosion of agriculture and manufacturing to arrest the economic slowdown. Instead, it has artificially boosted economic growth with pump-priming — increasing government spending to its highest level as percent of GDP. Infrastructure spending comprised 4.7% of the GDP in 2019 and is targeted to reach 7% of the GDP by 2022. It shall be the highest among all the administrations.

BBB projects are the Duterte administration’s preferred drug for resuscitating the ailing economy before it slips away. However, it has been borrowing heavily for this. Of the P4.3 trillion needed for the 100 flagship infrastructure projects of the administration, 83% is expected to come from official development assistance (ODA), mostly in the form of loans. The Duterte government’s borrowing binge is unprecedented — on a monthly average, it is borrowing P45.6 billion, almost three times as much as Aquino (P19.0 billion) and over twice as much as Arroyo (P21.2 billion).

The fiscal deficit is thus a growing problem, with the P660.2 billion deficit in 2019 equivalent to 3.5% of GDP. The fiscal deficit is already at P348 billion as of April 2020.

Here is why the debt is eventually unpayable and such a huge burden. First of all, ODA loans may be offered at concessional rates but are tied to the conditions of using the technology, materials, and expertise of the creditor country. In the case of China, this includes even the use of Chinese labor. Secondly, absorptive capacity in a program as grand as BBB is a major issue. The Philippine government lacks the bureaucratic and technical capacity to implement all the grand infrastructure projects. This capacity has been eroded by decades of privatization and deregulation. The private sector, on the other hand, is not that deep because of the economy’s backward fundamentals. Third, BBB’s main focus is mobility for the benefit of the service and trading oriented economy, and not in building Philippine agriculture and industry. Thus the infusion of infrastructure capital or even the construction of the facility will not be useful in the long run for national development.

Lastly and most ironically, we are being obliged to fully pay for this mounting debt. This early, the government is already thinking of taxing and raising government fees on the very coping mechanisms of the dislocated working people. For instance, the economic managers want to tax online selling even as people are losing their sources of livelihood, or want to collect bike registration fees as workers seek alternatives to the poor public mass transport, among others. The government already failed to meet its revenue target in 2019, short by P12.2 billion, and is anticipating even bigger spending and bigger debt in 2020.

Our future is being mortgaged. It doesn’t help to cure apprehensions when the government says that the debt is manageable. Government has to end its anti-people neoliberal economic policies, and only then shall we be well.

IBON

 

IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.

Nations may be safer under women

By Nicholas Kristof, The New York Times Company

ARE FEMALE LEADERS better at fighting a pandemic?

I compiled death rates from the coronavirus for 21 countries around the world, 13 led by men and eight by women. The male-led countries suffered an average of 214 coronavirus-related deaths per million inhabitants. Those led by women lost only one-fifth as many, 36 per million. If the United States had the coronavirus death rate of the average female-led country, 102,000 American lives would have been saved out of the 114,000 lost.

“Countries led by women do seem to be particularly successful in fighting the coronavirus,” noted Anne W. Rimoin, an epidemiologist at UCLA. “New Zealand, Denmark, Finland, Germany, Iceland, Norway have done so well perhaps due to the leadership and management styles attributed to their female leaders.”

Let’s start by acknowledging that there have been plenty of wretched female leaders over the years. Indeed, according to research I once did for a book, female leaders around the world haven’t been clearly better than male counterparts even at improving girls’ education or reducing maternal mortality.

There has been solid research that it makes a difference to have more women on boards and in grassroots positions, but evidence that they make better presidents or prime ministers has been lacking — until COVID-19 came along.

It’s not that the leaders who best managed the virus were all women. But those who bungled the response were — all — men, and mostly a particular type: authoritarian, vainglorious and blustering. Think of Boris Johnson in Britain, Jair Bolsonaro in Brazil, Ayatollah Ali Khamenei in Iran, and Donald Trump in the United States.

Virtually every country that has experienced coronavirus mortality at a rate of more than 150 per million inhabitants is male-led.

“I don’t think it’s a coincidence that some of the best-run places have been run by women: New Zealand, Germany, Taiwan,” mused Susan Rice, who was national security adviser under President Barack Obama. “And where we’ve seen things go most badly wrong — the US, Brazil, Russia, the UK — it’s a lot of male ego and bluster.”

I think the divergence has a great deal to do with that ego and bluster.

“We often joke that men drivers never ask for directions,” observed Dr. Ezekiel Emanuel of the University of Pennsylvania. “I actually think there’s something to that also in terms of women’s leadership, in terms of recognizing expertise and asking experts for advice, and men sort of barreling ahead like they got it.”

He has a point. Those leaders who handled the virus best were those who humbly consulted public health experts and acted quickly, and many were women; in contrast, male authoritarians who botched the response were suspicious of experts and too full of themselves.

“I really get it,” Trump said when he visited the Centers for Disease Control and Prevention in March. Surrounded by medical experts, he added, “Maybe I have natural ability,” and he wondered aloud if he should have become a scientist.

(Given that Trump said in January that COVID-19 was “totally under control,” he has his answer. And peer review might not have been kind to his ideas about bleach.)

While women have generally outshone men as international leaders, that does not seem true within the United States. Some female governors have done better, others worse, so there isn’t an obvious gender gap at home.

It’s also possible that this isn’t about female leaders but about the kind of country that chooses a woman to lead it.

Companies with more female executives on average perform better than those with fewer women, but analysts think that the reason isn’t just the brilliance of female leaders. Rather, companies that are culturally open to having senior women are also more willing to embrace other innovations, and it may be this innovative spirit that leads to higher profitability. Likewise, countries willing to elect female prime ministers may be those more inclined to listen to epidemiologists.

Yet I think that there’s also a difference in the leadership itself.

“Women lead often in a very different style from men,” said Margot Wallstrom, a former Swedish foreign minister, citing examples from Norway, Germany, and New Zealand of women with low-key, inclusive and evidence-based leadership.

Wallstrom also noted that public health is a traditional “home turf” concern for many female leaders. Grant Miller, an expert in health economics at Stanford University, found that as states, one by one, granted the vote to women in the late 19th and early 20th centuries, those states then also invested more in sanitation and public health — saving some 20,000 children’s lives a year. Boys were thus huge beneficiaries of women’s suffrage.

One trap for female politicians is that brashness can be effective for male candidates, but researchers find that male and female voters alike are turned off by women who seem self-promotional. That forces women in politics to master the art of communicating effectively in a low-key way — just what’s needed in a pandemic.

“Perhaps the skills that have led them to reach the top,” said Rimoin, the UCLA epidemiologist, “are the same skills that are currently needed to bring a country together.” — Nicholas Kristof © 2020 The New York Times Company

The megacity is dead. Long live the megacity

By Daniel Moss

Easing lockdowns around the world present an opportunity to go back to the drawing board for many economies. In Asia, densely packed urban centers are a good place to start. The trick for planners will be to minimize disease outbreaks without quashing the promise of employment that has made cities a magnet.

By 2025, the world will have 37 megacities — defined as having at least 10 million people — and as many as 20 of them will be in Asia. Two-thirds of the region’s population will be living in urban areas by 2050, compared with 20% in 1970, according to the Asian Development Bank. Bustling metropolises have become a symbol of rapid growth across the continent, which has reached a level of urbanization in less than a century that took more than twice as long in other parts of the world.

For decades, this transition was a one-way ticket to economic boom. With the coronavirus outbreak, however, we’ve seen cities become hotbeds of infection, where vast concentrations of wealth can become a liability when businesses grind to a halt. But while de-clogging seems like a good idea on paper, is it desirable or even feasible? Working remotely from the suburbs sounds great if you live in a congested downtown district, confined to four walls and a small bathroom with screaming kids. The reality in many rural areas, however, is poor infrastructure, subpar schools, and scarce medical clinics, not to mention limited delivery options.

In Indonesia, officials are getting cold feet about the construction of a new capital, which was intended to take the strain off overcrowded and sinking Jakarta. While I had reservations about the prospect of creating a city from scratch, the government was correct in identifying a problem. Spreading some wealth beyond the island of Java would be welcome, too. Sadly, the vision is being subordinated to the emergency of the day, just when an alternative is needed most. President Joko Widodo says there are better ways to spend $34 billion. Indonesia can’t print rupiah indefinitely and no politician wants to be accused of erecting new digs for lawmakers while millions slip back into poverty.

In the Philippines, meanwhile, the coronavirus has given fresh life to proposals for thinning out Manila, one of the most heavily populated cities on earth and the country’s virus epicenter. President Rodrigo Duterte is offering to pay people to leave the area, which generates about one-third of gross domestic product. Yet skeptics of his “Back to the Province” program point to the centuries-old centralization of power in the capital — Imperial Manila, Duterte calls it — and shrug. People have preferred to emigrate rather than leave the city, which has made the Philippines a global hub for the export of labor, as I’ve written. Unless centers of capital and government are prepared to surrender control to regions, along with taxation authority, the boonies just aren’t going to be attractive enough.

Liew Ching Tong, a Malaysian senator and, until March, deputy minister for defense, has an idea along those lines. In a presentation last month to the Institute for Democracy and Economic Affairs, a think-tank in Kuala Lumpur, Liew proposed significant reforms to local government financing: Give Malaysia’s 13 states the ability to share income-tax power with the national administration. Right now, the provinces are largely dependent on grants from the central government and often need its approval before borrowing. Their only meaningful ability to generate revenue is from land sales and natural resources, which tend to exacerbate environmental degradation.

This federal-state dynamic puts local projects at the mercy of political winds from Kuala Lumpur. In the state of Penang, for example, anticipated bond sales are intended to fund an overhaul of public transportation. The proposal — approved by the last coalition government, which dissolved three months ago — is now in jeopardy of being revoked, says Tricia Yeoh of IDEAS. Only by empowering states to control their finances can they develop good infrastructure and support the high living standards that will attract the best and brightest.

The good news for city dwellers is that the coronavirus has opened the door for some creative urban planning. In Singapore, the head of the Housing & Development Board, which created the city-state’s signature high-rise public housing, recently discussed dividing the country into relatively self-sufficient regions to help contain viral outbreaks down the road. Future HDB dwellings should have drone parking zones in place of car spaces, given the critical role of delivery services during this outbreak, Chief Executive Officer Cheong Koon Hean told a forum on June 3.

Asia’s megacities won’t disappear, nor should they. But if we’ve learned anything from the coronavirus, it’s the danger of concentrating too much human capital in one physical location. That’s why Asians of the future need to have desirable alternatives, which means finding the right incentives, not just telling people to pack their bags and head to the hills. Cities have been fun places to live for the region’s burgeoning middle class. To keep urban areas prosperous and healthy, though, the hinterland needs to be revitalized, too.

BLOOMBERG OPINION

Berger wins playoff at Colonial in PGA Tour’s return

TORONTO — Daniel Berger emerged from a tightly bunched leaderboard to win the PGA Tour’s first tournament back after a three-month COVID-19 break with a playoff victory at the Charles Schwab Challenge in Fort Worth, Texas, on Sunday.

Berger, who needed a birdie on the final hole of his regulation round to make the playoff, sealed the win on the first extra hole with a rock-solid par moments before fellow American Collin Morikawa watched his putt from in close cruelly lip out.

When Berger sealed the win there was a brief handshake and hug with his caddie but no roars to be heard since Colonial Country Club was closed all week to the general public to help prevent spread of the coronavirus disease 2019.

“I grinded so hard the last two months to be in this position and I am just so thankful that all the hard work paid off,” said Berger, who had top-10 finishes in his three starts before the PGA Tour halted action in mid-March.

Berger, who began the action-packed day two shots off overnight leader Xander Schauffele, carded a four-under-par 66 to reach 15 under for the week.

The leaderboard at the start of the final round featured many of the game’s best players and the action began with 13 golfers within three shots of Schauffele.

Berger made his move early with three birdies over his first eight holes before a lone bogey at the par-four ninth where his approach shot found a greenside bunker. Yet Berger added birdies at two of his last five holes to reach the playoff.

Schauffele (69) missed the playoff by one stroke after his par putt from two feet at the 17th also lipped out.

Among the others who finished one shot back of the playoff was Britain’s Justin Rose (66) and Bryson DeChambeau (66).

Three-time major champion Jordan Spieth started the final round one shot off the lead but hit just 5 of 14 fairways and 10 of 18 greens in regulation en route to a one-over-par 71 that left him in a tie for 10th place.

Despite not managing to snap a nearly three-year victory drought, Spieth took comfort in the state of his game after a lengthy layoff.

“I’m making those putts from mid to long range and I’m driving the ball in good position,” said Spieth. “So it’s really just cleaning up the wedges and stuff that I’m normally really sharp with that certainly had a bit of rust on it.”

World number one Rory McIlroy began the day three shots off the lead but struggled over the front nine en route to a four-over-par 74 that left him nine shots adrift and in a share of 32nd place. — Reuters

TBH: Candid conversations with ‘maverick’ UAAP stars

By Michael Angelo S. Murillo, Senior Reporter

SOME of the University Athletic Association of the Philippines’ independent-minded volleyball stars take on a new platform as they are featured in the new talk show, TBH (To Be Honest),

The newest talk show on LIGA cable sports channel, iWant, TFC, and the ABS-CBN Sports YouTube channel, TBH has Eya Laure (University of Santo Tomas), Ponggay Gaston (Ateneo), Michelle Cobb (La Salle), and Rosie Rosier (University of the Philippines) joining forces and being candid in discussing relevant topics among themselves and with their guests.

For the show, the quartet will be shooting episodes from the comfort of their homes as the metro remains in a quarantine setup with the coronavirus disease 2019 (COVID-19) pandemic still a going concern, but the four assured viewers and their fans that it would not stop them from engaging and making the show worth the while.

“The uniqueness of each individual will be highlighted here. This show is composed of four girls with different personalities and different backgrounds which actually helps the show because it diversifies things,” said Cobb, the starting setter for the Lady Spikers, at the show’s videoconference with media on June 12.

“This show is unorthodox and, yeah, we will be ‘mavericks’ in it. They will see a side of us not usually seen while on the court and get to know what we really feel on certain issues and topics,” Gaston, for her part, said.

With the show coming in at a time of COVID-19 and movement still limited, the hosts said they welcome the opportunity through TBH to reach out not only to the volleyball community but the public in general, especially since UAAP Season 82 was abruptly ended because of the pandemic.

This is aside from the fact that they, too, get to break the monotony of being confined for much of the time in their homes because of the quarantine situation.

“This is ‘therapeutic’ because after several months I have someone talk to about relevant topics, which I miss a lot,” Cobb said.

For UP team captain Rosier, they hope through the show they get to inspire young modern Filipinas to create a platform for themselves, built, among other things, around respect.

“This is a platform for us to be open and be ourselves. We’re trying to create a platform of respect,” she said.

“A fun show,” was how UAAP Season 81 Rookie of the Year Laure described TBH.

“It’s just good vibes throughout. Hopefully fans and viewers could join us,” she said.

Episode one of TBH will air on June 23 at 8 a.m., with replays at 1 p.m. and 6 p.m., and will feature the hosts breaking down their experiences, frustrations, and realizations during the quarantine and heading into the “new normal.”

PBA young guns Perez, Bolick still hopeful of league’s return

AMONG the headliners in last year’s season of the Philippine Basketball Association (PBA) because of their stellar plays as rookies, CJ Perez and Robert Bolick lament that they are being made to wait to build on what they had started with the coronavirus disease 2019 (COVID-19) pandemic still a going concern.

Graced Tiebreaker’s The Prospects Pod episode last week, the now-PBA sophomores shared that just like everybody else they are dealing with the current situation as best as they can and that they are hopeful that the league could still return to action this year amid all the things happening in relation to COVID-19.

The PBA suspended its Season 45 on March 11 as COVID-19 started taking further root in the country and the government came out with mitigating measures to help stop the spread of the disease, including prohibiting mass gatherings like sporting events.

The suspension came immediately after the season opened on March 8 with the All-Filipino Cup and only one game played, that between defending champions San Miguel Beermen and Magnolia Hotshots Pambansang Manok, which the former won, 94-78.

Mr. Perez, who was named rookie of the year for Season 44, said at this point all everybody could do is wait for the situation to stabilize.

Not only as a player, but speaking as a basketball fan as well, 26-year-old Perez said he really misses the entertainment that basketball brings.

“We just have to wait. Let’s pray that the PBA could return as soon as possible so we can be entertained once again,” said Mr. Perez in the vernacular.

“I can’t wait to get back to the floor and put out the game that the fans want to see,” he added.

Incidentally, when the PBA resumes, Mr. Perez will be donning a “new” uniform as he will be playing under the Terra Firma Development Corporation team.

This, after the PBA Board recently approved the transfer of the Columbian Dyip franchise from Columbian Autocar Corporation to sister company Terra Firma.

Team governor Bobby Formales said despite the transfer of franchise, the team is inclined to retain its “Dyip” moniker.

CONTINUE SUPPORTING THE PBA
For Mr. Bolick of Northport Batang Pier, the season’s return is also something he is looking forward to and enjoined the fans to continue to support the league when it returns.

“Let’s continue supporting all the teams in the PBA. We might have to wait for some time still as the [COVID-19] cases continue to rise but hopefully all of these would end soon and we can heal as one and return,” said Mr. Bolick, 24.

Former San Beda star Bolick is currently convalescing from an ACL injury he suffered last year that cut his rookie campaign short.

The PBA has submitted its request for a possible return to action to the government, particularly the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF), along with the health and safety protocols it plans to take.

The request, as of this writing, is still being evaluated by the IATF. — Michael Angelo S. Murillo

Los Angeles Lakers players reportedly unified on social justice and resumption of NBA play

THOUGH SEVERAL National Basketball Association (NBA) players on Friday reportedly voiced their opposition to resuming the season as a protest against racism and social injustice, ESPN reported that the Los Angeles Lakers’ players remain undivided on the resumption of the season.

The news came a day after Lakers backup center Dwight Howard told CNN that now is not the time to resume basketball in light of the protests that broke out across the nation and the world following the death of George Floyd at the hands of Minneapolis police last month.

Contrary to Howard’s statement, however, more than one Lakers player told ESPN everyone is on the same page.

“[There is] no divide,” one Lakers player told ESPN.

“Still have some time to figure things out as a league and as a team,” another said.

Brooklyn Nets guard Kyrie Irving reportedly lobbied fellow players on Friday to sit out the scheduled resumption of play as a protest against racism, multiple media outlets reported.

According to The Athletic’s Shams Charania, Irving told more than 80 NBA players on a conference call, “I don’t support going into Orlando. I’m not with the systematic racism and the (expletive). Something smells a little fishy… I’m willing to give up everything I have (for social reform).”

ESPN reported that the Lakers initially had concerns after hearing Howard’s comments, but his agent, Charles Briscoe, told the outlet Howard has not made a decision about playing this season as he has not thought about basketball in recent weeks.

“The statement was about social injustice and racism,” Briscoe told ESPN. “Yet everybody is still talking about whether basketball should be played. He isn’t saying that basketball shouldn’t be. He’s just saying that you should not be taking attention away from what’s going on in the country to talk about basketball. Basketball is just a sport, at the end of the day. But what’s going on with people dying in the streets, that’s something real. That statement, it had nothing to do with sports. It had everything to do with racism and social injustice.”

One Lakers player who has not spoken out against resuming play is Lakers star LeBron James. On Sunday, Los Angeles Clippers guard Patrick Beverley tweeted that if James is ready to play, all players better be ready for play to resume.

“Hoopers say what y’all want,” Beverley tweeted. “If @KingJames said he hooping. We all hooping. Not Personal only BUSINESS #StayWoke.”

The NBA hasn’t played since March 11 due to the coronavirus pandemic. The league intends to finish the coronavirus-interrupted season and the playoffs at the Walt Disney World Resort near Orlando, Florida. Training camp is set to be held July 9–29 before the season restarts July 30.

Mr. Floyd, a black man, died May 25 after a white police officer kneeled on his neck for nearly nine minutes. His death sparked global protests, and sports teams throughout the United States have spoken out publicly against racism, with several teams taking part in protests. — Reuters

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