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Tradeoffs

There were 15.2 seconds left when the Rockets made a push for the final play of the match. They had just seen their five-point lead turn into a one-point deficit following the Clippers’ third basket in the last three-quarter of a minute, but head coach Mike D’Antoni elected not to call their last timeout all the same. They were down one, but confident nonetheless; among other things, they had the league’s most potent scorer in James Harden on their side. And the ball did get to him with 10 ticks to spare. So far, so good; he was poised to add to an extremely efficient 37-point, 12-assist outing.

Unfortunately for the Rockets, bad spacing had Harden facing double coverage as soon as he touched the ball. Not taking any chances, the Clippers enveloped him with defensive demons Kawhi Leonard and Paul George. He immediately made the right play, passing to a wide-open Russell Westbrook. He figured he would get the ball anew after his fellow All-Star, knowing well enough to trust him with the outcome of the set-to, created the requisite separation. He thought wrong; he never got the ball back. Instead, he saw his backcourtmate launch an ill-advised try from beyond the arc that sealed their fate. Why a 22-percent shooter opted to do so when a made two would have led to a win just the same is anybody’s guess.

Granted, Westbrook was free — make that extremely free — for the three-point attempt. Then again, there’s a reason the defense (and, in particular, former teammate George) practically dared him to shoot. He has a historically poor touch anywhere on the court except in the shaded area. And he was particularly atrocious the other day; prior to his hero heave, he was just one of six from trey territory. He even had an airball of a short open shot earlier in the contest. Yet, for all his failings, he thought best to decide the Rockets’ destiny by doing the one thing he shouldn’t have in the crunch.

And therein lies the rub. Westbrook is an asset; his whirling-dervish style has propped up the Rockets’ pace and improved their offensive metrics. That said, his effectiveness as a bulldozing baller has already been handicapped by his advancing age; his finishes at the rim have become less of a sure thing in recent memory. Meanwhile, and more tellingly, he continues to also be a liability. Harden’s singular skill set often has him stationed as a release valve, but he does not possess an adequate touch to at least make the think twice before leaving him alone in the perimeter.

By most accounts, the Rockets went for addition by subtraction in the offseason by unloading erstwhile starting guard Chris Paul, whose relationship with Harden had fractured beyond the point of repair. Meanwhile, Westbrook was a childhood buddy who promised harmony — and, by extension, productivity — on the floor. As the loss to the Clippers showed, however, the move came with tradeoffs. There will be plenty more instances when his defender will leave him alone, and what he does in these times figure to shape their campaign for the hardware. The good news is that the season is young; they still have time to improve. If they truly harbor title hopes, they would do well to help him do so, but sooner rather than later. Else, certain disappointment is in the offing.

 

Anthony L. Cuaycong has been writing Courtside since BusinessWorld introduced a Sports section in 1994. He is a consultant on strategic planning, operations and Human Resources management, corporate communications, and business development.

Are sustainability reports a fad?

Wider corporate reporting is being promoted as a means to improve corporate governance, as stated by International Accounting Standards Board (IASB) Chairman Hans Hoogervorst in his speech in Tokyo on Aug. 29, 2018. The IASB chair admitted that financial reporting has its limitations and cannot adequately capture certain elements that might be important to stakeholders, such as the intangibles that are vital to the company’s business model and its strategy for long-term value creation. Financial statements are essentially backward-looking reports that contain limited forward-looking information, which means that in their current state, financial statements do not address emerging sustainability issues that might impact a company’s future cash flow.

However, the IASB Chair made it clear that the Board is not equipped to enter the field of sustainability reporting directly. He recognizes in a speech about sustainability reporting in April at Cambridge University that the Board does not have the expertise required to set sustainability reporting standards. Additionally, he notes that there are already several standard setters in this space.

Mr. Hoogervorst also pointed out that regulators and stakeholders should not have exaggerated expectations that sustainability reporting will act as an agent of change and will be effective in forcing companies to “prioritize planet over profit.” That being said, clear public policies can certainly help effect change, and financial incentives are crucial to swaying companies to address material sustainability issues. The rise of sustainability reporting that focuses on stakeholders and provides information about the impact of sustainability issues on the future returns of the company is the most promising development in this space, according to the IASB Chair.

While the IASB will not directly participate in sustainability reporting, it is addressing the limitations of financial reporting through its “Better Communication in Financial Reporting” project. This initiative aims to improve financial communication not by creating new standards, but by providing guidelines on how to better present information that has already been collected. The project contains several strands of work, one of which is revising and updating the Management Commentary (Practice Statement) to include a report on how material sustainability issues may impact the business. The IASB is expected to publish an Exposure Draft of the Practice Statement in the second half of 2020.

On the local front, the Securities and Exchange Commission (SEC) has released a memorandum requiring publicly-listed companies (PLCs) to submit their Sustainability Report together with the 2019 Annual Report (SEC Form 17-A) in 2020. The memorandum issued early this year stated that the guidelines are to be adopted on a “comply or explain” approach for the first three years upon implementation. This means that “companies will be required to attach the template to their Annual Reports but they can provide explanations for items where they still have no available data. However, by 2023, PLCs will need to comply with the Sustainability Reporting Guidelines specified in the memo, or be subjected to the penalty for Incomplete Annual Report (under SEC Memorandum Circular No. 6, Series of 2005).

Like traditional financial reporting, rigorous climate-related financial disclosures do not happen overnight. The path from start to finish can involve twists and turns, as well as the coordination of many moving parts, thereby requiring the collaboration and expertise of a variety of corporate functions to achieve an organization’s ultimate reporting objectives. The following are key action steps companies can take now to prepare themselves for reporting non-financial information.

1. Secure the support of your board of directors and executive leadership team.

2. Integrate climate change into key governance processes, enhancing board-level oversight through audit and risk committees.

3. Bring together sustainability, governance, finance, and compliance colleagues to agree on roles.

4. Look specifically at the financial impacts of climate risk and how it relates to revenues, expenditures, assets, liabilities, and financial capital.

5. Assess your business against at least two scenarios.

6. Adapt existing enterprise-level and other risk management processes to take account of climate risk.

7. Solicit feedback from engaged investors about what information they need to know about climate-related financial risks and opportunities.

8. Look at existing tools you may already use to help you collect and report climate-related financial information.

9. Plan to use the same quality assurance and compliance approaches for climate-related financial information as for finance, management, and governance disclosures.

10. Prepare the information you report as if it were going to be assured, even if you decide not to do so right now.

11. Look at the existing structure of your annual report and think about how you can incorporate the information into your discussion of risks, management’s discussion and analysis (MD&A), and the governance section.

The recent pronouncements of the IASB and SEC on the need for reliable and accurate sustainability reporting underlines the necessity for companies to assess and manage its non-financial performance towards achieving the universal target of improved sustainability. However, for sustainability reporting to be effective and useful, companies should not only view it as an exercise in compliance, but actually a responsibility of every corporate citizen to measure and document their best practices towards achieving the goals of sustainable development to meet the needs of the present without compromising the ability of future generations to meet their own needs.

It would seem then that need for sustainability reporting is here for good. In which case, companies are encouraged not to wait for sustainability reporting standards, or a regulatory requirement, to be mandatory. The time to act for the greater good is now.

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

 

Benjamin N. Villacorte is a Partner of SGV & Co.

Lane says ECB policies ‘in good shape’

THE EUROPEAN Central Bank’s (ECB) chief economist Philip Lane said policies are “in good shape” for the baseline scenario of improving conditions over the next one or two years, but further rate cuts can’t be ruled out.

“Under the most likely scenario, we think the current policies are in good shape,” he said in an interview broadcast on Saturday on Italy’s Sky TG24. The scenarios where “more dramatic policies” are required such as “a severe negative shock, a big recession” are not the baseline case, he added.

Earlier last week, Mr. Lane said the central bank is nearing a decision to launch a review of its policy strategy as officials struggle to boost inflation despite years of massive stimulus. In September, the ECB decided to cut rates deeper below zero and to restart the quantitative-easing program, pledging to keep buying assets until inflation is firmly within its target.

“If it is necessary to put the rate lower, we will be prepared to do so,” Mr. Lane said in the interview. “It’s a very important message and this goes back to the wider discussion,” he said, adding that “of course, everyone agrees at some level the negative rate will not be helpful. But our assessment is we are not at that level now.”

In her first major speech, ECB President Christine Lagarde called for a new policy mix, saying public investment should be stepped up to ease the burden on monetary stimulus and ensure the region can thrive in an uncertain world. — Bloomberg

Kasabay sa LakbayA nostalgic look at Petron’s intergenerational service to Filipino motorists

THROUGH more than 85 years, Petron has been an integral part of the Filipino narrative, through all the ups and downs and in the best and the worst times. Since 1933, it has remained resilient in the face of overwhelming challenges and rejoicing in the soaring successes of the Filipino nation.

What truly distinguishes Petron is its deep understanding of the needs of Filipino motorists, founded on a heritage of service that spans more than eight decades, serving generations of Filipino families. This is the theme of Petron’s new marketing campaign, “Kasabay sa Lakbay,” a sentimental journey through important life experiences where Petron has been the Filipino’s reliable partner.

FUELING THE NATION
With its vast network of service stations, ranging from mega stations on major thoroughfares and highways to small, strategically stations in remote, rural areas, Petron has been serving the fuel needs of Filipinos.

Keenly aware of evolving industry trends and the latest technological advances, Petron has always been at the forefront of fuel innovation. It has taken the lead in introducing fuel products that help protect the environment while ensuring optimum driving performance and delivering improved fuel efficiency. All Petron fuels — Petron Blaze 100 Euro 6, Petron Xtra Unleaded, Petron XCS, Petron Turbo Diesel, and Petron Diesel Max — are formulated and produced locally at Petron’s Bataan refinery, the largest and most advanced refining facility in the country.

Petron was the first to offer a full range of Euro 4 gasoline and diesel fuels well ahead of the government’s deadline. Most recently, Blaze 100 was acknowledged as the best gasoline in the country, as certified by international laboratory tests and proven in actual field tests on local road conditions.

FUELING JOURNEYS
Petron always puts the needs and welfare of consumers at the heart of its endeavors. This year, it launched its Fuel Wise campaign to help empower a more informed and more responsible population of Filipino motorists. Since the campaign’s launch, Petron has been traveling across the country to enjoin more motorists to learn and benefit from the campaign.

The spirit of service is embodied by the country’s longest-running motorist assistance program, Petron Lakbay Alalay. Manned by Petron employee-volunteers and now on its 33rd year, it has evolved into a road safety advocacy to ensure that holiday travelers enjoy safe and worry-free journeys.

Especially on long holiday weekends when families and friends embark on road trips to neighboring provinces, Petron employees offer their time to serve at designated Petron Lakbay Alalay locations. There they offer free service checks to ensure vehicle roadworthiness, free medical assistance, clean rest rooms, and even free goodies from partner establishments.

FUELING HOPE
As a responsible corporate citizen, Petron is deeply committed to making a positive impact on the lives of others, especially on those who have less.

Its flagship CSR program Tulong Aral ng Petron (TAP) provides a brighter future for the Filipino youth by fueling HOPE (Helping the Filipino Children and Youth Overcome Poverty through Education). It has provided scholarships to more than 16,000 students in elementary, high school, and college since 2002.

Petron also helps its communities build the foundations for a better life through its programs on environment, health, entrepreneurship and livelihood.

KASABAY SA LAKBAY
As a Filipino company, Petron has withstood the test of time and proven its steadfast commitment to Filipino motorists. Spanning almost three generations of drivers since 1933, it has been an integral part of our grandparents’ journey as the country recovered from the ravages of war and gained independence. It fueled our parents’ adventures through the rest of the century, and advanced with us into the new millennium powered by new technologies. Just as it has been a reliable and constant presence in our life journeys, Petron — Kasabay sa Lakbay — will continue to be there for the future generation of Filipino drivers.

How PSEi member stocks performed — November 22, 2019

Here’s a quick glance at how PSEi stocks fared on Friday, November 22, 2019.

 

The case for CITIRA’s lowering the Corporate Income Tax

Dedicated to amigisimo and contrarian thinker Ernest Leung.

THERE is no question that the Philippines needs a boost to its dismal investment rate (22-24% of GDP while our neighbors are punching at 25-35%). But the question is how? The government’s Corporate Income Tax and Incentive Rationalization Act (CITIRA) claims that a lower statutory corporate income tax has to be part of the mix! The subsequent strident debate on CITIRA mostly centers on how the replacement of gross income tax (GIT) at 5% with a corporate income tax (CIT) will impact locators and foreign investment in PEZA, the source of most of our manufactured exports. But truth to tell, this replacement issue, as important as it is, is a derivative one. While overstaying incentives are a legitimate issue, the major prior reason for the restructuring of PEZA incentives — including the replacement of gross with corporate income tax for locators — is to plug the potential fiscal hole punched by the proposed lowering of the statutory corporate income tax (CIT) rate from 30% to 20%. The crucial claim is that lower statutory CIT will boost investment and growth — a claim, mind you, that is by contrast largely glossed over. Surely, the Department of Finance (DoF) team must have this issue well-covered. But merely pointing to the lower average CIT in our Asian neighborhood (average 20% today), where the investment rate today is higher, is no proof that higher investment rate will result in the Philippines. In 1980s when they were making their move, Malaysia’s and Singapore’s CIT was at 40% while Indonesia’s was at 35%. Nor does it suffice to point to Sweden’s and Denmark’s corporate income tax at 22% in 2019, since Sweden’s was at 60% in 1989 and Denmark’s was at 50% in 1985. A cursory check of the evidence seemed in order if only to confirm the claim.

The CITIRA position finds support in Lee and Gordon (2004) who, over a panel data throughout the period 1970-1997 for 70 countries, found a negative and significant relation between growth per capita and CIT. However, Shevlin et al.’s (2016) cross-country regressions found that the association between statutory corporate income tax and per capita income growth for the period 1995-2011 disappears altogether when area and year fixed effects are added — questioning the robustness of the Lee and Gordon result. Of even more interest is their result that statutory corporate income tax does not associate at all with long-run (two- to five-year horizon) economic or employment growth. Shevlin et al. however find that lower effective tax rate (what firms actually pay, accounting for tax avoidance and on average 7.2% lower than the statutory rates) does associate significantly with higher growth. Hunady and Orviska (2015) find a non-linear relation between economic growth and statutory corporate income taxation for the EU economies from 1999 to 2011: positive for lower corporate income tax rates but becomes negative for higher rates (see also, Misuru and Nakamura, 2019). They do not say whether 30% is high. Rebelo and Jaimovich (2018), conceding at the outset that there is no relation between the long-run growth of the US economy and corporate tax rate, nevertheless argue that the 2017 Trump corporate income tax cut can still deliver a bump in economic growth in the short run if the initial tax rate is exceptionally high. They do not say where the high tipping point lies.

How about firm level investment? Djankov et al. (2008) find that the statutory corporate income tax has no effect on the investment behavior of firms across the world. FDIs do fall with statutory corporate income tax rates, but the FDI issue in CITIRA is different — a switch from a 5% GIT (with CIT equivalence of 13% as per DoF computation) to a 20% CIT, an effective rise in statutory rates for FDI. By contrast, a higher effective corporate income tax rate (see also Ohrn, 2018, for the case of US firms) does have a negative effect on investment. While the number of studies cited here is limited, the overall flavor is clear: within a reasonable range, statutory CIT and growth/investment are not associated.

The Djankov et al. results draw from cross-country regressions for only one year, 2004. Most of the results in this area of study are for affluent developed economies, such as the EU or USA with no allowance made for low income economies as a group. The behavior of the poor is markedly different than the economic behavior of the rich — ask the authors of Poor Economics and 2019 Nobel Memorial Prize winners Banerjee and Duflo.

That the link between statutory CIT, on the one hand, and economic growth and corporate investment, on the other, seems so tenuous was a surprise. In the long debate over low investment rate in the Philippines in the last two decades, the weak rule-of-law on property rights and contracts, the high power cost, the unstable regulatory environment, and the licensing hurdles for investors were the recognized binding constraints. The corporate income tax came up occasionally only because ours is higher than regional average. If there is no real progress in those other identified binding constraints, the envisioned growth and investment boost from lower CIT may be a mirage. Lower CIT may only finance higher dividends for shareholders, more spirited stock buybacks which rewards shareholders, or, if higher corporate investing materializes at all among local firms, it may find its home not in the Philippines but in Vietnam, Indonesia, or Thailand. To embark on a reduction of the statutory CIT and make the export manufacturing sector foot the bill on such unsolid ground seems reckless. I hope I am mistaken and merely missed something really important in this cursory review.

References:

Ohrn, Eric, 2018. “The Effect of Corporate Taxation Investment and Financial policy: Evidence from DPAD,” American Economic Journal: Economic Policy 10 (2): 272-301.

Rebelo S and N Jaimovich, February 2017. “Non-linear Effects of Taxation on Growth,” Journal of Political Economy, 126 No. 1, 265-291.

Djankov S, T Ganser, C MacLiesh, R Ramalho, and A Shleifer, “The Effect of Corporate Taxes on Investment and Entrepreneurship,” NBER Working Paper 13756. Available at https://www.nber.org/papers/w13756.

Ueshina M and T Nakamura, 2019. “An Inverted U-shaped Relationship between Public Debt and Economic Growth under Golden Rule of Public Finance,” Theoretical Economics Letter, 09(06): 1792-1803).

Hunady J and M Orviska, 2015. “The Non-Linear Effect of Corporate Taxes on Economic Growth,” Timisoara Journal of Economics and Business, 8: 14-31.

Shevlin T, L Shuvakumar, and O Urcan, 2016. “Macroeconomic Effects of Aggregate Corporate Tax Avoidance: A Cross Country Analysis.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2800466.

Lee, Y and R Gordon, 2005. “Tax Structure and Economic Growth,” Journal of Public Economics 89, 1027-1043.

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 at the Asian Institute of Management. Weaving ideas in coffee shops and evidence-checking of policy proposals is an integral part of his day. He gets his dopamine fix from hitting tennis balls with wife Teena, watering plants, and bicycling.

Going back to the dark days of the water crisis

WWW.CLEANPNG.COM

Last month, residents of Metro Manila suffered another round of water rationing as water levels dipped in the city’s principal water source, the Angat Dam.

As if on cue, leftist groups staged a protests and called for the re-nationalization of water services citing incompetence by the two water and wastewater service providers, Maynilad and the Manila Water Co. (MWC). They demanded that the concessions of the two companies be revoked and water distribution functions be ceded back to the Metropolitan Waterworks and Sewerage System (MWSS).

Before the hate campaign of these leftist groups gains momentum, let me to put perspective on how life was like when MWSS managed our water systems.

The year was 1991 and I had just started my business. I built a factory in Mandaluyong and I still recall how water was only available for one hour, every 12 hours. We had to hoard water in drums and ration it throughout the day. Homes and factories in our neighborhood dug deep wells to ensure a steady supply, the depth of which got deeper every year as the water table slowly receded.

Dry taps left us with no recourse but to purchase water from vendors at the rate of P30 to P62 per cubic meter (a small drum). Not only was this an added overhead cost for our business, it also caused inconvenience and great stress for all. Maintaining cleanliness (essential in a food manufacturing facility) was a challenge given strict water rationing.

Back then, the MWSS was so inept that it only distributed water to 69% of the metropolis. It was saddled with more than a billion dollars in debt and operated with extreme inefficiency due to graft. The MWSS was in such a miserable state that President Fidel Ramos had to ask Congress for emergency powers to privatize it.

In 1997, the MWSS was successfully privatized with Maynilad winning the concession for the western zone of Metro Manila while MWC won the concession for the east. Both firms absorbed the debts of MWSS and collectively invested close to a P100 billion to provide water and sewerage connections. Today, 96% of Metro Manila is interconnected via underground pipes.

These days, water flows freely in our taps albeit with occasional interruptions. It is worlds away from the conditions we suffered through in the 1990s. It only proves that the private sector is more competent in delivering services than the government is. This is true for water as it is for power distribution and even in highway management.

This is why we should reject the call for the re-nationalization of water services. To go down that road is like eating the food we already vomited.

As mentioned earlier, the water rationing last month was due to the low water levels at the Angat dam. Bear in mind that the management of our dams and securing new water sources are the responsibilities of government, not the concessionaires. The latter’s role is merely to distribute water and manage sewerage systems throughout the city. To blame Maynilad and MWC for the lack of water supply is to bark up the wrong tree.

If there is anyone culpable for the water shortage, it is the governments of Marcos and Noynoy Aquino and all those in between. MWSS chief regulator Patrick Ty admitted that the government was partly to blame for this year’s water shortage due to its failure to do what had been on the drawing board 50 years ago — which is to build an alternative water source for Metro Manila’s ever-growing population.

Plans to carry out the New Centennial Water Source project, which involves the construction of the Kaliwa Dam in Quezon and the Laiban Dam in Rizal, had been discussed since the Marcos era. But the twin projects had been put off again and again amid opposition by, and accommodations for, indigenous folk, informal settlers, the church, and leftist groups.

Several proposals to build an alternative water source were proposed during the Noynoy Aquino administration but these were rejected due to being “redundant.” without this lack of foresight by the Aquino administration we should have averted the shortages we face today.

The good news is that construction of the P12.2-billion peso Kaliwa Dam was given the green light by the Duterte administration. Construction should commence soon as the project had already secured its environmental compliance certificate (ECC) from the Department of Environment and Natural Resources (DENR) last month. When completed, the Kaliwa Dam will ensure that Metro Manila has an ample supply of water, even with low levels of rainfall, for decades to come.

But again, leftist activists and leftists in congress are standing in the way of Kaliwa Dam’s construction. They claim that the project proponents failed to secure free, prior and informed consent (FPIC) from the Dumagat and Remontado residents as required by Republic Act No. 8173 or the Indigenous Peoples Rights Act. They also claim that the dam will contribute to global warning.

I cannot understand the thought process of these leftists. On one hand, they complain about the water shortage and demand long-term solutions. One the other hand, when a viable solution is presented, they demand that it by trashed. With one demand cancelling the other out, government should just proceed with the project as it serves the greater interest of the greater majority.

As for Maynilad and MWC, they are on track towards achieving 100% connection of both water supply and sewerage systems by 2037. Maynilad has set aside P200 billion to build 26 new sewer treatment plants and install 425 kilometers of new sewer lines. As for MWC, they are spending P115 billion from hereon.

Building the Kaliwa Dam will assure us that the dark age of the 1990s water crisis never happens again. We owe it to the next generation of Manileños to build it.

 

Andrew J. Masigan is an economist.

In memory of Ernest Leung

Those who knew Ernest from afar — perhaps as a technocrat and a former Finance Secretary — might ask: What on earth was he doing in Papua New Guinea where he contracted malaria, leading to his death?

Papua New Guinea is a dangerous place. Violence, corruption, and police brutality are rampant. Assaults, including rape attacks, robberies, abductions, and carjacking are frequently reported, with criminals not hesitating to use firearms and machetes to harm victims. In Port Moresby, the capital, and in other cities, foreigners are warned not to go out after dark. Having native escorts is a must.

Tribal violence persists. In July 2019, 15 women and children were massacred when one tribe attacked the village of another tribe.

Social tension is high; inequality is sharp; and close to 40% of the population lives in poverty. Health conditions have shown no progress or have worsened. And despite gains in fighting malaria, it remains a critical problem.

Despite all these dreadful things, Papua New Guinea beckoned Ernest, the brave and bold traveler. Unspoiled flora and fauna, deep rainforests, rugged mountains, natural trails, glistening waters, and diverse culture — all in a land that is least discovered by tourists.

Boldness and bravery defined Ernest’s travels. One memorable story was about Ernest’s participation in Pamplona’s running of the bulls. Instead of exercising caution by joining wife Edwina in a balcony to witness the event, he positioned himself on the edge of the street so he could run together with the bulls.

Yes, he was brave and bold, but he was likewise smart. Instead of following the custom of running in front of the bulls, Ernest ran behind the bulls. No way then could the bulls gore him. Further, he could not resist being naughty by touching the tail of one of the bulls.

Ernest displayed bravery, boldness, and smarts in the other facets of his life. He was athletic, a competitive one at that. In badminton, he could beat much younger opponents by being smart and giving it his all. Despite his old age, he had stamina and nimbleness — even diving and falling to hit the shuttlecock.

His boldness, courage, and intelligence likewise served him well in the conduct of shaping and implementing public policy.

His views and actions with respect to economics and finance were unconventional. For example, at a time that almost everyone in the mainstream economic profession was embracing neoliberalism, Ernest was showing his discontent over financial liberalization and the proposal to grant autonomy to the Bureau of Internal Revenue (BIR).

Ernest was strongly in favor of capital controls and managed currency depreciation. He wanted to insulate the economy from the destabilizing effects of short-term flows and to make the real economy competitive. He fought then Bangko Senral ng Pilipinas Governor Gabriel Singson who favored a regime of a strong peso backed up by high interest rates.

Ernest’s position endeared him to the exporters, local manufacturers whose businesses suffered from the competition with cheap imports, and the overseas Filipino workers, whose remittances to families diminished in value due to currency overvaluation.

He believed that making the BIR autonomous was an idea from external donors that was bereft of diagnostics of what really constrained Philippine tax effort. Ernest and others argued that this would have weakened accountability and degraded the over-all quality of Philippine institutions.

Unfortunately, Ernest’s stint as Finance Secretary was very short. One is thus tempted to ask a counter-factual question: If Ernest served longer, would have he been in a position to fend off the all-out liberalization, particularly financial liberalization, which triggered the crisis in the late 1990s? It was this kind of liberalization that hollowed out our manufacturing sector. Till now, manufacturing is struggling.

Would have he been able to introduce deep, transformative reforms in the economy, which could have ignited sustained growth much earlier?

Even after his stint in the public sector, Ernest remained active in fighting for change. He was consistent in the struggle for tax reforms. Ernest, together with former Economic Planning Secretary Winnie Monsod, former Finance Secretary Gary Teves, former Finance Undersecretary Nene Guevara, former Finance Undersecretary Romy Bernardo, former Health Secretary Quasi Romualdez (+), and former Health Secretary Espie Cabral, joined forces with the reformers in the Benigno R.S. Aquino administration and with civil society to constitute the coalition that passed the increase in tobacco and alcohol taxes in 2012.

Ernest continued to support the succeeding reform effort, particularly the comprehensive tax reform encapsulated in the TRAIN (Tax Reform for Acceleration and Inclusion) packages.

But Ernest was likewise critical. He time and again said that the reforms on the agenda were not comprehensive enough. He insisted on the unconditional lifting of the Bank Secrecy Act. He was uncompromising on this matter. The purpose was not limited to ferreting out tax evasion, money laundering and related crimes. It was likewise a necessary tool to track interest incomes in the context of his proposal to consolidate passive income and compensation income for taxation.

In this regard, he thought that the reform on income taxation was insufficient. He wanted the tax rates for passive income like deposits (including foreign currency deposits) and dividends aligned to the marginal tax rate for personal income tax. In other words, he wanted a global income (wherever the source) taxed by a single rate as a means to correct distortions and check tax avoidance behavior.

On other issues, Ernest criticized the BSP’s special deposit accounts (SDA). The SDAs are an instrument of the BSP to mop up excess liquidity by offering interest rates higher than those given to time deposits. But because of the big amount required for the SDAs, only the rich could qualify for this. For Ernest, this was an example of policy serving and benefiting the rich but being detrimental to the public interest. Further, the SDAs correlated with a surge in short-term inflows that affected the exchange rate in a negative way.

Nevertheless, Ernest was supportive of the leadership of the late BSP Governor Nesting Espenilla, even commending him for his program on financial inclusiveness and for leaning towards regulation of short-term capital flows.

Ernest also tackled issues beyond finance and taxation. He championed reforms in governance, basic education, sustainable farming, and the environment. He was active in networks with worthy causes like the Movement for Good Governance, Synergeia, and the Competitive Currency Forum

He was thoroughly against the Marcos dictatorship and its corruption. In a letter addressed to me and Cla Lapus, Ernest expressed his shock over the Supreme Court’s dismissal of the case of stolen wealth against the Marcos family. An implication of the ruling, said Ernest, was returning to the Marcoses whatever amount government had already recovered. In sarcastic fashion, he asked: “Will our tax money from hard work be allotted to reimburse the insane Imelda and her brood?”

Like Duterte, Ernest intimidated his adversaries. But unlike Duterte who intimidates through killing or threats of killing, Ernest scared opponents through the power and toughness of his ideas and the sharpness of his tongue.

A favorite expression of Ernest whenever he encountered someone uttering silly, unintelligent ideas was: “From which school did you graduate?” If you said you came from a school that Ernest considered inferior, you are damned. If you boasted that you graduated from an Ivy League school, you are all the more damned, for how could you account for your mediocrity or foolishness?

Above everything else, Ernest had integrity. Always on his mind was the public interest. And to serve the public interest, his integrity was beyond reproach.

To underscore this, let me share a story that inspired his fellow reformists in government. One weekend, Ernest and associates decided to gather in Subic. Ernest showed up in a beat-up car. He did not use the government-issued vehicle, and he came without a driver or an attendant. That seemingly small act was a big statement about how deep Ernest valued public interest.

And that is how I will remember Ernest: He had the highest ethical standards, and he mustered all his attributes, including his being testy and biting, to serve the public good.

 

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

www.aer.ph

Political bickering and our image

The trending verbal joust between the administration and the oppositionists started from a piece of criticism by Senator Franklin Drilon at the Senate review of the “Build, Build, Build” infrastructure program of President Rodrigo Duterte. As quoted in the Philippine Star of Nov. 14, Drilon said that “the program was a ‘dismal failure’ because only nine of 75 flagship projects have been completed three years into the six-year term of the Duterte administration.” Salvador Panelo, the president’s spokesperson, immediately sequestered national TV airtime to publicly shame the opposition: “The Aquino administration had built not a single infrastructure project,” he declared with damning finality.

If Drilon was political by using the pejorative “dismal failure,” which he can claim to be his personal evaluation, Panelo cannot just be pardoned and dismissed for the exactness of his judgment, “not a single infrastructure project,” a political hit that cast the previous administration to fiery hell with the cackle of the devil. It cannot be, naman, that they had zero, the thinking audience, including the non-admirers of past president Aquino, might say. It was a faux pas by Panelo, and it ceded center-stage to Drilon and oppositionist-defenders, who cited government statistics to disprove that not a single infrastructure was built by the previous administration.

The Public-Private Partnership Center list as of Oct. 31, 2019 includes three PPP projects — the Aquino administration’s preferred mode for projects — that were completed before the end of Benigno Aquino III’s presidency. Among these are the Daang Hari-SLEX Link Road and the Automatic Fare Collection System for Metro Manila’s train lines. The Philippine Star article also cited the Official Gazette that also lists eight projects that were approved during the Aquino administration that were meant to alleviate traffic congestion and that were expected to be completed by the succeeding Duterte administration. In the provinces, the Aquino administration had some 41 projects already started before Duterte came in, and were to be completed in Duterte’s time, as reported by official records.

In an August press briefing, Socio-economic Planning Secretary Ernesto Pernia had said that “for the remainder of the year, the government must speed up the implementation of infrastructure projects under the ‘Build, Build, Build’ program, as only 11 of 38 NEDA Board-approved project proposals out of the 75 infrastructure flagship projects are in the construction phase” (pna.gov.ph, Aug. 8). Pernia is calmly straightforward, as usual, and says it like it is.

But House Speaker Alan Peter Cayetano seems to display irascibility more than the veiled anger of Panelo, when accosted or alluded to by critics. In Pilipino, we call this “pikon,” meaning onion-skinned in the superlative degree. Cayetano’s trigger was when Senator Drilon of the “dismal failure” accusation criticized the P6-billion budget for the 30th Southeast Asian Games (SEA Games) to be hosted by the country, particularly when he called down the “over-priced” P55-million “cauldron” that would burn the official flame for the Games. A bristling Cayetano was immediately on national TV, as Panelo was in similar situations, to counter the generally qualitative comments and criticisms with quantified but, sad to say, inaccurate data.

Cayetano, also chairman of the Philippine Southeast Asian Games Organizing Committee (Phisgoc), called former President Benigno Aquino and Drilon “hypocrites” for criticizing the SEA Games expenses, the Philippine Star of Nov. 24 reported. He said that they asked Congress for P10 billion for the Asia-Pacific Economic Cooperation meeting because they said it would be for the good representation and benefit of the nation and justified it, but now, for this SEA Games, they were saying the budget for the cauldron — which is a work of art that will be forever owned by the government — should have been better spent building 50 classrooms instead. “How many classrooms would have been built if we did not host the APEC?”

“How many classrooms did the Aquino administration build,” Cayetano challenged. The lack of classrooms was exacerbated in their term because they did not provide for the increased student population under the K-12 secondary education extension program. At a press briefing held in New Clark City, Finance Secretary Carlos Dominguez III said the construction of the P9.5-billion sports facility was finished on time and within budget. “This project, I think, is well spent, not only for the athletes, but for the pride of our country. We now have, for the first time in 80 years, a world-class sports facility,” Dominguez was quoted as saying in the Philippine Star of Nov. 22.

On Nov. 21, the 2019 Arangkada forum, spearheaded by the American Chamber of Commerce, brought together the foreign chambers of commerce and local industries to discuss proposals to help government improve the delivery of services, businesses, and investments for the Filipino people. Mr. Cayetano, Secretary of Transportation Arthur Tugade, and Secretary of Agriculture William Dar were supposed to deliver keynote speeches for the Arangkada theme “T.A.P.” or “Turning on the Tap for Tourism, Agribusiness and Power.” All three could not come because they instead attended the on-site cabinet meeting with President Duterte at the New Clark City, site of the controversial SEA Games sports facilities.

That the Arangkada forum was “dismal” (to borrow from Drilon’s dictionary) in terms of no “celebrity” attendance and the thin audience, and consequently lack of “zing” of presentations and discussions, only highlights the difficulties of doing business in the Philippines and the lack of interest of investors. It must have been prescience for Rizalina “Rizza” Mantaring, president of the Management Association of the Philippines, to have delivered the opening speech at the Arangkada forum on her personal observations and recommendations to counter the difficulties of doing business in the Philippines. Mantaring quoted her European colleague (married to a Filipina) who closed his four-year-old business here, and moved lock, stock, and barrel to another Asian country. “Why would anyone want to invest in this country,” he asked?

The problem is described by the personal politics displayed by government officials who claim personal authorship and credit for projects and programs that start out as altruistically for the common good. Why should servant-leaders be pikon over being prodded to do their job when they are not up to speed with commitments, or do not have enough capability — personal or external — to perform duties and deliver responsibilities? Is criticism not the opportunity to improve, and change directions, and even attitude towards doing your job?

Perhaps the culture of entitlement and power in those of high positions and influence is the root cause of so much politics in political governance. It is scary to feel an almost Orwellian-state mentality where there seems to be double-speak in terms of facts and information — note Panelo’s belaboring of credits for PPP vs. BBB using disinformation, and Cayetano’s “apples-to-oranges” (meaning inaccurate and illogical) comparison of the APEC hosting by Aquino and the SEA Games hosting by Duterte. Read George Orwell’s novel 1984, and you will shiver to recognize the revision of history in the autocratic state of Oceania, to keep the dictator-leader in lifetime power.

Cayetano said that it was unfair for Drilon to bring up so many issues about the costs of the facilities just when the SEA Games are opening on Nov. 30. True, it will not be good for the image of the country for the world to notice the internal bickering of leaders in government — it has an impact on the regard and trust in the Philippines as an economic and trading partner, a political and defense ally, or even, benignly, as a tourist destination.

As a benchmark for our image abroad, 95th out of 190 economies across the globe in the World Bank’s Ease of Doing Business report 2020 is nothing to crow about.

 

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

ahcylagan@yahoo.com

Tidying up the clutter

By Tony Samson

NOTHING CONCENTRATES the mind more than contemplating closet space, especially when this has clearly run out years before. Even when it first looks capacious, the space is finite (you can only push hangers together up to a point). What we hang and fold there can be totally beyond the closet’s capacity to hold without groaning.

Marie Kondo (also known as “Konmari”) is a best-selling author of four books on one subject and the guru of removing clutter. The books have long titles like the one in 2014 — The life-changing magic of tidying up: The Japanese Art of Decluttering and Organizing. (The principles of clutter don’t apply to book titles.) Her rules are simple and easy enough to understand but hard to follow. Do it all at once and not gradually. Only keep items that still “spark joy.” Discard by category (clothes, gadgets, relationships).

Still, it’s good to keep the Kondo rules in mind, if only for occasional reference.

In every hoarder’s life comes a time when he must decide whether to add yet another cabinet to hold his increasingly bulging possessions or face the reality of the limited closets and decide what to throw, give, box or store away to claim additional space in another location.

Cleaning out a closet involves setting priorities and determining what is truly indispensable. Closets are intended to hold only what are used often and therefore need to be handy.

Concretely, this means throwing out clutter, anything that takes up space even if no longer used. These include the following:

Clothes that no longer fit — specifically those that are hard to get into, and even harder to get out of without doing damage to the stitching — need to be dumped. Size here refers to waistline “this minute” and not the wished-for number, after a six-month diet. Also, clothes now too large for one’s svelte figure fall in this category. Even if some blazers are costly to replace and still spark joy, they may belong to another body.

Items long out of fashion and no longer usable except for parties where music of the ’60s is played, and guests are in the habit of asking where the washroom is. These disposables include Hawaiian shirts (the versions coming back in fashion have less palm trees) or those featuring full-length figures having coffee in a sidewalk café, paisley ties, bell bottom pants, and leather jackets that make crackling sounds when zipped.

The hoarder in us tends to relax these criteria and allow some of these categories to continue occupying precious real estate. This lack of willpower does not free up enough space. Ruthlessness is called for in this spiritual exercise of decluttering.

The closet exercise is an effective antidote to impulsive shopping, especially when traveling. When confronted with shopping windows, more cautious closet thoughts should prevail. No longer running through one’s mind are questions like — Can I afford these? Will I look silly in this bomber jacket? Can I squeeze these into my bags and still be able to carry them without detaching my retina? Does the color match my hair dye?

The operative thoughts instead will center on closet space — Which leather jacket will I need to throw away to make room for this one?

One good rule to follow here is Newton’s Law on Closets: “For every new acquisition, there has to be an equal but opposite disposition.” Hence, buying one new blazer means disposing of one old one. (Vests don’t count.)

Closet thoughts impose discipline on our materialistic impulses. Closets are like life. They can only accommodate so much clutter. One should be constantly faced with the task of deciding what to keep and what to throw away. The Japanese way of decluttering needs to be adopted — haiku instead of epic poetry.

Detachment in the matter of closets and what they can hold can provide breathing space and a sense of sticking to what is essential for living. Even after the invention of space savers like the multiple-necktie rack, vacuum-pack bags, and the three-tiered hanger, there is still a need to discard the unnecessary.

Tidying up the clutter differs from tidying up the mess. Both cleaning operations however entail removal and someone deciding on what to keep… and what no longer sparks joy.

 

Tony Samson is Chairman and CEO, TOUCH xda.

ar.samson@yahoo.com

BSP excludes interbank borrowings from reserve requirement to free up more funds

THE BANGKO SENTRAL ng Pilipinas (BSP) has moved to free up more funds for lending to productive activities, this time by removing interbank borrowings from classification as deposit substitutes subject to the reserve requirement.

The BSP said in a press release on Friday that its policy-making Monetary Board has formally adopted the new definition of “deposit substitute” under Section 95 of

its charter (Republic Act No. 7653 enacted in June 1993), as amended by RA 11211 (enacted last Feb. 14) which further strengthened the central bank.

Section 95 of RA 7653, or the new BSP Charter, defined a deposit substitute as an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement or acceptance of debt instruments for the purpose of relending or purchase of other receivables and obligations.

With RA 11211, the same provision now clarifies that the phrase “obtaining funds from the public” with a narrower definition of borrowing from at least 20 lenders at any one time that are individuals or companies which are not financial intermediaries.

“This means that borrowings from banks, quasi-banks and other financial intermediaries are no longer considered deposit substitutes which are subject to

reserve requirements,” the BSP explained in its statement on Thursday, citing as examples interbank borrowings, repurchase agreements with financial counterparties as well as bonds issued to financial intermediaries.

“The exclusion of these types of borrowings from the reserve base of banks and quasi-banks will result in freed-up liquidity for lending or investment activities,” it added. “It also facilitates the flow of funds within the financial system which may help reduce intermediation costs and, in turn, support economic activity.”

Sought for comment, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion welcomed the move, saying in a mobile phone message: “This is good to help raise liquidity in the market.”

“Certain borrowings now will no longer be subject to reserve requirement, thus freeing up more of these instruments for lending and other economic expansion activities,” Mr. Asuncion added.

“Higher liquidity means more opportunities for lending and investment activities for financial institutions, helping the economy expand and growth.”

The move follows cuts totalling four percentage points in banks reserve requirement ratio (RRR) this year, after 2018’s cumulative two-point reduction, with each cut estimated to inject more than P100 billion into the financial system. Starting next month, the RRR will be 14% for universal and commercial lenders as well as non-bank financial institutions with quasi-banking functions, and four percent for thrift banks, while the RRR for rural banks will remain at three percent.

BSP Governor Benjamin E. Diokno told reporters on Thursday that monetary authorities are now watching how fast previous policy moves — including a cumulative 75 basis point reduction in benchmark interest rates to 3.5%, four percent and 4.5% for overnight deposit, overnight reverse repurchase and lending, respectively — are being reflected in the market.

He said it takes up to nine months to see the results of monetary policy adjustments and that he remains committed to cutting the RRR to single digit when he ends his term in 2023.

Latest available BSP data showed that domestic liquidity picked up by 7.7% year-on-year in September to P12 trillion, compared to the 6.3% growth recorded in August. — with Luz Wendy T. Noble

S&P sees improved profitability overall for Philippine banks

GOOD treasury gains will help the Philippine banking sector improve profitability in 2020 despite successive cuts in benchmark interest rates by the Bangko Sentral ng Pilipinas (BSP) that could ease loan yields and moderating credit growth, S&P Global Ratings said in a report.

In a Nov. 18 Global Banking Country-by-Country Outlook 2020 report e-mailed to journalists on Friday, S&P Primary Credit Analyst Nikita Anand said: “Although reduced interest rates will lower loan yields, albeit with a lag, we believe the banking sector’s profitability will benefit from good treasury gains,” in reference to reductions in benchmark interest rates totaling 75 basis points this year.

The BSP kept monetary policy steady in its Nov. 14 policy review and is expected to maintain settings in its last policy meeting for the year on Dec. 12.

It increased policy rates by a cumulative 175 bps last year in the face of surging inflation that averaged a near-decade-high 5.2% for 2018.

“Banks had passed on the policy rate increases from last year to some extent, which is seen in the higher margins and delinquencies. Loan yields will start to trend down along with cost of funds as banks pass on the recent policy rate cuts,” the report read.

S&P said it expected the remaining increases in policy interest rates to be dialed back by next year.

Monetary authorities have also slashed banks’ reserve requirement ratio (RRR) by a total of 400 bps this year after 200-bps cuts in 2018.

“RRR cuts will also help banks improve their profitability in a falling interest rate environment. In our opinion, banks will channel these freed-up funds to grow or pay-down high-cost time deposits, any of which will improve net interest margins.”

And while S&P expects “credit growth to be 10-12% in 2020, compared to 15% in 2018, due to slight deterioration in macroeconomic conditions… [p]olicy rate cuts could spur demand and RRR reduction will provide additional liquidity.”

“Passing of key infrastructure projects will also support credit growth via the multiplier effect until 2022,” the report read further. — L. W. T. Noble

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