Government and Taxes: December 2016

Saturday, December 31, 2016

Blog stats, late 2016

After breaching the 1 million pageviews mark in early October 2016, my blog has been getting about 500 views a day in October-November (vs. around 340 a day in previous months), mainly from US readers. By December though, this blog was attracting around 800 views a day. And mainly from Russian readers.

And I'm not even writing about Russia, or Crimea or Ukraine. I think they are ordinary folks there reading about Asia and the Philippines.

Thank you readers from Russia, and America, Philippines, Germany, other countries.

AEC 18, Some presentations during the BWorld ASEAN regional forum

The ASEAN Economic Community (AEC) is one year old today, I am reposting some slides of some presentations during the BusinessWorld ASEAN Regional Forum last November 24, 2016,

http://bweconomicforum.com/index.php/morning-session/

These two slides are from the keynote speech by Fernando Zobel de Ayala, "Building Globally-Competitive Enterprises". Mr. Ayala is the President and COO of the big conglomerate, Ayala Corporation.

Yes, the AEC is our big partner, big ally, in the world. Big population, big consumers, big pool of workers and entrepreneurs, good mixture of cultural diversity, guided by free trade and freer mobility of people across the region.

For the PH stock market capitalization, more than 3x expansion in one decade, most of it occurred during the past six years.

Mr. Ayala also cited these figures: Overseas remittances have increased from $20.1 B in 2011 to $28.5B in 2015, while IT-BPO revenues have expanded from $11B in 2011 to $22B in 2015. Doubling of revenues in just five years.

The next two slides are from Hans B. Sicat's presentation, "Unity in Diversity: A Political-Economic Outlook". Hans is the President and Chief Executive Officer of the Philippine Stock Exchange (PSE)

And some figures about the PSE, the P/$ exchange rate, remittances and BPO revenues.

Global capitalism will reward an economy once it opens up more to foreign investments, trade and tourism, and they are protected and respected. Hence, we need to liberalize further the investments climate here. But there is little we can do at the moment at that big and murderous mouth of the PH President that tends to turn off than attract foreign business into the country.
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See also:
AEC 15, ADR Institute discussion on trade and investments,July 16, 2015
AEC 16, SIU-HBS ASEAN Scenario Workshop in Bangkok, October 17, 2015
AEC 17, ASEAN economic integration cemented today, December 31, 2015

Friday, December 30, 2016

BWorld 99, China insecurity and belligerence

* This is my article in BWEconomicForum last December 14, 2016.

ON OCCASION, a fraternity gets big enough such that its members begin to establish cliques of their own, causing disunity in the organization. This, in turn, prompts the officers to initiate a “rumble” with another fraternity. As a result, cliques are set aside and the frat moves as one in protecting their brods or beating up members of the other fraternity. This same logic may apply to China.

One of my dormitory roommates, a member of a fraternity, told me that anecdote while we were both students at the University of the Philippines in Diliman. While fraternities would seldom or never admit publicly that they initiated a rumble, it nevertheless is common knowledge to some members.

The same strategy may have been practiced by China in its continuing belligerence, particularly over secessionist regions and territories that it presumes to claim. The government in Beijing is increasingly becoming insecure with its more informed, more assertive citizens who dislike central planning and government-led intimidation. Some irreverent or potentially secessionist regions keep asserting their aspirations so it acts belligerently and court regional or global fallout in the process.

During the BusinessWorld-PAL ASEAN Regional Forum held last Nov. 24, one of the sessions was “The South China Sea or West Philippine Sea: The Economics of Competing Territorial Claims.” Speakers were Bonji Ohara of Tokyo Foundation, Thanh Hai Do of Diplomatic Academy of Vietnam, and Dindo Manhit of Stratbase-Albert Del Rosario Institute in Manila.

The three speakers talked about non-military, non-confrontational schemes to resolve the territorial dispute. Rightly so. An insecure government like the China Communist Party (CCP) that bullies its own citizens will have no hesitance to bully other countries with smaller military capabilities.

What are the sources of insecurity by the CCP? First and foremost are the vocal and assertive potential secessionists.

Insecurity driving China’s hostility in territorial rows, secessionist areas

The election of Ms. Tsai Ing-wen (DPP) in Taiwan last January has temporarily jolted the CCP and sounded another round of belligerence. Hong Kong pro-independence activists never went away, as shown by the Umbrella Revolution two years ago to the recent election of young legislators who are openly campaigning for HK independence from China.

The Uighur activists have figured in violent and fatal attacks in recent years. XUAR shares borders with five Muslim countries — Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, and Pakistan. And there are other potential rebel areas too like Macau and Manchu.

Second, a debt-fueled economy propped up by cronyism and dictatorship. As of 2015, China’s debt (government household + corporate debt) has reached 280% of gross domestic product (GDP).

Two papers have made the following observations:

“Unsurprisingly, the lion’s share of the money has been funneled into China’s immense state-owned enterprises, which largely explains why they hold an outsize share of the country’s corporate debt,” John Minnich said in a piece entitled “China’s economic problems will come to a head in 2017,” published in Market Watch on Nov. 23. “(State-owned companies account for over 55% of that debt, despite contributing only 20% of GDP.) It also explains why, by comparison, China’s central government has an unusually low level of debt. (Beijing’s debt equaled only 22% of GDP in 2015.)”

Similarly, in a May 10 piece for Fortune Magazine entitled “China’s Government Says It’s Over Debt-Fuelled Growth,” Scott Cendrowski said that: “[C]redit ratings agency Moody’s noted that China’s total debt has climbed to 280% of gross domestic product, including China’s state-owned company liabilities that totaled 115% of GDP at the end of last year. For comparison, in Japan and South Korea, which also have large government-owned sectors, SOE (state-owned enterprises) liabilities were 31% and 29% of GDP in 2014.”

Insecurity driving China’s hostility in territorial rows, secessionist areas

Third, rich and intelligent people are leaving China, with a potential to come back as new reformists or outright becoming members of the opposition.

There was one survey in 2015 showing that more millionaires leave China than any other country in the past 14 years.

Here is another observation from the Wall Street Journal, two years ago: “China’s culture of corruption and abuse of power is a major reason so many of the country’s rich want to leave. A Barclays survey released Monday found that 47% of Chinese with more than $1.5 million in assets are planning to emigrate, and this is consistent with past research. Developed-country programs that allow investors to essentially buy residency continue to attract waves of Chinese,” Hugo Restall said in a piece entitled “China’s Unhappy Rich” for the WSJ’s Sept. 17, 2014 edition. “Many of China’s brainiest young people also want out. According to the state-run Xinhua news agency, the annual number of students who go abroad for study and don’t return reached 70,000 in 2012….”

The CCP’s insecurity should rise through time because their own citizens inside and outside China hate heavy restrictions and dictatorship. To hide or temper this insecurity, China will try to be belligerent to hype up nationalist sentiments from its people.

China imploding someday, perhaps in one or two generations, will be a welcome news for the world. China may also break up into many new countries and governments. The main country may remain under the communist party, similar to what happened in the former USSR. But the newly formed countries will be more democratic.

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See also:
BWorld 96, Free trade means more investments and people mobility, December 19, 2016
BWorld 97, Direction of trade of Asian economies, December 21, 2016
BWorld 98, Asian stock markets and the Duterte administration, December 30, 2016

Privatization 13, Firesale of GOCCs, notes in 2005

Cleaning my old emails, I found these notes interesting, about privatization plans of government-owned and controlled corporations (GOCCs) in the Philippines.
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(1) Let's have a fire sale!

By Peter Wallace

January 26, 2005

The President, in her State of the Nation address, said National Power Corp. and Transco must be sold, but not at fire sale prices. I had earlier suggested that, if necessary, they should be sold at fire sale prices…

Get these massive debts off the government's books and operating efficiently. This is far more important than maximizing cash returns now, even if the government is desperate for funds…

Simple calculation would show that a 30 percent discount from market value so as to sell NPC quickly could be recovered within two years just from stopping the hemorrhage of NPC (assuming a conservative asset value of P200 billion for the Generating Companies (Gencos) and an annual average loss of P30 billion). But, more importantly, the urgently needed capital for expansion, upgrading, modernization would become available in these companies.

What the President should do is sell everything. Every government-owned or -controlled corporation (GOCC) except maybe, a very select few, such as GSIS, DBP and Land Bank), every share in every corporation, every piece of land not being actually used by government where government has no business being. Every asset of every sort — at bargain basement prices. Do it like they do in the retail business announce: FIRE SALE, EVERYTHING MUST GO. Even businessmen can't resist a bargain.

Government has no business being in San Miguel, or competing with the private sector to import rice (it can ensure there is honest, open competitive dealing instead). I do not buy the argument, for example, that the National Food Administration (NFA) is necessary to stabilize prices and ensure supply in case of shortages. A truly open market with minimal duties on imports would draw enough players to ensure supply — at competitive prices. I would argue that it was the controls and interference of NFA that have led to the oligopolistic nature of this sector.

It's the same with so many of government's other agencies. What really are they doing, and is it really necessary? I'd argue that they have no role, no role the private sector can't do better. Government's role should be to regulate them, where regulation is really necessary. And this should be minimal, too. The countries that succeed best are the ones where the government intervenes the least in business.

No one seems to know the real numbers, but, just off the top of my head, there are something like 60 GOCCs competing with or can be run more effectively by the private sector. There are also, government shares in a number of major private companies (e.g. Philippine National Bank, Petron, Philippine Airlines, etc.) and about 50 pieces of valuable real estate.

P1 trillion worth to sell

A very rough calculation indicates that there could be at least P1 trillion that could be sold, assuming a conservative average of P10-12 billion per non-Napocor asset. P1 trillion would not only wipe out the P190 billion budget deficit in one fell swoop, it would also allow some massive infrastructure development…

February 2005

(2) Me:

I Agree with these proposals. I would also argue that ALL govt. corporations and banks, devt. bank (DBP) and land bank (LBP) should be privatized. And both state-managed private pension funds SSS and GSIS, be deregulated if not privatized.

The philosophies are simple:

a) The state should concentrate on its core function -- protection of lives and properties. Catch most of those killers, rapists, akyat-bahay gang, kidnappers, carnappers, drug pushers, gun smugglers, bombers and terrorists, out there. Prosecute them if caught, shoot if they fight back.

b) If the state cannot do the above functions, why is it running banks, tv stations, real estate companies, agri trading and shipping companies, petrol firms and private pension funds?

c) Get the money quick, and retire a big portion of the public debt, and do not burden the citizens with additional taxes and fees. If the state can raise just P1 trillion from such fire-sale, at 8% interest rate, that's P80 billion savings from interest payment ANNUALLY. It's like finding a Yamashita gold and spending the interest earnings to public infra and strengthening the justice system to protect lives and properties.

(3) From Marcial: Why does the government INSISTS on holding on to these corporations? The advantages of divestment should be obvious to them now. The man-on-the-street answer usually revolves around words like 'greed', 'corruption', and 'inefficiency'. but we don't believe that. why then?

(4) From Joseph: Any sale of government assets should be held under the most transparent conditions. We certainly do not want a repeat of how the sale of PNB and of PAL to Lucio Tan went through. Sales like these are equivalent to behest loans.

We do have some statists who insist on some government involvement so as to "balance" the so-called "greed" of corporations. As to what will make GOCCs profitable without profit incentive, I just don't see it.

As to the so-called "nationalists" who insist on controlling our patrimony, all to the good if on one hand law enforcement really works, and on the other, if "national" priorities are straight. Otherwise,

it's just one big hypocrisy.

(5) From Cynthia: All the reasons government gives, the noble reasons such as government's role in catalyzing development, the provision of essential services, are just cover-ups. GOCC's and government shares in corporations are just the means of expanding the delicious pie that the parties in power can divide among themselves. Anybody who has witnessed the posturings of the clowns appointed as directors and senior officers in GOCCs (why do GOCCs, which have only one shareholder- the government, have a Board of Directors anyway? All the better to accommodate all political debts, the more available appointive seats, the happier the appointing authority!), and the panic that ensues when elections are near and everybody is scrambling to keep their seats. The advantages of divestment are not obvious to these people because nobody will willingly give up their turf and gravy train.

For example, I'm involved in the valuation of one of those companies mentioned for privatization, but the senior officers insist on moving very, very SSLLOOWWLLYY, ostensibly in the interest of transparency, following correct procedure, etc. But the real reason, I think, is if they're

successful, their jobs are also gone. That simple.

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See also:
Privatization 10: More on Selling PAGCOR, June 12, 2013
Privatization 11: Presentation in Hawaii in 2007, June 08, 2013
Privatization 12: PH government corporations sold, retained as of 2007, February 07, 2016

Asian stockmarkets and governments

One more day and it's Goodbye 2016, thanks for the blessings, lessons from whatever misery.

Meanwhile, when I posted my paper on the stockmarket in my fb wall, some anarchists and Duterte supporters came attacking it. Among their whines and complaints:

1. Less than 1% of the PH population invest on it or are even aware of it, the average person doesn't understand it nor does he feel the economic gains.

2. Stock market is a hit and run investment. It is a poker game. The health of poker game does not represent the overall health of economy.

3. The stock market is dominated by oligarchs who are protected from competition, you sink your money into it and the stock market will appear robust.

One may reason out those things but my paper simply compared the PH numbers with other Asian countries over the last 5, 10 years. The comparison with Du30 admin is only a side note because Thailand, other Asian economies that performed well over the past decade were able to sustain the upward movement of their stock market capitalization, the PH did not, most notably starting August 2016, went to the negative territory.

If PH stocks market expanded by only 1.5x after 10 years, there will be lots of noise and complains, that the oligarchs have prevented further devt of the local stock market. If it expanded 4x or more, the noise and complaints are still there. Perhaps if it expanded 8x, the noise and complaints will be even louder. Cool.

I also there, "global capitalism is generally more generous to emerging economies like China, the Philippines, and Vietnam. Their previously highly repressed financial sector when liberalized has posted fast growth and expansion in a short period as one decade." Still no credit to global capitalism, perhaps people wait for global socialism to advance?

Hataw lang sila, for them, nothing is positive in this country. Cronyism or corruption or oligarchy or misery. cool. Contraction, zero growth, 4x growth, 10x growth, all the same. Pathetic minds.

Meanwhile, here's the last update from BusinessWorld about the PH stockmarket.

And the yearender stocks performance in the Asia Pacific. Four countries have fared poorly compared to their year-ago levels: China, Japan, Malaysia and PH.

Source: http://markets.wsj.com/asia

China is reeling from various internal/domestic problems like huge public debt, many rebel regions. Japan continues to face its old problems including a big greying population, huge domestic public debt, political problems of PM Abe. Malaysia continues to reel from a big corruption scandal related to 1MDB.

The Philippines is still adjusting from its big mouth and always cursing President, thousands of murders related to "drugs war", and so on.

S. Korea is also facing a big corruption problem by President Park but somehow its corporate sector is able to shake away the political uncertainties.

BWorld 98, Asian stock markets and the Duterte administration

* This is my article in BWEconomicForum last December 14, 2016.

The stock market is one of several indicators that show how an economy or a country is doing because it represents the inflow and outflow of investments, which are mainly driven by outlooks over the short and medium terms. It is also an indicator of how the rule of law is respected or trampled by a government in power.

During the BusinessWorld-PAL ASEAN Regional Forum last Nov. 24 held at Conrad Hotel, SM MOA Complex, among the sessions tackled was “Unity in Diversity: A Political-Economic Outlook.” The speakers were Department of Budget and Management (DBM) Secretary Benjamin E. Diokno, Asian Development Bank (ADB) Country Economist Aekapol Chiongvilaivan, and McKinsey Managing Partner Suraj Moraje, and Philippine Stock Exchange (PSE) President and CEO, Hans B. Sicat.

Mr. Sicat said that year to date (ytd), there has been net foreign buying of P17.6 billion or $373.6 million.

But in the period from Aug. 23 to Sept. 23 or one month straight, there was sustained net foreign sell off. The peso-dollar exchange rate also experienced significant depreciation from mid-September, touching the P47-to-a-dollar level and never looked back until it reached the near P50 level in late November.

This is bad news because the PSE was among the best performing stock markets in the region over the past decade.

The table shows the following:

One, in terms of expansion of stock market values in just one decade from 2005 to 2015, the best performing was China, which expanded by more than 20 times, the Philippines with more than six times, Vietnam with five and a half times, and Indonesia with 4.3 times.

Two, in terms of stock market capitalization as percent of gross domestic product in 2015, first is Hong Kong, second is Singapore, third and fourth are Taiwan and Malaysia.

And three, global capitalism is generally more generous to emerging economies like China, the Philippines, and Vietnam. Their previously highly repressed financial sector when liberalized has posted fast growth and expansion in a short period as one decade.

Let us now check another piece of data, the annual growth rate of stock markets of the same countries and economies over the past six years.

Meanwhile, we also need to recognize several facts:

One, the Philippines has the best performing stock market in the Asia Pacific over the past six years. Despite its warts and problems, the past administration has done something that really improved business confidence in the country.

Two, China, Taiwan, Singapore, and Vietnam have experienced roller-coaster rides in their equities markets.

Three, this year, though, especially the second half of the year, is particularly bad for the Philippines, from the best performing to badly performing over the past few months.

It seems the current administration in the Philippines is reversing the business confidence built over the past six years.

The new President’s disrespectful, crass, and vulgar assertions with his frequent “kill, murder, shoot” pronouncements could have contributed to the possible reversal in business confidence, at least in the stock market.

A more civilized President, an anti-drugs war with sufficient respect for human rights of the accused, an explicit disavowal of possible declaration of Martial Law and suspension of the writ of habeas corpus, and a business environment conducive to investors is badly needed.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a SEANET Fellow.
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See also:
BWorld 95, Manufacturing and electricity costs in Asia, December 17, 2016
BWorld 96, Free trade means more investments and people mobility, December 19, 2016
BWorld 97, Direction of trade of Asian economies, December 21, 2016

Energy 86, Germany's RE on a wild ride

I am reposting two articles from NTZ below.

(1) ‘Manager Magazin’ Reports How Renewable Electricity Is TakingGermany On A Wild Ride, 28 December 2016

It’s the paradox of the German Energiewende (transition to green energy): power exchange market prices are lower than ever before, yet consumers are paying the highest prices ever – with no stop in the increases in sight. Moreover, the more green electricity that is fed into the grid, the more coal that gets burned…

Today German Manager Magazin here brings us up to date on the country’s “greening” power grid — taking a look at the control center of grid operating company Tennet. Manager Magazin calls it the heart of the German Energiewende. Here a team of engineers decide how much gets fed into the various grids and which windparks are allowed to feed in and which aren’t.

Today the task has become a challenging balancing act. According to Manager Magazin, facility manager Volker Weinreich says “we have to intervene more often than ever to keep the power grid stable. We are getting closer and closer to the limit.”

The reason for the grid instability: the growing amount of erratic renewable energy being fed in, foremost wind and sun. Manager Magazin writes that there are always four workers monitoring the frequency at the Tennet control center, just outside Hannover, making sure that it stays near 50 Hz. Too much instability would mean a the “worst imaginable disaster: grid collapse and blackout“.

Manager Magazin reports Germany now has a huge oversupply of power flooding into the grid and thus causing prices on the electricity exchanges to plummet to levels never seen before. Yet, renewable electricity producers are guaranteed, in most cases over a period of 20 years, exorbitant high prices for their energy. This means power companies have to purchase at a high price, yet can get only very little for it on the exchange markets.

The German business magazine then writes that once again consumers will be getting the serious shaft, as the feed-in subsidy consumers are forced to pay will climb another 0.53 cents-euro in 2017, bringing the total feed in tariff for power consumers to 6.88 cents-euro for every kilowatt hour they consume.

Bavaria faces Industrial power blackout

Another huge problem is that by 2022 Germany will be shutting down the remaining nuclear power plants, a source that much of Germany’s industrial south relies on. In the meantime, the necessary transmission lines to transport wind power from the North Sea to the south are not getting built due to protests and permitting bottlenecks. This puts Bavaria’s heavy industry at risk. manager writes that the transmission lines are not expected to be completed by 2025!

In Part 3 of its report, manager Magazin reports that operating a power grid has become more complex and costly, due to the renewable power, and that the Energiewende has turned into “ecological foolishness“. Weinreich describes how on stormy days wind parks are forced to shut down to keep the grid from frying. And the more wind turbines that come online, the more often wind parks need to be shut down. This makes them even more inefficient...

Weinreich reports that the grid is so unstable that in 2015 it was necessary for Tennet to intervene some 1400 times. In the old conventional power days, it used to be only “a few times a year“.

In Part 4, Manager Magazin reports that all the intervention and shutdowns of runaway wind parks are “costing billions” for the consumers. Alone in 2017 Tennet says grid operating fees will rise 80%, translating to 30 euros more burden each year for each household. The money of course ends up flowing from poor consumers and into the pockets of wealthy solar and wind park operators and investors.

(2) Analysis: Adding More Solar, Wind Power IncreasesDependence On Fossil Fuels, ‘Doubles’ CO2 Emissions, 24 November 2016

A 2011 decision to phase out nuclear power by 2022 has meant that renewables like wind and solar power are expected to swiftly take the place of nuclear energy on the German power grid. The portion of Germany’s power generation from wind and solar (renewables) has indeed risen dramatically in the last 10 years:

https://www.cleanenergywire.org/sites/default/files/styles/lightbox_image/public/images/article/2015/12/power-generation-source-2015-ageb-dez-2.png?itok=rQP5nEXC

And despite the steep, expensive rise in power generated by renewables since about 2000, Germany still obtained about 44% of its power from coal as of 2014, which is a higher share than in the United States (33% as of 2015)…

“As more solar and wind generators come online, … the demand will rise for more backup power from fossil fuel plants.”

The full article, entitled “Rise in renewable energy will require more use of fossil fuels” also points out that wind turbines often produce a tiny fraction (1 percent?) of their claimed potential, meaning the gap must be filled by fossil fuels:

Wind provided just 33 megawatts of power statewide in the midafternoon, less than 1% of the potential from wind farms capable of producing 4,000 megawatts of electricity….

wind and solar energy must be backed up by other sources, typically gas-fired generators. As more solar and wind energy generators come online, fulfilling a legal mandate to produce one-third of California’s electricity by 2020, the demand will rise for more backup power from fossil fuel plants.

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Wednesday, December 21, 2016

BWorld 97, Direction of trade of Asian economies

* This is my article in BusinessWorld last December 08, 2016.

Global free trade should result in commodity price equalization across countries over the long term. Any price differences can largely be explained only by the costs of shipping, insurance, and trade administration.

Since full global free trade is not taking place yet and it is the regional free trade agreements (FTAs) that are predominant, countries’ exports and imports are diverted more to their neighbors or nearby economies in the FTAs. The gravity model of trade captures this preferential shift in trade.

The emergence of the ASEAN FTA (AFTA) with a generally zero tariff regime, ASEAN + 6 trade partners, and soon the Regional Comprehensive Economic Partnership (RCEP), resulted in Asian economies trading more with each other. The same for Europe with their European Union (EU) and the US and neighbors with their North American FTA (NAFTA).

Some notable points from these numbers (see table).

One, China is the only Asian country with a declining percentage share of trade going to Asia, Europe, and Americas. This is because it expanded its exports to and imports from the Middle East, Africa, South America, Oceania, and the rest of the world. China is reaching out to all continents of the planet, which partly explains its huge growth in exports.

Two, Vietnam also experienced a decline in percentage share of exports going to Asia and Europe as it exported more to North and Central America, and there was a slight increase in percentage share going to Middle East and South America.

Three, Australia and New Zealand have become Asia-oriented in their trade performance as well, resulting in a drop in percentage share of their exports that went to Europe and North and Central America.

Four, the Philippines continued to pivot its trade from the US to Asia. The hangover of US colonialism and preferential market access has naturally waned through time.

Five, in terms of international reserves, everyone on the list showed significant increases ranging from one and a half times to more than four times expansion in just one decade -- except Australia which showed only marginal increase. It is the Philippines which experienced the biggest expansion of 4.4 times in just one decade.

The experience of the Philippines and other Asian economies in trade and business expansion will be discussed in the “Pilipinas Conference 2016” organized by Stratbase-Albert del Rosario Institute (ADRi) on Dec. 8.

Panel 4 will discuss “The Philippine footprint in Southeast Asia and Beyond” and the speakers will be Chairmen and CEOs of some of the Philippines’ biggest firms like Manny V. Pangilinan of Metro Pacific Investments Corp., Jaime Augusto Zobel de Ayala of Ayala Corp., Enrique Razon, Jr. of International Container Terminal Services, Inc., and Joey Concepcion of RFM Corp. and Go Negosyo.

Political and military tensions in the region and other parts of the world mainly due to territorial disputes can be resolved peacefully as people and private enterprises do more trade and investments with each other. After all, countries and governments do not really engage in trade; people do.

Governments should continue to liberalize trade, both tariff and non-tariff measures. They should continue to liberalize investments by abolishing or drastically cutting restrictions due to nationality and racial preferences.

People only want more trade, more tourism, business and cultural exchanges, not war preparations and huge military spending that are financed via high and rising taxes.

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Stratbase-ADRi's Pilipinas Conference 2016

Last December 08, 2016, Stratbase-Albert del Rosario Institute (ADRi) held a big "Pilipinas Conference 2016" at The Conservatory, Manila Peninsula Hotel in Makati. I was invited, I came, good event.

Panel 1 on Federalism debate. Stratbase-ADRi President Dindo Manhit and Former DFA Secretary Albert Del Rosario (3rd and 4th) joined the panel in the group photo: Left to right, Atty. Anthony Abad (Moderator), Dr. Ronald Mendoza (Dean, Ateneo School of Government), Dr. Paul Hutchcroft (Professor of Political and Social Change, Coral Bell School of Asia Pacific Affairs, Australian National University), and Dr., Julio Teehankee (Dean, College of Liberal Arts- De La Salle University Manila).

Panel 2 about the South China Sea territorial disputes. Speakers from top left, clockwise: Dr. Amy Searight, Southeast Asia Program Director of Center for Strategic and International Studies; DND Sec. Delfin Lorenzana; Aaron Connelly , a Research Fellow for East Asia Program at the Lowy Institute for International Policy; and Ambassador Shingo Yamagami, Acting Director General of the Japan Institute for International Affairs.

Panel 3 on "Promotion of Foreign Investments anf Enhancements of SMEs: Sharing Strategies and Opportunities". Left to right: Elizabeth Lee (Moderator), Vivencio Dizon (President & CEO of Bases Conversion Development Authority), Dr. Astrid Tuminez (Regional Director, Southeast Asia Legal and Corporatwe Affairs, Microsoft), George Barcelon (President, Philippine Chamber of Commerce and Industry), Hans Sicat (Philippine Stock Exchange), and Laurence Cua (Country Manager, Uber).

I liked the presentation of Astrid, especially the 3 waves of innovation. I didn't know that the 2nd wave ended in 2015, so this year and the coming years are the 3rd wave. Knowledge-intensive, artificial intelligence, robots, more modern gadgets.

Panel 4 on "The Philippine Footprint in Southeast Asia and Beyond", left to right: Joey Concepcion (Chairman & CEO, RFM Corporatoin Go Negosyo), Atty. Michael Toledo (Moderator), Enrique Razon Jr. (Chairman & CEO, International Container Terminal Services, Inc.), and Jaime Augusto Zobel de Ayala (Chairman, Ayala Corporation).

I like the frankness of Ricky Razon, he's straight-talking. Like the Constitution should be amended every 5 years or 3 to be more flexible with the times, need to remove economic nationalism and allow more foreign investments here, etc.

Closing remarks was given by Vice President Leni Robredo. Photo with former DFA Secretary Albert Del Rosario and Stratbase ADR Institute President Dindo Manhit.

Cocktails after. I enjoyed the food, drinks, networking. Here with some UPSE guys, left to right: Jeffrey Ng (Cathay Land), Dr. Epictetus Patalinghug, Dr. Vic Paqueo, me. Dr. Patalinghug was my teachers in Econ 171 (Agri Econ) in UPSE in the 80s, Doc Vic my teached in Econ 181 (Labor Econ). Jeffrey and VP Leni were classmates and batchmates at UPSE batch 1986.

The Stratbase-ADRi team and staff.

Thanks for the great event, Dindo and team. I enjoyed it.

Tuesday, December 20, 2016

Drugs War 3, Dr. Noel de Dios on Duterte's war

My former teacher at UPSE undergrad in the 80s, Dr. Emmanuel "Noel" de Dios wrote a very good paper in BusinessWorld yesterday. It has gone viral, with 3.6k fb likes and shares combined as of this writing (Tuesday, 8:15pm).

His concluding paragraphs:

The true scandal of the current drug war is that it is run by old men who operate on old ideas and obsolete knowledge. It therefore subjects citizens to what is ultimately an unnecessary -- and therefore unjust -- ordeal. Our predicament is not far from the episode of bizarre lobotomies performed on thousands of patients in Europe and the US during the 1950s. Ordered by authorities who thought they were treating “mental disorder,” these procedures led not only to unneeded deaths during the operations themselves, but also to suicides, and the permanent mental maiming and “surgically induced childhoods” of thousands of citizens. With the introduction of anti-psychotic drugs, this practice was almost universally abandoned and regarded as cruel and unusual, though not before thousands of lives had been ruined or lost.

When we do finally recover from our collective mania -- and we will -- we might well wonder, given what we now know, whether it was addicts who were not human, or rather we who were inhumane.

I posted this article in my fb wall, many friends shared and re-shared the paper, thanks guys.

Then out of nowhere, this person appeared, he's not my friend, and using the usual meme, "dogs bark..."

A quick "fuck you" even if he intruded uninvited in my wall, does not even know me or I don't even know him? Typical behavior of many Du30 fans.

And here, he justifies that he can frequently curse people. Frequent cursing is low life characteristic.

Then I learned that he is the son of former Solicitor General (SolGen) and now Department of Labor and Employment (DOLE) Secretary Silvestre "Bebot" Bello. I cautioned him about his manners, and his reply?

When people cannot debate on issues -- like this paper by Dr. de Dios -- they resort to meme posting, cursing, ad hominem attacks.

Sec. Bebot Bello, I have some questions about your labor policies but that's for another topic. I think you are a gentleman and would not easily resort to low-life cursing and discourses, so remind your son. Thank you.
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See also:
The PH drugs war, part 2, July 27, 2016

President Duterte and 'Pakyu' EU, October 13, 2016

President Duterte and 'Psychopath' comment by Agot Isidro, October 17, 2016

President Duterte and hyperbole, December 19, 2016

Monday, December 19, 2016

BWorld 96, Free trade means more investments and people mobility

* This is my article in BusinessWorld last December 15, 2016.

Free trade means giving people and private enterprises the freedom to produce more commodities that consumers demand at certain prices. These producers then leave sectors and areas where expected returns and other gains are lower if not dwindling.

This may sound “heartless” for losing sectors but whether one supports free trade or protectionism, there will always be winners and losers. It is just that there are more “net gains” from trade while there are more “net losses” from protectionism.

In a paper “Goods trade liberalization under the ASEAN Economic Community: Effects on the Philippine economy” published in the Philippine Review of Economics (PRE), December 2015, authors Dr. Ramon Clarete (UPSE) and Philip Arnold Tuano (AdeMU) examined the economy-wide effects of goods trade liberalization in the ASEAN. They used the Global Trade Analysis Project (GTAP) model in assessing the impact of the ASEAN Free Trade Area (AFTA) implemented in 1992.

The important provisions of AFTA mandated the 10 countries to: (a) reduce trade taxes and tariff on goods coming from other member countries, (b) remove quantitative restrictions on goods and convert it into tariffs that should decline through time, (c) reduce other non-tariff measures (NTMs), and (d) enforce rules of origin or goods should have local content of at least 40% of the freight on board (fob).

The results for the Philippines in their study showed the following:

1. Production effect: Of the 40 industries representing the Philippine economy, 24 suffered some output decline and 16 experienced output expansion at a bigger rate than the losses of the former.

2. Employment effect: Of the 40 industries, 31 experienced decline in the hiring of skilled labor while nine experienced expansion at rates larger than the combined employment losses in the former.

3. Trade effect: Thirty-six of the 40 industries that imported goods were able to benefit as compared to the 16 industries that engaged in exports. However, the gains were much larger than the losses of the other industries.

4. Price effect: Wages of both skilled and unskilled labor, cost of capital increased while land rent declined.

5. Overall effect: The Philippines gained some $237 million, equivalent to 0.05% of GDP, as a result of trade liberalization in goods under AFTA.

There are other benefits from trade liberalization besides the four measured by the above study. Freer trade creates more goodwill not only in trade and investments but also in mobility of foreign workers/managers and tourists across countries through more cultural and educational exchanges, and so on.

Here are some data on revenues from merchandise or goods exports, foreign direct investment (FDI) net inflows (i.e., inflows minus outflows for the given year), worker remittances and compensation of employees, and international tourism receipts that correspond with expansion in tourist arrivals.

The Philippines did not expand its merchandise exports as fast as compared to its many ASEAN neighbors. There are many factors for this, including a generally over-valued exchange rate, and many trade bureaucracies that prolong the process and increase the cost of exports and imports. All the four tigers in North-East Asia plus Singapore and Thailand are major exporters.

In FDI net inflows though, the Philippines reported an expansion of almost four times in just 10 years. Vietnam and Singapore benefitted the most in the southern region while China and Hong Kong continue to attract huge FDIs.

In labor remittances, China is #1 in the world while the Philippines is #1 in the ASEAN and about #4 worldwide, next to China, India, and Mexico perhaps.

The Philippines also reported that its receipts from international tourism expanded by more than twice.

Notice that five ASEAN neighbors that have higher merchandise exports are also the same countries that have higher tourism receipts than the Philippines.

The lesson here is that trade liberalization -- by cutting tariffs to very low, if not zero, rates and reducing non-tariff barriers -- can result in more FDI inflows, more tourist arrivals, more cultural exchanges in the region.

Other factors should accompany trade liberalization of course. Like better airports, seaports, and roads; cheaper electricity and high power capacity; more competition among airlines and shipping companies; fewer bureaucratic processes in investments and mobility; rule of law and reduced corruption and instability in enforcing various local and national laws.

Fewer taxes and trade restrictions, stronger law enforcement are just among several key ingredients to further modernize and reduce poverty in the Philippines and other developing countries.

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers, a SEANET Fellow and both institutes are members of EFN Asia.

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President Duterte and hyperbole

Reposting this long analysis by a friend, Bernard Ong, last December 15, 2016. The images below I got from the web, not part of the original posting by Bernard. A hyperbole is exaggerated statement/s or claims not meant to be taken literally.

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"TRUTH IS STRANGER THAN HYPERBOLE

An idiot’s guide to make sense of what he said and what he really meant.

Hyperbole: I will stop drugs in 3 to 6 months.

Truth: I ruled Davao City for 30 years and it is still drug-infested. 3 months have lapsed & 6 months are coming up. The drug trade is still active.

Hyperbole: I will stop crime in 3 to 6 months.

Truth: The number of unresolved murders in the Philippines have spiked under me. Some of my cops are involved in killing innocent citizens like that Crime Watch regional chairperson in Mindoro. About 6,000 killings have been inspired by my War-on-Drugs approach.

Hyperbole: I will stop corruption in 3 to 6 months.

Truth: I released a corrupt president – Gloria Arroyo – from her hospital arrest. I allowed the most corrupt Filipino ever – Ferdinand Marcos – to be buried at Hero’s cemetery. I received my share of the plunder loot from Imee Marcos. Two of my fraternity brods whom I appointed to government took P30m from Macau casino boss Jack Lam.

Hyperbole: I will end drugs, crime & corruption in 3 to 6 months, or I will resign.

Truth: Of course I know it can’t be done but it sounded like good campaign propaganda that some voters might believe in. My plan was to turn over the presidency to Bong Bong Marcos after 6 months.

Hyperbole: That self-imposed time of three to six months, well, I did not realize how serious the drug problem was until I became President.

Truth: The Supreme Court (Presidential Electoral Tribunal) has not yet removed Leni as VP. I will resign only when BBM is already VP. Be patient, read Sun Tzu, there is a plan.

Hyperbole: Marcos was the best president ever.

Truth: I admire him because he was a dictator, killed so many people and was not convicted for it. He stole $10-B and was able to hide most of it. He is truly my idol for governance.

Hyperbole: I will not take money from big business. My funds came from “Emilio Aguinaldo sa bukid”.

Truth: I took money from miners, power plant owners, plantation owners, big government contractors, major fuel distributor. Nothing new – I received properties, SUVs, private jet flights when I was still mayor. Nag-level up lang.

Hyperbole: I am healthy. I will not release my medical records. Ano ako buang?

Truth: I am sick with at least 4 diseases – Barrett’s esophagus, spinal slipped disc, daily migraines, and Buerger’s disease. I take Fentanyl – a drug 100x more powerful than morphine & 50x more potent than heroin – to kill pain. The drug has many side effects including dizziness, confusion, weakness, headache, nervousness, hallucinations, anxiety, depression & mood swings. It can impair my judgement.

Hyperbole: Yung shabu, synthetic yan, hindi natural tulad ng cocaine. Continued use will shrink the mind of the addict.

Truth: Yung Fentanyl, synthetic rin yan, mas malakas pa sa shabu. If what I said about shabu is true, eh di Fentanyl will also shrink the mind of the addict.

Hyperbole: I will appoint the best and the brightest to the Cabinet.

Truth: Officially I will tell you ‘Ayaw nila kasi walang sweldo’. Off the record, the best and the brightest don’t want to work for me. So I just appointed my fraternity brods, classmates, boarding house mate, party mates, and province-mates. Maski sino basta loyal sa akin, ok na.

Hyperbole: I will ride a jet ski to Spratly. I will tell the Chinese, Suntukan o barilan?

Truth: I will fly to Beijing. I will tell the Chinese - Pahingi please. I will beg them for loans – which will require using corrupt Chinese contractors & substandard Chinese materials. I will beg for them to buy our bananas – to keep my banana baron friends back in Davao happy. No barilan - instead I will buy guns from them. Meanwhile, I will not assert our rights over Panatag.

Hyperbole: I will double, triple the salaries of cops & soldiers.

Truth: It is not in the 2017 budget because that was prepared by Aquino. It will still not be in 2018 budget because there are simply not enough funds for this – it will mean raising salaries for teachers, nurses and other government workers under Salary Standardization Law. But I have to keep saying this so that cops will keep killing, and soldiers won’t launch any coup.

Hyperbole: I will not declare Martial Law.

Truth: Declaring Martial Law is not so useful. There are so many constitutional restrictions - legislative & judiciary oversight, limited time period. Better if I declare a revolutionary government. But the timing is not yet right. I have to co-opt the Left thru peace talks leading to power-sharing agreement. I have to co-opt the military thru salary hikes & promoting loyal generals. Pinol has to build my version of KBL.

Hyperbole: I roamed the streets of Davao at night, looking for a fight so I can kill - to set an example for cops to follow.

Truth: Actually that is mostly true. But that is not the only way. Once cops followed my example, then we can achieve higher targets. Ask Matobato for details.

Hyperbole: Traffic. Putang ina mo, Pope.

Truth: I need emergency powers to solve traffic. We plan to spend P8-Trillion for infrastructure. Kailangan no-bid contracts kung ayaw niyo ng trapik. Everybody happy - Chinese contractors, tongressmen, si Emilio Aguinaldo.

Hyperbole: The problem is Imperial Manila. The answer is Federalism. This will allow regions to keep 30% of resources for their benefit.

Truth: Imperial Manila or NCR generated 62.3% of our GDP in 2015. It also generated 91.1% of all taxes. It is allocated only 43.6% of 2017 government budget. If it gets its 70% share of taxes, NCR budget should jump to 63.4% of total – reducing the budgets available for all other regions.

Hyperbole: Change is Coming

Truth: I have been a traditional politician for 30 years. I belong to a political dynasty – my father was governor of Davao, I was mayor of Davao, my daughter is mayor of Davao. My style is typical of trapo dynasties – sow fear & dispense favors. Threaten, destroy or kill those against me. Reward and buy the loyalty of those for me. Change is Coming? Ano ka, buang?

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Measuring poverty: currency devaluation or poor using smoke signals?

A friend posted this in my fb wall and I quickly commented that it is lousy analysis to suggest or say that "Poverty in the Philippines" today is worse than the 1930s.

A devalued or depreciated peso, yen, won, dong, ringgit, rupiah, dollar, etc. is NOT a strong indicator of poverty worsening today than decades ago.

Take access to information. Even the super rich in the 1930s did not have a computer, no internet, no fb, etc. The poor now have smart phones, can do fb, enjoy youtube, etc.

Or access to modern transportation, even the super rich in the 30s did not or could not ride commercial airplanes, no comfortable aircon buses. The PH Airlines (PAL), Asia's first airline, was created only in 1941. Now even the poor can ride budget airlines (Cebu Pac, Air Asia, etc.) and travel in comfort with aircon vans and buses.

Or take life expectancy. In the 1930s, even the super rich Filipinos would be lucky to live up to 65 yrs old, now even the poor can expect to live up to 70, 80, 90 yrs.

That claim of "minimum wage was P4/day" in the 1930s, what % of the workers were receiving that much? I bet the majority of workers would be getting P1/day or less during that time.

The poor now have access to more information, more modern education, healthcare, etc. than even the super rich could enjoy in the 30s or 40s or 50s.

A devalued peso, devalued ringgit, devalued rupiah, devalued won, devalued yen, devalued dollar (HK, Taiwan, Ca, US, etc.) is NOT indicator of more poverty.

Better indicators that "poverty is worse today than the 1930s" would be:

1. Average life expectancy is falling, from 70 to 60 to 50 yrs old.

2. Poor riding more carabaos and horses instead of more motorcycles or e-bikes or 2nd-hand cars.

3. Poor going back to using typewriters because they can't afford computers and tablets.

4. Poor using smoke signal or doves flying long distance to send messages and letters because they can't afford smart phones with yahoo or gmail or fb accounts.

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Saturday, December 31, 2016

Friday, December 30, 2016

Wednesday, December 21, 2016

Tuesday, December 20, 2016

Monday, December 19, 2016