Sovereign Wealth Fund from Malampaya Gas

A friend based in Tokyo, Jules, sent me his random thoughts to create a Sovereign Wealth Fund out of government royalties from the Malampaya Natural Gas in offshore Palawan. Here are Jules' random thoughts:

1. Have a 15 years moratorium on spending anything from the  fund from the start of lunch, to discourage current officials in government from messing with it.

2. Let the fund be managed by Professionals in the investment business.

3. Have it earmarked solely for the "future:"

a. spending for young children (0-12 years) for primary health care and education.  and
 b. projects that mitigate any effects that mining or similar extractive activities have on the environment.

4. Setting a spending cap of only 75 percent at most of the net earnings from the investments, the balance of 25 percent to be further added to the principal.

5. A competitive bidding for projects to be funded, both private sector and government agencies can participate.

6. Have a bidding committee composed mostly of volunteers from institutions like churches (INC, Catholic, Protestants, Born Again, Islamic institutions) and  perhaps experts from the academe.

7. Set in place a monthly reporting/updating system on liquidating expenses that can be viewed publicly through social networks

8. East Timor, which became a sate only in 2005(?) has already a huge Sovereign Wealth Fund in billions of dollars from their Petroleum industry. Even Singapore which has no extractive industry has huge Sovereign Wealth Fund.

9. The 15 years moratorium can be extended to 20 or 25 years. Long term investing generates more consistent results if you look at historical returns of most indexes. This practically takes the current generation away from the funds. It is for the future generation.

I can support that proposal, thanks Jules. The current generation can be supported by existing revenues, public and private, and endless borrowings by the government. It is the future generation of Filipinos who have been compromised by the past and present political administrations via high and rising public debt stock and rising interest payment. If improperly managed further, it can generate a huge fiscal crisis someday.

But the intent of the law must be respected, that only energy-related projects should be funded from it. Then the fund should be used to develop more energy sources. When electricity supply is stable and affordable, faster development can happen. Energy is development.

Meanwhile, here are some facts from Maritess Vitug's article in Rappler last September 22, 2013.

Presidential power over Malampaya billions

* P130 billion (as of August) kept in a trust fund with the national treasury, not reflected at all in the annual national budget.

* from the royalties of the seemingly bottomless Malampaya natural gas reservoir off the shores of Palawan which provides about 50 percent of Luzon’s power needs.

* Project began in 2001, it was during President Gloria Arroyo watch that the fortunes from Malampaya started to flow into the government coffers. She spent a total of P23.6 billion, almost all of which went to non-energy projects.

* Arroyo authorized the release of P19.3 billion, mostly in 2009, apparently for the rehabilitation of areas damaged by 2 typhoons. This coincided with a pre-election year.

* Agriculture department (Secretary Arthur Yap) got a lot of the bounty: P4 billion in 2008 “to augment the Agricultural Guarantee Fund Pool and the rice self-sufficiency programs and other commodity programs” and P1.8 billion in 2009 to help farmers and fishermen devastated by the typhoons.

* Unterior department (Secretary Ronnie Puno) received P2.1 billion in 2009 for its calamity rescue operations;

* National Housing Authority (Vice President Noli de Castro, chairman, and Federico Laxa, general manager) P1.4 billion for relocation efforts;

* Defense department (Secretary Norberto Gonzales), P1.2 billion for the “structural maintenance project and recovery of C-130.”

* Public works department (Acting Secretary Victor Domingo who replaced Secretary Hermogenes Ebdane) that received the heftiest share, P7 billion.

* Only P303 million went to supposedly fund the energy projects of the science and technology department, transport and communications department, defense department, and the energy department.

* Arroyo released almost P4 billion to Palawan as assistance from the national government.

* For his part, President Aquino put in all of his Malampaya Fund expenses to energy-related projects, about P15 billion from 2011-2012. 

* Biggest chunk went to the National Power Corp (P6 billion), followed by the DND (P5.6 billion) “to upgrade its capability” to secure the natural-gas-to-power project.

* The rest went to the National Electrification Administration (P1.9 billion), energy department (P300 million), and interior department (P150 million for the “Pantawid Pasada”).

Agri Econ 10: On Rice Price Spikes

Recently, there was a big issue regarding the big jump in local rice prices, between P2 to P5 per kilo jump in a matter of days and weeks. I think this issue would surface every 3-5 years on average. In 2008, it was a big issue too, like this article in the Inquirer on April 08, 2008.

Then I found this in my old emails. I composed this in and sang this with my PDE (Program in Development Economics, UPSE) batchmates during the PDE 2008 Reunion, UPSE, Diliman, QC, May 7, 2008.

Hot Legs By Rod Stewart, 1970s

Hot Rice * By Nonoy Oplas, 2008

Who's that knocking on my door It's gotta be a quarter to four Is it you again coming 'round for more Well you can love me tonight if you want But in the morning make sure you're gone I'm talkin' to you Hot legs, wearing me out Hot legs, you can scream and shout Hot legs, are you still in school I love you honey. Gotta most persuasive tongue You promise all kinds of fun But what you don't understand I'm a working man Gonna need a shot of vitamin E By the time you're finished with me I'm talking to you Hot legs, you're an alley cat Hot legs, you scratch my back Hot legs, bring your mother too I love you honey Imagine how my daddy felt in your jet black suspender belt Seventeen years old He's touching sixty four You got legs right up to your neck You're making me a physical wreck I'm talking to you Hot legs, in your satin shoes Hot legs, are you still in school Hot legs, you're making me a fool I love you honey Hot legs, making your mark Hot legs, keep my pencil sharp Hot legs, keep your hands to yourself I love you honey Hot legs, you're wearing me out Hot legs, you can scream and shout Hot legs, you're still in school I love you honey

Who’s that knockin on Gloria And the traders of Divisoria It’s the poor again, looking for more rice Well you can buy cheap Gloria rice But today your quota is gone I’m talking to you Hot rice, wearing me out Hot rice, you can rally and shout Hot rice, indelible ink I love my lugaw. Arthur Yap’s persuasive tongue He promised imports from Vietnam From India and Thailand Two million tons, man Gotta pay thousand dollars per ton Just to save the ass of Malacanang I’m talking to you Hot rice, no more zTE Hot rice, you save the FG Hot rice, bye Jun Lozadi I love kamote. Imagine how the traders felt When the NFA and NBI came Harassment and raids Accused of hoarding They got armalites up to their neck They’re giving us a taxpayers wreck I’m talking to you Hot rice, under the hot sun queues Hot rice, are you still in the streets Hot rice, cute press releases I love kamote. Hot rice, NFA losses Hot rice, keep the taxes high Hot rice, import monopoly I love kamote. Hot rice, you’re wearing me out Hot rice, you can rally and shout Hot rice, you’re still in the streets I love kamote.

See also:

Agri Econ 6: My Treehouse, August 16, 2010 

Agri Econ 7: Bt Eggplants vs Environmentalism, December 20, 2010 
Agri Econ 8: On Rice Price Stabilization, January 16, 2013 
Agri Econ 9: On Agrarian Reform and Agri Credit, April 29, 2013

Drug Price Control 37: Four Years of the Policy

* This is my article yesterday in thelobbyist.biz.

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This week, the drug price control or maximum retail price (MRP) policy has turned four years old. The policy was laid out in late July 2009, with the issuance of Executive Order 821 on the day former President Global Arroyo delivered her 9^th and last State of the Nation Address (SONA). With a two-weeks additional preparation period, price control became effective in August 16, 2009.

The main and unstated purpose of imposing the policy was electioneering. The May 2010 election was just nine months away and the former President and her arch critic that time, former Senator Mar Roxas who was aspiring to run for President under the LP, they both needed to appear “pro-poor, pro-patients” to get more voters support.

The stated purpose was to make popular but expensive medicines become cheaper, even if alternative generic, cheaper medicines were available at that time.

So, after four years of forcible 50 percent price discount on certain popular brands, have the poor patronized the innovator (or originator or multinationals’) brands?

In a “Policy Dialogue on UHC and Access to Medicines” last July 25-26, 2013, sponsored by the DOH, Zuellig Center for Asian Business Transformation (ZCABT), and MeTA Philippines, held at the Asian Institute of Management (AIM),  Deejay Sanqui of IMS Health made a presentation, “Pharmaceutical Market Perspective.”

For a start, here’s a situationer. The total Philippine pharmaceutical market as of end-2012 was valued at P131 billion. Minus the nutritionals, it was worth P124.5 billion.

The most popular molecule that was put under price control was amlodipine, an anti-hypertension drug. And the most popular brand was Norvasc, made by Pfizer. Since it was a highly popular, highly saleable brand but considered “high-priced”, forcing its price to be slashed by half would result in the poor and middle class shifting to it away from the cheaper generic brands of amlodipine. Did this happen?

No. From the IMS data, even before the MRP policy was imposed in mid-August 2009, the vertical line in the chart below, there were plenty of generic brands of amlodipine already available, and many people were buying them. When Norvasc 5mg tablet’s price was slashed from P44 to P22, the poor did not shift to it because there were already amlodipine 5mg generic brands that were selling for only P10, even P7.50, so the P22 was still high. The main beneficiaries of the drug price control policy were the rich and upper middle class who were patronizing Norvasc, whether its price was P50 or P30 or P20 a tablet.

For simvastatin, an anti-cardiovascular (heart) diseases drug molecule, the same trend was developing – many cheaper generic drugs were already available for the poor even before price control was imposed, again marked by the vertical line in the chart below. In fact, the share of the innovator brands that time was already small, perhaps below 15 percent of the total market value for simvastatin. There was really NO need to impose price control for this molecule.

But then again, “helping the poor” was just an alibi for the two political camps then. Their goal was simply to look “pro-masa, pro-mahirap” even if the poor would not directly benefit from such coercive and arm-twisting in forced price discount.

Another popular drug molecule against breast cancer and related diseases, Tamoxifen, was also put under price control.  What was ironic was that the share of the innovator or originator brand was almost nil. Prescription for generic variants was already very high, before, during and after MRP policy.

One may wonder, if the policy did not benefit the poor but only the rich and upper middle class, why is the policy not withdrawn?

That is one ugly aspect of heavy government intervention. Once a policy or regulation was imposed, it almost always becomes permanent and long-term, never temporary or short-term. The two main protagonists, now Congresswoman Gloria Arroyo and DILG Secretary Mar Roxas, plus former DOH Secretary who became Civil Service Commission (CSC) Commissioner Francisco Duque, have been out of medicines policy after the 2010 elections, yet the damage done by their policy remains until today.

What is that damage? The politics of envy, that if a company is able to produce useful, popular and revolutionary products, the politics of envy and government coercion will penalize that company by forcing it to give mandatory, forcible and coercive price discount. And since all the affected companies were multinationals, the message across other foreign investors and suppliers was negative.

There are no government moves or attempts to withdraw this policy. All the innovator/originator and generic manufacturers, the drugstores and hospitals, have already adjusted to that ugly reality.

What the policy can teach us is to avoid, to refrain, inviting government to come and impose price regulation and price control. In whatever sector or sub-sector of the economy.

Government can do better if it will encourage and allow more players and competitors, local and foreign, to come in. More competition almost always results in price reduction or stability, benefitting the consumers, patients especially.

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See also: 

Fat-Free Econ 22: Three Years of Drug Price Control Policy, August 30, 2012 

Drug Price Control 33: Debate with a Cat, June 15, 2013 

Drug Price Control 34: No Single National Price, And a Wailing Cat, June 17, 2013 

Drug Price Control 35: DOH Procurement Price and Lobbying for Another Price Coercion, June 29, 2013 

Drug Price Control 36: Advisory Council, James Auste and China, July 12, 2013

Fat-Free Econ 22: Three Years of Drug Price Control Policy

* This is my article yesterday in TV5's news portal,
http://www.interaksyon.com/business/41795/fat-free-economics-three-years-of-drug-price-control-policy
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The drug price control policy turned three years old in mid-August. The Maximum Retail Price or MRP was imposed through Executive Order No. 821 and Advisory Council Resolution 2009-001 - both issued in July 2009 and took effect August 16, 2009.

The imposition was driven by a political emergency and not a health emergency, as the Presidential and local elections were just nine months away back then.

Prevailing drug prices data at that time contradicted the necessity of imposing price regulation. Competition among various brands from different drug manufacturers and drugstores was healthy at that time, such that consumers had various options for their needs.

Three examples of drugs are given below. Data came from Tomas Marcelo “Beau” Agana, who is president of the Philippine Chamber of Pharmaceutical Industry. Beau prepared a PowerPoint for the public hearing of the Congressional Oversight Committee on Republic Act No. 9502 last May at the Senate. But due to limited time, Beau was unable to present it. The event became a “public speaking” -instead of a public hearing - by Rep. Ferjenel Biron and Sen. Manny Villar, as both were pushing their respective bills creating a new bureaucratic layer, the Drug Price Regulation Board.

First is amlodipine, an anti-hypertension drug. While the leading brand, Norvasc by Pfizer, was selling for around P38 for the 5 milligram tablet, similar drugs were selling for P25, P15, P11 and P10. Consumers had choices, but the politics of envy centered on Norvasc. So their solution was more politics, more government coercion.

Source: Agana, May 2012. Primary data for the second chart - prices of different brands - is from the Drugstore Survey, March 2012.

Beau showed that for the average retail price for various brands of amlodipine, Philippine prices were cheaper than those in Indonesia, but more expensive than those in Malaysia, Singapore, Taiwan and Thailand.

Now consider this: some countries - such as Malaysia - do not slap taxes on medicines. Philippine taxes on medicines include an import tax of 3-5 percent and value-added tax of 12 percent - all of which result in a 15 percent price spike. If other taxes and fees are included - local taxes and fees and Food and Drug Authority fees - the government share could rise up to 20 percent of the retail price.

Then there are indirect taxes on medicines, namely the corporate income tax and the mandatory social security contributions by drug manufacturers, wholesalers and importers, and drugstores. Those taxes and fees, direct and indirect, are passed on to consumers.

Thus, the price difference of amlodipine between the Philippines and Malaysia could pretty much approximate the difference in tax treatment they both applied (or not applied) on medicines and on corporations: 12 percent VAT in the Philippines vs. zero in Malaysia; and 32 percent CIT in the Philippines vs. 20 percent for the first RM 500,000 and 28 percent on the balance.

Second case is co-amoxiclav, an anti-infection drug. Before the MRP policy three years ago, the leading brand, Augmentin by GSK was selling for nearly P83 for the 625 milligram bottle. But consumers had other options that were selling for only P59, P47, or P35.

Comparing again with some Asian countries, drug prices here for co-amoxiclav were similar with those in Indonesia and Thailand. The price difference with Malaysia because of a different tax treatment appears to explain why they are cheaper in Malaysia.

Comparing with prices in Singapore, VAT in the city-state stands at only 5 percent and CIT at 17 percent, or almost half that in the Philippines.

The third case is simvastatin, a drug against high cholesterol and certain cardiovascular diseases. See the different prices for different brands.

And here are other drugs and their respective price ranges. Again, basic data is from the Drugstore Survey, March 2012.



The bottomline for all these data is clear: there is competition, there are various options for the consumers, and therefore government intervention in drug price setting was unnecessary and unjustified. Only then Senator Mar Roxas (who pushed for the policy in the Senate) and then President Gloria Arroyo knew why the MRP was imposed.

When the MRP was being cooked and debated, Roxas was desperate to raise his low approval rating for the May 2010 Presidential elections, while Arroyo signed the EO to steal the show from him. Then Health Secretary Francisco Duque was also looking at the possibility of running for the Senate, but did not push through with the plan because of the Arroyo administration's poor showing in surveys.

In short, the MRP imposition in August 2009 was a political gimmick for political ends by politicians looking at the elections just nine months away. While their political horizon was short term, the social and economic damage was long term. EO 821 has no sunset provision.

A year after the MRP was imposed, the key sponsors of the policy had dropped the drug sector like a hot potato: Arroyo won a congressional seat, Roxas was appointed transport and communications secretary, and Duque was appointed head of the Civil Service Commission.

Two weeks ago, I attended the emergency meeting of the DOH Advisory Council for RA 9502, the Cheaper Medicines Law, and the important question requiring an answer was: What should the DOH do, to deal with repeated if not rising cases of water-borne diseases like leptospirosis due to flooding? Should the government impose another round of MRP on drugs used to treat those diseases?

Luckily the lesson of the past three years of MRP is clear in the minds of the Advisory Council members. Competition among different brands and drugstores provides the poor some access to cheap drugs, whereas price control has upset the market for the same.

Below is data presented during the said meeting. The drug against leptospirosis, doxycycline, has various brands with a wide price range. The prices are in pesos per 100 milligram capsule.

So consumers have the option of buying at P169, P74, P49, P5 or P2. Furthermore, many drugs against diseases that arise during calamities are given away not only at low prices, but sometimes for free through donations from various civil society and charitable organizations like the Red Cross, Rotary, Mason, Lions, JCI, etc. The DOH also has its own stock of medicines for distribution to the poor.

Competition, not more government coercion. Deregulation, not more government regulation and taxation. The public and the politicians would be better off if they will heed this simple lesson from the three years of drug price control.
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See also:
Drug Price Control 25: Top 10 Articles on Google Search, April 03, 2012
Drug Price Control 26: Conflict of Interest in Drug Price Regulation Legislation, May 13, 2012
Drug Price Control 27: Letter to Sen. Pia Cayetano, May 15, 2012
Drug Price Control 28: On Cong. Biron and Sen. Villar Bills, July 14, 2012
Drug Price Control 29: MRP Attempt Over Anti-Leptospirosis Drug, August 16, 2012 

Fat-Free Econ 8: Drug Price Regulation is Wrong, May 04, 2012
Fat-Free Econ 9: Drug Pricing Bureaucracy is Not Cool, May 11, 2012
Fat-Free Econ 18: Healthcare Corruption and Physician Entanglement, July 30, 2012

The President's SONA 2012

The President’s third State of the Nation Address (SONA) will start in about 1 1/2 hour from now. Seems to be a lucky day for the President, the sky has cooperated, cloudy but no rain, the Sun is showing up a bit, after four days. Usually SONA day is SONAbath as the rains, heavy or mild, would fall on that day. July to September are the three wettest months of the year always.

Meanwhile, thousands of anti-government protesters are out on the streets near Batasan, the venue of the annual SONA. People who complain against certain programs of the government and exclaim, “anak ng tokwa” or “SONAmatofu”.

Government climatism bureaucracies like the Climate Change Commission (CCC) and the Department of Environment and Natural Resources (DENR) keep pounding on “fight climate change” and “fight man-made warming”. How can they fight something that is naturally occurring? Climate change is purely natural, warming-cooling-warming-cooling, in endless, natural, multi-decadal cycles. And global warming should mean less rain and less flood, not more; less snow, not more. They just keep deceiving the public to justify their huge budget and junkets to various global climate meetings.

A SONA is a summary of the administration’s achievement of the past year or two, and a list of promises of what it intends to do the next year to improve the lives of the citizens. When promises are not met, people often exclaim, “anak ng tokwa” or other worse terms. From what I observed among the promises in the President’ SONA in 2010 and 2011, here are some of the SONAmatofu.

One, reduce business bureaucracies. He said in SONA 2010, “Ang walang-katapusang pabalik-balik sa proseso ng pagrehistro ng pangalan ng kumpanya, na kada dalaw ay umaabot ng apat hanggang walong oras, ibababa na natin sa labinlimang minuto. Ang dating listahan ng tatlumpu't anim na dokumento, ibababa natin sa anim. Ang dating walong pahinang application form, ibababa natin sa isang pahina.”

SONAmatofu, this did not happen in 2011, and did not happen this year. The volume of business bureaucracies, both at the local and national government levels, generally have remained the same or even got worse. A few cities though, like Quezon City I heard, were able to simplify their business registration and/or renewal procedure and hence, shorten the process. But many have remained bureaucratic. If the government has succeeded in that promise, it should have figured prominently in his SONA 2011 or in his speeches lately, but they did not.

Two, imprisonment for the corrupt, SONA 2011. Aside from former President Gloria Arroyo and the father-son Ampatuan clan, there seems to be no other high profile corrupt officials who went to prison. At least three high profile personalities accused of murder have remained at large – former Congressman Ruben Ecleo of Dinagat Island (murder of his wife), former Palawan Governor Joel Reyes (accused mastermind of the killing of media and environmentalist Gerry Ortega, and former AFP General and party list Cong. Jovito Palparan (accused mastermind in the abduction and murder of two UP students, Empeno and Cadapan).

Cases like these of powerful people committing serious crimes and not getting arrested while ordinary folks are being penalized for minor concerns like driving a motorcycle without helmet or driving a car with a busted headlight, make the citizens’ trust of the police and the government in general to remain low. But even if they distrust the police and the government in general, people simply have to pay lots of taxes and fees to sustain the various bureaucracies in government, from national down to local governments.

Three, lower unemployment rate, SONA 2011. The latest labor force survey of the National Statistics Office (NSO) showed that as of April 2012, the unemployed plus underemployed (those with jobs but are seeking additional work) constituted 26.2 percent of the total labor force. This is still high, more than one-fourth of Filipinos looking for jobs are either jobless or have jobs but are looking for extra work mainly to augment their low income.

Part of the explanation why this is so is in problem #1 above. To start a simple barber shop, bread shop, internet shop, carinderia, etc., one needs a barangay permit, electrical permit, health and sanitation permit, fire department permit, Mayor’s business permit, BIR-SSS-DTI permits, etc., with their corresponding taxes and fees, and penalties for delayed registration and payment. So the formal sector’s capacity to generate jobs is drastically limited. And that is how the informal sector, micro- and small entrepreneurs who go on with their wares, are subject to extortion by some local governments and the police for lack of necessary business permits. SONAmatofu.

Lest this article be accused of endless whining and complain, there were also promises in the past two Presidential SONA that were attained. Among them:

One, no more wang-wang, SONA 2010. People thought, me included, that it was just a short-term campaign, but so far it has been sustained, for two years now. Hats off to the President and his administration for such achievement, both symbolic and actual.

Two, bring the South China Sea (SCS) or West Philippine Sea (WPS) conflict to the International Tribunal for the Law of the Sea (ITLOS), SONA 2010 and 2011. This is a significant action that must be sustained, to further internationalize the issue, non stop. Use various regional and international fora (UN, APEC, ASEAN, etc.) to engage China at the diplomatic level, never at the military and warships level.

Three, some governance-related measures like having the new Ombudsman, compensation for victims of Martial Law, children immunization law, etc.

The President will definitely have a long list of its own definition or perception of achievements over the past two years in office. But two important measures that it has failed to act are the enactment of a Freedom of Information (FOI) bill and controlling the rising public debt.

While it is true that FOI is already in the Constitution, there are no details how government agencies can be penalized for not being transparent to the citizens and taxpayers. And while the ratio of public debt to GDP has declined somewhat, from about 60 percent a few years ago to around 50 percent today, this ratio is still high. A high public is a big problem that requires big payment from taxpayers, not from politicians and legislators. At around P328 billion a year in interest payment alone, average for 2010 to 2012, this problem will continue to hound us as it is the single biggest problem in many European and North American economies now.

But more than waiting for what the government will promise, or over-discussing what it has not promised and not delivered, it is important that citizens’ action – more personal and parental/guardian responsibility in running our own lives, our households and communities, more civil society and voluntary organizations’ involvement – be put into action always.

Government is coercion. By expecting less from government, by demanding less from government, and demanding that government should confiscate less from our pockets and savings, slowly but surely, we should be able develop a more peaceful, more economically dynamic society.
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See also:
SONAnyms and Anthonames, July 25, 2009
The President's SONA, 2010, July 26, 2010
The President's SONA 2011, July 24, 2011
The President's SONA 2011, part 2, July 26, 2011
Fat-Free Econ 17: SONA, the Budget and Debt, July 22, 2012

Fat-Free Econ 17: SONA, the Budget and Debt

* This is my article yesterday in TV5's news portal,
http://www.interaksyon.com/business/38127/fat-free-economics-sona-the-national-budget-and-debt
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On his third State-of-the-Nation Address on July 23, President Benigno Aquino III will present a P2-plus trillion budget for next year. The budget is among the most important features of a SONA. It is a direct way of the President saying, “I want to achieve these goals next year and please authorize me this money.”

The P1 trillion budget mark was breached in 2006 and the P2 trillion mark will be set next year, or a span of just seven years. Here are the budget data from 2006 to 2012 taken from the Department of Budget and Management’s Budget of Expenditures and Sources of Financing on years indicated.

Interest payment has been the single biggest item in the annual budget. For the past seven years including 2012, an average of P22.60 out of every P100 went to interest payment alone.

The direct implication is that the old and endless argument that “government does not have enough money” is simply not true. Government does have plenty of money, but more than a fifth is used to pay its debt. So if government wants to reduce its interest payment and use more money for various services, all it has to do is to drastically cut its annual borrowings. Better yet, stop borrowing even for a year, learn to live within its means and surprise itself that it can survive even without new borrowings.

The second biggest item in the annual budget is subsidy to local government units– the provincial, city, municipal and barangay governments. Over the past seven years until 2012, this item constituted 16.6 percent of the annual budget. And the LGUs are not totally dependent on this transfer. They also have the power to create and collect local taxes, fees and fines, so that total government spending, national plus local, is huge.

One may wonder how the government has accumulated the debt. Below is the direct explanation: each year, expenditures were always larger than revenues, with or without economic turmoil, with or without elections. The culture of over-spending, of waste and fiscal irresponsibility, is present in all administrations until the current one.

The good news is that it is possible to have zero deficit and zero borrowing even for a year because this nearly happened in 2007, when the deficit was only P12.4 billion or 0.2 percent of gross domestic product.

We have seen the direct cause of rising public debt. The table below will show how the debt has stockpiled over recent years. The P2 trillion debt mark was reached in 2000 (the last year of the Estrada administration) with a P2.17 trillion debt. In just three years, the P3 trillion mark was broken with a P3.36 trillion debt in 2003. That should be one of the biggest “achievements” of the Arroyo administration.

But in fairness, the Arroyo administration also cut its borrowings in the succeeding years so that the P4 trillion barrier was reached five years after, with a P4.22 trillion debt in 2008.



The PNoy administration breached the P5-trillion debt mark in March this year. The latest data from the Bureau of Treasury shows a P5.15 trillion debt as of May 2012.

Some sectors always harp on their apology and justification that “more borrowing is fine so long as our capacity to pay is there, if not improved.” Really?

If our capacity to pay growing debt has indeed improved with rising economic activity and GDP size, then how come the government is biting on high interest, long-term loans? If one is not desperate for more borrowings because its capacity to pay debt is improving, then one should shun and avoid those high interest loans. But this did not happen. See the table below from DBM’s BESF 2012.

One loan account alone, $1.5 billion 9.5 percent GB 2030 charges us $142.5 million or P6 billion a year assuming a P42:$1 exchange rate. And we will keep paying at this rate, principal amortization not included, until 2030.

The second loan account charges a lower rate of 7.75 percent per year, but $116 million is almost P5 billion a year on interest alone. We are paying P11 billion a year on interest for these two loans alone. This is larger than the 2012 budget of P8.66 billion of the Department of Justice and its five attached agencies. Or a bit lower than the 2012 budget of P13.36 billion of the Supreme Court and the lower courts nationwide.

So if we are to make one wish in the President’s SONA, here is mine: Drastically cut, if not stop, borrowing even for a year, force the entire government bureaucracy, from Executive to Legislative to Judiciary, to live within their means. If not in 2013, perhaps in 2014.

Come on Mr. President, surprise us, surprise yourself and your political detractors. Mrs. Arroyo nearly did it in 2007. You can do it too. Just cut the fat and pork in many government bureaucracies, programs and projects.
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See also:
SONAnyms and Anthonames, July 25, 2009
The President's SONA, 2010, July 26, 2010
The President's SONA 2011, July 24, 2011
The President's SONA 2011, part 2, July 26, 2011

Fat-Free Econ 12: Privatizing PAGCOR, June 08, 2012

Fat-Free Econ 13: P2 Trillion of Election Spending and Taxes, June 15, 2012

Fat-Free Econ 14: Traffic, Car-pooling and LTFRB, June 21, 2012

Fat-Free Econ 15: IMF and Freedom From Debt, July 01, 2012

Fat-Free Econ 16: Coal, Climate and Government, July 17, 2012

Labor Econ 9: On 4-months Maternity Leave

Many politicians and legislators want to impose various mandatory price discounts by private manufacturers and sellers to certain sectors, mandatory benefits by employers to their employees. The politicians get the political credit, at no cost to them. Such is the case for drug price control, senior citizens' discount, persons with disabilities discount. And now, a proposal to make the paid maternity leave raise from two to four months. See this news below.

http://www.interaksyon.com/article/33757/video-4-month-maternity-leave-proposed-in-congress?fb_comment_id=fbc_389859737726687_4429087_390430657669595

VIDEO: 4-month maternity leave proposed in Congress

04-Jun-12, 1:30 PM | News5

MANILA, Philippines - From 60 days of maternity leave, a bill filed by the mother-son tandem of Representatives Gloria Macapagal-Arroyo (2nd District, Pampanga) and Diosdado Macapagal-Arroyo (2nd District, Camarines Sur) would extend the period to 120 days.

House Bill 6128 seeks to give mothers more time to breastfeed their children. The United Nations Children's Fund (UNICEF) and World Health Organization (WHO) say it would be ideal if mothers could breastfeed their babies for at least six months after birth.

"This will give mother and child quality time for bonding while at the same time ensuring the child's proper growth and development," the Arroyos said....

This is another idiotic bill by the mother-son tandem in Congress. If this becomes a law, many companies will adjust, like paying women lower pay in anticipation of prolonged paid leaves, or they will hesitate hiring plenty of women. And the women themselves, the supposed beneficiary of this measure, will be disadvantaged. It is not legislators Gloria and Dato Arroyo who will pay for the extra 2 months of paid maternity leave, companies will.

Let the companies and employers decide the kind of benefit packages they give to their employees, men and women alike, government should get out. Some rich companies will give four or six months paid maternity leave, some struggling companies can give two or three months paid leaves. Some companies will even give paid paternity leaves for their male employees while most companies don't.

Government should step out of making these mandatory benefits. Allow them to give benefit packages based on their income and profitability. Struggling companies should not be arm-twisted by the government to give certain packages that can drive these firms to lay off workers, if not move towards bankruptcy.

A company hiring people and giving them stable jobs is a benefit to workers already. Companies are also scared of losing their hard-working personnel, so they offer various benefits other than those mandated by various labor laws, to keep these hard working and efficient staff. Now if workers and employees are not happy with their current employers, then they can consider getting out and become self-employed with some micro- or small-scale entrepreneurship. When their enterprise has improved, they can start hiring other people and give their workers certain benefits that they can afford.

When the employers or employees violate the stipulated contract between them, that is where government via DOLE can come in, to enforce contracts, to promulgate the rule of law.

A lady living in Vancouver, Canada, also replied to this news report saying that in Canada, maternity leave is one year and they get full benefits. That they pay high taxes but they can see where the money goes, that they have free medical care, roads are well maintained, school system is not bad.

Cool. Things are nice and well in Canada, it should be attracting hundreds of thousands, if not millions, of migrants each year, and its natural population growth is also high and not suffering from greying population, there is baby boom as mothers can easily produce more offspring with lots of subsidies and support from the government.

But I think this is not happening. While the government gives lots of welfare and subsidies, the government also takes a lot from the people, which makes life somehow hard for them.

Many governments in the developed world also make it difficult and costly for couples and households to get a nanny for their kids with oodles of regulations and restrictions. This is what my German friend told me. He can afford to pay the minimum wage for a nanny, even higher. But then he also has to pay extra -- unemployment and social security insurance, health insurance, pension contribution, etc., so that it becomes very expensive to hire a nanny.

The lady from Canada said that while the CIC imposes various requirements to protect the rights of the nannies, it is the Philippine government through the POEA that makes it almost impossible -- via red tape and certain bureaucracies --  for a nanny to be able to work in  Canada.

I think she is right here. The POEA can be one hell of an intrusive bureaucracy that imposes various restrictions and regulations for prospective employers as if its bureaucrats are the ones to be hired abroad.

On another note, former party-list Congressman, socialist labor leader, a friend in facebook, Rene Magtubo, posted in his facebook wall,

In the old world, poor people work as slaves without pay for their masters in order to eat and to live. Today, in the modern world, slavery is condemned. But yet poor people are enslaved to work in order to eat and to live in a pay dictated by their employers. Is there a difference?

I replied,  Get out being an employee. Be self employed. The carinderia owners, tricycle operator-drivers, palengke vendors, they have no employers but themselves.

While it is easy to blame and attack the capitalists and the entrepreneurs, it is hard to become one. To be an entrepreneur, one has to deal with (a) suppliers of raw materials/intermediate goods, (b) consumers and clients, (c) creditors or banks, (d) office/shop rental, electricity, water, (e) employees, (f) competitors, current and future, (g) national government bureaucracies, (h) local government bureaucracies. Each year, sometimes each month or each day.

To be an employee, one has to comply only with the demands or requirements of your employer or boss and that's it, get the salary  and other benefits mandated by various labor laws.

That is why to be an entrepreneur is not for everyone. And corporate expansion, or corporate bankruptcy, is a reality for all. There is only one institution that does not go bankrupt -- government. Administrations and political parties can lose or decline, but government and its various bureaucracies can never go bankrupt. And that is how populist politicians in government thrive, like the Arroyo mother-son tandem proposing idiotic bills.

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See also:
Labor Econ 4: Minimum Wage Law is Wrong, July 05, 2011

Labor Econ 5: On Extending Minimum Wage Law Abroad, July 09, 2011

Labor Econ 6: Labor Rights and Employee Forever, May 05, 2012

Labor Econ 7: Unemployment in Advance Economies, May 06, 2012

Labor Econ 8: SWS on Unemployment Survey, June 08, 2012

Weekend Fun 25: "I Will Survive" by Gloria Arroyo

Now the Department of Tourism's tag line for the country is "It's More Fun in the Philippines". Yes, lots of fun here, even if life may be hard for many people, but Filipinos just love to smile somehow.

A lawyer-friend sent me this song below, left column, to the tune of "I will survive" by Gloria Gaynor. I thought that many people have already read and saw it. So I slightly revised it and made my own composition, right column, hehehe.

Enjoy, happy weekend.

Version 1: author unknown Congresswoman GMA: First I was afraid Now, I’m petrified Kept thinking I could never live without SC by my side But then I spent so many nights thinking I did nothing wrong I think I’m strong I know I can carry on With painful back and lack of space I did feel bad to see you there with all that joy upon your face My lawyer’s one stupid lot I should have fired, oh that’s easy If I had known for just one second he would bet his balls for me! The People: Go on now go walk out the door just disappear now you don’t have power anymore weren’t you the one who cheated for Team Unity you’re in big trouble you think we’ll just let you flee? Congresswoman GMA: Oh no, not I I will survive oh as long as Titong’s there for me I know I will stay alive I’ve got all my life to live I’ve got all my cash to give and I’ll survive I will survive Hey hey It took all the clout I had not to fall apart kept trying hard to fight PNoy, De Lima, and Mupas and I spent oh so many nights praying hard just for myself I’ll never cry I will hold my head up high Soon you’ll see me somebody new Won’t be that neck-braced little person looking frail in front of you and so I fight that goddamn panel And just expect me to be free ‘coz my lawyers have been saying the High Court’s gonna favor me The People: Go on now go walk out the door just disappear now ’cause you’re not feared here anymore weren’t you the one who called and said “Hello Garci!” you then said sorry but that lacked sincerity! Congresswoman GMA: Oh no, not I I will survive oh as long as I have friend Rene I know I will stay alive I’ve got all my life to live I’ve got all my wealth to give and I’ll survive I will survive Oh…

Version 2: by Nonoy Oplas Gloria’s Song First I wasn’t afraid Nor was petrified Just thinking I could live with Supreme Court by my side And then I spent so many nights Thinking Corona can’t be wrong We are strong We know we can carry on But they got him with impeachment I just felt bad my fellow legislators Signed the impeachment complaint With Belmonte and Niel Tupas crack the whip like JDV did for me If I had known for just one second my allies can’t protect me. Go now go, egg-log Topacio Bring in Mendoza and the firm protect Corona and me-me Weren’t you the one who risked his balls before I flee You’re out of trouble You keep your balls and my millions. Oh no, not us We will survive Bong Revilla, Lito Lapid, Joker Arroyo and others They will acquit CJ Corona And Corona will acquit me and I’ll survive We will survive Hey hey It took all the shamelessness appoint Corona as CJ kept trying hard to deflect the critics PNoy, De Lima, and LP and I spent oh so many nights acting hard just for my neck I’ll never beg I will hold my head up high Soon you’ll see me somebody new Won’t be that neck-braced little woman grimacing and acting on tv and we will fight the prosecutors Quimbo Tanada and Tupas And just expect CJ to be free ‘coz my lawyers have been saying the High Court’s gonna favor me Go now go, egg-log Topacio Bring in Mendoza and the firm protect Corona and me-me Weren’t you the one who risked his balls before I flee You’re out of trouble You keep your balls and my millions. Oh no, not us We will survive Bong Revilla, Bong bong Marcos, Lito Lapid, and others They will acquit CJ Corona And Corona will acquit me and I’ll survive We will survive Hey hey Oh…

See also:
Weekend fun 18. Gloria Arroyo cartoons, June 11, 2011
Crime and Rule of Men 10: Gloria Arroyo Cases and the SC's TRO Against her Travel, November 16, 2011
Rule of Law 5: Impeachment for Beginners, December 14, 2011

Corona Trial 1: Impeaching the SC Chief Justice

(Note: original title of this paper was "Rule of Law 13: Impeaching the SC Chief Justice")

I am not a lawyer but being an advocate of the rule of law (the law applies to all, no exception; the law applies equally to unequal people) and highly detesting the rule of men (the law and prohibitions exempt the rulers, apply only to ordinary mortals and enemies of the rulers), I got interested in following the conflict between the heads of two big institutions in the Philippine government. They are the President of the country and head of the Executive Branch, President Noynoy Aquino, and the Chief Justice of the Supreme Court and head of the Judiciary Branch, CJ Renato Corona.

While there was a conflict between the two personalities before, things erupted when the SC granted a temporary restraining order (TRO) on the travel ban imposed by the Department of Justice (DOJ) against former President Gloria Macapagal Arroyo (GMA) who wanted to go abroad for "medical treatment" even if she was properly and efficiently treated at St. Luke's Hospital here in Manila. The main issue or fear of the DOJ and the PNoy Aquino government, is that GMA will not come back once they go out of the country knowing the multiple political and electoral scandals that they got involved, all unresolved.

There are many other recent SC decisions that the PNoy government said were mainly favorable to GMA or were hurtful to the current administration.

Also, the issue of "midnight appointment" of CJ Renato Corona, appointed only about 1 or 2 weeks before the term of GMA expired by end-June 2010, when the rules -- I think it's stated in the Constitution, or in certain laws -- say that such and similar appointments should be done within two months (or more) before the end of term of the departing President. This is one of the political baggages that CJ Corona has to contend with while he is sitting at the SC.

I have several friends in facebook, friends while I was still at the University of the Philippines (UP) way back in the 80s, who are bright minds in the legal profession now. I turn to them to get bright legal opinions on issues like this. Such free legal opinions, interactive, thanks to facebook (and twitter too) :-)

1. Marvic Leonen, Dean, UP College of Law:

A. Tweets:

the power of finality given to the SC justices is different from the idea of infallibility. Impeachment is a consti process proving this.

there is a difference between an institution and its incumbent. incumbents must account: do their acts benefit their institution?

B. Facebook:

Imoeachment is a process that allows accountability. When it is used against an incumbent, it should never be mistaken as an affront against the institution where he belongs. Rather, it should be viewed as a way of strengthening that institution. We weaken public institutions whenever we suffer in silence, keep our genuine criticisms private and non-threatening to those in power. Inaction against abuse by incumbents of their power as judges or justices reconstitutes wrongs as rights.

The ability of our courts to determine what is law does not certainly make it the weakest branch of government. Because it has the capacity to officially declare what is legal, determine which hierarchies survive, and suggest what modes of reasoning can be privileged by our legal order; it may well be our most dangerous branch of government.

The legitimacy of a court is usually fostered by the idea that it is a collective body, i.e. that wise men and women check each other's idiosyncrasies. However, when the process of selection of justices become flawed or imbued with too much politics, this assumption fails. Hence the need for external processes to come in, like impeachment.

I like Marvic's opinion here. What was impeached by the House of Representatives (HOR) yesterday where 188 of 284 members signed the impeachment complaint was the head of the SC, not the SC itself. It was the person, not the institution. Besides, HOR impeachment is only part 1 of the 2-steps process. The next battleground will be the decision of the Senate whether they will uphold the decision of the HOR or not.

This is indeed a very divisive act but I think it's worth the effort. The impeachment proceeding vs the SC CJ, perhaps the first in the Philippines, would be a good lesson for those wanting to change the Constitution and correct the current practice that ALL members of the SC including the Chief Justice, are appointed by the President. To me, this already defeats the "Judiciary independece from the Executive" principle.

2. Atty. Theodore "Ted" Te:, faculty member, UP College of Law:

Don't get me wrong. I agree that the CJ can only be removed by impeachment and not by "parinig." He's not the resigning type, if he were, he'd have done it before at the height of the "name and shame" before and after his midnight appointment. I have read the complaint and many of the issues raised in the impeachment complaint are real and are serious wrongs. I seriously believe that the CJ failed to exercise leadership and seriously damaged the Court during the plagiarism investigation--whether that constitutes betrayal of public trust is another question (betrayal of my trust? no, I never trusted him at all, nothing to betray) and one that is addressed to the Senators, 3/4 of them.

My questions go to process, timing and agenda. An impeachment trial should bring enough evidence to convince enough senators to remove not just any public officer but the Chief Justice, head of a separate branch of government; while not proof beyond reasonable doubt, it should be substantial enough to convince presumably independent-minded senators to convict on at least one count. I hope that this complaint is not based on the premise that the CJ will resign to avoid the embarrassment of a trial, like Gutierrez. There's too much riding on this to be working on that premise. Because ultimately, if the complaint is not proven and the CJ is not removed, then the admin will have further weakened an already diluted impeachment mechanism (cf. Oliver Lozano and the mad rush to file preclusive impeachment complaints v. Gloria).

Why now? Before the last session dates of SC? So that no appeal can be made? Doing exactly what it is accusing the SC of doing in the Gloria TRO? If the cases are strong enough to convict, they should be strong enough to withstand parliamentary debate. Its like watching kids quarrel--you sucker punched me, so I'll sucker punch you back. And what's the ultimate agenda? Transform an antagonistic SC into a pliable and "friendly" SC? So, Mr. Kettle, meet Mr. Pot. If that is so, then there's really no difference. Ultimately, this goes back to the "original sin of omission or failure"--they did not prepare the cases against Gloria well ahead of time and so they now need to scramble to prevent what appears to be a junking of the charges hastily filed by the COMELEC-DOJ panel. If this is what the admin is trying to head off, then it will be no better than what Marcos did to the SC.

Dang, I like Ted's opinion too. The PNoy government simply made a big mistake of not filing a single case against GMA since it assumed power in June 30, 2010, until the SC TRO on GMA travel ban was issued, then the current administration scrambled on various political and legal measures.

Back to the rule of law. The law applies to all, no one is exempted and no one can grant exemption. Impeachment is in the Philippine Constitution. The impeachment trial in the Senate next year will be more transparent and more accountable, compared to press releases or acerbic political sound bites issued by the Executive, and sometimes by the Judiciary. The HOR will present evidences and proof to their impeachment case, the SC'S CJ will provide evidences and proof negating the complaints filed by the House, and the Senate must be as objective as possible, not 100 percent of course as legislators belong to political parties and those parties have taken a stand already, explicit or implicit, on the impeachment case.

Supporters of GMA, like two of her sons who are Congressmen, can equally file an impeachment complaint against President Aquino. That is possible but not viable since the ruling political party and its allied parties are affiliated with the President.

This is a big fight between two leaders of two branches of a BIG government. There is danger that both or all three branches will suffer more credibility problems with the people, us ordinary mortals. But by making the process as transparent as possible, any or all of the three branches can gain credibility.

There is too much political and economic power in the hands of the government and its three branches -- the power to regulate and impose various prohibitions and taxation in the lives of the people. It is that big power to regulate and impose prohibitions and restrictions, that attract many of the most shrewd, most clever among us to be in government, in any or all of the three branches.

I believe that a society that really promulgates the rule of law will ultimately have a very lean, minimal and limited government. A government that expands, not restricts, individual freedom. Like strictly imposing the laws against killing, murder, robbery, rape, extortion, land grabbing, kidnapping, and other crimes against persons and their private properties. This way, the government rewards the industrious and hard working (by removing many or all restrictions to entrepreneurship) while it penalizes the lazy, the envious and the criminals.
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See also: 
Rule of Law 8: Purpose and Supremacy of the Law, June 15, 2010
Rule of Law 9: Laws, Prohibitions and Corruption, June 30, 2010
Rule of Law 10: On Wang-wang and Government Laws, July 04, 2010
Rule of Law 11: RoL Index, October 15, 2010
Rule of Law 12: Gloria Arroyo, Travel Abroad and the SC, November 16, 2011