Fiscal Irresponsibility 26: On the $1 B Philippine Loan to the IMF

Yesterday, I posted this in my facebook wall.

The $1B PH loan to the IMF for Eurozone reserve fund won't come from tax money but from BSP's international reserves. It is within BSP's mandate and resources to do so. Still, I don't support helping to bail out fiscally irresponsible governments with more loans when those governments have lots of state-owned enterprises, financial instns and assets that can be privatized to raise domestic revenues, instead of endless taxation and borrowings.

I was happy to see some serious exchanges and comments from some friends, below. I am posting these comments without asking the permission of these guys for two reasons. One, my fb wall is a public wall anyway, and  two, many of the points raised here are no-nonsense ideas and would greatly help educate the public on the merits and demerits of this recent move by the central bank/BSP.
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Malou Tiquia I just totally do not agree to it...

Butch Arroyo But if you were the BSP what else would you do with the $s? BSP evidently doesn't want to sell the $s to the local economy and make the PHP stronger. So it has to push out the $s. But everything else out there they could put it into is either risky (and wouldn't be allowed to count towards "international reserves"), or safe but very low-yielding. A loan to IMF might be the highest-yielding of the alternatives that are acceptable for designation as international reserves.

The European bailouts are painful and costly result of policy mistakes of the EU in not enforcing the fiscal and public debt requirements of the original Maastricht agreement. I agree that those governments (the borrower govts for sure, but also the Germans, who weakened fiscal discipline in the EU by themselves violating the fiscal pact) deserve the wrath of their constituents. But until they get voted out they are (unfortunately) still the democratically elected leaders of these countries. If the leaders of the center countries (FRA, GER) still favor a bail out of the problem governments rather than allowing an exodus from the monetary union, the IMF will probably have to go along, since the only other countries who could vote it down-- US, UK, and, Japan-- probably support preservation of the monetary union.
From PH perspective, as long as the bailout lenders retain seniority, $1B to IMF is probably a small portfolio risk for the BSP.

Nonoy Oplas Thanks Butch. If I were the BSP, I will use some of my $77 B gross international reserves (GIR) to buy and hoard more gold plus other precious metals. My beef is that by pooling rising amount of bail out money, it will create moral hazards problem for those indebted countries. They have many govt-owned corporations, financial institutions, national parks, military camps and other assets, things that can be privatized to raise local revenues to deal with their spending requirements and debt obligations. I have not encountered much literature that those governments are taking this measure. Rather, they made limited or bogus austerity then issue some warnings that their debt problem can "spiral to the global economy unless the world will send them more money."

By not participating in the creation of more moral hazards problem with that IMF bailout money, the PH government is sending a signal both to itself and the rest of the world, that it is time to really look inwards, there are several options and solutions that can be internally generated, aside from endless borrowings and issuing a blackmail of global fiscal crisis unless they are given more bailout money.

Jules Calagui It is high time that we create a Sovereign Wealth Fund. We can set aside $20 B to start one and still left with over 6 months of GIR to cover 7 months of imports.

Benson Te The Bangko Sentral ng Pilipinas is a creation of the Philippine Congress REPUBLIC ACT No. 7653 and hence every exposure it does exposes Philippine taxpayers.

To give you an example, the liabilities of the old central bank (central bank ng Pilipinas, according to Malcolm Cook valued at over 300 billion were shifted to the newly created, off-budget Central Bank Board of Liquidators. In short, the liabilities of the old central bank was passed on the taxpayers.

FYI

Giovanni Rodriguez Agree with you Noy, the financial crisis in Europe and the world is the culmination of a failed experiment - fiat money !

Todd Foster So a country who still has many scratching out subsistence levels of living is loaning to a country, so it's residents can better afford their new "right" of do-overs on their vacations, if they got the sniffles on vacation #1? That's just plain evil.

Malou Tiquia Butch Arroyo, I really do not agree with your "small portfolio risk for BSP line. Point of the matter is we need the money here and not to support a failed system worldwide. Bail outs have proven to be not the right thing to do and really the Phils as lender is just a stunt to project the "breakout nations" status. Why not use the $ locally? BSP has to be creative, instead of FER what Jules Calagui posted is something worth considering. With SWF, it maximizes long term return, with foreign exchange reserves serving short term currency stabilization and liquidity management. There is a way to go than serve the ends of IMF. The world is in search of a new economic order and IMF has been part and parcel of failure of nations to handle responsibly fiscal and monetary policies. I fully share Nonoy Oplas' position here. Its time to go back to the drawing boards and bailouts are not the way to go! That's IMHO.

Casey Phyle The only thing that could possibly justify the Phils lending $1B to save Europe is the hope of not losing an important export market. But that is a vain hope, as lending to people who owe more than they can ever pay back is not the smartest thing to do. Borrowing more only makes their hole deeper. Some say it was intended like that by the money power who, on the way to NWO or One World, wants to force its will on the nations. So far that appears successful. The Philippines should not tie its raft too tightly to a sinking ship that will probably go down this year. On the other hand, the Philippines have been the recipient of western aid for long enough and have improved their situation at least this far. Now that they have a little cash on the side they probably thought it was only right to reciprocate and show some solidarity. Difficult to judge. That 1B would have stayed with the CB anyway and never gone to the people. Now the Phils will have a marker from IMF/Europe for $1B, with gold at $1600/oz.

Lifestyle Diseases 20: On Nanny State and Obesity

A guest post from my friend, Jules Calagui, collated from one of his recent facebook status updates. Photos below, I just added.

Health and Personal Responsibility

by Jules Calagui

I don’t eat McDonald’s food, but I vehemently defend the right of people to eat it. As soon as the government becomes the arbiter, by edict, of what we can and cannot ingest, the frenzy in the marketplace to gain concessionary privileges never ceases.

Indeed, the incessant cry to demonize one thing over another, criminalize one food over another, thunders in the ears of politicians as businesses jockey for favors and indulgences from legislative priests.

The questions/ issues often raised have a lot more to do with Liberty than with healthcare which I think is the main point of Joel Salatin.

Politicians, bureaucrats have lots to learn from John Mill with matters relating to public policy and liberty when he said, "Over himself, over his own body and mind, the individual is sovereign."

NOBODY, not even the state, has the right to force, limit and worse define what a person should not or ought to do UNLESS he causes harm to others.

Even the person's own physical or "moral" harm IS NOT a justification for limiting his/her liberty. Exception will be children/minors who couldnt make "rational decisions" yet.

How will that translate in public policy?

The state has no business telling you and I what we should consume (eat, drink, inhale...), choices we make that affect our body, preferences in matters relating to personal taste as well as private life (music, art, sports, who to marry including dissolution of marriage, and even the right to end one's life).

Along with it is the RESPONSIBILITY, that we let others enjoy the same liberty and that the choices and things we do causes no harm to others.

Drink as much as you like, as long as you dont drive. Smoke as much as you like as long as you respect others their right to breath clean air. Again, the assumption herein is that you are a rational person. Unfortunately, the capacity to act rationally has to be quantified with such concepts such as age of consent, age of criminal responsibility etc.

The State should only intervene when our actions causes harm to others. An equally important point raised by Joel Salatin is the danger of government regulation.

When ever, "government becomes the arbiter, by edict, of what we can and cannot ingest, the frenzy in the marketplace to gain concessionary privileges never ceases." Concessionary privileges - corruption for short.

Healthcare - every wants it but no one is willing to pay for it.

There ought to be a distinction between Public Health and Personal Health.

Public Health Policy should be mainly revolve around what they call Primary Health Care. Unfortunately, even Public health experts cant agree on what it should be.

I think the priorities of Public Health Policy should be Prevention, well being(safe and clean environment), care for children/pregnant women as well prevention and control of communicable disease.

When people talk about Health, unfortunately, they often mean Healthcare - treatment, and management of illness specifically those offered by medical/health professions/institutions.

UNLESS it is care for children/pregnant women and control/management of infectious disease and epidemic - Healthcare is a personal responsibility.

The Freedom to Chose (Liberty) is inseparable with the responsibility to be accountable for the consequences of the choices we make. Are you willing to pay for the cost of treating my illnesses which are a result of my own personal choices?

Much of most Healthcare treatment that we want to be part of Government services are mainly diseases resulting from personal choices. Stroke, diseases of the heart, lungs, liver, colon and to large extent even breast cancer are lifestyle diseases. Public Health Policy should be geared towards education and prevention - that I think is where taxpayers money should be spent.

Most of these lifestyle disease can be prevented if we only: eat the right amount (mas marami namamatay sa katakawan kaysa gutom!), consume more fibers, vegetables and less of fat and excessive carbohydrates, sweet. And exercise regularly - which could be a daily walk of 10,000 strides/steps. Studies also points to evidence that women who postpone pregnancy late in life, specially those who chose not to have kids at all, are more likely to have breast cancer.

What is also critically lacking, especially in Manila, I think are safe public spaces to walk and cycle. Public spaces should not be devoted merely to building roads for cars - efforts should be made that we have safe (dedicated) places to pedestrians and cyclist.

On the question, Should we tax tobacco and alcohol? I think we should, but mainly on one ground - to make it expensive for young people/children to afford. And when we do tax them, the revenues should only be earmark to efforts in promoting awarness about the their harm as well as creating facilities where smokers can enjoy their fix.
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