BWorld 138, PPP vs ODA, Part 2

* This is my article in BusinessWorld last week.

“The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

-- Thomas Sowell (US economist and political philosopher)

This paper is a continuation of the same topic in this column last June 8. To summarize previous arguments:

1. User-pay principle via public-private partnership (PPP) means only those whose the service or facility will pay for its construction and maintenance. As a result, the rest of the population in other parts of the country will be spared of such cost.

2. All-taxpayers-pay principle means projects are paid by current taxpayers through the annual general appropriations act (GAA) or by future taxpayers through official development assistance (ODA). Taxpayers from Visayas and Mindanao will also pay for toll roads, dams, airports even if they hardly use these since these are located in Luzon.

3. It is not true that infrastructure projects funded by official development assistance (ODA) and/or taxpayers through the GAA are more beneficial to the public than PPP-funded projects. Iloilo Airport -- which was funded by ODA -- took longer to build and incurred cost overruns compared to the PPP-funded Mactan-Cebu Airport, which remains on schedule despite initial delays.

4. There are inherent problems and risks to the public under GAA- and ODA-funded projects since ODA funding normally has strings attached. Thus, a project funded by China ODA may require the government to hire Chinese contractors, suppliers, managers, and even workers.

We now add more reasons why the Dutertenomics’ shift from PPP to ODA (mainly from China) funding of its build-build-build plan is unwise and risky.

5. In a Management Association of the Philippines (MAP) forum two weeks ago, finance expert Vaughn Montes cited the big contrast between ODA-funded Subic-Clark-Tarlac Expressway (SCTEx) and the PPP-funded Tarlac-Pangasinan-La Union Expressway (TPLEx). SCTEx took seven years from government approval to completion, two years delayed, and cost nearly twice at $32.8 billion vs. the approved budget of $18.7 billion or P341 million per kilometer. TPLEx cost only P61 million per kilometer.

6. Investor confidence in the Philippine economy has gained momentum compared to some of our neighbors in the region and it is not wise to constrain such confidence by ditching many PPP projects and shift to ODA and GAA funding.

The expansion of FDI in the Philippines from 2000 to 2009 (last year of the Gloria Arroyo administration) was not significant (less than twice). However, during the same period, FDI expanded almost five times in Singapore, about four times in Indonesia and Vietnam, about three times in Thailand, Cambodia, South Korea, and Taiwan.

But from 2009-2015 or just six years, FDI in the Philippines expanded two and a half times while there was only two times expansion in Singapore, Indonesia, Vietnam, and Myanmar; and less than two times expansion in Thailand, Malaysia, Hong Kong, South Korea, and Taiwan. It is this kind of investor confidence and momentum that can greatly propel the Philippines into more investments and job creation, faster growth and infrastructure buildup.

7. The government’s PPP Center noted that “most PPP bids received in recent years have come at lower than the approved government costs. If in the instance that actual project costs turned out higher than approved government costs, the private sector partner assumes or shoulders cost overrun risk.”

8. The China government is the least trustworthy source of ODA funding considering that it is acting belligerently and aggressively in bullying the Philippines and other ASEAN neighbors that have claims over the many islands and islets in the South China Sea or West Philippine Sea (WPS). Note also that recent China-funded projects in the country were notoriously scandal-ridden -- North Rail and National Broadband Network (NBN)-ZTE projects.

The insistence of the Duterte administration to compromise the income and savings of Filipino taxpayers -- even if there are many big private investors, local and foreign, that are willing to shoulder the costs and risks of infrastructure projects -- may result in shenanigans and large-scale corruption.

And its consistent pronouncement of relying more on the money and contractors of the bully state across the WPS would further weaken the Philippines’ territorial claims to those islands and exclusive economic zone and weaken the rule of law.

Honest minds in the Duterte Cabinet should remind the President of the economic and political dangers that it is treading on.

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See also: 

BWorld 135, On reducing the distribution system loss, June 9, 2017 
BWorld 136, Income tax and the politics of envy, June 12, 2017 
BWorld 137, ASEAN trade expansion and RCEP, June 20, 2017

BWorld 134, PPP vs ODA

* This is my article in BusinessWorld last week.

Among the important characteristics of the user-pay principle is that only those who use the service or facility will pay for its construction and maintenance while the rest of the population -- who won’t use them -- will be spared of such cost. This characteristic is embedded in the public-private partnership (PPP) mode of construction, procurement, and maintenance of big infrastructure projects.

In contrast, projects that are funded through the annual general appropriations act (GAA) and official development assistance (ODA) are under all-taxpayers-pay principle. More specifically, GAA are paid by current taxpayers while ODA are to be paid by future taxpayers.

Last month, the government through the Department of Transportation (DoTr) and Civil Aviation Authority of the Philippines (CAAP) has terminated the PPP mode of Development, Operations and Maintenance for five regional airport projects -- New Bohol [Panglao], Davao, Iloilo, Laguindingan and Bacolod-Silay. These five projects are projected to have a total cost of P108 billion.

There are other projects that suffered from policy reversals from PPP to ODA-funding, like the Kaliwa Dam project in Quezon, and the PNR South Railway project.

Since late 2016, the Duterte administration has announced that it will avoid PPP modes whenever possible and shift to government funding via GAA or ODA or a mixture of both. The reason given is that it will be faster and cheaper to build via government funding. This will cover mostly the P8-trillion infrastructure programs then auction off the operation and maintenance (O&M) contracts to the private sector.

Recall that in my previous piece, the DOTr said during the BusinessWorld Economic Forum last May 19 that these four big projects will all be ODA-funded:

1. PNR North Railway (Manila-Clark), Q4 2017 -- Q4 2021, P255B.

2. PNR South Railway (Manila-Bicol), Q3 2018 -- 2021, P270B.

3. Mega-Manila subway (Phase 1, QC-Taguig), Q4 2019 -- 2024, P225B.

4. Edsa-Central Corridor Bus Rapid Transit BRT, Q1 2019 -- Q1 2021, P38B.

Now the basic question -- is it true that GAA or ODA-funded are more efficient, faster, and cheaper to build, than PPP-funded projects?

In the same BusinessWorld Economic Forum last May 19, one of the speakers was Oliver Tan, Chief Financial Officer of Megawide Construction Corp. He showed two tables comparing the construction of two airports in the Visayas, the New Iloilo and expanded Mactan-Cebu airports (see table).

Mactan Cebu airport terminal -- whose awarding was delayed for 18 months but will still be completed on time -- is almost five times the size of the New Iloilo airport and yet construction time is almost half that of the latter. The Cebu airport serves 17 international destinations, 27 domestic destinations, by 20 partner airlines. When this new terminal is finished middle of 2018, passengers are projected to enjoy these benefits: check in time will be reduced from 10.5 minutes to 6.85 minutes; getting luggage from 11 to 6.5 minutes; while retail outlets will rise from 17 to 28 and dining options from 17 to 31.

From this example alone, it is NOT true that burdening all taxpayers with government-implemented infra projects is more beneficial to the public.

There are inherent problems and risks to the public if GAA- and ODA-funding become the dominant mode in building important infrastructure projects.

One, a government administration is short term, limited to only six years term and thus, it has little political or corporate brand to build and protect, it can worry less of what the people would say after its term has ended especially if the project is later discovered to be of inferior quality and tainted with corruption. In contrast, a corporation has a brand to protect and it would not risk this brand that has been built for decades to be tainted with corruption and wastes.

Two, ODA funding normally have tight strings attached, like a China-ODA would mean only Chinese contractors, suppliers, managers, and even workers would do the work. Local firms would be relegated to O&M and their purchase of equipment and supplies might be constrained by the project specifications so that they will be forced to source these from China again.

Three, there are recently finished and ongoing PPP projects that are yielding positive results, like the Mactan-Cebu Airport terminal building, NAIA Expressway, Tarlac-Pangasinan-La Union Expressway (TPLEx), school buildings, and automated fare collection system for the trains. These gains cannot simply be dismissed as inferior to government-promised better infra, especially under the environment of bad governance culture in the country.

Four, the user-pay principle means that a tollway or an airport in northern Luzon will be paid only by those who frequently use those facilities. So the people and taxpayers in southern Luzon, Visayas, and Mindanao who seldom or do not use these facilities will be spared of servicing the cost of construction and O&M.

The shift from PPP to GAA and ODA funding of the build-build-build plan of Dutertenomics does not bode well for Filipinos.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET, both members of Economic Freedom Network (EFN) Asia.

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See also: 

BWorld 131, Why the FiT-All is a burden to consumers, May 18, 2017

BWorld 132, Global commodity prices, trade and growth, May 27, 2017 
BWorld 133, Dissecting Dutertenomics' overspending plan, June 01, 2017

Philippine GDP growth projections until 2030

I originally posted this on May 31, 2011. My update below it....

A friend in facebook gave this table, commented that Lackluster long-term outlook (accessible by registered users) from the Economist Intelligence Unit, especially since popn is growing at around 2%. There's still hope. Let's prove this wrong."

Real GDP growth projections, 2011-20 is 5.6 percent, and from 2021-30 is 5.7 percent. I like the assumptions made in these projections:

In the absence of institutional change, economic growth in the Philippines is likely to remain below potential. The country's demographic profile holds the possibility of an improved performance.

I think the assumptions and projections in the above table are realistic. Government bureaucracy and robbery holds back potential fast growth. Private consumption by households (C) is currently 76 percent of GDP, thanks partly to high population growth. Entrepreneurship among the poor is high, but government bureaucracies say such efforts are criminal and illegal unless the poor will get lots of signatures and permits from the bureaucrats. This puts a brake on potential fast growth.

Private investments (I) is low in the country because domestic savings (S) is also low. So it is really C that mainly drives GDP growth in the country. And C is mainly a product of high OFW remittances. Most countries with low population growth have low C/GDP ratio.

More borrowings to perk up government consumption and investments (G) are passe. We only have more public debt as a result, which affirms the assumptions by that article, "in the absense of institutional change..." More borrowings especially from official/foreign aid only means more wastes and robbery in the public sector. So public debt is rising while productivity from such borrowings are questionable.

One good example was the hundreds of millions of dollars of foreign loans for massive reforestation across the country in the late 80s to early 90s, mainly from the ADB, WB, and OECF/JBIC. So much money, so much foreign loans, and where are the forests from those huge borrowings? Productivity is almost zero, if not negative, as we taxpayers keep paying for those foreign loans until now.

Another friend suggested that "for institutional change to take place, we have to believe that that will happen. We should start having faith in our institutions."

I think this is faith-based policy making. Even if we know that public officials will waste and steal public funds (they've done so in the past), we still should have faith that they will not steal. What we need in the country is the rule of law, not additional borrowings. Stealing is stealing, the guilty will be prosecuted, make that message very clear across the whole bureaucracy. And local revenues will be more than sufficient to finance public spending as the biggest leak, public wastes and robbery, is plugged.

And we go back to the main premise or assumption of the EIU when they made those 20-years GDP growth projections for the Philippines, the optimistic version:

In the presence of institutional change (rule of law), economic growth in the Philippines is likely to achieve its potential,

The same friend argued that the rule of law is not enough. It's like saying authoritarian regimes are good because they implement the law effectively.

I corrected him, The "rule of law" simply means the law applies to all, no one is above the law. Presidents and dictators, Prime Ministers and ordinary people. When the law says "no stealing" or "no killing", then that's it. Not even Presidents or dictators can steal or kill. Whether one is the poorest person in the planet or the President of a country, the law against stealing applies. Authoritarianism and dictatorships are rule of men, not rule of law.

Related articles:
1. Econ for statists 5: Y = C + I + G + (X-M)
2. What is the role of government?
3. Hayek 7: Rule of law means no exception
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Update:
I made a similar growth scenario and projection, 2016-2025, in a paper I wrote for my sister's auditing firm, Alas Oplas and Co. CPAs. I shared that paper with fellow participants in an ASEAN scenario workshop last Thursday, October 15, 2015 in Bangkok, organized by the Siam Intelligence Unit (SIU). The simple equations and assumptions, I will post in another blog post, but here is a preliminary result.

Less government business regulations and taxation will greatly help the PH economy achieve faster growth. Entrepreneurship and job creation is not a crime that should be slapped with multiple regulations, taxes and permits.

Foreign Aid 16: ADB on OFW Remittances

A news report last Wednesday, March 18, 2015. I think the ADB President, Takehiko Nakao, is wrong here. OFW remittances are private funds, 100% of it, not PH government or ADB fund. Why would he suggest that remittances "be intermediated for public investments such as infrastructure"? 

Remittances by Overseas Filipino Workers (OFWs), some $25 B last year, are several times larger, and sevveral times more useful, than foreign aid money, WB + ADB + USAID, etc. combined. Foreign aid is government to government. That is why foreign aid is often tainted with corruption and wastes. Remittances, like trade, is people to people, direct. Thus, its use is more prudent, less wasteful, more productive.

When an OFW sends money to repair their old house, or build a new, bigger house, it is "for development" as it creates lots of jobs at the grassroots, at the barangay and municipal levels. Construction workers, hardwares, furniture shops, local foremen and architects, etc. Money is received and used/consumed by the people, direct. No middlemen like bureaucracies that appropriate, disburse, monitor the money.

  

Five economist friends made good comments and reactions.

1. Jun: the very tight (BSP) regulations on banks like adopting of basel 3, stringnet KYC, AMLA, FATCA rules which appear to be motivated by protectionism that our OFWs end up remitting through undercapitalized couriers, Pawnshops and other similar entities instead of safe, well capitalized and more efficient financial institutions in the private sector. Relatives of OFs claim their money from couriers located in malls end as (mall) spending (instead of saving).

2. Joey: It depends Noy on what is "intermediated" re private funds. If it is designed like PPP where remittances are invested voluntarily, then it is still a private decision and a private fund. The process and outcome how this will come out is debatable. I'm just referring to remittance as private funds.

3. Patrick: A few bitcoin companies are realizing the PH remittance market and started to offer bitcoin remittance. Check rebit.ph, rebittance.ph and coins.ph. Completely bypasses BSP. coins.ph offers bitcoin conversion into cash via ATMs.

4. Adora: hold your horses, Noy. re-read the article. no mention of OFW remittances being treated as public funds. these will remain private. intermediation is to be done through financial inclusion (i.e., developing investment products where OFWs could invest on). it had been tried in the past through diaspora bonds but not many OFWs were able to invest (i.e., not financially inclusive enough) due to low financial literacy, among others.

5. Teresa: Noy, if the remittances are deposited in the financial system, then they can very well be intermediated. Ikaw naman - Econ 121 yan. Money and Banking.

I thanked them all for their good points. My rejoinders:

(1) It is a valid observation by Jun. More banking and financial regulations by the government (BSP in this case) make the regulated players to pass the cost of additional bureaucracy to the public -- in the form of more papers to fill up, higher bank charges. The less regulated but undercapitalized players like money couriers can act guerilla type and have many outlets, like public markets and malls. So many OFWs send their money to these couriers (LBC, Cebuana, Palawan, Western Union, etc.). The temptation for instant spending is higher if one is inside malls or public markets. And even if we assume that it is a "non-productive" spending, to eat and buy at malls, it is still the households who benefit. It may just be a once a month treat at Jollibee or McDo.

(2) On "Spending these "expended" dollars in consumables will be inflationary, but spending in development infra maybe not." may not be true. During barrio or city fiesta for instance, local and micro entrepreneurs anticipate high consumption of pork, chicken, cattle, etc. so they produce these farm products with target harvest period on those 2 or 3-days of fiesta. High household spending fueled by OFW remittances do not create permanent inflationary pressure because local supply of consumables also rise. High supply meets high demand, the price remains at its old equilibrium point.

(3) It is another proof that as government regulates more, the cost of regulations and bureaucracies are ultimately passed to the public. So other players sprout to evade regulations while offering more ease, less cost to the public.

(4) and (5) There is something wrong if ADB chief thinks that current spending by OFWs and their families are not "for development" and that "remittances should be channeled to funds that would contribute to economic development".

a. Most spending by OFWs currently are "for development" already. Like having a new, bigger house, buying a new agri or residential land, or a new tricycle or jeepney, or sending kids to more prestigious schools.

b. Most of OFW remittances are channeled to the formal banking system already. "Cash remittances Filipinos coursed through banks grew to $1.814 billion in January from $1.804 billion a year earlier."

So what is that something new that the ADB head suggests, at least from that news report? It seems nothing. Now if he suggested that PH income taxes should drastically be cut from 32 percent down to 22 or 12 percent, that is really new. Many Filipino professionals leave partly because their take home pay here is small, only 68 percent is left and from that, various consumption-based taxes and fees are further collected -- VAT, excise tax, property tax, vehicle registration tax, etc.

So Mr. Nakao is barking at the wrong tree. If the goal is "more development" for the country and OFWs and their families here, the bigger problem is not with remittances and how they are sent or spent here. The bigger problem are PH government policies, which are partly supported by foreign aid like ADB, like high personal and corporate income taxes, multiple business taxes and permits, from national down to local governments.

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See also: 

Foreign Aid 12: WB Corruption of Civil Society, March 23, 2011

Foreign Aid 13: Freedom from Borrowing, July 05, 2011

Foreign Aid 14: ADB's Electric Tricycles, April 07, 2012 

Foreign Aid 15: Shrink the IMF, March 21, 2013 

Migration 21: Why Do Many Filipinos Work Abroad? January 14, 2014

China Watch 19: The Asian Infrastructure Investment Bank (AIIB)

A good friend, Aiken T. alerted me to a new development in China and Asia, she wrote today,

China is initiating the formation of ASIAN INFRASTRUCTURE INVESTMENT BANK (AIIB) to cater to roads, railways, power plants, telecoms in Asia. We don't love China but this competition to WB, ADB, IMF gives us better prospects, I believe. AIIB will prioritize hiring Chinese professionals, of course, but still it's able to increase demand effectively.

I thanked Aiken for such heads up. I googled AIIB and here are some interesting news.

(1) From the NYT, October 24, 2014,

"China and 20 other countries signed a memor-andum on Friday agreeing to create an international development bank that Beijing hopes will rival organizations like the World Bank....

Japan, Australia, South Korea and Indonesia were not represented at the signing ceremony for the bank, the Asian Infrastructure Investment Bank, in Beijing. India joined the bank, along with Malaysia, Thailand, Vietnam and the Philippines,..."

(2) From RT, October 24, 2014

China and India are backing a 21 country $100 billion Asian Infrastructure Investment Bank (AIIB) to challenge to the World Bank and Asian Development Bank.

Memorandum of understanding were signed with 21 Asian countries in Beijing Friday. Australia, Indonesia and South Korea were absent following hidden pressure from Washington.

The development bank was proposed a year ago by Chinese President Xi Jinping, and is to offer financing for infrastructure projects in underdeveloped Asian countries.

The bank will initially be capitalized with $50 billion, most of it contributed by China. The country is planning to increase authorized capital to $100 billion. With that amount the AIIB would be two-thirds the size of the $175 billion Asian Development Bank.

The Australian Financial Review said US Secretary of State John Kerry had personally asked Australian Prime Minister Tony Abbott to “steer clear” from joining AIIB.

"Australia has been under pressure from the US for some time to not become a founding member of the bank and it is understood Mr. Kerry put the case directly to the prime minister when the pair met in Jakarta on Monday following the inauguration of Indonesian President Joko Widodo," the paper said.

(3) From Reuters, October 24, 2014

The memorandum of understanding signed on Friday said authorised capital of the bank would be $100 billion and that the AIIB would be formally established by the end of 2015 with its headquarters in Beijing, state news agency Xinhua said….

The ADB, created in 1966, offers grants and below-market interest rates on loans to lower to middle-income countries. At the end of 2013, its lending amounted to $21.02 billion, including co-financing with other development partners.

China has a 6.5 percent stake in the ADB, while the United States and Japan have about 15.6 percent each.

Conceptualized in October 2013, signed in October 2014, only one year preparation and the AIIB became a reality? Wow.  And it will be formally established by end-2015, same date as the materialization  of the ASEAN Economic Community (AEC). 

For me, these signal two things:

(1) The doves in the China Communist Party (CCP) are grappling, if not winning over the hawks. Befriending Asian governments, not alienating or fighting them.

(2) Instead of RCEP, China is using AIIB in countering US initiatives at US-Asia trade integration via the Trans Pacific Partnership (TPP). AIIB can be a back-door or side-door China-other Asians trade integration.

I am not a fan of the CCP and the corruption and  dictatorship  that they practice, but I think this is a better development. More trade, commerce, loans, not more jet fighters, battle ships, submarines. Let business, trade, money and foreign diplomacy do the talking, never the jet fighters and the Generals.

Aiken think this AIIB is scary because it will deepen the politics behind loans, TAs, aids. China will be able to gather more allies through AIIB.  I don't think it is scary because it is just an extension of the politics of foreign aid All foreign aid bodies (WB, ADB, IMF, etc.) are politics driven, no exception. That is why  the WB is always headed by an American, IMF is always headed by a European, ADB is always headed by a Japanese. So this AIIB will always be headed by a Chinese. 

Foreign aid by nature is government to government, so politics is 100 percent part of the equation. Thus, the AIIB can be the big Asian-government-bribery department of Beijing. All loans will have strings of course, like using Chinese consultants, engineers, suppliers, etc. 

I think it is part of the internal debate or conflict within the CCP. The dovish say, "Let us be rich via trade, commerce and AIIB" while the hawkish say, "Let us be rich via territorial occupation, get those natural gas and petroleum deposits in offshore East Asia." Both camps are corrupt of course, but still, we will have distance from the China war mongerers, including PH war freaks here who want Filipino taxpayers to send them billions of $ for the jet fighters, battle ships, submarines that they are pushing to the PH government.

I dislike BIG government, communist or democratic. But between corruption and bribery via foreign aid (whether WB or ADB or AIIB loans) and corruption and large scale defense spending via militarization and territorial grabbing/defense, the former is preferable. Choosing a lesser evil.

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See also:
China Watch 15: FTA, ASEAN and UNCLOS, August 01, 2011
China Watch 16: Scarborough Shoal, Spratlys and Citizens Action, May 01, 2012
China Watch 17: Using Drones Over Scarborough, SCS, May 14, 2012
China Watch 18: Martin Jacques' Manila Lecture, November 20, 2012

Business 360 10: Foreign Aid as Band Aid Solution

* This is my article for the August 2013 issue of Business 360, published in Kathmandu, Nepal. The two figures below, ADB and WB lending to Nepal respectively, were not included in the published article due to space limitations.
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Official Development Assistance (ODA) or simply Foreign Aid, is a government to government transfer of resources, meant to hasten the development of a poor country. If one or both governments, the donor and recipient governments, is/are corrupt, then waste is huge. The money would only fatten the pockets and personal bank accounts of politicians, bureaucrats and consultants of recipient governments.

For many years, the singer from the Irish band U2, Bono, has been at the forefront, pressuring governments of rich countries of North America, Europe, Japan and a few others, to keep pouring foreign aid to Africa and other poor continents of the planet. Africa is often a test case because since about 1950, many governments of that continent have been receiving  an average of $10 billion a year for six decades, and poverty has remained rampant.

In 2005, Bono and another British rock star, Bob Geldoff, were among the pioneers of “Make Poverty History” movement. Since then, most economic indicators show that poverty has remained if not expanded in  many target countries. Recently though, Bono seems to have changed tune. In a speech at Georgetown University, he said, “Aid is just a stop-gap. Commerce and entrepreneurial capitalism takes more people out of poverty than aid.”

And rightly so. Being a government to government transfer of money, and since most recipient governments are corrupt and dictatorial, foreign aid is a circuitous and leaky process.  It is the “pork barrel” by politicians and governments of rich countries to buy the loyalty of corrupt leaders of poorer countries. For instance, Myanmar and North Korea governments, and slowly some African governments, cannot disobey China, because of the aid they receive. The same can be said of foreign aid by the US and European governments to many countries in Asia, Africa and South America.

There are some “outliers” among African leaders. The President of Rwanda, Paul Kagame, among the  early proponents of private investment and improved rule of law, said that “Entrepreneurship is the most sure way of development.” *

The US government’s aid policy via huge funding from the WB, USAID, the UN and others, is itself highly wasteful if not corrupt. The federal government is borrowing hundreds of billions of dollars every year  just to fill a huge revenue gap every year, and yet it is spending tens of billions of dollars yearly to other governments via those aid institutions. Many foreign governments, aid officials and bureaucrats and local consultants in other countries are feasting on this huge amount of borrowed money.

The government of Nepal is among the recipients of such aid, but not as big as what other governments received. From the Asian Development Bank, the Nepal government has received nearly $2 billion of loan. 

Source: ADB and Nepal Fact Sheet, http://www.adb.org/sites/default/files/pub/2013/NEP.pdf

And from the World Bank group, the Nepal government has received disbursement of $1.88 billion in loans plus $0.56 billion in grants. 

There are other sources of foreign aid, like loans and grants from the European Union, WHO, UNDP and other agencies of the UN. 

Sources: WB.

Aid is a band-aid solution and it should be a short-term and not forever solution. The aid institutions should have a “sunset” provision in their respective charters, meaning a section when they should close shop. But there is none as they intend to stay forever, expand forever.

A more direct people to people transfer of money and resources at the global level is through international trade, investments, tourism and people mobility. A company abroad likes certain products by a local producer, the goods are shipped and the producer gets paid, the producer pays its workers, managers and suppliers, and those who work and work efficiently are rewarded. The same applies to investments, tourism and movement of people across countries and continents.

The people in poor countries need more entrepreneurship and less bureaucracy and taxation. They need more free trade, not more aid and more public debt.

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* Source of quotes from Bono and Kagame is Values and Capitalism blog, November 2012.

See also:
Business 360 6: Peace and Prosperity in Asia, April 13, 2013 
Business 360 7: Jeju Forum for Peace, May 10, 2013 
Business 360 8: TPP, RCEP, SAARC and Free Trade, June 17, 2013 
Business 360 9: Free Trade and Economic Prosperity, July 03, 2013

Foreign Aid 13: Freedom from Borrowing, July 05, 2011

Foreign Aid 14: ADB's Electric Tricycles, April 07, 2012 

Fat-Free Econ 40: IMF Irrelevance, March 16, 2013 

Foreign Aid 15: Shrink the IMF, March 21, 2013

Fat-Free Econ 40: IMF Irrelevance

* This is my article today in interaksyon.com.
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In a forum last Wednesday at the Philippine Institute for Development Studies (PIDS), the International Monetary Fund (IMF) director for Asia and Pacific Department, Dr. Anoop Singh, revealed a little known shift in the multilateral lender's "new" role.

According to him, their main concerns now are (a)  the rising inequality in the Philippines and other Asian economies that have been growing rather fast recently, (b) unstable macroeconomic fundamentals that can restrict potential growth, and (c) raising public finance to develop human capital and public infrastructures.

Here is one of the charts Singh showed in his talk. While inequality has stabilized in sub-Saharan Africa, or declined in the Middle East and North Africa, as well as in Latin America, inequality in the Philippines and other Asian economies has increased.

Another slide he showed pertains to the difficulty of doing business in the country -- with the Philippines ranking in the 140s globally -- and the low level of public investment in infrastructure as seen from the country's low infrastructure score.

During the open forum, I asked Singh two questions. The first is: Has the IMF become irrelevant to many Asian economies? Its focus on solving inequality and inadequate public spending on education and healthcare betrays a shift away from the lender's original mandate of helping countries suffering from balance of payments (BOP) difficulties.

The IMF was organized in 1945 to “promote international monetary cooperation… facilitate the expansion and balanced growth of international trade… promote exchange stability and avoid competitive exchange depreciation… assist in the establishment of a multilateral system of payments… and in the elimination of foreign exchange restrictions which hamper the growth of world trade… give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards… (and) shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.” This is contained in the Articles of Agreement of the IMF, Article I.

There is hardly any BOP difficulty in Asia these days , making the region the envy of the US and the EU. In fact, in the wake of the Asian financial crisis of 1997-1998, the Asean and its three biggest neighbors -- China, Japan and Korea -- organized the Chiang Mai Initiative,  which pooled money that any signatory to the agreement can draw from in case of BOP problems.

In the case of the Philippines, it no longer owes the IMF, having graduated from the lender's fiscal and macroeconomic tutelage a few years back. On the contrary, the Philippines lent $1 billion last year to the IMF to help the EU address its fiscal difficulties.

So if the problem is back in the US and the EU -- the so-called developed regions that organized the IMF and two other institutions at Bretton Woods after the Great Depression -- the million-dollar question is why the IMF persists in sending "experts" to countries like the Philippines to pontificate about issues we already know about and the solutions to which have been discussed ad naseum?

In the same vein, is it wise for the Philippines to lend money to the IMF so it could maintain a representative in the country? Why pay so much for a bureacrat, especially when talking can be done more efficiently, if not effectively, over the Internet?

In his reply to my query, Singh said addressing social inequality can help economies sustain their growth through a more productive labor force. Sounds like someone from the World Bank or the Asian Development Bank (ADB), right?

This betrays more than just irrelevance on the part of the IMF in so far as countries like the Philippines are concerned. If you check the IMF website, then you'd discover that the lender has adopted the same line as that of the World Bank and ADB: "To foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

Now this raises the issue of redundancy, which was the second question I raised during last Wednesday's forum. The IMF's fellow Bretton Woods institution, theWorld Bank was organized precisely for that: “Our work is challenging, but our mission is simple: Help reduce poverty.”

As for the ADB: “The ADB aims for an Asia and Pacific free from poverty… alleviate poverty and help create a world in which everyone can share in the benefits of sustained and inclusive growth.”

Perhaps it's time to dismantle the IMF? Enough said.

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See also:
Foreign Aid 2: Circuitous and Leaky Process, November 03, 2005
Foreign Aid 6: IMF is Engineerable and Abolishable, September 05, 2006
Foreign Aid 8: Abolish the IMF, August 08, 2007
IMF socialism, January 04, 2009
IMF dinosaur, let it fade away, June 16, 2009

Fiscal Irresponsibility 26: On the $1 B Philippine Loan to the IMF, June 27, 2012
Fat-Free Econ 15: IMF and Freedom From Debt, July 01, 2012

Fat-Free Econ 38: Jobless Growth vs. Jobless Non-Growth, February 12, 2012

Fat Free Econ 39: P57,000 Public Debt Per Filipino, February 25, 2013

China Watch 18: Martin Jacques' Manila Lecture

Yesterday afternoon, I attended a lecture by Martin Jacques at Intercontinental Hotel, Makati. The event was jointly sponsored by the Pilipinas 2020 and the Center for Philippine Futuristics Studies. I had the chance to have a photo with Martin during the break. His book is available at National Bookstore.

Nice, long lecture, though I did not stay for the reactors' time and open forum. Food was great and a plenty.

Even before going to the lecture, I do not believe that China or any country or government or even the UN can rule the world. The world is too huge and people are too many and diverse to be ruled and regulated, monotonized by any country or government. China can be the #1 economic power in the world in 2030 or 2020 at the earliest, but it does not mean that it can economically rule the world.
But I like Martin's presentation, also his argument that unlike previous colonial powers Europe, and expansionist US, China is inward looking, never conquered any country (except Tibet?) as it believed that the Middle Kingdom is a superior land, huge and powerful by itself.

Martin showed certain sectors in comparing China and the US economically, not just the macro picture like GDP size. For instance, China has overtook the US in steel consumption (since 1999), number of mobile phones (since 2001), exports (2007), fixed investments, manufacturing output, energy consumption, number of car sales, patents granted to citizens (since 2009).

The ballroom was full. I thanked Jose Bayani "JB" Baylon, convenor of Pilipinas 2020, for inviting me to the event. JB was my classmate in one subject in Political Science in my undergrad years in UP Diliman in the 80s. He was the program MC. The Welcome Remarks was given by Sen. Alan Peter Cayetano, a member of Pilipinas 2020. Reactors were Mr. Chito Sta. Romana and Dr. Clarita Carlos. These photos I got from JB's facebook timeline. 

Martin also said that in terms of foreign aid and lending to the developing world, China Development Bank + China Export and Import Bank gave loans in 2009-2010 at $110B, vs. the WB's lending of $100.3 B over the same period. But more than foreign aid, it is economic interdependence, trade and investment, among countries and blocs of countries (like the ASEAN) that greatly characterizes today's world economy. 

Personally, I believe that the western economy is slowly imploding due to their high public debt and very costly welfare system. The developing world led by China, India, Brazil will dominate the world economy in a decade or two, thanks to their huge population. More people, more entrepreneurs, more workers, more consumers.

Martin does not believe that China is a military superpower now, and won't be in the coming years. The US will remain the #1 military superpower in the coming years. He did not discuss much the military aspect, more on the economy and China history.

He also said that China's GDP size may soon be larger than that of the US, but per capita income, it is small, just one-fifth that of the US. 

One thing I like in Martin's lecture is that it was rather heavy on economics and history, low on military conflict. He does not believe that China will go to war with the Philippines over those small islands in the Western side of PH. Rightly so. I really doubt that the China communist government will court displeasing any or all the ASEAN member countries -- now probably 500million people and consumers, bigger than the US, bigger than EU, and next only to India. The probability of a China-ASEAN free trade area (FTA) I think, is probably 20x higher than the probability of a China-some ASEAN military confrontation over those few islands.

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See also:
China Watch 12: The Spratlys and SCS Conflict, June 08, 2011
China Watch 13: More on the Spratlys/SCS Conflict, June 25, 2011
China Watch 14: More on the SCS/WPS Noise, July 11, 2011
China Watch 15: FTA, ASEAN and UNCLOS, August 01, 2011
China Watch 16: Scarborough Shoal, Spratlys and Citizens Action, May 01, 2012
China Watch 17: Using Drones Over Scarborough, SCS, May 14, 2012

Fat-Free Econ 6: Foreign Aid and Tricycles

Note: this is my article yesterday in TV5's news portal,
http://www.interaksyon.com/article/29289/fat-free-economics-foreign-aid-public-debt-and-tricycles)

There is a new loan from the Asian Development Bank (ADB) for the Philippine government worth $300 million to manufacture and distribute some 100,000 electric tricycles (e-trikes) nationwide.

My beef about these 100,000 new tricycles is one, what we need in this country is more high passenger volume vehicles like buses and trains, not more tricycles. Small-population economies like Singapore, Hong Kong and Taiwan do not even have tricycles or jeepneys, how much more an economy with a population approaching 100 million in about two years.

But the local government units (LGUs) ensured the perpetual existence of tricycles by granting them route monopolies. Route A from the municipal proper to Barangay A is to be monopolized by tricycle operators and drivers association (TODA) A. Jeepneys, air-con vans or mini-buses are banned and prohibited from putting up any competition to the tricycle monopoly A. The same goes for TODA B, TODA C, etc. for route monopoly B, route monopoly C and so on.

If LGUs do not create route monopolies for tricycles, then competing public transportation like air-con vans in urban centers, and jeepneys in rural areas can easily fill the transport gap that is monopolized by tricycles. Tricycles would follow a natural death if ordinary folks and commuters are simply given more choices, more options in public transport, not more monopolies.

A second issue is the additional public debt that we would incur from creating these monopolies. Interest payments alone constitute around 20 percent of the annual budget of the national government, principal amortization excluded.

A third concern is if e-trikes are really cute, really financially viable, why not leave it to the market and see if operators will take on the business even without a taxpayers' subsidy. We taxpayers will pay for those 100,000 new tricycles through NEDA-DOE-DOF and LGUs. And the beneficiaries are most likely the political supporters of mayors and governors in the recipient LGUs, as well as supporters of the current administration. If these e-trikes will get zero taxpayers subsidy, then thank you. Unfortunately, I have not seen any document saying that this is the case considering that there is heavy government involvement in the planning and implementation of this project.

A fourth issue is the electricity bill of those e-trikes, which will be borne again by taxpayers through LGU recharging stations. If operators or their drivers will recharge at home, then thank you. If it's us taxpayers, no thank you.

A fifth issue is maintenance and replacement of old and depreciated lithium batteries. Will this be charged to taxpayers, or to private operators with zero tax subsidy?

A sixth issue is the endless rent-seeking and energy/transportation rackets all in the service of "saving the planet." I have three questions for the defenders and propagators of this campaign:

One, where are those scientific data showing that natural factors -- the sun, galactic cosmic rays, water vapor, clouds, volcanoes, other natural greenhouse gases (GHGs) -- are ruled out, are categorically denied, as drivers and contributors to the earth's climate change?

Two, is there no such thing as global cooling, only global warming? No natural climate cycles of warming-to-cooling and back, only "unprecedented, unequivocal man-made warming?"

Three, was there no medieval warm period (MWP) of nearly 600 years of warmer temperatures than the past century's warming? Was there no little ice age that followed after the MWP and preceded the past century's warming?

Any bright idea - if it is indeed a bright one - will survive and prosper if it is financed through voluntary exchange in the market, not through tax subsidies. The system of reward and punishment, of expansion and bankruptcy, is the best regulator and disciplinary tool among market players.

If things are provided at heavy subsidies, there is little incentive to make them sustainable. Instead, people would become complacent, and the original project will be slowly abandoned.

From e-trikes to e-jeepneys and e-buses, only political rent-seekers and their political supporters stand to gain. It is a dubious yet vicious cycle with no end in sight.
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Meanwhile, here is the ADB's youtube propaganda of those e-trikes,
http://www.youtube.com/watch?v=n1mVrZJZCOQ

And here are some details on this project at the ADB website,

http://pid.adb.org/pid/LoanView.htm?projNo=43207&seqNo=02&typeCd=3

Loan Name	Market Transformation Through Introduction of Energy Efficient Electric Tricyles
Country	Philippines
Project Number	43207- 02
Source of Funding/Amount[Proposed]	Clean Technology Fund-IBRD US$1.00  million Ordinary Capital Resources US$300.00  million

The interest rate and other terms for this new fiscal irresponsibility project is not included in the above project data sheet.
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See also:
Foreign Aid 12: WB Corruption of Civil Society, March 23, 2011

Foreign Aid 13: Freedom from Borrowing, July 05, 2011 

Foreign Aid 14: ADB's Electric Tricycles, April 07, 2012

Fat-Free Econ 3: Mining and Environmentalism, March 15, 2012
Fat-Free Econ 4: Unemployment, Good and Bad News, March 22, 2012
Fat-Free Econ 5: Property Rights and Policy Lefts, April 04, 2012