A Point-by-Point Critique of CBCP’s Pastoral Statement on Mining

1. Are the bishops against foreign investments? Have the bishops conducted any analysis for them to conclude that the “social impact far outweigh the gains” in mining? The truth is that there have been no such studies comparing the benefits and the costs of mining. Will mining destroy the environment? Certainly, many do. But will it lead to “national unrest”? This is a sweeping statement. “Political unrests” are caused by a combination of many complex factors including political, economic, and sociological. Mining alone could not precipitate a political crisis, more so because more than 600,000 people are dependent on for their livelihood. Clearly, the bishops are very imaginative.

2. “Mining destroys life.” Again, that’s sweeping and simplistic. But surely, mining also supported life by providing livelihood to more than half a million people. Remove these jobs and the people in the countryside will slash and burn whatever is left of the forest for firewood and charcoal so they could earn a living. That situation will even destroy life as we know it. Certainly there are two sides to the issue of mining and the bishops only see one. There is more to conserving the environment than closing all the mines and depriving people their livelihood—nay their very lives!

3. Is there such a thing as “sustainable” mining? That’s bullshit. But miners could really be responsible if they want to and they are not doing that right now. Is mining equals human rights violations? That’s another simplistic statement. With or without mining, there could be human rights violations, so mining is not the issue there. Mining activities, of course, are usually situated in conflict areas such that civilians are sometimes caught in the crossfire between both government troops and communist rebels. And I do believe that both parties sometimes commit human rights violations against ordinary citizens. Is mining equals “economic deprivation”? That’s another oversimplication. In fact, mining could generate economic activities. Poverty in the regions such as Caraga and Cordillera is a function of many variables (e.g., geographic isolation, lack of infrastructure, etcetera) and not because someone opened up a mine somewhere. Come on, bishops. Think!

4. Are the bishops only after large-scale mining? If mining per se destroys life, why not ban all forms of mining including quarrying? Do the bishops really believe that small-scale miners are harmless to the environment? In fact, they can be as pernicious or even worse—just look at Mt Diwalwal. Do mining companies encroach in conservation areas, then that’ a real issue. So why don’t the bishops file a suit against those violators? I find this part of the statement hypocritical. Remember Marinduque? Right now those bastards from Marcopper and Placer Dome has not made any significant action to clean up the mess they have created in that province. But on the other hand, did the Bishops really spend enough resources to help the communities in their legal fights against Marcopper?

5. The claim that mining “destroys the fabric of the cultural life” of indigenous peoples is another oversimplication. Culture change in response to so many social factors, not because someone has a mine. But this statement actually betrays some ideological view about culture. Does the bishop really believe that IPs should be isolated from the rest of the world? The world is getting connected, thanks to breakthroughs in information technology. Do the bishops sincerely believe that what’s good for the IPs are continued isolation? Honestly, I have yet to see an IP people issuing statements to the effect that they want to remain in the state of pristine disconnectedness. And if isolation from the rest of the world is better, why is it that the bishops don’t want to advocate for the state of disconnectedness and isolation for the rest of their parishioners?

5. What nationalist provisions in the constitutions are talking about? Are they talking about limits on foreign equity in domestic companies? Probably, yes. Then my advice to the bishops is this: Do you know that the most “nationalistic” country on earth is China? And look at them, they are growing and progressing very fast because of the massive entry of foreign direct investments! Wake up, bishops! The world is no longer what it used to be. The truth is that local limits on foreign participation, since World War II, has been used by local economic elites to perpetuate their dominance of the local economy, thus weakening it, making it incapable of generating economic activities that are necessary to address poverty. Our “nationalists” are insensitive to this reality because of their ideological blinders.

6. The bishops are a very influential sector of society. If President Gloria Arroyo close all mines today, will the bishops provide jobs for those will be economically displaced? If the specific companies like Marcopper or Lafayette messed up and created environmental problems in their specific localities, by all means let’s make them accountable for their actions. Or close them, why not? But why close the entire industry? Why burn the whole house just to kill a rat? That would be funny because we are going to be the only country that bans an industry. We are going to be the only country that will not have “mining and quarrying” in its national income account!

Bishops' want to close all mines!

In my previous post, I called upon the economists and environmental scientiststs to conduct a cost-benefit analysis of the mining industry to settle the raging policy debate between the bishops and the mining industry. I'm reproducing the main points of the bishops' statement below for you out there to read the fine print. I'll do my own point-by-point analysis next time.

The Bishops’ Pastoral Statement of Mining (January 29, 2005)

1. In 1998, we in the CBCP issued A Statement of Concern on the Mining Act of 1995. We declared that the government mining policy is offering our lands to foreigners with liberal conditions while our people continue to grow in poverty. We stated that the adverse social impact on the affected communities far outweigh the gains promised by mining Trans-National corporations (TNCs). In our statement we also forewarned that the implementation of the Mining Act will certainly destroy environment and people and will lead to national unrest.

2. We reaffirm our stand for the repeal of the Mining Act of 1995. We believe that the Mining Act destroys life. The right to life of people is inseparable from their right to sources of food and livelihood. Allowing the interests of big mining corporations to prevail over people’s right to these sources amounts to violating their right to life. Furthermore, mining threatens people’s health and environmental safety through the wanton dumping of waste and tailings in rivers and seas.

4. Our experiences of environmental tragedies and incidents with the mining transnational corporations belie all assurances of sustainable and responsible mining that the Arroyo administration is claiming. Increasing number of mining affected communities, Christians and non-Christians alike, are subjected to human rights violations and economic deprivations. We see no relief in sight.

5. President Arroyo’s “Mining Revitalization Program” is encouraging further the entry and operation of large-scale mining of TNCs. Alarmingly, the mining tenements granted through the program have encroached into seventeen (17) of important biodiversity areas, into thirty-five (35) of national conservation priority areas, and thirty-two (32) of national integrated protected areas. The promised economic benefits of mining by these transnational corporations are outweighed by the dislocation of communities especially among our indigenous brothers and sisters, the risks to health and livelihood and massive environmental damage. Mining areas remain among the poorest areas in the country such as the mining communities in CARAGA, Bicol and Cordillera Regions. The cultural fabric of indigenous peoples is also being destroyed by the entry of mining corporations.

6. Moreover, we are apprehensive that the proposed deletion of the nationalist provisions in the Constitution by the Constitutional Commission (CONCOM) can pave the way to the wholesale plunder of our National Patrimony, and undermine our Sovereignty.

• To support, unify and strengthen the struggle of the local Churches and their constituency against all mining projects, and raise the anti-mining campaign at the national level;
• To support the call of various sectors, especially the Indigenous Peoples, to stop the 24 Priority Mining Projects of the government, and the closure of large-scale mining projects, for example, the Rapu-rapu Polymetallic Project in Albay, HPP Project in Palauan, Didippio Gold-Copper Project in Albay, HPP Project in Palawan, Didippio Gold-Copper Project in Nueva Vizcaya, Tampakan Copper-gold Project in South Cotabato, Canatuan Gold Project in Zamboanga del Norte, and the San Antonio Copper Project in Marinduque, among others.

For the Bishops

+ANGEL N. LAGDAMEO, D.D.
Archbishop of Jaro

Let's put science in the debate on mining

WILL those hotshot economists and environmental scientists from the country's top schools please conduct a credible cost-benefit analysis of the mining industry in the Philippines?

This could be the only way we could infuse some reason into the debates between Catholic bishops calling for the closure of all big mining operations in the country; and those who derive their living by digging minerals from the bowels of the earth. Hopefully, we may yet settle the issue pestering this country since January 29 when the bishops issued their pastoral statement.

In that statement, the Catholic Bishops Conference of the Philippines said, "Mining destroys life" and called for the repeal of the Mining Act of 1995. That law, which allows greater foreign direct investments in the mining industry, had been upheld with finality by the Supreme Court in December 2004.

The CBCP's statement had also sought the closure of all large-scale mining projects in the Philippines , particularly the Rapu-rapu Project in Albay, HPP Project in Palawan, Didippio Gold-Copper Project in Nueva Vizcaya, Tampakan Gold Copper Project in South Cotabato , Canatuan Gold Project in Zamboanga del Norte and the San Antonio Copper Project in Marinduque.

What's the bishops' beef with the mining industry? One, they are wary of foreign investors putting in money into the industry. Second, the promised benefits are "outweighed" by the "dislocation" of communities especially among indigenous peoples, the risks to people's health and livelihood, and the environmental disruption. And third, the "cultural fabric" of indigenous peoples is "destroyed" by the entry of mining companies. Ergo, the government should repeal the Mining Act and close all large-scale mining companies.

Understandably, the response to the CBCP's statement was equally strong-and simplistic. Some are calling the bishops "antijobs." Some industry leaders ridiculed them for using a bully pulpit from their "palatial homes" while the people eke out a living.

"We should put ourselves where we can do better. If you are good at saving souls, we will just take care of our stomachs. Only then can we be a progressive country," said another.

These statements are equally unfair. The truth is that bishops have real issues against certain mining companies in the country. Remember the Marinduque mining disaster? It's clear Marcopper has yet to fully compensate the victims and rehabilitate Marinduque's river systems affected by a massive tailings spill. And the foreign investors, the Canada-based Placer Dome, simply ran back to where it came from when the heat from local media and environmental groups became too much to bear without doing anything substantial to clean up the mess in the Philippines . Talk about "responsible mining!"

Nevertheless, it is also apparent that the bishops went overboard in calling for the repeal of the 1995 law and the closure of all large-scale mining companies-without presenting a clear, comprehensive, not to mention scientifically well-grounded basis for making such a call. One wonders if the bishops really considered the impact on the local and national economy, and had the benefit of expert advice on how this weighed against the negatives.

Most of the new mining operations now are still in exploration and development, but currently the industry has a production value of P28 billion, contributes at least P10 billion in terms of gross value added, exports more than $500 million worth of mineral products, gives away P5 billion in wages and benefits to workers, and more than P2 billion worth of taxes to the government. So these data alone are worth reviewing, regardless of those incredible presentations of Romulo Neri in his first stint as Neda chief.

There are also computations that for each job created by mining, four to 10 jobs are created in upstream and downstream activities. Banning mining also means barring extraction of metallic and nonmetallic minerals used as inputs in other industries like manufacturing, cement and construction. Should we just import those construction materials including sand and gravel?

We suspect that the statement did not really go through intelligent discussions among the bishops. We know they are smart people, and we don't buy the simplistic argument that "they should stick to saving souls." Some of them even have PhDs in the hard sciences. And in the time of John Paul II, the Vatican convened its own expert panel of scientists and experts among the churchmen to craft a reasoned position on the "hot" issues of biotechnology and GMOs.

But the antimining statement betrays a lack of logic. If indeed, mining "destroys life," why doesn't it call for a total ban on all mining, including small-scale ones? Right now at least 2,500 small-scale mining and quarries dot the country, including the famous Diwalwal mines in Davao. Are the bishops saying we should close the large ones and let millions of "small-scale miners" with their crude machines and mercury-based technologies take over? Do we honestly wish to multiply the chaos and environmental havoc of Diwalwal several thousand times?

Trade Secretary Peter Favila has rightly called on the CBCP and the Chamber of Mines of the Philippines to a dialogue. Dialogue is nice but talk is cheap. Since the Supreme Court upheld the constitutionality of the Mining Act of 1995, some militant clergymen have been doing the dialogue of the deaf with the Chamber of Mines-some of whom suffer, in turn, from diarrhea of the mouth, promising safeguards that aren't there.

The only way to solve this impasse is to conduct a genuine cost-benefit analysis by employing the services of credible, competent environmental scientists and economists in the country. And if indeed the social and environmental costs of mining far outweigh its economic benefits using the best information available, by all means let's close all the mines including the small ones. Maybe it's better to die clean than live dirty. But if the results say otherwise, let's allow the miners to do their business using the best environmentally sound techniques. And watch them.

Incompetence without borders: The Case of Camp John Hay

IT'S so convenient to blame "political noise" and the Supreme Court's "interventionist role" for the Philippines ' inability to project a good image to investors abroad. But the case of Camp John Hay, Cagayan Special Economic Zone and Poro Point being stripped of their powers to grant fiscal incentives to investors point to the truth that the real problem really lies in government bureaucracy.

It's apparent that government planners simply did not do their homework before making deals with investors whose operations here are facing uncertainty over the government's failure to provide them a stable and consistent investment environment. This mess, which certainly is now hurting what is left of our credibility abroad as an investment destination, could have been avoided if only government planners and bureaucrats simply put their lawyers to work and examined the intricacies of the law regarding fiscal incentives.

Now the government is scrambling to do everything just to appease the investors who came in with their money in good faith, believing that the Philippine government had it all figured out smoothly so they can proceed doing business here.

Congress is currently rushing a bill that will supposedly provide those incentives denied by the Court for its illegality. When could they pass it, we don't know. Meantime, Trade Secretary Peter Favila is looking at the possibility of considering those special economic zones as custom-bonded warehouses and having them registered under the Board of Investments so the locators would continue getting the fiscal perks promised them by the government when they signed in several years ago.

Sources say the Philippine Economic Zone Authority (Peza) is also exploring several options to extend the perks that the locator companies lost because of the Supreme Court decision. The government now is practically panicking just to mitigate the damage that those lazy-or incompetent-bureaucrats have inflicted on the country.

As the government moves heaven and earth to sort out the legal conundrum that's troubling those disfranchised special economic zones, it might as well examine closely the scope of Peza's powers under the Special Economic Zone Act of 1995. In the last five years, the Philippines has been attracting a lot of investments from business process outsourcing (BPO), including call centers, medical transcription, animation, engineering design, legal transcription and software development. It has been a fast-growing industry generating thousands of jobs for young graduates.

Besides the Philippines ' skilled labor, among the major attractions for these BPO investors are the fiscal perks that locators could get once they site their operations in a Peza-accredited "information technology building" in Metro Manila and other major cities in Luzon and the Visayas.

Make no mistake about it. We support the growth of the outsourcing industry for the simple reason that the industry provides jobs and hope to many workers. Thus, it pains us to point out that Peza might be treading on tenuous legal grounds when it started giving Peza accreditation to "IT buildings." It seems that when Congress enacted the Special Economic Zones Act of 1995, its members were not talking about "IT buildings" for call centers but economic zones for investors engaged in industrial activities, commercial, banking and financial services. And the underlying principle behind the Ecozone Act is spreading economic activities outside Metro Manila, contrary to the current trend of these IT buildings being located in Metro Manila.

Consider the law's definition of special ecozones in Chapter 1, Section 4, Article a: "Special economic zones (SEZ)"-Hereinafter referred to as the ECOZONES, are selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial tourist/recreational, commercial, banking, investment and financial centers. An ECOZONE may contain any or all of the following: industrial estates (IEs), export-processing zones (EPZs), free-trade zones, and tourist/recreational centers."

One can't see from the above-cited definition the IT buildings or call centers, or medical transcription or any other activities that define outsourcing-and this is what worries us.

Peza seems to anchor its powers to provide incentives for locators in IT buildings on its vague reference to "commercial, investment and financial centers" but it may have stretched the provisions too thinly. Are "IT buildings" synonymous with investments or "financial centers"? Is that the spirit and intent of the law? Has Peza clarified these matters thoroughly? Not to nitpick, but we don't want to see the day, yet again, when the government will be surprised by some legal geniuses who might start questioning these issues at the Supreme Court. And subsequently visit on the BPO investors the same horrors now facing the locators at Cagayan, John Hay and Poro Point.

Since 1995, Peza has been one of our most successful government projects. Private and public special economic zones under Peza now account for more than $31 billion worth of exports, equivalent to 80 percent of the country's manufactured and service exports. Cumulative investments in these special ecozones (including call centers and other outsourcing companies) have reached P888.5 billion, or 35 times bigger than when it started in 1995. Total employment has reached more than a million workers and still counting.

Last year, when everybody was having that sinking feeling because of the Hello Garci controversy, the discovery of the fertilizer scam, the Venable contract and other government shenanigans, only Peza gave us a little high with a 33-percent rise in investments, a 6.3-percent growth in exports, and a 9-percent increase in employment. It would be tragic if we suddenly lose all these economic gains simply because some lousy bureaucrats out there made legal shortcuts that are bound to be nullified by the Supreme Court whose main business is to define the constitutionality of our laws, rules and policies.

Thomas Barnett: Is there such a thing as a lovable imperialist?

Book Review
Thomas Barnett, Blueprint for Action: A Future Worth Creating. New York: G.P. Putnam’s Sons, 2005.

Rudyard Kipling called it “white man’s burden.” For President Woodrow Wilson (1913-1921), it’s “manifest destiny.” In the post-911 world, political scientist Thomas Barnett, author of “Blueprint for Action: A Future Worth Creating,” calls it “shrinking the gap,” a program of global intervention that would entail America to forge unusual strategic alliances, speed up the pace of globalization, and isolate and defeat the terrorists.

If there’s such a word as lovable imperialist though, Barnett is that guy. His analysis transcends the stiff ideological boundaries that separate the liberals from conservatives as well as the idealists from the practitioners of realpolitik. He likes an aggressive global constable’s role for America but he also embraces ideas that are considered “progressive” by the standards of the Left (e.g. empowerment of women, debt relief for poor, countries, removal of export and production subsides, easier rules on migration of labor from poor to rich countries) and rejects US President George Bush’s unilateral approach to international relations.

The world according to Barnett is composed of the “integrating core” comprising largely of the highly developed capitalist countries, essentially the OECD whose advancement were brought about by greater integration and interdependence in the global capitalist system. The next group is called the “new core,” countries that we usually call newly industrialized countries including Korea as well as the fast growing economies of China, India, and Brazil. The rest are those counties that he calls the “non-integrating gap,” countries whose economic and political linkages with the global capitalist system are weak, with many of them practically untouched by the progressive forces of globalization. The Philippines and much of Southeast Asia belongs to the Gap. Supposedly, it’s in these “gap countries” where the troubles are brewing; their economic isolation, uneven development, and ineffective government make them conducive to the rise of radical elements that sow terror worldwide. You shrink the Gap, you unlock its potential for self-development and address the threat of terrorism and political chaos in these parts of the world.

In economic terms, shrinking the gap means greater “connectivity” which he defines as the “changes brought about by the information revolution, including the emerging financial, technological, and logistical architecture of the global economy.” Obviously, shrinking the gap implies a vibrant global trading system, strong global institutions like the World Trade Organization, and the adoption of popular measures like the abolition of export and production subsidies that constrain exports from developing or Gap countries to the Core. It also means facilitating the flow of people, energy, money and security from surplus area to regions deficit, i.e. the people from Gap to Core, energy from Gap to Core, money from Old Core to the New Core as well as the Gap, and security from Core to Gap. Like Thomas Friedman, author of the Lexus and the Olive Tree and The Earth is Flat, Barnett assumes that globalization and connectivity are all forces of good that need to spread globally to bring progress to all the corners of the globe.

By shrinking the gap, by opening these societies to the forces of globalization and change, Barnett argues that these countries will transform for the better as they are forced to adopt the best practices and the “rule sets” that underwrites the behavior of the more successful group of nations. Supposedly, shrinking the gap would also mean creating economic and social opportunities for the young population in the Gap states, thus preventing them from getting under the spell of “Salafi jihadists” who are preaching disconnectedness and isolation.

Discussions on economic issues, however, are only a small part of the book. Most of it is about how America should form strange alliances worldwide to strengthen the core politically and militarily and isolate the forces of disconnectedness.

Could you imagine the United States forging a strategic alliance with Iran? That question may startle you but yes, Barnett thinks it’s the best way to go to bring connectivity to the Middle East and eventually bring peace to the region. The quid pro quo will be for America to give Iran her nuke and trade linkages with the rest of the world in return for Iran to recognize the existence of Israel and allow a two-state policy in Palestine. Barnett firmly believes that Iran is simply interested in having the bomb and not using it. It’s a way to compensate for Middle East’s historical insecurity and sense of inadequacy borne of the fact that the Muslim world has always beaten badly in its previous military confrontations with Israel.

The current generation grew with the idea that America will come to the aid of Taiwan once Mainland China invades Taiwan that it views as a “renegade province.” Barnett thinks that shedding American blood to defend Taiwan is not worth it. He thinks that Taiwan will eventually have to reunite with China and it would be better for Taiwan not to provoke China into doing any drastic action across Taiwan Strait. The idea of defending Taiwan against Mainland China, Barnett thinks, is a relic of the cold war. Instead, he thinks it would be better for America to look at China both as a military and economic partner and lock the country into an Asian-wide military alliance a la NATO. From a strategic perspective, bringing China into the alliance is a way of enlarging and strengthening the Core.

Barnett thinks the spread of connectivity worldwide is a threat to terrorists who envision an isolated, utopian dominion free of Western influences. That’s why he proposes to transform the Core’s military forces to be composed of the Leviathan, the high-tech lean and mean strike force for surgical operations against terrorist and the larger SysAdmin (Systems Administrators) forces that are equipped with the cash, skills, and equipment to perform effective post-conflict stabilization, nation-building as well as for other functions like humanitarian missions and disaster response. If Barnett would have his way, he will take down Kim Jong Il of North Korea, not so much for the weapons of mass destruction, but for being a ruthless bastard who starved and killed millions of North Koreans. In fact, Barnett has developed a “template” for dealing with despots that are a pain in the neck of the Core and New Core and the global economy. Of course, one might question why American should have this blueprint for intervention given the seemingly unwinnable US war in Iraq. The answer he said is that doing nothing is ultimately costlier and he had numbers to prove his point.

Many readers would certainly find a lot of Barnett’s assumptions discomforting. His first person accounts of his hobnobbing with policymakers in Washington and the big shots in the American defense establishment sometimes seem to border on ego tripping. Nevertheless, his firm belief in the decipherability of the past and his optimism about the promises of the future worth creating are contagious. This is probably because he has an extensive grasp of the raging global economic, political, and strategic issues affecting the international community. Barnett’s is not afraid to put forward ideas that are controversial, a badge of intellectual courage that could not be found in many of today’s thinkers who pretend to offer guideposts in navigating today’s chaotic Post-911 world.

The Wowowee Stampede: Whose fault was it?

I thought last Saturday that I would have a nice weekend until a Louise, a friend, texted me about the stampede at the Ultra Stadium that killed 74 people and injured hundreds of others. The news really shocked me. It's fault-finding time so please allow me to use my own shameless and self-righteous finger.

1. The primary blame rests on ABS-CBN. They promised huge cash rewards to attract people to their anniversary show. People, nay a mob, came in droves as early as four days earlier and camped outside the venue. It was simply an accident waiting to happen.

2. The local government unit. Thousands of people were massing a few days before yet the local government officials did not do anything to "manage the situation." They could have provided temporary shelter or they could simply told them to leave and go back on the day of the show (February 4, Saturday).

3. The people who went there themselves. Let's not free them from the blame. Let's assume that they are "rational" people who were responding to an incentive, i.e. the possible cash rewards from the show, from ABS. They must have weighed the costs/risks and benefits and decided that benefits outweighed the risks. They were wrong. Well, "rational" people got it wrong sometimes. Or most of the time.

4. The government. No, its not Gloria alone but all administrations from Cory Aquino to the present for not adopting policies that could have ushered economic growth. Economic desperation must be one of the reasons why people went there hoping they could get some cash to pay for some needs. You see, economic growth is the best way to lift people out of poverty and misery. Just look at China. In just one generation, economig growth (brought about by political stability and an economic environment conducive to private investments) has lifted about 400 million Chinese out of poverty.

3. The country's ruling economic and political elite. Who pays the right amount of tax in this country? Not our tycoons. Not our industrialists. Not the rich guys who raked in billions from the service sector (banking, telecommunications, shipping, wholesale and retail, etc). These guys enjoy fiscal incentives from the government (e.g., income tax holiday, duty-free importation of machines, low real estate tax, among many others). The ones who pay the right amoung of taxes are those who are forced to through salary deductions. If only most of us pay the right tax, this country could have developed at par with most the mores successful countries in the Asia-Pacific Region.

I just love Friday!

I just love Friday. It’s the time when you look forward to reading a good book, browse some new titles at Powerbooks, or just watch a movie. Of course, the usual chores beckons—housework, cooking, and laundry—but these are minor inconveniences one has to deal with in exchange for a break from the drudgeries of the salt mine, I mean the office. I just finished Thomas Barnett’s “Blueprint for Action: A Future Worth Creating” (volume II of his earlier work entitled Pentagon's New Map) and I’ll probably look for a new title to read. I haven’t read his first one, Pentagon’s New Map, so I guess that will be the next? That’s one possibility. Of course, Benjamin Friedman’s The Moral Consequences of Economic Growth is another strong candidate but this one is expensive (P1700 plus). So I’ll may just have to settle for Pentagon’s New Map (Volume 1; P700 plus at Powerbooks) while saving some money for Professor Friedman’s magnum opus. Barnett’s Blueprint for Action is wonderful book, a good reference for those who are trying to figure out how to deal and live with the post-911 world. I’ll soon publish my review, maybe next week? Meantime, let me great ‘Happy weekend’ to all of you! (You may also visit Photographs and Memories for some of my very personal reflections)

Is the economy heading for a first quarter slowdown?

IS the economy heading for a slowdown in the first quarter of 2006 after registering a fourth-quarter 6.1-percent gross domestic product (GDP) growth surge?

That seems to be what the National Statistical Coordination Board is saying in its latest report on the composite leading economic indicators (LEI), an early warning of sorts designed by the government to figure out the short-term trajectory of the Philippine economy.

"After posting consecutive increases during the last two quarters, the composite leading economic indicator (LEI) decreased to 0.018 in the first quarter of 2006 from 0.115 in the fourth quarter of 2005," NSCB said in a press statement. "The LEI had earlier suffered consecutive declines beginning with the third quarter of 2004 up to the second quarter 2005."

The National Economic and Development Authority (Neda) and the NSCB jointly developed the composite LEI to enable the government to forecast the short-term macroecnomic activity in the economy using 11 economic indicators -consumer price index, electric energy consumption, exchange rate, hotel occupancy rate, money supply, number of new business corporations, stock price index, terms of trade index, total imports, tourist arrivals and wholesale price index.

The NSCB said that of the 11 indicators that make up the composite LEI, six contributed positively to the LEI for the first quarter of 2006. These are stock price index, electric energy consumption, exchange rate, hotel occupancy, imports and terms of trade. The negative contributors were money supply, wholesale price index, consumer price index, tourist arrivals and new businesses.

The LEI—the NSCB said—involves the study of the behavior of indicators that consistently move upward or downward before the actual expansion or contraction of overall economic activity.

"The system is based on an empirical observation that the cycles of many economic data series are related to the cycles of total business activity, i.e., they expand in general when business is growing and contract when business is shrinking," said the NSCB report. "The LEI was institutionalized to provide advance information on the direction of the country's economic activity/performance in the short run."

On January 30 Dennis Arroyo, the head of Neda's policy and planning division, said that higher crude prices and the increase in the rate of the value-added tax from 10 percent to 12 percent may raise inflation rates, curb domestic demand, and push down economic growth. He stressed, however, that the recovery of the farm sector; greater activities in the mining, manufacturing, and services sectors; and the continuing rise in remittances from Filipino overseas workers may "counteract" those negative factors. (Please visit Photographs and Memories for my more personal take on the world).

A pedestrian’s Analysis US President George Bush’s State of the Union Address

PRESIDENT BUSH: “We remain on the offensive against terror networks. We have killed or captured many of their leaders - and for the others, their day will come.”

ANALYSIS: It means there would be more joint US-RP military exercises and similar activities. Good or bad? It depends on how you view RP-US relations.

“Our offensive against terror involves more than military action. Ultimately, the only way to defeat the terrorists is to defeat their dark vision of hatred and fear by offering the hopeful alternative of political freedom and peaceful change.”

That would probably mean greater efforts at public diplomacy to enhance US’s “soft power.”

“We will build the prosperity of our country by strengthening our economic leadership in the world.”

We could expect greater US efforts in multilateral (e.g. World Trade Organization, Asia Pacific Economic Cooperation) and bilateral (e.g., free trade agreements, among others) deals.

“Keeping America competitive begins with keeping our economy growing. And our economy grows when Americans have more of their own money to spend, save, and invest.”

That's nice. A growing US economy means greater purchases of Philippine products which should translate to more jobs.

“Keeping America competitive requires us to open more markets for all that Americans make and grow. One out of every five factory jobs in America is related to global trade, and we want people everywhere to buy American.”

We should expect American to exert greater pressures for the removal of local barriers to trade in agriculture, manufactures, and services through multilateral and bilateral negotiations.

“Keeping America competitive requires an immigration system that upholds our laws, reflects our values, and serves the interests of our economy… And we must have a rational, humane guest worker program that rejects amnesty, allows temporary jobs for people who seek them legally and reduces smuggling and crime at the border.”

This is bad news for illegal migrants, the TNTs (tago ng tago or “always hiding) in America. But it could also mean job opening for migrants, especially those types of jobs that Americans do not want to do.

“Keeping America competitive requires affordable health care. Our government has a responsibility to help provide health care for the poor and the elderly, and we are meeting that responsibility. For all Americans, we must confront the rising cost of care…”

That could also mean more nurses from the Philippines as fewer Americans are willing to take the job. Besides, nurses from the Philippines have good reputations in the US.

“We must continue to lead the world in human talent and creativity. Our greatest advantage in the world has always been our educated, hard-working, ambitious people - and we are going to keep that edge. Tonight I announce the American Competitiveness Initiative, to encourage innovation throughout our economy, and to give our Nation's children a firm grounding in math and science.”

Bush said America will train more science and math teachers. What he didn’t say is that Americans are going to recruit more science and math teachers from the Philippines. They are actually doing that now. (For a more personal take on the world, please visit Photographs and Memories).

RP economy in 2006: promises and pitfalls

The 6.1 percent GDP growth rate in the fourth quarter that lifted the Philippine economy to a 5.1 percent for entire 2005 seems to have given the idea that the Philippine economy is on the mend. I also hoped so. The best way to look at it, however, is by discerning the economy’s promises as well as its pitfalls.

Let’s figure out the promises for 2006. First—it seems that the farms’ recovery is really on the way given favorable weather. In the last several years, agriculture and fisheries—assuming good weather—has shown to be capable of growing within the 4-6 percent range despite problems related rural infrastructure. Over the years, agricultural and fisheries exports have diversified into new products like mango, tuna and other marine products, seaweeds, and asparagus besides the usual stuff like banana, pineapples, and coconut products. Lower industrial tariffs has enabled the agribusiness sector to have greater access to inputs, biomedics, seeds and planting materials, and packaging materials.

Second—Mining has rebounded and one could assume that this trend will continue given the rising prices of precious metals in the world market. Third—remittances from overseas Filipino workers may continue to fuel high domestic consumption and high and high growth in services particularly telecommunications, banking, and business services. Fourth—it seems that the global economy, according to experts from the World Economic Forum, will remain buoyant throughout 2006, a continuation of the “goldilocks economy” that prevailed in 2005. Because of this, exporters of electronics are already forecasting a 10 percent growth rate in 2006.

What are the pitfalls? First—it seems that personal consumption expenditure (PCE) is showing some danger signs. Remember that PCE accounts for more than 70 percent of the economy. The moment the people starts holding on tight to their wallets, the economy will choke. The signs of people scrimping on their basic necessities are unmistakable as shown by continuing decline in expenditures of beverages; tobacco; fuel, light, and water; household furnishings, and miscellaneous expenditures. It means people are now limiting their spending to the bare essentials like food, clothes, and transportation. Should inflation rates shoot up further owing to the continuing volatility of oil prices and the rise of valued tax rates from 10 to 12 percent, people will probably scrimp some more by cutting on purchases of food and clothes. That will depress personal consumption and slow down the economy.

Second—the expected rebound in construction activities is not a slam dunk case. Not yet anyway. The proliferation of call centers and other outsourcing companies has started to shake up the property markets. Nevertheless, that trend may not translate into more construction activities because of two factors. First, the difficulties in getting skilled workers may slow down the growth of outsourcing business. Second, real estate developers do not expect big-ticket projects in the next two years because of the footloose nature of the business process outsourcing industry. They are here today but could easily be gone tomorrow because of the ease of entry and exit in this business. The trend lately has been towards “build-to-suit” projects where real estate companies would only construct new buildings upon demand and according to the client’s specifications. Most new buildings for outsourcing companies these days are “demountable” types that could be easily constructed and dismantled once the occupants are gone. That trend doesn’t seem to indicate long-term commitments among investors. Also, there seems to be no clear trend towards substantial demand for residential condominiums yet as “experts” (e.g. Leechiu and Associates) continue to warn about a possible “condo glut.”

Third—the project higher public construction is premised on higher government revenue collection arising from the higher VAT rates. VAT, however, is a tax on consumption and coupled with high energy prices, people may yet scrimp (e.g. by buying less, eating out less) such that the government wouldn’t be able to collect substantial amounts.

Fourth—the flipside of the global goldilocks economy is the continuing tightness of the global oil supply. What did those economists from the World Economic Forum told us? That China, Japan, and Germany are going to have it so good economically. That would only means higher consumption of oil, thus making the global crude oil prices even more vulnerable to political shocks.

Which of these scenarios will prevail? My heart necessarily goes for the bright sky scenario. After all it will be ordinary mortals like us who will lose jobs when the economy turns bad. But what do government figures say? Let’s quote from the National Statistical Coordination Board initial report on the leading economic indicators: “After posting consecutive increases during the last two quarters [third and fourth quarters of 2005], the composite leading indicator [a sort of early warning device on the trajectory of the Philippine economy] decreased to 0.018 in the first quarter of 2006 from 0.115 in the fourth quarter of 2005.” That’s not a comforting thought. But you see, statistics and projections by economists are oftentimes wrong. (For a more personal, visceral take on the world, please visit Photographs and Memories).

The Philippines in 2005: A "Manny Pacquiao" economy?

Dennis Arroyo, head of National Economic and Development Authority (Neda) policy and planning division, calls it a “Manny Pacquiao economy.” The year 2005 was when the Philippine economy has to overcome all the hurdles imaginable—political uncertainty brought about by the continuing questions on the President Arroyo’s legitimacy, sluggish export, fiscal problems, deteriorating infrastructure, high energy prices, and threats of military coup. Yet the economy’s seems to have acquitted itself quietly well with a relatively decent 5.1 percent, courtesy of a 6.1 percent spurt in economic activity in the fourth quarter.

But we would rather call it the “people’s economy” essentially because the sources of growth largely came from sectors whose dynamics are largely independent of government’s actions.

As usual, personal consumption expenditure (PCE), accounting for 73 percent of the country’s gross domestic product, carried the day for the economy. It’s apparent that people are buying more food products, clothes, and cellular phones despite the high inflation rates. There are indications that people have actually started to scrimp on their purchases of certain items like beverages; tobacco; fuel, light and water; and household furnishings but the overall figure is still significant enough to lift the economy, particularly the manufacturing sector which grew by 5.8 percent in last quarter and 5.6 percent for the entire 2005.

Where did the people get the money?

As expected, overseas Filipinos sent in a lot of money as shown by the 20 percent fourth quarter rise in the “net factor income from abroad” (NFIA), comprising compensation and property incomes. For the whole year NFIA jumped 13.8 percent (amounting to $10.85 billion), owing to the double-digit growth in dollar remittances as more workers (i.e., about a million) sought foreign employment.

In the fourth quarter, the farms—specifically rice, banana, and fisheries—bounced back thus providing some incremental buying power in the countryside. Also the expansion of economic activities in mining sector (i.e., 9.3 percent growth rate in 2005) and manufacturing (5.6 percent growth rate) may also have led to rising payrolls. Of course, higher remittances coupled with a recovering farm and industry sectors has created a lot of economic activities and revenues for the services sector particularly in banking, telecommunications, wholesale and retail, real estate, business services and import-export trade.

In fact, the sources of growth were pretty broad-based with each major sector contributing their shares to the growth of the economy. The only sector that has failed to pitch is the government. Owing to the government’s continuing failure to collect more taxes, public expenditure has been curtailed, reason why government consumption has been in the negative in the last two quarters of the year. That means that for most of 2005, there have been no substantial investments in vital economic and social infrastructure. In effect, in 2005, the country’s entrepreneurs (e.g., farmers, manufacturers, exporters, traders) were practically on their own without any assistance from the state sector. For much of the year, the government was pretty much preoccupied with controlling spending in an effort to gain a better sovereign rating.

The question now is if the economy rallied in the last quarter of 2005, will that trend carry through the rest of 2006?

Dennis Arroyo says yes, stressing Neda’s earlier target of 5.7 percent to 6.3 percent growth rate. He said that the Philippine economy grew by 5.1 percent in 2005 despite hurdles like high energy prices, tumultuous politics, and the El Niño phenomenon that ravaged the farm sector. The economy, he said, should have grown by 5.7 percent if there was no El Niño. This year, he said, El Niño would no longer be an issue hence it would be possible to achieve the 5.7-6.3 GDP growth rate target.

He admits that high oil prices and the higher EVAT rate may dampen domestic demand but these negative factors maybe counteracted by the continuing rise in remittances, the recovery of electronic exports, a boom in mining activities, the rebound in the farm sector, and the expansion in as OFW families start spending their money for home renovation and acquisition of new houses and lots.

Certainly there are reasons to share Neda’s hope. However, there should be greater scope for caution. It seems to me that Neda has failed to consider the following local and international events in their forecasting exercise.

One—how the world oil prices will play up in the next few months is uncertain. It seems that Middle East politics has suddenly grown murkier with the landslide victory of Hamas in the recent Palestinian election, the continuing impasse over Iran’s nuclear program, and the continuing bloodletting in Iraq. Should these events send oil prices soaring again, local inflation rate could choke the economy.

Two—fixed capital formation, due largely to declining spending on durable equipment has been in the negative in the last four quarters. This trend signifies a wait-and-see attitude among the country’s factory managers, an indicator of lack of investor confidence. These figures simply validate the latest export figures showing that purchases of capital equipment are down. It seems like businesses are waiting for politics to settle down before they decide to expand operations.

Three—government’s expectations on the supposed rebound in construction maybe misplaced. Neda says a significant part of the money that will be used to prime the economy will come from the higher EVAT rate. What if government collections, owing to corruption at the BIR, would not rise? (For a personal take on the world, please visit Photographs and Memories).

Nicanor Faeldon: Rebellion in a woman's clothes

For all we know, Marine Captain Nicanor Faeldon’s escape was really just about a young man’s affair of the heart and not the business of the rebellion. It’s so stupid of him to dress like a woman and go around in the metropolis cavorting with a woman, a military one at that. He should have known better. From the very start, government intelligence knew everything about his relationship with that lawyer-military girl. He should have known that the first thing government troops would do is to tail her. They did and—voila!—Faeldon recaptured. I wonder how he looked in a woman’s clothes.

If he really valued his freedom, his “cause,” and his blog, he should just have maintained reasonable distance from her. You know what Mao Zedong said? Revolution is no picnic. Certainly it’s not romantic tryst. Faeldon did not heed that lesson. He wanted the best of both worlds so he paid dearly. What now, Captain? Now you are also going to ruin the career of your love. I’m sure it’s not your idea of collateral damage.

But then again, Faeldon’s misadventures may simply reflect the bigger truth about military coup plotters’ legendary capacity for bungling. Remember Gringo Honasan and his group in 1986? Had it not for people power, Gringo and his politician benefactor, Juan Ponce Enrile, may have been bombed to kingdom come by Marcos henchmen. When Cory Aquino assumed power, Gringo and his kind tried several times to seize power and they failed all the time. Save for the presidency of Fidel Ramos, every administration after Marcos had faced military coup attempts but all those efforts went bonkers. So it appears that Faeldon simply played his part in this continuing tragicomedy called Philippine politics.

It seems like guys like Gringo and Faeldon are not studying history. Is it because they were always on “maneuvers”? They should have known that coups d’etat and armed revolutions are no longer in fashion. Pervez Musharraf of course has succeeded to take power but he is gradually democratizing Pakistan, knowing that the era of the men on horseback, of colorful caudillos are now relics of a bygone era. (For a less political take on the world, please visit Photographs and Memories).

Philippines ranks 55 in the Pilot 2006 Environmental Performance Index

Scoring low on air quality and environmental health protection, environmental experts from Yale and Columbia University recently ranked the Philippines number 55 out of 133 countries in its pilot Environmental Performance Index report released last Friday at the World Economic Forum in Davos, Switzerland.
The report ranked New Zealand first followed by Sweden, Finland, Czech Republic, and United Kingdom as the top performers in terms of six policy categories including environmental health, air quality, water resources, biodiversity and habitat, protective natural resources, and sustainable energy.

These top-ranked countries, the report said, “commit significant resources and effort to environmental protection, resulting in strong performance across most of the policy categories.”

Prepared by the Yale Center for Environmental Law and Policy and Columbia University’s Center for International Earth Science Information Network, the study aims to help countries worldwide to reduce environmental stresses on human health and protect the vitality of ecosystems.

“The Pilot 2006 EPI deploys a proximity-to-target methodology focused on a core set of environmental outcomes linked to policy goals for which government should be held accountable,” the Report said. “This approach provides a context for spotting trends and issues of concern, evaluating policy results, highlighting leaders and laggards, and identifying best practices.”

The study used 16 indicators to calculate each countries’ scores on each policy category, namely child mortality, indoor air pollution, drinking water, adequate sanitation, urban particulates, regional ozone, nitrogen loading, water consumption, wilderness protection, ecoregion protection, timber harvest rate, agricultural subsidies, overfishing, energy efficiency, renewable energy, and carbon dioxide per GDP.

The report showed the Philippines lagging seriously behind targets in areas of indoor air pollution, regional ozone, overfishing, renewable energy, wilderness protection, adequate sanitation, and drinking water. Nevertheless, based on the overall ranking, the Philippines ranked relatively well at number 55 following Malaysia (ranked number 9), Japan (number 14), and Taiwan (number 24).

Based on the Report’s peer group ranking, the Philippines ranked number seven (7) in the Asia-Pacific Region. The best performers are New Zealand (1), Malaysia (2), Japan (3), Australia (4), Taiwan (5), and South Korea (6). Trailing the Philippines are Thailand, Sri Lanka, and Indonesia.

At the bottom of the global ranking are countries including Ethiopia, Mali, Mauritania, Chad, and Niger. “These are underdeveloped countries with little capacity to invest in environmental infrastructure (such as drinking water and sanitation systems) and weak regulatory systems,” said the report.

The EPI concludes that a country’s wealth emerges as a significant determinant of environmental outcomes. Nevertheless, the EPI has noted that some countries achieve environmental results that far exceed their peers in their respective regions, an indication—the report said—that policy regimes determines environmental performance.

“Policy choices matter,” said Daniel C. Esty, director of the Yale Center for Environmental Law and Policy, in a press statement. “Good governance is a critical driver of environmental performance.”

The 2006 EPI ranked the United States at number 28, significantly below other highly developed countries like the United Kingdom (5) and Canada (8), owing to its supposed underperformance on “critical issues like renewable energy, greenhouse gas emissions, and water resources.”

“The lagging performance of the United States on environmental issues—particularly on energy and climate change—signals trouble not only for the American people, but for the whole world,” said Gus Speth, Dean of the Yale School of Forestry and Environmental Studies, in a press statement. “Perhaps, this ranking will serve as a wake up call to the American public and particularly to leaders in Washington.”

Economic growth from where?

The government has been telling us that the economy is on the way to recovery. The National Economic and Development Authority said that the Philippines is likely to grow within the range of 4.5 percent to 5.4 percent in 2005. This year, Neda says that the Philippine economy is likely to grow within the range of 5.7 percent to 6.3 percent.

And it seems some numbers indeed are showing good signs. The budget deficit has gone down. The stock market seems to be doing fine. Remittances from overseas Filipino workers are rising. They are not spending their money yet but soon, probably starting this summer, they are going to renovate their houses or buy new units. And indeed, real estate business has started to perk up. On January 23, the National Statistics Office (NSO) said that production of factories rose 4 percent in November owing to improved sales. Their average capacity utilization has stayed at 80.3 percent indicating that factories are generally busier. Hey, things are looking up!

I say, easy on those numbers because the truth is that other economic indicators are telling us otherwise. Last week, the NSO released the latest available figures on imports and what see saw was not comforting. In a globalizing world, countries buy goods from abroad—specifically capital goods, raw materials, and intermediate inputs—so they can process them by applying labor, technology, local materials and expertise into products for exports back to world markets. NSO’s import data tells us that in January to November, capital imports were flat, our purchases of intermediate inputs even declined by more than 9 percent. These figures seem to tell us that many business people are not buying more machines or upgrading their plants and equipment. Many of them don’t need to because they are buying less raw and intermediate inputs.

If indeed the economy has started to rev up, business should be borrowing lots of money from banks by now so they could take advantage of the projected economic boom. The latest figures from the Bangko Sentral ng Pilipinas (BSP) seems to indicate that credit activity has been sluggish after peaking at an almost 7 percent growth rate in May last year. In October, the latest figure, the loans outstanding of commercial banks grew only by 1.3 percent. Loans outstanding of important sectors including mining and quarrying; manufacturing; electricity, gas, and water; construction; and wholesale and retail trade even declined in October.

OFW remittances, of course, will probably carry the economy through especially if the $12 billion sent in by workers are converted into purchases of construction materials besides other basic needs like food. Probably.

The official line is that OFW families saved their money in 2005 and are likely to spend them this year in purchases of houses and durable consumer items. Question: if they indeed saved in 2005, why should they start spending in 2006? Our own take is that the spending decisions of OFWs are dampened by declining purchasing power of the peso. Therefore they are probably not inclined to spend more in 2006 especially if political uncertainties continue and the oil prices remain volatile.

Call centers and outsourcing companies of course will continue to grow, albeit at a lower rate owing to difficulties in recruiting skilled labor. We are happy that these sectors have become real options for many of the jobless youth. Nevertheless, outsourcing alone will not spread the benefits of growth beyond the urban centers.

What we are stressing here is that government officials need not crow yet about the possible economic revival this year. The economic indicators are sending us mixed signals at best and there is a need for government to really do something drastic to boost the economy.

Investments are one possible source of growth, yet the policy environment is still hazy due to the continuing uncertainty over the country’s fiscal incentives system. The budget for 2006 has not been passed and we are still at limbo whether or not we could expect significant public investments in economic and social infrastructure that is necessary to catalyze entrepreneurship. The country’s tangle of bureaucratic regulations and conflicting rules, highlighted by the recent World Bank report on the “ease of doing business” worldwide, has been a major barrier to economic expansion. Yet the government has not responded at all to address the problem. A new year supposedly brings in fresh perspectives and new vitality; we are not yet seeing that from the government so far.

Politics without borders: Hamas victory could be a positive sign

Hamas' landslide victory in the newly conducted Palestinian election has shocked the world, including the Hamas members themselves. Some are already saying the group's victory has darkened the prospects for Middle East peace. From that victory I see hope. Why? For two main reasons.

First--its a triumph of democracy, assuming that the election was indeed conducted fairly and without fear and intimidation. US President George Bush initiated a big bang to "democratize" the region. He got it. He is probably not comfortable with the result but the Palestinians have spoken and the world should respect that. Democracy means that you give equal chance to everybody to contest political power in a peaceful way, knowing that the winner might be the one you don't like.

Second--Hamas will now be doing the day-to-day boring and challenging job of governing the Palestinian nation. This tedious process will certainly transform them. They used to be known as a "terrorist" organization; now they are "legitimate." More than ever, the world now expect them to behave according to the prevailing "rule sets" among the family of nations. The organization is used to be known for its violent actions against the Israelis. Now the members have more responsibilities including the delivery of basic social services like health and education, providing economic and social infrastructure, generating investments and jobs, collecting taxes, among many others. To do that, they need to engage and be connected with the rest of the world.

NEDA's fearless forecast for 2006: 5.7-6.3 GDP growth rate

How will the Philippine economy perform in 2006? “For 2006, we made our run of our economic model and we came with a fearless forecast for 2006 is 5.7-6.3 GDP growth rate. That’s the official government target,” says Augusto B. Santos, director general of the National Economic and Development Authority, when I interviewed him a few weeks ago. The assumptions for this forecast, he said, include successful implementation of the EVAT law raising the value added tax from 10 to 12 percent, stabilization of the oil prices in the world market, and higher public spending for infrastructure. Neda also hopes to “translate the high GNP into GDP” by funneling the rising foreign exchange coming in towards productive economic activities. Santos admits, however, that politics will be the wild card that is not factored in the equation and he is crossing his fingers that the economy’s firewalls are stronger enough to withstand whatever political drama will unfold for the rest of the year. Excerpts:

Question: Could you please tell us some of the highlights of the Philippine economy in 2005?

Answer: There are still no actual figures yet for the entire year as to the actual economic performance in 2005. I will be announcing that on January 30. But we have made a forecast ranging from 4.8 to 5.1 percent GDP growth rate. We were really affected by the increases in oil prices and this had the effect of increasing inflation. Increasing inflation in turn had the effect of dampening consumer demand. That, in turn, slowed down the economy. Our earlier projection in 2005 of 5.3-6.3 percent growth rate; we have to downscale that to 4.8-5.1. And of course, 2005 saw the start of the implementation of EVAT last November 1. We forecasted the inflation rate for 2005 at 7.9 percent but in turned out, based on the last results, that the average inflation rate for the whole year is 7.6 percent. To a certain extent, particularly for the whole quarter of 2005, we feel that certain political developments affected the performance of the economy. The third quarter of 2005 was the height of the impeachment process. Somehow, based on our study, we could not help but say that these political developments affected the economy. As you know there is a correlation between political stability and investor confidence. National government fiscal [reforms] continue to perform very well. The target for 2005 was a deficit of 180 billion, but it looks like it’s only P145 billion. This is what the President is talking about: theoretically we have a saving of P35 billion pesos which the government wants to use to prime the economy for first quarter of 2006.

In 2006, how will the economy perform?

For 2006, we made our run of our economic model and we came with a fearless forecast for 2006 is 5.7-6.3 GDP growth rate. That’s the official government target.

What are the assumptions?

One of the major assumptions is increasing the EVAT from 10 to 12 percent this coming February 1. In the estimate of our department, we are going to generate additional P55-80 billion revenue and that’s a lot of money that we can use to construct roads, to pump prime the economy. Another major assumption is stabilizing oil prices. If you notice, the price of oil is still increasing but it’s gradual. It’s no longer volatile. Medro humuhupa na [It’s somewhat stabilizing].

What will be the leading sector in the 2006 growth forecast?

Services. For the past several years, it has been services. And even for 2006, we still look at services as the lynchpin of the Philippine economy. When I say services, maraming category yan but its mainly communications, trade, banking, transportation. Services will be the fastest, the biggest, followed by industry, particularly manufacturing, followed by agriculture, fishery, and forestry. In that order.

What are the prospects for construction?

In the third quarter 2005, there was little bit of economic slowdown because there was government underspending because of our austerity measures. Government or public construction was down, private construction was down. For 2006, in view of government decision to pump-prime the economy, we expect that government construction will go up. The economic theory is very simple. If the private sector sees that the government is spending, the private sector will follow through.

I suppose you also expect OFW money to prop up the construction sector.

Yes. Talking about real estate or property development—this is also included in the services sector. So it’s also a source of growth. For 2005, property development has contributed a lot to economic growth. In fact, anecdotally if you to go to the Ilocos provinces you will see a lot of new houses there. Those were built by OFW money. By the way, in terms of OFW deployment, we use to send drivers and mechanics, now we are sending doctors, nurses, teachers, caregivers. So there is higher skills, higher value. That’s why the remittances are higher while net deployment is down.

How do you see exports performing?

That’s a good question because there is a global slump in electronics. That’s little bit of bad news for us because it’s our number one exports, followed by garments. For 2006, we hope that the electronics sector will recover in terms of global demand so that our own electronics industry will recover but it is not clear that’s why I’ve been making pronouncements that we can’t just depend on electronics. We really have to diversify.

Output of Philippine factories rose 4 percent in November

We could probably expect a better figure from the manufacturing sector come January 30 when the National Statistical Coordination Board releases the 2005 Gross Domestic Product report. In November, industrial output rose 4 percent owing to rapid expansion in the output of at least eight manufacturing sub-sectors namely furniture and fixtures, petroleum, fabricated metals, chemicals, rubber, non-metallic minerals, textiles, and tobacco.

In its latest monthly integrated survey of selected industries (Missi), the National Statistics Office likewise reported a 12.9 percent rise in the value of production index indicating a generally favorable business environment for the manufacturing sector. Factories also have betters sales figures (i.e. 8.2 percent rise in value).

Despite gains in industrial output, however, the average capacity utilization remained practically the same—80.3 percent from 80.4 percent in October. To some extent, this is good news because it means there would be less inflationary pressures on the supply side as factories still have elbow room to raise production in response to a potential rise in demand without resorting to expansion in production capacity. On the other hand, it means factories are not likely to hire more workers soon.

(You may visit Photographs and Memories for pictures and some travel notes).

Manny Pacquiao’s victory—and his alone!

Now that Manny Pacquiao has won that fight of his life, let’s buckle down to work. Let’s not pretend that Manny’s victory is our victory as a country too, as some politicians would like us to believe. That victory is his alone. It was he alone who trained like crazy in the United States, skipped Christmas and New Year with his family just to get the fame and fortune that he deserved after demolishing the Mexican legend, Erik Morales. The truth is that had Manny lost, most Filipinos will probably dismiss him as just another boxing has-been who is soon forgotten.

Remember Luisito Espinosa? Espinosa was the toast of politicians and sports fanatics when he was the country’s boxing superstar. Today, he is totally forgotten. The politicians who basked in his glory in the halcyon days of his career would not even touch him now with a ten-foot pole. Not a single big-shot in this country has bothered helping him collect his fight money from that South Cotabato ex-governor who refused to honor the contract.

Yes, we are happy that Manny won that fight but he owes us nothing, except the taxes that he ought to pay for holding a Philippine passport. He did not win because of our “prayers.” The Mexicans prayed like hell too and the Lord Almighty probably stayed neutral. Manny won that fight because he did his homework and fought with intellect, great heart, and sheer will to win. These are traits that could never be said of our so-called political leaders.

For instance, we have yet to pass the country’s budget for 2006 and there seems to be no urgency at all among the administration legislators to do so. We might yet end up reenacting the 2005 budget that we know does not contain significant allocation for capital expenditures. That could mean that we are stuck with our rickety infrastructure, a major turn-off among investors. Too bad because next month, we are set to implement the expanded value added tax law raising corporate tax from 32 to 35 percent, extending the coverage to certain products including fuel, and raising that rate from 10 to 12 percent.

In view of the continuing failure of the government to provide good infrastructure, a higher corporate tax would simply make it more difficult for us to get more investments. Raising the VAT rate to 12 percent may yet push inflation rate soaring especially so that kidnapping incident in Nigeria and the deadlock over Iran’s nuclear program may yet add another layer of uncertainty to the already volatile world oil markets. Should crude prices soar again, we could expect a further slowdown in the economy as people are likely to reduce expenditures because of lower purchasing power. More so because the flow of dollars from overseas workers will probably slow down after remittances surged during the Christmas holidays. Is the government ready for these scenarios?

Yes, Manny won but let’s get back to work so we could get our own little victories. (Note: You may drop by Photographs and Memories for new pictures and some personal travel notes).

Howard Belton—Filipinos are nice people to live with

It’s so easy to give up on the Philippines when you listen to how politicians and whiners describe the prospects of this country. However, if you talk to entrepreneurs—people who really put a stake in the system, people who do business—you could get a different perspective. I had the chance to interview Howard Belton, a British citizen and chair person of Unilever Philippines, a multinational, last week and came out of it a little bit more optimistic. I asked him asked why Unilever is still here in the Philippines when analysts often complain about everything including bad infrastructure and high power costs. “What do you see that other investors have failed to see?” I asked.

He answered: “We have a big export business [here]. There’s no question that infrastructure and power costs are a problem. But, what we found is that there are some positive factors—first of all, flexibility. I think that both the entrepreneurs in the Philippines and the individual employees are very flexible. They’re very willing to try new ways of doing things which is beneficial. Second is customer service. It seems to be easy here in the Philippines to build up customer centered approach which is very important when you’re in manufacturing."

I also asked him if he likes working in the Philippines.

He answered: "It’s been a pleasure living here. Normally Unilever’s term is 3 years. I’ve been here for 7 and a half years so I always say I can’t complain anymore about the Philippines because I’m here on voluntary basis (laughs). I like working in the Philippines because it is easy to do new things here. People are very easily motivated to change things so it’s very easy to get new things done. We pioneer in many things for Unilever here and for me that’s a great satisfaction as the leader. And from a personal point of view Filipinos are very nice people to live with."

(Please visit Photographs and Memories for some new pictures and personal travel notes.)

Boxing without borders: a compleat Manny Pacquiao

I admit I bet in favor of Erik Morales to win via unanimous decision. But I was happy that Manny Pacquiao won in such a very impressive passion. In their first fight, Manny could not figure out how to get past Morales' pesky jabs, the reason why he could not unload his much-vaunted killer lefts. This time, however, what I saw was a totally different Pacquiao--stronger, with more weapons (e.g. the right hooks to the rib cage did a lot of damage to Morales' stamina), with more lateral movements (to avoid the that jab-straight combination from Morales), and with more and relentless flurries (that made points and put a lot of pressures on Morales). Freddie Roach, his trainer, had really transformed Manny into a compleat fighter.