Written for BusinessWorld's 30th Anniversary Report. Originally appeared on the July 24, 2017 issue of BusinessWorld
Showing posts with label analysis. Show all posts
Showing posts with label analysis. Show all posts
Tuesday, 17 October 2017
Tuesday, 6 October 2015
FREE FLOW, MANAGED MOVEMENT: LABOUR MOBILITY POLICIES IN ASEAN AND THE EU (EIAS)
This is the abstract of a research paper I wrote, which was published by the European Institute for Asian Studies. Click for the full publication.
JENNEE GRACE U. RUBRICO
October 2015
EIAS BRIEFING PAPER 2015 │ 03 EUROPEAN INSTITUTE FOR ASIAN STUDIES
Abstract: Europe has been at the forefront of labour mobility since 1957, when it enshrined the principle of free movement of workers in the treaty that created the European Economic Community. Over the years, the region worked to expand the rights of its mobile workers, mandating equal treatment and non-discrimination on the basis of citizenship. The concept of the “European Union citizen” was introduced in 1992, and by 2007, the free movement of labour in the region had become a fundamental right. Fifty-eight years after Europe started its intraregional labour mobility effort, the Association of Southeast Asian Nations (ASEAN) is set to follow suit. Under the framework of the ASEAN Economic Community – an ambitious plan to create a common market for the 10 member states by the end of the year – ASEAN promotes ‘free’ flow of skilled labour within the region. ASEAN’s approach to labour mobility, however, differs sharply from the EU’s policies. This paper explores the two regions’ frameworks of intraregional movement of labour, looking into similarities and differences as well as the principles that led to the formulation of such approaches.
JENNEE GRACE U. RUBRICO
October 2015
EIAS BRIEFING PAPER 2015 │ 03 EUROPEAN INSTITUTE FOR ASIAN STUDIES
Abstract: Europe has been at the forefront of labour mobility since 1957, when it enshrined the principle of free movement of workers in the treaty that created the European Economic Community. Over the years, the region worked to expand the rights of its mobile workers, mandating equal treatment and non-discrimination on the basis of citizenship. The concept of the “European Union citizen” was introduced in 1992, and by 2007, the free movement of labour in the region had become a fundamental right. Fifty-eight years after Europe started its intraregional labour mobility effort, the Association of Southeast Asian Nations (ASEAN) is set to follow suit. Under the framework of the ASEAN Economic Community – an ambitious plan to create a common market for the 10 member states by the end of the year – ASEAN promotes ‘free’ flow of skilled labour within the region. ASEAN’s approach to labour mobility, however, differs sharply from the EU’s policies. This paper explores the two regions’ frameworks of intraregional movement of labour, looking into similarities and differences as well as the principles that led to the formulation of such approaches.
Tuesday, 25 June 2013
Home loan market settles (The Brunei Times)
Published in the June 26, 2013 issue of The Brunei Times. Click here for original article
Home loan market settles
Potential home buyers who had held back on buying immediately
after the new rates were imposed are now back in the market. Picture: BT
file
Debbie Too and
Wednesday, June 26, 2013
THREE months after the central bank imposed changes in key interest rates, the residential loan market appears to have adjusted to a new normal.
Potential home buyers who had held back on buying immediately after the new rates were imposed are now back in the market, opting to proceed with long-planned purchases in the wake of the changes. Financial institutions, on their part, have factored the new rates into their products and are now back in business after a number imposed a short-lived moratorium on home financing.
"We are still going to go ahead and take up a home financing product," said Rina, a potential home owner who had earlier expressed concern over the impact of the changes in the interest rates on access to home financing.
She said that she and her husband were going to push through with the plan to get home financing since there was "no choice".
The Autoriti Monetari Brunei Darussalam (AMBD) on March 6 imposed new rates with the aim of enhancing the financial infrastructure and inculcating sound financial and debt management among users of credit.
Under the AMBD directive, residential property loans or financing now have a revised maximum effective interest rate or annualised profit rate of not more than 4.5 per cent per annum.
Following the amendment of interest rates, banks -- some of which froze home loans for around a week -- altered their packages to take into account the new interest rate regime.
Among others, banks decreased the amount they would finance for the property to 70 per cent -80 per cent of its value. Subsidies for home loan packages, which can amount to $15,000, were also cancelled.
Indirect impact
In an email interview, Dr Chua Yang Liang, the head of research for Southeast Asia for property consultant Jones Lang LaSalle, told The Brunei Times that the impact of interest rates on housing demand is "not as direct".
"Fundamentally, housing demand can be a consumption or for investment... In Brunei, as the housing market is still largely a domestic play, the rise or fall of interest rate may not change demand as quickly or as dramatically as you would expect," she said.
She also said that Brunei is a "relatively stable market" and added that while Bruneians might change their buying pattern in reaction to the shift in the interest rate, "we do not think that this alone is sufficient to lead to a structural shift to the residential market".
While overall the home financing market seems to be getting back on track, however, there could be changes in banks' share of the market as debtors flock to creditors with the most favourable packages.
Rasidah Haji Abu Bakar, a reporter for The Brunei Times and a home loan applicant, said that she is now opting to purchase property through Standard Chartered Bank (SCB) because the bank gives a longer repayment period compared to HSBC (B) Sdn Bhd, her previous choice.
"They (HSBC) changed their repayment period for home loans to 10 years and I can't afford to repay for a house in 10 years," she said.
She also said that SCB provided her with subsidies for the processing fees and other contractual agreements with the bank. Even with this, however, she is required to shell out more cash for her loans now since additional items such as the mortgage reducing term assurance -- an insurance cover in the event of the applicant's death or permanent disability -- would require a personal loan to pay off.
Cheok Fui Say, general manager of Retail Lending at SCB, said that demand for home loans has continued, but it was not clear if the increased demand was seen as a direct result of the rates revision.
She only said that "with the revised rates, customers are even more advantaged by the fact that all rates are equal and this would save them time from going from bank to bank to 'shop' for the best rates". She added, though, that the bank has seen a surge in applications for refinancing.
HSBC, on the other hand, said in reply to questions sent by The Brunei Times that volumes have gone down.
"(HSBC is) satisfied with the changes it has made on its home loan application, but obviously the volumes have reduced considerably over the past few months as a result of these changes."
HSBC's restructed home loan packages now have a repayment period that was shortened to 10 years, and the bank has told customers that it would only finance properties for up to a maximum of 70 per cent of their value. The bank has also taken away subsidies that used to amount to a maximum of $15,000 and included land valuation, insurance and others.
Other borrowers, meanwhile, opt to take up financing from banks that they have a history with. Rina, for instance, said that she and her husband would probably opt to go to Bank Islam Brunei Darussalam (BIBD) "because it's my husband's bank".
"We haven't met up with the home financing specialist to discuss what our package would be but we heard that financing would be up to 80 per cent only," she said.
A home financing specialist from BIBD said: "At the bank we would handle the financing option, and we offer financing up to 70 per cent of the market value or the selling price, whichever is lower."
She added that on a case-by-case basis the amount being financed could be increased.
Depending on the financial health of the customer, sometimes the subsidies can be included in the total amount for the home financing product, but if they are not eligible, customers may have to opt for a personal loan to pay for the subsidies. Baiduri Bank, for its part, says it has been doing well on the home financing front.
Pierre Imhof, the chief executive officer of Baiduri, said that the amendments to the interest rates did not have much of an impact to the bank's home financing packages as it had already been offering rates that were in line with the new rules prior to their effectivity.
Imhof added that the price that Baiduri grants under its facility is directly linked, or is in proportion, to the risk the bank has to take.
"What we have also seen is that there is a backlog to the access of ownership in Brunei and we definitely believe that a number of people are still keen to come and see us to find the right loan," he said. The Brunei Times
Wednesday, June 26, 2013
THREE months after the central bank imposed changes in key interest rates, the residential loan market appears to have adjusted to a new normal.
Potential home buyers who had held back on buying immediately after the new rates were imposed are now back in the market, opting to proceed with long-planned purchases in the wake of the changes. Financial institutions, on their part, have factored the new rates into their products and are now back in business after a number imposed a short-lived moratorium on home financing.
"We are still going to go ahead and take up a home financing product," said Rina, a potential home owner who had earlier expressed concern over the impact of the changes in the interest rates on access to home financing.
She said that she and her husband were going to push through with the plan to get home financing since there was "no choice".
The Autoriti Monetari Brunei Darussalam (AMBD) on March 6 imposed new rates with the aim of enhancing the financial infrastructure and inculcating sound financial and debt management among users of credit.
Under the AMBD directive, residential property loans or financing now have a revised maximum effective interest rate or annualised profit rate of not more than 4.5 per cent per annum.
Following the amendment of interest rates, banks -- some of which froze home loans for around a week -- altered their packages to take into account the new interest rate regime.
Among others, banks decreased the amount they would finance for the property to 70 per cent -80 per cent of its value. Subsidies for home loan packages, which can amount to $15,000, were also cancelled.
Indirect impact
In an email interview, Dr Chua Yang Liang, the head of research for Southeast Asia for property consultant Jones Lang LaSalle, told The Brunei Times that the impact of interest rates on housing demand is "not as direct".
"Fundamentally, housing demand can be a consumption or for investment... In Brunei, as the housing market is still largely a domestic play, the rise or fall of interest rate may not change demand as quickly or as dramatically as you would expect," she said.
She also said that Brunei is a "relatively stable market" and added that while Bruneians might change their buying pattern in reaction to the shift in the interest rate, "we do not think that this alone is sufficient to lead to a structural shift to the residential market".
While overall the home financing market seems to be getting back on track, however, there could be changes in banks' share of the market as debtors flock to creditors with the most favourable packages.
Rasidah Haji Abu Bakar, a reporter for The Brunei Times and a home loan applicant, said that she is now opting to purchase property through Standard Chartered Bank (SCB) because the bank gives a longer repayment period compared to HSBC (B) Sdn Bhd, her previous choice.
"They (HSBC) changed their repayment period for home loans to 10 years and I can't afford to repay for a house in 10 years," she said.
She also said that SCB provided her with subsidies for the processing fees and other contractual agreements with the bank. Even with this, however, she is required to shell out more cash for her loans now since additional items such as the mortgage reducing term assurance -- an insurance cover in the event of the applicant's death or permanent disability -- would require a personal loan to pay off.
Cheok Fui Say, general manager of Retail Lending at SCB, said that demand for home loans has continued, but it was not clear if the increased demand was seen as a direct result of the rates revision.
She only said that "with the revised rates, customers are even more advantaged by the fact that all rates are equal and this would save them time from going from bank to bank to 'shop' for the best rates". She added, though, that the bank has seen a surge in applications for refinancing.
HSBC, on the other hand, said in reply to questions sent by The Brunei Times that volumes have gone down.
"(HSBC is) satisfied with the changes it has made on its home loan application, but obviously the volumes have reduced considerably over the past few months as a result of these changes."
HSBC's restructed home loan packages now have a repayment period that was shortened to 10 years, and the bank has told customers that it would only finance properties for up to a maximum of 70 per cent of their value. The bank has also taken away subsidies that used to amount to a maximum of $15,000 and included land valuation, insurance and others.
Other borrowers, meanwhile, opt to take up financing from banks that they have a history with. Rina, for instance, said that she and her husband would probably opt to go to Bank Islam Brunei Darussalam (BIBD) "because it's my husband's bank".
"We haven't met up with the home financing specialist to discuss what our package would be but we heard that financing would be up to 80 per cent only," she said.
A home financing specialist from BIBD said: "At the bank we would handle the financing option, and we offer financing up to 70 per cent of the market value or the selling price, whichever is lower."
She added that on a case-by-case basis the amount being financed could be increased.
Depending on the financial health of the customer, sometimes the subsidies can be included in the total amount for the home financing product, but if they are not eligible, customers may have to opt for a personal loan to pay for the subsidies. Baiduri Bank, for its part, says it has been doing well on the home financing front.
Pierre Imhof, the chief executive officer of Baiduri, said that the amendments to the interest rates did not have much of an impact to the bank's home financing packages as it had already been offering rates that were in line with the new rules prior to their effectivity.
Imhof added that the price that Baiduri grants under its facility is directly linked, or is in proportion, to the risk the bank has to take.
"What we have also seen is that there is a backlog to the access of ownership in Brunei and we definitely believe that a number of people are still keen to come and see us to find the right loan," he said. The Brunei Times
Friday, 19 April 2013
Over $500m spent on fuel subsidies in 2011 (The Brunei Times)
Published in the April 20, 2013 issue of The Brunei Times. Click here for original article.
Over $500m spent on fuel subsidies in 2011, strain on coffers
Saturday, April 20, 2013
THE sultanate spent more than half a billion Brunei dollars on
fuel subsidies in 2011, putting a "tremendous strain" on the national
coffers, an official of the Asian Development Bank told The Brunei
Times.
Minsoo Lee, senior economist in the Macroeconomics and Finance Research Division of the Economics and Research Department of ADB, said in an email interview that the sultanate spent US$470 million ($580.283 million) on general fuel subsidies in 2011.
This meant that the government shouldered US$1,159, or $1,431.84, of the fuel costs of each person in the country, he added.
"The government provides very generous subsidies to ordinary citizens through a variety of pathways, including electricity, LPG (liquefied petroleum gas, or cooking gas), and transport fuels," Lee said.
"The costs of these programmes do weigh upon a government, even one with substantial financial resources. Transport fuels are held perhaps 45 per cent below market costs and are part of the overall energy subsidies," he added.
Transport fuel in the sultanate, said to be lowest in the region, ranges from 30 cents to 60 cents per litre at the pump.
Data from the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH show that Brunei pays for almost half of the cost of the fuel that motorists buy at the pump.
On its website, the organisation noted that the commercial cost of gasoline with a 92 octane rating is at 92 cents per litre, but only retails for 51.9 cents per litre, with the sultanate covering the remaining 40.1 cents.
"The subsidy for diesel is even higher," it said, as it noted that the commercial cost for the fuel is at 91 cents per litre while it only sells at 31 cents, with the government shouldering the remaining 60 cents.
The GIZ draws up a database on fuel prices, taxes, price policies for countries in the world on behalf of the German Federal Ministry for Economy Cooperation and Development.
"Reallocating fiscal resources to infrastructure, health and education would spur growth and make it more inclusive," Lee said.
Earlier, the Ministry of Health proposed before parliament a $366.479 million budget for this year, to cover for payroll, additional manpower, purchase of medicines, hospital upgrades, procurement of laboratory equipment and health promotion, among others.
Social services, for its part, was given a $351.6 million outlay from the development budget to support projects in education, health, national housing and human resources, it was earlier reported.
The Ministry of Development has earmarked $313.2 million for the 2013/2014 financial year, for flood control projects, improvements in road safety, and public housing services.
The Ministry of Education, on its part, gets a bigger budget allocation than the amount the government spent to subsidise fuel in 2011. The ministry presented a $759.128 million budget for 2013/2014, up 3.8 per cent $731.066 million the previous fiscal year at the ninth Legislative Council proceedings.
The allocation was made for teachers' salaries, overhead costs, school buses, purchase of educational equipment, and training for teaching staff.
The budgets for these ministries, however, do not take into account support that may come from the 10th National Development Project, which was given $1.05 billion for this fiscal year.
Lee noted that while popular, selling fuel below true market prices "increases energy consumption, distorts energy development planning, and damages the environment".
Reducing the real price for diesel or electricity, he said, weakens incentives to conserve on energy and inhibits the development of renewable resources, which Brunei has been pushing for.
"Worse, the main beneficiaries of energy subsidies are not the poor. If the intent is to make energy affordable to the poor, only the poorest 20 percentile should benefit from the subsidy," he said, adding that in Asia, only five to 15 per cent of the subsidy benefits go to the poorest of the poor.
Lee also said that Brunei's ability to produce oil does not make it less vulnerable to the impacts of fuel subsidies, noting that the country's affluence is critically dependent on the energy sector.
"The oil and gas sectors account for nearly two-thirds of Brunei's GDP (gross domestic product), roughly 95 per cent of Brunei's export revenues and about 90 per cent of government revenues," he noted.
"This dependence on a single natural resource makes the economy vulnerable to fluctuations arising from energy markets. In common with other small oil and gas exporting countries, the economy is subject to pressures from swings in global prices and domestic production issues," he added.
In the recently released ADB Development Outlook 2013, the bank ranked Brunei the third biggest provider of fossil fuel subsidies in Asia when considered as a share of a country's economy.
In the list of 11 Asian countries, Brunei, which provides subsidies of over three per cent of its GDP, or the total value of goods and services produced by a country within a period, trailed Bangladesh, at five per cent of its GDP, and Pakistan whose subsidies cover more than four per cent of its economy.
According to the report, a US$0.25 per litre increase in fuel prices causes a 4.5 per cent decline in real income of households in Asia and the Pacific.
The impact is partly direct, as households have to spend more on fuel, and partly indirect, as prices for goods and services increase with higher embedded energy costs, the report added.
Brunei produced 155,000 barrels of oil a day in January to September 2012, lower than the 166,000 barrels a day it produced in 2011.
The Brunei Times
Minsoo Lee, senior economist in the Macroeconomics and Finance Research Division of the Economics and Research Department of ADB, said in an email interview that the sultanate spent US$470 million ($580.283 million) on general fuel subsidies in 2011.
This meant that the government shouldered US$1,159, or $1,431.84, of the fuel costs of each person in the country, he added.
"The government provides very generous subsidies to ordinary citizens through a variety of pathways, including electricity, LPG (liquefied petroleum gas, or cooking gas), and transport fuels," Lee said.
"The costs of these programmes do weigh upon a government, even one with substantial financial resources. Transport fuels are held perhaps 45 per cent below market costs and are part of the overall energy subsidies," he added.
Transport fuel in the sultanate, said to be lowest in the region, ranges from 30 cents to 60 cents per litre at the pump.
Data from the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH show that Brunei pays for almost half of the cost of the fuel that motorists buy at the pump.
On its website, the organisation noted that the commercial cost of gasoline with a 92 octane rating is at 92 cents per litre, but only retails for 51.9 cents per litre, with the sultanate covering the remaining 40.1 cents.
"The subsidy for diesel is even higher," it said, as it noted that the commercial cost for the fuel is at 91 cents per litre while it only sells at 31 cents, with the government shouldering the remaining 60 cents.
The GIZ draws up a database on fuel prices, taxes, price policies for countries in the world on behalf of the German Federal Ministry for Economy Cooperation and Development.
"Reallocating fiscal resources to infrastructure, health and education would spur growth and make it more inclusive," Lee said.
Earlier, the Ministry of Health proposed before parliament a $366.479 million budget for this year, to cover for payroll, additional manpower, purchase of medicines, hospital upgrades, procurement of laboratory equipment and health promotion, among others.
Social services, for its part, was given a $351.6 million outlay from the development budget to support projects in education, health, national housing and human resources, it was earlier reported.
The Ministry of Development has earmarked $313.2 million for the 2013/2014 financial year, for flood control projects, improvements in road safety, and public housing services.
The Ministry of Education, on its part, gets a bigger budget allocation than the amount the government spent to subsidise fuel in 2011. The ministry presented a $759.128 million budget for 2013/2014, up 3.8 per cent $731.066 million the previous fiscal year at the ninth Legislative Council proceedings.
The allocation was made for teachers' salaries, overhead costs, school buses, purchase of educational equipment, and training for teaching staff.
The budgets for these ministries, however, do not take into account support that may come from the 10th National Development Project, which was given $1.05 billion for this fiscal year.
Lee noted that while popular, selling fuel below true market prices "increases energy consumption, distorts energy development planning, and damages the environment".
Reducing the real price for diesel or electricity, he said, weakens incentives to conserve on energy and inhibits the development of renewable resources, which Brunei has been pushing for.
"Worse, the main beneficiaries of energy subsidies are not the poor. If the intent is to make energy affordable to the poor, only the poorest 20 percentile should benefit from the subsidy," he said, adding that in Asia, only five to 15 per cent of the subsidy benefits go to the poorest of the poor.
Lee also said that Brunei's ability to produce oil does not make it less vulnerable to the impacts of fuel subsidies, noting that the country's affluence is critically dependent on the energy sector.
"The oil and gas sectors account for nearly two-thirds of Brunei's GDP (gross domestic product), roughly 95 per cent of Brunei's export revenues and about 90 per cent of government revenues," he noted.
"This dependence on a single natural resource makes the economy vulnerable to fluctuations arising from energy markets. In common with other small oil and gas exporting countries, the economy is subject to pressures from swings in global prices and domestic production issues," he added.
In the recently released ADB Development Outlook 2013, the bank ranked Brunei the third biggest provider of fossil fuel subsidies in Asia when considered as a share of a country's economy.
In the list of 11 Asian countries, Brunei, which provides subsidies of over three per cent of its GDP, or the total value of goods and services produced by a country within a period, trailed Bangladesh, at five per cent of its GDP, and Pakistan whose subsidies cover more than four per cent of its economy.
According to the report, a US$0.25 per litre increase in fuel prices causes a 4.5 per cent decline in real income of households in Asia and the Pacific.
The impact is partly direct, as households have to spend more on fuel, and partly indirect, as prices for goods and services increase with higher embedded energy costs, the report added.
Brunei produced 155,000 barrels of oil a day in January to September 2012, lower than the 166,000 barrels a day it produced in 2011.
The Brunei Times
Saturday, 13 April 2013
25: Looking Back, Moving Forward (book)
For its silver anniversary, BusinessWorld came out with a coffeetable book called 25: Looking Back, Moving Forward.
I was asked to write one of the chapters of the book -- on the Philippine power sector. Running for 10 pages, the chapter discusses how the Electric Power Industry Reform Act, the law passed in 2001 to rectify the problems in the power sector, has or has not been able to meet its mandate.
The book also tackles other sectors and the issues they grapple with. Philippine telecommunications, agriculture, and the stock exchange are just some of the important industries discussed extensively in the book.
25: Looking Back, Moving Forward was launched on July 28, 2012, and will soon be sold to the public.
For inquiries, call +632-5359901
I was asked to write one of the chapters of the book -- on the Philippine power sector. Running for 10 pages, the chapter discusses how the Electric Power Industry Reform Act, the law passed in 2001 to rectify the problems in the power sector, has or has not been able to meet its mandate.
The book also tackles other sectors and the issues they grapple with. Philippine telecommunications, agriculture, and the stock exchange are just some of the important industries discussed extensively in the book.
25: Looking Back, Moving Forward was launched on July 28, 2012, and will soon be sold to the public.
For inquiries, call +632-5359901
Philippines enjoys post-poll pick-up (Asia Times Online)
Written for and published by Asia Times Online on September 14, 2010. Click here for original article.
Philippines enjoys post-poll pick-up
By Jennee Grace U Rubrico
MANILA - Business sentiment is rising in the Philippines, buoyed by the May election of President Benigno Aquino and the rising tide of global economic recovery. Whether Aquino can sustain the economic good times amid signs of a slowing global rebound will depend largely on his ability to enact quickly badly needed reforms.
The latest quarterly Business Expectation Survey, conducted by the central bank between July 1 and August 10, showed that business confidence touched 45%, its highest level in two years and a dramatic improvement on the 18.4% recorded over the same period last year.
Indeed, there are reasons to be cheerful. The stock market jumped almost 5% in the first week of September to hit a 32-month high, while the Philippine peso continued to strengthen against the US dollar in line with several other currencies in the region.
Election-related spending, including on advertising and other recreational campaign activities, gave the economy a big first-half boost. After growing an anemic 1.1% in 2009, Philippine gross domestic product (GDP) expanded 7.8% in the first quarter this year and 7.9% in the second.
The World Bank noted that first-quarter growth was "far faster than expected", but in line with equally strong regional country recoveries, including 15.5% in Singapore, 12% in Thailand, 10.1% in Malaysia, 5.8% in Vietnam and 5.7% in Indonesia.
After contracting by 5.7% in 2009, investment grew by 24.3% in the first quarter. Remittances from overseas Filipino workers (OFWs), meanwhile, hit US$9.1 billion in the first half, a 6.9% jump over the same period last year, according to official statistics.
Before Aquino's election, sovereign analysts had raised concerns about the country's deteriorating fiscal position, which was aggravated by aggressive pump-priming to offset the negative impact of the global crisis. Fitch Ratings places the Philippines on the second-lowest tier of its bank systemic risk matrix, on par with Hungary, Sri Lanka and Ecuador.
Some analysts had earlier wondered whether the Philippines would follow in the footsteps of Vietnam, whose credit rating was downgraded in August due to a sharp deterioration in its external finances. Although still in surplus, the Philippine balance of payments weakened year-on-year in the first quarter, falling to 3.2% of gross domestic product (GDP) from 4.8% in 2009.
Aquino's strong reform message appears to have given the country at least a temporary reprieve. "The new administration of President Benigno Aquino III, who took office on June 30, has set the tone for accountability and transparency, reviving programs aimed at improving tax collections and emphasizing budgetary restraint," United States-based credit rating agency Moody's wrote in its most recent credit opinion on the Philippines.
"The departments of Finance and Justice have aggressively pursued legal means to deter tax evasion, while the president has outlined a 'zero-based budgeting' approach to expenditure outlays going forward," the Moody's report said.
The government has penciled in projects worth 180 billion (US$4 billion) to 200 billion pesos under the zero-based budgeting scheme, which would allow it to implement projects without state capital outlays through partnerships with the private sector. The plan aims to allow the government to implement crucial infrastructure projects without putting pressure on its fiscal position.
Aquino's early push to rationalize fiscal incentives has sent a positive signal to the business community, according to Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industries, the country's biggest business organization.
"It's our belief that people invest in the country not just because of the incentives, but because they see value in the Philippines," Dee told Asia Times Online.
Benjamin Diokno, a former budget secretary, doubts that the recent rapid economic growth clip is sustainable and predicted the government's 7%-8% GDP growth target for next year would be "tough" to meet.
"Many growth drivers that were present in the first half of the year will be missed in the second half of the year," including election spending, front-loading of public infrastructure outlays and above normal government spending, he wrote in his blog.
"The decision of the Aquino administration to pursue a conservative fiscal policy and to calibrate spending as resources materialize could seriously slow the contribution of the public sector to stronger growth," he added, warning that the global economy was at risk of a double-dip recession.
"Perhaps they want to be conservative, or they realize that there are looming dark clouds in the horizon," Diokno wrote.
One potential cloud is a high budget deficit. Finance Department figures show that the deficit-to-GDP ratio reached 4.9% in the first half of the year, exceeding the 3.9% ceiling set for all of 2010. For the seven-month period ending in July, the national government posted a budget deficit of 229.4 billion pesos, comprising 70.6% of this year's ceiling.
Moody's, which has assigned a Ba3 rating with a "stable" outlook for Philippine sovereign bonds, says that pressure to revise the rating downwards "would arise from an inability to improve government finances or a structural weakening in the balance of payments".
Some economists believe the government still has room to maneuver. "Domestic interest rates remain low historically, suggesting there may be room to move around to finance the deficit," says University of Asia and the Pacific economist Peter Lee U.
"The deficit is manageable - the counterweight to that is the amount of liquidity in the system," said Roberto Juanchito Dispo, executive vice president of First Metro Investment Corporation. "The [government's recent bond] issue was well received by the market, and this acts as a buffer to the deficit."
Dee stressed that local businesses were not looking for a quick fix to the fiscal gap. "As long as we keep the deficit to 3%-3.5% of GDP next year, business will consider this as managing the deficit." He said that while the government's belt tightening measures were laudable, there was still a need to raise tax revenues, a perennial problem in the Philippines.
Aquino ran on the campaign promise that he would not raise taxes, but he has backtracked slightly since taking office. He has said his administrations would impose new taxes only as a "last resort" to address budgetary gaps.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Philippines enjoys post-poll pick-up
By Jennee Grace U Rubrico
MANILA - Business sentiment is rising in the Philippines, buoyed by the May election of President Benigno Aquino and the rising tide of global economic recovery. Whether Aquino can sustain the economic good times amid signs of a slowing global rebound will depend largely on his ability to enact quickly badly needed reforms.
The latest quarterly Business Expectation Survey, conducted by the central bank between July 1 and August 10, showed that business confidence touched 45%, its highest level in two years and a dramatic improvement on the 18.4% recorded over the same period last year.
Indeed, there are reasons to be cheerful. The stock market jumped almost 5% in the first week of September to hit a 32-month high, while the Philippine peso continued to strengthen against the US dollar in line with several other currencies in the region.
Election-related spending, including on advertising and other recreational campaign activities, gave the economy a big first-half boost. After growing an anemic 1.1% in 2009, Philippine gross domestic product (GDP) expanded 7.8% in the first quarter this year and 7.9% in the second.
The World Bank noted that first-quarter growth was "far faster than expected", but in line with equally strong regional country recoveries, including 15.5% in Singapore, 12% in Thailand, 10.1% in Malaysia, 5.8% in Vietnam and 5.7% in Indonesia.
After contracting by 5.7% in 2009, investment grew by 24.3% in the first quarter. Remittances from overseas Filipino workers (OFWs), meanwhile, hit US$9.1 billion in the first half, a 6.9% jump over the same period last year, according to official statistics.
Before Aquino's election, sovereign analysts had raised concerns about the country's deteriorating fiscal position, which was aggravated by aggressive pump-priming to offset the negative impact of the global crisis. Fitch Ratings places the Philippines on the second-lowest tier of its bank systemic risk matrix, on par with Hungary, Sri Lanka and Ecuador.
Some analysts had earlier wondered whether the Philippines would follow in the footsteps of Vietnam, whose credit rating was downgraded in August due to a sharp deterioration in its external finances. Although still in surplus, the Philippine balance of payments weakened year-on-year in the first quarter, falling to 3.2% of gross domestic product (GDP) from 4.8% in 2009.
Aquino's strong reform message appears to have given the country at least a temporary reprieve. "The new administration of President Benigno Aquino III, who took office on June 30, has set the tone for accountability and transparency, reviving programs aimed at improving tax collections and emphasizing budgetary restraint," United States-based credit rating agency Moody's wrote in its most recent credit opinion on the Philippines.
"The departments of Finance and Justice have aggressively pursued legal means to deter tax evasion, while the president has outlined a 'zero-based budgeting' approach to expenditure outlays going forward," the Moody's report said.
The government has penciled in projects worth 180 billion (US$4 billion) to 200 billion pesos under the zero-based budgeting scheme, which would allow it to implement projects without state capital outlays through partnerships with the private sector. The plan aims to allow the government to implement crucial infrastructure projects without putting pressure on its fiscal position.
Aquino's early push to rationalize fiscal incentives has sent a positive signal to the business community, according to Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industries, the country's biggest business organization.
"It's our belief that people invest in the country not just because of the incentives, but because they see value in the Philippines," Dee told Asia Times Online.
Benjamin Diokno, a former budget secretary, doubts that the recent rapid economic growth clip is sustainable and predicted the government's 7%-8% GDP growth target for next year would be "tough" to meet.
"Many growth drivers that were present in the first half of the year will be missed in the second half of the year," including election spending, front-loading of public infrastructure outlays and above normal government spending, he wrote in his blog.
"The decision of the Aquino administration to pursue a conservative fiscal policy and to calibrate spending as resources materialize could seriously slow the contribution of the public sector to stronger growth," he added, warning that the global economy was at risk of a double-dip recession.
"Perhaps they want to be conservative, or they realize that there are looming dark clouds in the horizon," Diokno wrote.
One potential cloud is a high budget deficit. Finance Department figures show that the deficit-to-GDP ratio reached 4.9% in the first half of the year, exceeding the 3.9% ceiling set for all of 2010. For the seven-month period ending in July, the national government posted a budget deficit of 229.4 billion pesos, comprising 70.6% of this year's ceiling.
Moody's, which has assigned a Ba3 rating with a "stable" outlook for Philippine sovereign bonds, says that pressure to revise the rating downwards "would arise from an inability to improve government finances or a structural weakening in the balance of payments".
Some economists believe the government still has room to maneuver. "Domestic interest rates remain low historically, suggesting there may be room to move around to finance the deficit," says University of Asia and the Pacific economist Peter Lee U.
"The deficit is manageable - the counterweight to that is the amount of liquidity in the system," said Roberto Juanchito Dispo, executive vice president of First Metro Investment Corporation. "The [government's recent bond] issue was well received by the market, and this acts as a buffer to the deficit."
Dee stressed that local businesses were not looking for a quick fix to the fiscal gap. "As long as we keep the deficit to 3%-3.5% of GDP next year, business will consider this as managing the deficit." He said that while the government's belt tightening measures were laudable, there was still a need to raise tax revenues, a perennial problem in the Philippines.
Aquino ran on the campaign promise that he would not raise taxes, but he has backtracked slightly since taking office. He has said his administrations would impose new taxes only as a "last resort" to address budgetary gaps.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Friday, 12 April 2013
Sex vs God in the Philippines (Asia Times Online)
Written for and published by Asia Times Online on July 21, 2010. Click here for the original article
Sex vs God in the Philippines
By Jennee Grace U Rubrico
MANILA - Armin Luistro is embroiled in a fierce debate between church and state. As the Philippines education secretary, it's his job to steer government plans to introduce sex education into elementary and high schools in the predominantly Catholic nation.
Since announcing last month that he planned to review the program, Luistro, a member of the De La Salle Brothers - a group of full-time religious educators who are not priests - has sought to distance himself from a longstanding issue that is putting politically powerful church leaders at loggerheads with the government for the second time in five years, saying it is not his priority.
As in a similar tie-up between the department and the United Nations Population Fund in 2005 - which was suspended at its pilot stage - the government again finds itself at odds with the politically powerful Catholic Bishops Conference of the Philippines (CBCP), which wields enormous influence, including the formulation of national policies. While Luistro has yet to decide on the future of the program, he has met with church leaders, whose stance on the issue is clear.
"The position of the CBCP even before is that it [sex education] should be left to parents, especially if we are talking about children who are underage," CBCP spokesman Pedro Quitorio III said.
Spearheaded by the Education Department, the government's initiative aims to teach students about health, wellness, values and character development through modules that include discussions on the human reproductive system, parts of the body and puberty. As planned by the previous Gloria Macapagal-Arroyo administration, sex education is to be integrated in subjects including geography, history and civics and mathematics, with the church's position on pre-marital sex included alongside data on pre-marital sex, teenage pregnancy and sexually transmitted infections.
In a memorandum detailing the focus of the earlier program, the Education Department stressed the need for sex education by pointing out that 71.1% of young females and 35.7% of young males reported contracting genital diseases. It had also noted a 5% rise in early unprotected sex between 1994 and 2002, as well as a lack of adequate knowledge among adolescents to prevent unwanted pregnancies and sexually transmitted diseases.
To address those matters, the Education Department had pushed for "more specific and focused topics", including safe motherhood, fertility awareness, misconceptions and myths on family planning methods, and adolescent reproductive health, and for parent-child counseling. The revived program was scheduled to be pilot tested this year in 79 public secondary schools and eight elementary schools across the country.
The church is not without its backers since about 82% of country's 90 million people are Roman Catholic. The Education Department now faces a lawsuit filed on behalf of 30 parents who oppose the sex education plan for allegedly promoting “contraceptive imperialism” that assaults Christian sensibilities and values.
The Moro Islamic Liberation Front (MILF), a political force that claims to be fighting for the right of Muslims in the Philippines, has also joined the fray. "This is like preparing the child to be competitive for the next world of sex," said Sheikh Muhammad Muntassir, head of the MILF Da'wah committee, who also added that the policy was "hastily designed" and did not consider child psychology.
The Education Department has for the last month been firefighting, giving out interviews and issuing press statements to defend the program. In an attempt to manage the backlash, former education secretary Mona Valisno clarified that "classroom discussions on sex education [are] not about the sex act but on the science of reproduction, physical care and hygiene, correct values and the norms of inter-personal relationships to avoid pre-marital sex and teenage pregnancy.
"Our role here is to educate our young people on issues that directly affect them and empower them to make informed choices and decisions," Valisno said, adding the modules were prepared by psychologists "to ensure that specific topics for discussions will be made in the appropriate year levels".
She admitted, however, that it would be up to the new administration to decide on the implementation or scrapping of the contested project. Many take a pragmatic stance, citing the dismal results of the country's population control drive to argue their point. Now the twelfth-most populous country in the world, the Philippines has a population that grows at a rate of 1.96% per year.
Of its 90 million people, 40% are aged 14 years old and below. East Timor is the only Southeast Asian country that has a faster population growth rate, at 2.03%. Indonesia, the world's fourth-most populous country, has a population growth rate of 1.14% per year, while China and India, the two most populous countries in the world, see their population grow yearly by 0.66% and 1.55% respectively.
"Personally, this is not a moral issue. Whether we should follow the church's teaching, I don't agree. The situation is that the country needs to manage its population," said Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industry, the country's largest business organization. "But when and how sex education should be taught is something that we leave to the child psychology experts."
Ramon Casiple, executive director of the Institute of Political and Electoral Reform, notes that population growth control is paramount, as a runaway population puts the country at risk of running out of resources.
"Having a big population has some advantages, like having a big labor pool, but there's a possibility that we would run out of food to feed our people," he said.
He raised the possibility that the name - the Adolescent Reproductive Health program - and approach of the initiative may have contributed to the conflict between the church and government. While acknowledging that the church as an institution was not likely to change its position, Casiple said he still believed that the program had a good chance of survival.
Luistro's move to review the program, he said, would open up discussion and debate. He added that even within the church, the sex education initiative enjoyed some support.
"The beauty of having a cabinet [in government] is that issues can be discussed and resolved by consensus. The country needs to manage its population, and most likely, the [government's position] will be leaning towards reproductive health, including sex education," he said.
Jennee Grace U Rubrico has been a journalist for over 10 years.
Sex vs God in the Philippines
By Jennee Grace U Rubrico
MANILA - Armin Luistro is embroiled in a fierce debate between church and state. As the Philippines education secretary, it's his job to steer government plans to introduce sex education into elementary and high schools in the predominantly Catholic nation.
Since announcing last month that he planned to review the program, Luistro, a member of the De La Salle Brothers - a group of full-time religious educators who are not priests - has sought to distance himself from a longstanding issue that is putting politically powerful church leaders at loggerheads with the government for the second time in five years, saying it is not his priority.
As in a similar tie-up between the department and the United Nations Population Fund in 2005 - which was suspended at its pilot stage - the government again finds itself at odds with the politically powerful Catholic Bishops Conference of the Philippines (CBCP), which wields enormous influence, including the formulation of national policies. While Luistro has yet to decide on the future of the program, he has met with church leaders, whose stance on the issue is clear.
"The position of the CBCP even before is that it [sex education] should be left to parents, especially if we are talking about children who are underage," CBCP spokesman Pedro Quitorio III said.
Spearheaded by the Education Department, the government's initiative aims to teach students about health, wellness, values and character development through modules that include discussions on the human reproductive system, parts of the body and puberty. As planned by the previous Gloria Macapagal-Arroyo administration, sex education is to be integrated in subjects including geography, history and civics and mathematics, with the church's position on pre-marital sex included alongside data on pre-marital sex, teenage pregnancy and sexually transmitted infections.
In a memorandum detailing the focus of the earlier program, the Education Department stressed the need for sex education by pointing out that 71.1% of young females and 35.7% of young males reported contracting genital diseases. It had also noted a 5% rise in early unprotected sex between 1994 and 2002, as well as a lack of adequate knowledge among adolescents to prevent unwanted pregnancies and sexually transmitted diseases.
To address those matters, the Education Department had pushed for "more specific and focused topics", including safe motherhood, fertility awareness, misconceptions and myths on family planning methods, and adolescent reproductive health, and for parent-child counseling. The revived program was scheduled to be pilot tested this year in 79 public secondary schools and eight elementary schools across the country.
The church is not without its backers since about 82% of country's 90 million people are Roman Catholic. The Education Department now faces a lawsuit filed on behalf of 30 parents who oppose the sex education plan for allegedly promoting “contraceptive imperialism” that assaults Christian sensibilities and values.
The Moro Islamic Liberation Front (MILF), a political force that claims to be fighting for the right of Muslims in the Philippines, has also joined the fray. "This is like preparing the child to be competitive for the next world of sex," said Sheikh Muhammad Muntassir, head of the MILF Da'wah committee, who also added that the policy was "hastily designed" and did not consider child psychology.
The Education Department has for the last month been firefighting, giving out interviews and issuing press statements to defend the program. In an attempt to manage the backlash, former education secretary Mona Valisno clarified that "classroom discussions on sex education [are] not about the sex act but on the science of reproduction, physical care and hygiene, correct values and the norms of inter-personal relationships to avoid pre-marital sex and teenage pregnancy.
"Our role here is to educate our young people on issues that directly affect them and empower them to make informed choices and decisions," Valisno said, adding the modules were prepared by psychologists "to ensure that specific topics for discussions will be made in the appropriate year levels".
She admitted, however, that it would be up to the new administration to decide on the implementation or scrapping of the contested project. Many take a pragmatic stance, citing the dismal results of the country's population control drive to argue their point. Now the twelfth-most populous country in the world, the Philippines has a population that grows at a rate of 1.96% per year.
Of its 90 million people, 40% are aged 14 years old and below. East Timor is the only Southeast Asian country that has a faster population growth rate, at 2.03%. Indonesia, the world's fourth-most populous country, has a population growth rate of 1.14% per year, while China and India, the two most populous countries in the world, see their population grow yearly by 0.66% and 1.55% respectively.
"Personally, this is not a moral issue. Whether we should follow the church's teaching, I don't agree. The situation is that the country needs to manage its population," said Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industry, the country's largest business organization. "But when and how sex education should be taught is something that we leave to the child psychology experts."
Ramon Casiple, executive director of the Institute of Political and Electoral Reform, notes that population growth control is paramount, as a runaway population puts the country at risk of running out of resources.
"Having a big population has some advantages, like having a big labor pool, but there's a possibility that we would run out of food to feed our people," he said.
He raised the possibility that the name - the Adolescent Reproductive Health program - and approach of the initiative may have contributed to the conflict between the church and government. While acknowledging that the church as an institution was not likely to change its position, Casiple said he still believed that the program had a good chance of survival.
Luistro's move to review the program, he said, would open up discussion and debate. He added that even within the church, the sex education initiative enjoyed some support.
"The beauty of having a cabinet [in government] is that issues can be discussed and resolved by consensus. The country needs to manage its population, and most likely, the [government's position] will be leaning towards reproductive health, including sex education," he said.
Jennee Grace U Rubrico has been a journalist for over 10 years.
Aquino's first challenge: Arroyo (Asia Times Online)
Written for and published by Asia Times Online on May 26, 2010. Click here for the original article.
Aquino's first challenge: Arroyo
By Jennee Grace U Rubrico
MANILA - When Philippine President Gloria Macapagal-Arroyo steps down next month after nine years in office, the scandal-plagued leader will soon find herself on the political and possibly legal defensive. President-elect Benigno "Noynoy" Aquino ran partially on a clean governance vow to prosecute her administration's alleged crimes. Voters who overwhelmingly elected him earlier this month will expect prompt justice.
How he calibrates politicized law suits with forward-looking economic policies will be pivotal to his government's early success. Political analysts note that Arroyo is still a powerful force after winning a congressional seat in her home province and with sway over a large parliamentary voting bloc. She is expected to vie for the powerful house speaker position in the new parliament.
In an April report, GlobalSource Partners Inc, a local research firm, said that because Aquino campaigned on prosecuting Arroyo, "he may find it hard to push through with fiscal and economic reforms".
Aquino will need strong legislative support "to get the government running and put the economy on track" and he will need to use all "the tools at the disposal of the presidency to navigate through transaction-driven Philippine politics to take control and neutralize, co-opt, or cooperate with the forces aligned with the [Arroyo] administration," according to the report.
It added: "Failure to do so skillfully, Aquino and the country may end up in a stalemate, meaning lost years for the economy moving forward as it locks horns with congress."
Although Aquino won the presidency by a large margin over the second running candidate, his Liberal Party will be a minority in both congressional chambers. His party won just 45 seats in the House of Representatives, much less than the 107 controlled by Arroyo's Lakas-KAMPI-CMD coalition. In the senate, Aquino's party only has four representatives in a full complement of 23.
Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industry, the country's largest business organization, is optimistic about Aquino's reform prospects. He believes that the early concession by Senator Manuel Villar, the second running candidate in the presidential race, and his move to publicly congratulate Aquino signaled a willingness to cooperate with the new government. Villar ran independent of Arroyo, but many believed he was her preferred candidate.
"I think that a lot of people who were not really supportive of [Aquino] are willing to give him a chance to prove them wrong," said Dee. "However, the next actions, policy direction-wise, in the next 100 days will be important to see not only if he can get the executive and legislative to work together, but also in convincing people to work together in achieving unity in the country."
Judging by Aquino's modest record in the senate, where critics say he championed few important laws, it's not immediately apparent he has the political skills to build such a consensus.
Aquino will also face "the challenge of changing his 12 years of non-performance in congress", said Clarita Carlos, a political science professor at the University of the Philippines. The academic said Arroyo was "an exceptionally hard worker" but that the various corruption charges "diminished her effectiveness because there was no closure in all of them".
Arroyo's approval rating was at an all-time low of 14% in April, dooming the electoral bid of her party's anointed successor, the Harvard-educated Gilbert Teodoro. While Aquino will aim to differentiate his policies and leadership style, analysts say he would be wise to follow certain of Arroyo's economic leads. Those include fiscal and monetary policies that supported the country's fastest gross domestic product (GDP) growth in over 31 years in 2007, and an average annual economic growth rate of 4.9% during her nine-year term.
Dee identified Arroyo's infrastructure development drive as among her greatest achievements, including the construction of the Subic-Clark-Tarlac Expressway, a highway that linked three central Luzon areas to Manila, and the creation of the so-called Roll On/Roll Off system, a nautical highway that connects the country's three major islands and allows for faster transport of agricultural products.
But widespread corruption allegations took the shine off those accomplishments. Arroyo survived four different impeachment motions and was directly implicated in allegations that her husband, Jose Miguel Arroyo, diverted 300 million pesos (US$613,000) in campaign funds and contributions into a secret bank account. She was also accused of buying votes in the 2004 national elections using a Department of Agriculture fertilizer fund and of rigging the polls in her favor.
Her government also came under fire for accepting bribes in awarding a multi-million dollar broadband Internet project that would have wired the country's creaky and far-flung bureaucracy. Amid uproar, the project was eventually scrapped. While the allegations stirred the media and sustained calls for Arroyo's resignation, none led to evidence-based court convictions. Aquino will be expected to reopen certain of those cases and push to recapture allegedly pilfered state funds.
Federico Macaranas, former executive director of the Asian Institute of Management's Policy Center, said that the steady stream of corruption allegations against Arroyo substantially weakened the Philippine economy. The eVAT policy, the centerpiece of Arroyo's economic reform agenda, "helped attract foreign direct investors ostensibly" but not as much as it could have because of "the perception that graft and corruption is the pervasive factor debilitating the economy."
"The minimization of graft and corruption becomes the major challenge" for Aquino, he said. "He faces the legacy of cleaning up the image that the country is hopelessly ungovernable in terms of clean and honest leadership, showing [a new] way to the masses of people whose lives are made poorer by democratized graft," Macaranas said.
At the same time, Aquino will inherit a spiraling budget deficit that Arroyo failed to rein in despite raising taxes. Like many regional countries, the Philippines resorted to heavy fiscal pump priming to mitigate the negative impact of the US-triggered global economic crisis of 2008 and 2009. Arroyo's government posted a record budget deficit of 298.5 billion pesos last year, representing 3.9% of GDP.
Meanwhile, the revenue shortfall for the first four months of this year amounted to 131.6 billion pesos, or 45% of the full-year forecast. Despite all the state spending, unemployment and underemployment were a stubbornly high 7.5% and 19.1% respectively last year, according to official statistics. The lack of local employment opportunities drove more than one million Filipinos abroad in pursuit of work.
"We turn out college graduates who are hardly absorbed by the local economy and thus leave to form part of the diaspora. The most educated seek greener pastures abroad - indeed a policy of the POEA [Philippine Overseas Employment Agency] now is to send the less vulnerable to earn foreign exchange for the country," said Macaranas.
To address these and other economic challenges, Aquino will need strong parliamentary support for his various proposed reform initiatives. But with Arroyo's still strong pull in parliament, and the legal threats to her and her administration's legacy, she could play the spoiler to Aquino's political and economic success.
Jennee Grace U Rubricohas been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Aquino's first challenge: Arroyo
By Jennee Grace U Rubrico
MANILA - When Philippine President Gloria Macapagal-Arroyo steps down next month after nine years in office, the scandal-plagued leader will soon find herself on the political and possibly legal defensive. President-elect Benigno "Noynoy" Aquino ran partially on a clean governance vow to prosecute her administration's alleged crimes. Voters who overwhelmingly elected him earlier this month will expect prompt justice.
How he calibrates politicized law suits with forward-looking economic policies will be pivotal to his government's early success. Political analysts note that Arroyo is still a powerful force after winning a congressional seat in her home province and with sway over a large parliamentary voting bloc. She is expected to vie for the powerful house speaker position in the new parliament.
In an April report, GlobalSource Partners Inc, a local research firm, said that because Aquino campaigned on prosecuting Arroyo, "he may find it hard to push through with fiscal and economic reforms".
Aquino will need strong legislative support "to get the government running and put the economy on track" and he will need to use all "the tools at the disposal of the presidency to navigate through transaction-driven Philippine politics to take control and neutralize, co-opt, or cooperate with the forces aligned with the [Arroyo] administration," according to the report.
It added: "Failure to do so skillfully, Aquino and the country may end up in a stalemate, meaning lost years for the economy moving forward as it locks horns with congress."
Although Aquino won the presidency by a large margin over the second running candidate, his Liberal Party will be a minority in both congressional chambers. His party won just 45 seats in the House of Representatives, much less than the 107 controlled by Arroyo's Lakas-KAMPI-CMD coalition. In the senate, Aquino's party only has four representatives in a full complement of 23.
Donald Dee, vice chairman of the Philippine Chamber of Commerce and Industry, the country's largest business organization, is optimistic about Aquino's reform prospects. He believes that the early concession by Senator Manuel Villar, the second running candidate in the presidential race, and his move to publicly congratulate Aquino signaled a willingness to cooperate with the new government. Villar ran independent of Arroyo, but many believed he was her preferred candidate.
"I think that a lot of people who were not really supportive of [Aquino] are willing to give him a chance to prove them wrong," said Dee. "However, the next actions, policy direction-wise, in the next 100 days will be important to see not only if he can get the executive and legislative to work together, but also in convincing people to work together in achieving unity in the country."
Judging by Aquino's modest record in the senate, where critics say he championed few important laws, it's not immediately apparent he has the political skills to build such a consensus.
Aquino will also face "the challenge of changing his 12 years of non-performance in congress", said Clarita Carlos, a political science professor at the University of the Philippines. The academic said Arroyo was "an exceptionally hard worker" but that the various corruption charges "diminished her effectiveness because there was no closure in all of them".
Arroyo's approval rating was at an all-time low of 14% in April, dooming the electoral bid of her party's anointed successor, the Harvard-educated Gilbert Teodoro. While Aquino will aim to differentiate his policies and leadership style, analysts say he would be wise to follow certain of Arroyo's economic leads. Those include fiscal and monetary policies that supported the country's fastest gross domestic product (GDP) growth in over 31 years in 2007, and an average annual economic growth rate of 4.9% during her nine-year term.
Dee identified Arroyo's infrastructure development drive as among her greatest achievements, including the construction of the Subic-Clark-Tarlac Expressway, a highway that linked three central Luzon areas to Manila, and the creation of the so-called Roll On/Roll Off system, a nautical highway that connects the country's three major islands and allows for faster transport of agricultural products.
But widespread corruption allegations took the shine off those accomplishments. Arroyo survived four different impeachment motions and was directly implicated in allegations that her husband, Jose Miguel Arroyo, diverted 300 million pesos (US$613,000) in campaign funds and contributions into a secret bank account. She was also accused of buying votes in the 2004 national elections using a Department of Agriculture fertilizer fund and of rigging the polls in her favor.
Her government also came under fire for accepting bribes in awarding a multi-million dollar broadband Internet project that would have wired the country's creaky and far-flung bureaucracy. Amid uproar, the project was eventually scrapped. While the allegations stirred the media and sustained calls for Arroyo's resignation, none led to evidence-based court convictions. Aquino will be expected to reopen certain of those cases and push to recapture allegedly pilfered state funds.
Federico Macaranas, former executive director of the Asian Institute of Management's Policy Center, said that the steady stream of corruption allegations against Arroyo substantially weakened the Philippine economy. The eVAT policy, the centerpiece of Arroyo's economic reform agenda, "helped attract foreign direct investors ostensibly" but not as much as it could have because of "the perception that graft and corruption is the pervasive factor debilitating the economy."
"The minimization of graft and corruption becomes the major challenge" for Aquino, he said. "He faces the legacy of cleaning up the image that the country is hopelessly ungovernable in terms of clean and honest leadership, showing [a new] way to the masses of people whose lives are made poorer by democratized graft," Macaranas said.
At the same time, Aquino will inherit a spiraling budget deficit that Arroyo failed to rein in despite raising taxes. Like many regional countries, the Philippines resorted to heavy fiscal pump priming to mitigate the negative impact of the US-triggered global economic crisis of 2008 and 2009. Arroyo's government posted a record budget deficit of 298.5 billion pesos last year, representing 3.9% of GDP.
Meanwhile, the revenue shortfall for the first four months of this year amounted to 131.6 billion pesos, or 45% of the full-year forecast. Despite all the state spending, unemployment and underemployment were a stubbornly high 7.5% and 19.1% respectively last year, according to official statistics. The lack of local employment opportunities drove more than one million Filipinos abroad in pursuit of work.
"We turn out college graduates who are hardly absorbed by the local economy and thus leave to form part of the diaspora. The most educated seek greener pastures abroad - indeed a policy of the POEA [Philippine Overseas Employment Agency] now is to send the less vulnerable to earn foreign exchange for the country," said Macaranas.
To address these and other economic challenges, Aquino will need strong parliamentary support for his various proposed reform initiatives. But with Arroyo's still strong pull in parliament, and the legal threats to her and her administration's legacy, she could play the spoiler to Aquino's political and economic success.
Jennee Grace U Rubricohas been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
EU ban darkens Philippine skies (Asia Times Online)
Written for and published by Asia Times Online on April 20, 2010. Click here for original article.
EU ban darkens Philippine skies
By Jennee Grace U Rubrico
MANILA - A European Commission decision to ban Philippine carriers from European airspace, which took effect on April 1, threatens to undermine the country's crucial tourism sector.
The prohibition, the most recent in a series of problems for the Philippine aviation industry over the past two years, was issued on the basis of safety assessments by the International Civil Aviation Organization (ICAO) in September 2009 and the downgrade of the country's safety rating by the US Federal Aviation Administration (FAA) in 2008.
In a statement, the 27-member European Commission said that it had been in constant communication with Philippine regulatory bodies prior to reaching its decision, and acknowledged efforts of the two-year-old Civil Aviation Authority of the Philippines (CAAP), the new regulatory body that was formed after the dissolution of the Air Transportation Office, to reform the country's civil aviation system.
It also recognized measures taken by the two biggest airlines of the country - Philippine Airlines and Cebu Air - to better ensure aircraft safety. These efforts, however, did not prevent the community from adding Philippine airlines to its blacklist.
EU ambassador Alistair MacDonald said: "The commission considers that the supervisory authority is currently not able to implement and enforce the relevant safety standards, and decided therefore to ban from EU airspace all air carriers licensed in the Philippines until these deficiencies are corrected."
The head of the CAAP, Alfonso Cusi, acknowledged the reasoning for the EC's decision, but said that it was based on outdated information. "There has been no audit after the FAA downgrade two years ago. Then there was an ICAO audit. The EU was acting on findings of ICAO but that was still in October," Cusi said.
Cusi, who assumed his post last month, said that the concerns raised by the EC included monitoring of airlines' business processes to check whether they are on par with international standards. "The question is how we check it. There must be a process that is acceptable. There must be manuals, systematic procedures. They [European Commission] did not see this," he said.
What the European Commission weighed were processes used by the Philippine civil aviation regulators two years prior, which were then deemed unsatisfactory. "Now, we want to show them that [the reforms are] here. We want to correct the impression," he said, noting that the CAAP has reiterated a request that the EC visit the country in May to check the progress of recent reforms.
No carrier licensed in the Philippines at present services Europe, so technically the ban does not affect any Philippine airlines' revenues from ticket sales. Industry players, however, note that the repercussions of the EC's preemptive restrictions are far-reaching and damaging both to Philippine carriers and the country.
Aviation industry analyst and Asian Institute of Management (AIM) associate professor Wilfred Manuela said that because the ban is on Philippine-licensed airlines, the reputation of local airlines is at risk.
"If a country's civil aviation authority appears not to be implementing what the ICAO requires ... the validity of the certifications issued by the civil aviation authority to airlines is now in doubt," he said. "Perhaps even local passengers will now entertain some doubts regarding the safety of local carriers."
Cebu Air, which operates Cebu Pacific flights to other Asian destinations, claims to have a fleet with an average age of 17 months while Philippine Airlines' planes are reportedly eight years old on average.
Tourism deterrent
The EU ban may also erode tourist arrivals and eventually airline revenues, analysts say. In 2008, when the FAA downgraded the safety ratings of the country to Category 2 from Category 1, the US Embassy issued a travel advisory discouraging its citizens in the Philippines from using local airlines.
Category 2 indicates that the FAA had assessed that the Philippines' civil aviation authority had failed to comply with ICAO safety standards for the oversight of air carrier operations. While in Category 2, Philippine air carriers are permitted to continue current operations to the US under heightened FAA surveillance.
"Whenever possible, Americans traveling to and from the Philippines should fly to their destinations on international carriers from countries whose civil aviation authorities meet international aviation safety standards for the oversight of their air carrier operations under the FAA's International Aviation Safety Assessment (IASA) program," the advisory stated.
Philippine Airlines, the only local carrier that services the US, was badly affected by the US advisory since the US market, with its huge population of Filipinos, contributed 30% of its revenues. Expansion plans were also put on hold until the Category 2 classification could be lifted.
While the European Commission ban would not have a direct impact on Philippine-licensed carriers, the reputational hazard could be costly. Europeans who come to the Philippines for business or tourism are expected to stay away while the ban is in place. Tourist destinations in the Philippines are generally reached through transfers from international airports.
Since only Philippine-licensed carriers service domestic routes, an advisory that discourages European and American citizens from using local carriers could prevent them from visiting the country altogether and severely impact the tourism industry.
"Since the Philippines does not allow foreign airlines to pick up passengers from gateway airports to other domestic destinations, visitors are forced to take local airlines. They may stop coming to the Philippines if they start to entertain the idea that local airlines are unsafe," said AIM's Manuela.
"For European tourists who have taken local flights before, this may not be a problem. For those visiting the Philippines for the first time, either they ride at their own risk or cancel their travel plans to the Philippines altogether," said Manuela. "I don't think they would ride at their own risk."
The local tourism industry is already feeling the heat. Tourism Secretary Ace Durano said that European insurance companies have stopped covering travelers for domestic air travel in the country, leading to the cancellation of bookings for April to August to the Philippines by travel operators from Germany, the United Kingdom and France. Figures from the National Statistics Coordination Board show that European visitors made up 10% of the total tourist arrivals in the Philippines in 2008.
Code-sharing arrangements between Philippine-registered airlines and international carriers may also be jeopardized by the EC's decision to blacklist local carriers. Philippine Airlines has code-sharing arrangements with airlines of the Gulf States for Middle Eastern destinations, to which around half of the more than one million Filipino overseas contract workers are deployed each year.
These destinations are also used as transfer points for passengers going to Europe from the Philippines. "If the Gulf States think that the EU ban has any merit, they might take a second look at the code share agreements with Philippine Airlines. If they are convinced that the EU ban is credible, they might suspend or withdraw code share agreements," said Manuela.
Other civil aviation bodies may also take their cue from the European Commission, in the same way the bloc took its cue from the FAA and the ICAO, and institute a similar ban on Philippine-based airlines in their airspace. Manuela, however, noted that the FAA was not likely to impose harsher measures for US routes given that the agency has not taken further adverse actions in the two years since it downgraded the Philippines to Category 2.
The government is in damage-control mode. Cusi said that as soon as the European Commission advisory came out, his CAAP got in touch with other aviation authorities to assure them that the concerns of the European bloc are already being addressed.
"Immediately after the advisory came out, we wrote to the authorities in the other countries and parts of the region informing them that we are safe. For instance, we wrote to IOSA [IATA Operational Safety Audit] to let them know that our airlines are very compliant. They said they understood. So far I think we're holding on," he said.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
EU ban darkens Philippine skies
By Jennee Grace U Rubrico
MANILA - A European Commission decision to ban Philippine carriers from European airspace, which took effect on April 1, threatens to undermine the country's crucial tourism sector.
The prohibition, the most recent in a series of problems for the Philippine aviation industry over the past two years, was issued on the basis of safety assessments by the International Civil Aviation Organization (ICAO) in September 2009 and the downgrade of the country's safety rating by the US Federal Aviation Administration (FAA) in 2008.
In a statement, the 27-member European Commission said that it had been in constant communication with Philippine regulatory bodies prior to reaching its decision, and acknowledged efforts of the two-year-old Civil Aviation Authority of the Philippines (CAAP), the new regulatory body that was formed after the dissolution of the Air Transportation Office, to reform the country's civil aviation system.
It also recognized measures taken by the two biggest airlines of the country - Philippine Airlines and Cebu Air - to better ensure aircraft safety. These efforts, however, did not prevent the community from adding Philippine airlines to its blacklist.
EU ambassador Alistair MacDonald said: "The commission considers that the supervisory authority is currently not able to implement and enforce the relevant safety standards, and decided therefore to ban from EU airspace all air carriers licensed in the Philippines until these deficiencies are corrected."
The head of the CAAP, Alfonso Cusi, acknowledged the reasoning for the EC's decision, but said that it was based on outdated information. "There has been no audit after the FAA downgrade two years ago. Then there was an ICAO audit. The EU was acting on findings of ICAO but that was still in October," Cusi said.
Cusi, who assumed his post last month, said that the concerns raised by the EC included monitoring of airlines' business processes to check whether they are on par with international standards. "The question is how we check it. There must be a process that is acceptable. There must be manuals, systematic procedures. They [European Commission] did not see this," he said.
What the European Commission weighed were processes used by the Philippine civil aviation regulators two years prior, which were then deemed unsatisfactory. "Now, we want to show them that [the reforms are] here. We want to correct the impression," he said, noting that the CAAP has reiterated a request that the EC visit the country in May to check the progress of recent reforms.
No carrier licensed in the Philippines at present services Europe, so technically the ban does not affect any Philippine airlines' revenues from ticket sales. Industry players, however, note that the repercussions of the EC's preemptive restrictions are far-reaching and damaging both to Philippine carriers and the country.
Aviation industry analyst and Asian Institute of Management (AIM) associate professor Wilfred Manuela said that because the ban is on Philippine-licensed airlines, the reputation of local airlines is at risk.
"If a country's civil aviation authority appears not to be implementing what the ICAO requires ... the validity of the certifications issued by the civil aviation authority to airlines is now in doubt," he said. "Perhaps even local passengers will now entertain some doubts regarding the safety of local carriers."
Cebu Air, which operates Cebu Pacific flights to other Asian destinations, claims to have a fleet with an average age of 17 months while Philippine Airlines' planes are reportedly eight years old on average.
Tourism deterrent
The EU ban may also erode tourist arrivals and eventually airline revenues, analysts say. In 2008, when the FAA downgraded the safety ratings of the country to Category 2 from Category 1, the US Embassy issued a travel advisory discouraging its citizens in the Philippines from using local airlines.
Category 2 indicates that the FAA had assessed that the Philippines' civil aviation authority had failed to comply with ICAO safety standards for the oversight of air carrier operations. While in Category 2, Philippine air carriers are permitted to continue current operations to the US under heightened FAA surveillance.
"Whenever possible, Americans traveling to and from the Philippines should fly to their destinations on international carriers from countries whose civil aviation authorities meet international aviation safety standards for the oversight of their air carrier operations under the FAA's International Aviation Safety Assessment (IASA) program," the advisory stated.
Philippine Airlines, the only local carrier that services the US, was badly affected by the US advisory since the US market, with its huge population of Filipinos, contributed 30% of its revenues. Expansion plans were also put on hold until the Category 2 classification could be lifted.
While the European Commission ban would not have a direct impact on Philippine-licensed carriers, the reputational hazard could be costly. Europeans who come to the Philippines for business or tourism are expected to stay away while the ban is in place. Tourist destinations in the Philippines are generally reached through transfers from international airports.
Since only Philippine-licensed carriers service domestic routes, an advisory that discourages European and American citizens from using local carriers could prevent them from visiting the country altogether and severely impact the tourism industry.
"Since the Philippines does not allow foreign airlines to pick up passengers from gateway airports to other domestic destinations, visitors are forced to take local airlines. They may stop coming to the Philippines if they start to entertain the idea that local airlines are unsafe," said AIM's Manuela.
"For European tourists who have taken local flights before, this may not be a problem. For those visiting the Philippines for the first time, either they ride at their own risk or cancel their travel plans to the Philippines altogether," said Manuela. "I don't think they would ride at their own risk."
The local tourism industry is already feeling the heat. Tourism Secretary Ace Durano said that European insurance companies have stopped covering travelers for domestic air travel in the country, leading to the cancellation of bookings for April to August to the Philippines by travel operators from Germany, the United Kingdom and France. Figures from the National Statistics Coordination Board show that European visitors made up 10% of the total tourist arrivals in the Philippines in 2008.
Code-sharing arrangements between Philippine-registered airlines and international carriers may also be jeopardized by the EC's decision to blacklist local carriers. Philippine Airlines has code-sharing arrangements with airlines of the Gulf States for Middle Eastern destinations, to which around half of the more than one million Filipino overseas contract workers are deployed each year.
These destinations are also used as transfer points for passengers going to Europe from the Philippines. "If the Gulf States think that the EU ban has any merit, they might take a second look at the code share agreements with Philippine Airlines. If they are convinced that the EU ban is credible, they might suspend or withdraw code share agreements," said Manuela.
Other civil aviation bodies may also take their cue from the European Commission, in the same way the bloc took its cue from the FAA and the ICAO, and institute a similar ban on Philippine-based airlines in their airspace. Manuela, however, noted that the FAA was not likely to impose harsher measures for US routes given that the agency has not taken further adverse actions in the two years since it downgraded the Philippines to Category 2.
The government is in damage-control mode. Cusi said that as soon as the European Commission advisory came out, his CAAP got in touch with other aviation authorities to assure them that the concerns of the European bloc are already being addressed.
"Immediately after the advisory came out, we wrote to the authorities in the other countries and parts of the region informing them that we are safe. For instance, we wrote to IOSA [IATA Operational Safety Audit] to let them know that our airlines are very compliant. They said they understood. So far I think we're holding on," he said.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Philippines' power at crisis point (Asia Times Online)
Written for and published by Asia Times Online on April 10, 2010. Click here for original article
Philippines' power at crisis point
By Jennee Grace U Rubrico
MANILA - Recent electricity outages in the Philippines has sparked concern that the country is on its way to its second power crisis in 20 years. For over a month, the Luzon, Visayas and Mindanao grids have been registering insufficient capacity, resulting in frequent-to-regular power outages that last anywhere from an hour to half a day.
Mindanao in southern Philippines, which is the hardest hit, now suffers a daily power outage that lasts up to 11 hours. President Gloria Macapagal-Arroyo has declared a state of calamity in the island in response. The declaration of a state of calamity is a prerequisite for the release of disaster funds, which local governments can use at their discretion. Her detractors claim this could lead to widespread cheating in the country's first automated national polls, which are due to be held on May 10.
Widespread drought and ill-timed maintenance work are being cited as factors for the inadequate power capacity. Of the country's 15,572 megawatts (MW) of installed capacity, 3,291 MW comes from hydroelectric power plants. Mindanao, in particular, is susceptible: 55% of the power generated in the island is sourced from hydroelectric power plants, whose dams are now approaching critical levels.
Mindanao's available capacity was capped at 785 MW as of March 24, against a dependable capacity of 1,682 MW, according to data from the National Grid Corporation of the Philippines, which operates the country's transmission lines. Peak load for the day hit 1,251 MW, resulting in a shortage of 466 MW. The deficit in the power supply is expected to be sustained. Officials of National Power Corp (Napocor), the state-owned power generator in the region, have warned that with the water level at the dams continuing to recede, a shutdown of the 700 MW Agus and the 200 MW Pulangi hydroelectric power plants might be imminent.
Most state-owned power plants have been sold off in line with the Electric Power Industry Reform Act of 2001 (EPIRA), but the Agus and Pulangi plants are owned by the government through Napocor by virtue of a provision in the law which stipulates that the complexes are not to be privatized within 10 years of the law's passage.
In the Visayas grid, which covers central Philippines, a much smaller deficit of 34 MW was recorded on March 24. Luzon, which earlier suffered sporadic outages due to some power plants being shut down at the same time due overlapping maintenance schedules, has gone back to posting gross power reserves of 158 MW. Both grids are less dependent on hydroelectric power than Mindanao, with the Visayas relying on geothermal energy and Luzon on electricity generated from natural gas.
The Arroyo administration has announced a slew of stop-gap measures for the power situation in Mindanao. Power barges have been deployed to cover the shortage for the time being. Other steps include allowing private firms to connect their generators to the grid, scheduling industrial activity in the island during off-peak periods to lessen the peak load, and opening lending windows for firms that wish to lease generators.
The president has also authorized the state to contract additional capacity from a power plant that is based in the island, a measure that requires congressional approval, as stipulated in Section 71 of the EPIRA.
The outages are expected to end once the rains start, and resupply reservoirs behind hydroelectric dams. The overall problem of a capacity shortage still has to be addressed and power experts say deeper fundamental problems in the Philippine power sector could again plunge the country in darkness - issues that are likely going to be placed on the backburner when this round of blackouts ends.
Fernando Roxas, Asian Institute of Management professor and a power sector expert, notes that nine years after the passage of the EPIRA, power sector reform has not been completed. The mandated sale of the government's power generation assets, for instance, has not been completed 14 years after President Fidel Ramos announced the plan in 1996 and nine years after the EPIRA was passed.
A January 2010 update of the asset privatization plan that was released by the Power Sector Assets and Liabilities Management Corp, the body set up by the EPIRA to dispose of Napocor assets and pay its debts, reveals that of the 30 generating facilities earmarked for disposal, only 20 have been sold and transferred to the winning bidders. Of these, only two are servicing the Mindanao grid.
Roxas noted that delays in the sale of these assets have led to delays in their rehabilitation - which in turn contributed to the power deficiency in Luzon. "The delayed privatization schedule meant that required major rehabilitation was not done because the government intended to sell the assets anyway," he said.
Power subsidies that increased the government's debt while making the public resistant to rate increases have also derailed the reforms, he said. "The power sector was a convenient subsidy mechanism, and like in many developing countries in Asia, people have come to expect electricity to be subsidized. In tandem with politics, this has slowed down the reform process tremendously."
Structural weaknesses in the Philippines and the global economic crises of 1997-1998 and 2008-2009 have also slowed investments in the power sector, he said.
As a result of feet-dragging in implementing the reforms, the capacity shortage that caused a power crisis in the 1990s has not been eradicated. At that time, the Corazon Aquino administration decided to decommission the 600 MW Bataan nuclear power plant, which in turn led to massive blackouts, the rationing of power supply and economic losses which the World Bank calculated to have reached between $600 million and $800 million a year.
Power supply is declared critical when the existing generating capacity is not enough to cover peak demand, and reserves go below 23.4% of dependable capacity for Luzon and the Visayas and 21% for Mindanao. Mindanao is expected to hit a critical period this year if no additional capacity goes onstream, according to government data. The Visayas, which hit critical levels last year, face a new critical period in 2011, the same time that Luzon is expected to hit its critical period.
While the Visayas will secure an additional 328 MW of power supply this year, only 42.5 MW of capacity will be added in Mindanao when another hydro power plant goes onstream. Luzon is not scheduled to augment its capacity until 2012, when 600 MW is added to the grid.
Economist Peter Lee U notes that there are no shortcuts in addressing the worsening power situation. "It is a fundamental demand-supply gap, and it takes time for new power plants to be built," he said.
Analysts maintain that the additional capacity should come from the private sector and not from the government, with Roxas saying that having the state contract power, while provided for by law, "would undo all the [power sector reform] effort of the past 10 years" if it is again adopted as a policy.
"Government already proved, beyond reasonable doubt, that it will produce a crisis such as the one in the 1990s and the current one in Mindanao. Invoking Section 71 of EPIRA is declaring market failure, which is a pity because the market wasn't even allowed to touch Mindanao 10 years after the enactment of EPIRA," he said.
In the meantime, power rates are increasing and the country's energy stability - and economic growth - remain threatened. Electricity from power barges and generators, for one thing, costs much more than power from water.
"In 2000, the accounting cost of running power barges was about 35 pesos per kilowatt hour because you're basically running a ship and a generator at the same time. But politicians are saying consumers in Mindanao are only willing to pay 2.30 pesos/kWh - that's what is being charged for [power from the hydroelectric plants]. Who will pay the cost of the barges and the leased generator sets?" Roxas asked.
U also noted that while reliable power supply "is vital to attracting investments in all industries", higher power rates would drive up business costs "and be a drag on the economic recovery".
The Department of Energy has a long-term plan that determines the additional capacity needed by the different grids based on projected increase in power demand. It indicates that 1,354 MW of power is set to be added between this year and 2014, but very little of it - around 100 MW - is going to Mindanao.
The energy department is also exploring indigenous sources of energy, including natural gas, oil reserves and geothermal energy. It is also studying the possibility of putting up nuclear power plants by 2025.
Much of the success of the energy plan depends on the next administration's policies. Presidential race frontrunners Benigno Aquino III and Manuel Villar both say their strategy to address the supply lack is to entice private investors to the country.
For government to contract additional capacity "is contrary to ... the adopted policy of government to privatize power generation - which is what investors have been complaining about: lack of consistency of [government] policy, and it will undo years of hard work to institute reform in the power sector and put at risk future investments," said Aquino, the only son of Corazon Aquino, whose term ended the regime of Ferdinand Marcos regime but also saw the start of massive blackouts.
An Aquino government would pursue an optimal energy mix "immediately and aggressively if we hope to meet our future needs", he said. "Neither renewables nor fossil fuels nor nuclear power alone can bring energy self-sufficiency. The energy mix should be able to reduce risks associated with the supply, price volatility and production cost."
Villar noted that going back to having government contract power would open the country to another round of take-or-pay arrangements. In the 1990s, Napocor entered into take-or-pay deals with the private power producers that were tapped to help address the shortage of power. The deals ensured that the generating companies would get paid for the power they produced, used or not. The result was spiraling power rates when the 1997-98 Asian financial crisis struck and demand for energy slackened along with economic activity. Napocor, which was saddled with excess capacity it could not sell, passed on the cost of contracting power to consumers.
"What I am trying to avoid is the repeat of the 1990s situation where the public ended up paying for power it never used," Villar said. "This is mainly the downside of invoking Section 71 of the EPIRA, which enables the government to enter into new contracts for additional capacity, usually at a much higher cost for the emergency power. Overcompensation will result in buying expensive power that will later migrate to monthly electric bills of consumers as stranded costs."
As for addressing the situation in Mindanao, the candidates did not give specific proposals, saying only that they would leave it up to the "stakeholders" to resolve the crisis in the region.
"We have two choices: do we want to have low electric rates at the expense of no power, or do we want to have sustainable, available and reliable source of power," Aquino said. "It is the government's job to build a consensus among various stakeholders to make it more acceptable to them. The government should adopt a policy of pricing power rate to reflect the true cost of electricity in a transparent manner through the EPIRA."
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Philippines' power at crisis point
By Jennee Grace U Rubrico
MANILA - Recent electricity outages in the Philippines has sparked concern that the country is on its way to its second power crisis in 20 years. For over a month, the Luzon, Visayas and Mindanao grids have been registering insufficient capacity, resulting in frequent-to-regular power outages that last anywhere from an hour to half a day.
Mindanao in southern Philippines, which is the hardest hit, now suffers a daily power outage that lasts up to 11 hours. President Gloria Macapagal-Arroyo has declared a state of calamity in the island in response. The declaration of a state of calamity is a prerequisite for the release of disaster funds, which local governments can use at their discretion. Her detractors claim this could lead to widespread cheating in the country's first automated national polls, which are due to be held on May 10.
Widespread drought and ill-timed maintenance work are being cited as factors for the inadequate power capacity. Of the country's 15,572 megawatts (MW) of installed capacity, 3,291 MW comes from hydroelectric power plants. Mindanao, in particular, is susceptible: 55% of the power generated in the island is sourced from hydroelectric power plants, whose dams are now approaching critical levels.
Mindanao's available capacity was capped at 785 MW as of March 24, against a dependable capacity of 1,682 MW, according to data from the National Grid Corporation of the Philippines, which operates the country's transmission lines. Peak load for the day hit 1,251 MW, resulting in a shortage of 466 MW. The deficit in the power supply is expected to be sustained. Officials of National Power Corp (Napocor), the state-owned power generator in the region, have warned that with the water level at the dams continuing to recede, a shutdown of the 700 MW Agus and the 200 MW Pulangi hydroelectric power plants might be imminent.
Most state-owned power plants have been sold off in line with the Electric Power Industry Reform Act of 2001 (EPIRA), but the Agus and Pulangi plants are owned by the government through Napocor by virtue of a provision in the law which stipulates that the complexes are not to be privatized within 10 years of the law's passage.
In the Visayas grid, which covers central Philippines, a much smaller deficit of 34 MW was recorded on March 24. Luzon, which earlier suffered sporadic outages due to some power plants being shut down at the same time due overlapping maintenance schedules, has gone back to posting gross power reserves of 158 MW. Both grids are less dependent on hydroelectric power than Mindanao, with the Visayas relying on geothermal energy and Luzon on electricity generated from natural gas.
The Arroyo administration has announced a slew of stop-gap measures for the power situation in Mindanao. Power barges have been deployed to cover the shortage for the time being. Other steps include allowing private firms to connect their generators to the grid, scheduling industrial activity in the island during off-peak periods to lessen the peak load, and opening lending windows for firms that wish to lease generators.
The president has also authorized the state to contract additional capacity from a power plant that is based in the island, a measure that requires congressional approval, as stipulated in Section 71 of the EPIRA.
The outages are expected to end once the rains start, and resupply reservoirs behind hydroelectric dams. The overall problem of a capacity shortage still has to be addressed and power experts say deeper fundamental problems in the Philippine power sector could again plunge the country in darkness - issues that are likely going to be placed on the backburner when this round of blackouts ends.
Fernando Roxas, Asian Institute of Management professor and a power sector expert, notes that nine years after the passage of the EPIRA, power sector reform has not been completed. The mandated sale of the government's power generation assets, for instance, has not been completed 14 years after President Fidel Ramos announced the plan in 1996 and nine years after the EPIRA was passed.
A January 2010 update of the asset privatization plan that was released by the Power Sector Assets and Liabilities Management Corp, the body set up by the EPIRA to dispose of Napocor assets and pay its debts, reveals that of the 30 generating facilities earmarked for disposal, only 20 have been sold and transferred to the winning bidders. Of these, only two are servicing the Mindanao grid.
Roxas noted that delays in the sale of these assets have led to delays in their rehabilitation - which in turn contributed to the power deficiency in Luzon. "The delayed privatization schedule meant that required major rehabilitation was not done because the government intended to sell the assets anyway," he said.
Power subsidies that increased the government's debt while making the public resistant to rate increases have also derailed the reforms, he said. "The power sector was a convenient subsidy mechanism, and like in many developing countries in Asia, people have come to expect electricity to be subsidized. In tandem with politics, this has slowed down the reform process tremendously."
Structural weaknesses in the Philippines and the global economic crises of 1997-1998 and 2008-2009 have also slowed investments in the power sector, he said.
As a result of feet-dragging in implementing the reforms, the capacity shortage that caused a power crisis in the 1990s has not been eradicated. At that time, the Corazon Aquino administration decided to decommission the 600 MW Bataan nuclear power plant, which in turn led to massive blackouts, the rationing of power supply and economic losses which the World Bank calculated to have reached between $600 million and $800 million a year.
Power supply is declared critical when the existing generating capacity is not enough to cover peak demand, and reserves go below 23.4% of dependable capacity for Luzon and the Visayas and 21% for Mindanao. Mindanao is expected to hit a critical period this year if no additional capacity goes onstream, according to government data. The Visayas, which hit critical levels last year, face a new critical period in 2011, the same time that Luzon is expected to hit its critical period.
While the Visayas will secure an additional 328 MW of power supply this year, only 42.5 MW of capacity will be added in Mindanao when another hydro power plant goes onstream. Luzon is not scheduled to augment its capacity until 2012, when 600 MW is added to the grid.
Economist Peter Lee U notes that there are no shortcuts in addressing the worsening power situation. "It is a fundamental demand-supply gap, and it takes time for new power plants to be built," he said.
Analysts maintain that the additional capacity should come from the private sector and not from the government, with Roxas saying that having the state contract power, while provided for by law, "would undo all the [power sector reform] effort of the past 10 years" if it is again adopted as a policy.
"Government already proved, beyond reasonable doubt, that it will produce a crisis such as the one in the 1990s and the current one in Mindanao. Invoking Section 71 of EPIRA is declaring market failure, which is a pity because the market wasn't even allowed to touch Mindanao 10 years after the enactment of EPIRA," he said.
In the meantime, power rates are increasing and the country's energy stability - and economic growth - remain threatened. Electricity from power barges and generators, for one thing, costs much more than power from water.
"In 2000, the accounting cost of running power barges was about 35 pesos per kilowatt hour because you're basically running a ship and a generator at the same time. But politicians are saying consumers in Mindanao are only willing to pay 2.30 pesos/kWh - that's what is being charged for [power from the hydroelectric plants]. Who will pay the cost of the barges and the leased generator sets?" Roxas asked.
U also noted that while reliable power supply "is vital to attracting investments in all industries", higher power rates would drive up business costs "and be a drag on the economic recovery".
The Department of Energy has a long-term plan that determines the additional capacity needed by the different grids based on projected increase in power demand. It indicates that 1,354 MW of power is set to be added between this year and 2014, but very little of it - around 100 MW - is going to Mindanao.
The energy department is also exploring indigenous sources of energy, including natural gas, oil reserves and geothermal energy. It is also studying the possibility of putting up nuclear power plants by 2025.
Much of the success of the energy plan depends on the next administration's policies. Presidential race frontrunners Benigno Aquino III and Manuel Villar both say their strategy to address the supply lack is to entice private investors to the country.
For government to contract additional capacity "is contrary to ... the adopted policy of government to privatize power generation - which is what investors have been complaining about: lack of consistency of [government] policy, and it will undo years of hard work to institute reform in the power sector and put at risk future investments," said Aquino, the only son of Corazon Aquino, whose term ended the regime of Ferdinand Marcos regime but also saw the start of massive blackouts.
An Aquino government would pursue an optimal energy mix "immediately and aggressively if we hope to meet our future needs", he said. "Neither renewables nor fossil fuels nor nuclear power alone can bring energy self-sufficiency. The energy mix should be able to reduce risks associated with the supply, price volatility and production cost."
Villar noted that going back to having government contract power would open the country to another round of take-or-pay arrangements. In the 1990s, Napocor entered into take-or-pay deals with the private power producers that were tapped to help address the shortage of power. The deals ensured that the generating companies would get paid for the power they produced, used or not. The result was spiraling power rates when the 1997-98 Asian financial crisis struck and demand for energy slackened along with economic activity. Napocor, which was saddled with excess capacity it could not sell, passed on the cost of contracting power to consumers.
"What I am trying to avoid is the repeat of the 1990s situation where the public ended up paying for power it never used," Villar said. "This is mainly the downside of invoking Section 71 of the EPIRA, which enables the government to enter into new contracts for additional capacity, usually at a much higher cost for the emergency power. Overcompensation will result in buying expensive power that will later migrate to monthly electric bills of consumers as stranded costs."
As for addressing the situation in Mindanao, the candidates did not give specific proposals, saying only that they would leave it up to the "stakeholders" to resolve the crisis in the region.
"We have two choices: do we want to have low electric rates at the expense of no power, or do we want to have sustainable, available and reliable source of power," Aquino said. "It is the government's job to build a consensus among various stakeholders to make it more acceptable to them. The government should adopt a policy of pricing power rate to reflect the true cost of electricity in a transparent manner through the EPIRA."
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Inflation risis with Asia's recovery (Asia Times Online)
Written for and published by February 25, 2010. Click here for original article
Inflation rises with Asia's recovery
By Jennee Grace U Rubrico
MANILA - Asian economies, buoyed by fiscal pump-priming, loose monetary policies and growing intra-regional trade, have generally rebounded from recession faster and in better financial shape than other regions around the world. But as economic recovery comes quicker to Asia than in Europe and the United States, inflationary threats are rising as regional governments remain reluctant to rein in their crisis-induced stimulus measures, including, in many countries, record low interest rates.
Asia's economies are on the upswing, with China leading the way. The International Monetary Fund (IMF), in its World Economic Outlook, in January adjusted up its previous gross domestic product (GDP) forecast for China this year to 10% from 9% after the country reported 8.7% growth in 2009. It also raised its projections for India and the Association of Southeast Asian Nations' (ASEAN) top five economies - Indonesia, Thailand, Malaysia, Singapore and the Philippines.
As fast economic growth resumes, so too are pricing pressures that some say could undermine the medium-term effectiveness of government stimulus measures and, if poorly managed, open a new Pandora's box of economic troubles. Food and energy are major components of Asia's consumer price indices - accounting for as much as 60% and 15% respectively in certain economies - and are where new pricing pressures are expected to be most acutely felt.
In 2008, regional food prices rose to crisis levels and raised fears of severe shortages. The numerous factors involved included low levels of cereal stock, crop failures in exporting countries, demand for biofuel, rising oil prices, export restrictions, a weakening US dollar, price speculation, and enormous liquidity in the global financial system, according to the United Nations' Food and Agriculture Organization (FAO).
Current market conditions lack that same confluence, yet food prices are now approaching levels last seen in 2008, when a record spike in global oil prices contributed to a surge in cost-push inflation across various commodities. Oil prices collapsed with the global economic downturn, falling from a record high of US$147 per barrel in July 2008 to below $35 in February 2009. They are now again on an upward trajectory.
Market prices were just below $80 per barrel at the start of 2010 and are expected by many analysts to rise higher as economic recovery among Asian importers pushes up global demand. The countries seen by economists as most vulnerable to escalating food and energy prices are Vietnam, India and Sri Lanka, with the Philippines, Hong Kong and Korea representing the second tier of those most at risk.
Vietnam is a case in point, with inflation on course to return to double-digit levels by the second quarter of this year. Rising inflation expectations pushed the Vietnamese government into devaluing the currency this month for the second time since last November. Its not clear that Vietnam's rising inflation will have a contagion effect on other regional countries, but economists are closely tracking the situation.
In the FAO's price situation report released on January 25, the United Nations-affiliated agency reported that its Food Price Index had hit its highest level in November since the 2008 surge in inflation. The upward trend, it said, was driven by higher prices of rice, sugar, oil seeds and dairy products.
"Prices of rice are rising in several [Asian] countries, mainly in Vietnam, where they are 50% higher than two years ago; in Sri Lanka, where they have been at record levels in January; and in Bangladesh, where they have increased 30% in the past three months," the FAO report noted.
In India, the world's second-largest rice producer, the crop's price was well above the inflationary levels of two years ago and drought conditions have caused the government to scrap import taxes it maintained on the commodity through 2010. The need for more Indian imports is expected to push rice prices up across the entire region, according to the FAO.
Multinational bank HSBC noted in a recent research report that "Even in China, which has enjoyed a relatively good harvest over the past year and maintains ample stocks, food prices have risen 11.8% [quarter on quarter] in November."
Pricing pressures
What worries some economists is that unlike in 2008, commodity prices and core inflation are now pushing prices up in tandem. The HSBC report said that core inflation is no longer as "well-behaved" as previously, indicating "structural changes" in the behavior of inflation in the region driven by labor shortages and flexible wage policies.
Indeed, the bank's Asian Business Index (ABI) points to soaring input and output costs, with the latter "well correlated with core price inflation in most Asian economies". While Asia's flexible wage policies allowed many countries to avoid the massive lay-offs seen in some Western countries at the height of the global financial crisis, those same policies with recovery are increasing wages and in cycle putting more pressure on core prices.
There is growing evidence of labor shortages across the region, with Chinese firms in the country's export-oriented southern regions complaining of insufficient skilled workers and Taiwanese technology companies reportedly advancing New Year bonuses to avoid staff from being poached by competition. Increasing consumer spending power, too, is contributing to inflationary pressures.
While property prices have approached bubble territory in some markets in the region, particularly in China, Hong Kong and Singapore, many economists believe governments and their affiliated central banks understand the inflationary risks of maintaining overly loose monetary policies implemented against the global crisis and that most will begin tightening in the second half of this year as recoveries take hold.
"We expect monetary tightening will be a key feature of 2010, with higher interest rates and stronger currencies sharing the burden about equally," said Singaporean bank DBS in its first-quarter report on Asian economies. The bank expects monetary tightening to begin in the middle of the year, except in a handful of countries, including India and South Korea, which it expects will start to raise rates earlier.
That will require Asia's central banks to break their historical tendency to shadow movements of the US Federal Reserve and devise monetary policies better calibrated to the region's now dramatically different economic and financial fundamentals.
Noting that central banks may hesitate to adjust monetary policies because of political considerations, HSBC says it is best for monetary authorities to act sooner rather than later. It warned that any substantial delay in raising interest rates "inevitably involves a more aggressive subsequent move [and] may then introduce considerable volatility into financial markets".
If central banks are hesitant to raise interest rates, HSBC suggests alternatively that they withdraw fiscal stimuli; tighten banking supervision, including by beefing up capital requirements or the application stricter lending guidelines, most notably for mortgages; cap aggregate credit growth; or allow exchange rates to appreciate more rapidly. Few of the region's export-oriented countries have taken on board the advice to appreciate their currencies due to fears they will lose market share to regional competitors, including vis-a-vis China and its fixed exchange rate regime.
The IMF, for one, does not support the rapid withdrawal of Asia's fiscal stimulus measures, warning that while economies have recovered they may not be strong enough yet to stand alone. "Due to the still-fragile nature of the recovery, fiscal policies need to remain supportive of economic activity in the near term. The fiscal stimulus planned for 2010 should be fully implemented," the IMF said in a statement.
At the same time, the IMF said "countries that are already enjoying a relatively robust rebound of activity and credit will have to tighten monetary conditions earlier and faster than their counterparts elsewhere". Whether Asia's central banks do so in a timely and effective manner will determine whether Asia's recovering economies sustain growth or set the macroeconomic stage for the region's next bust.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Inflation rises with Asia's recovery
By Jennee Grace U Rubrico
MANILA - Asian economies, buoyed by fiscal pump-priming, loose monetary policies and growing intra-regional trade, have generally rebounded from recession faster and in better financial shape than other regions around the world. But as economic recovery comes quicker to Asia than in Europe and the United States, inflationary threats are rising as regional governments remain reluctant to rein in their crisis-induced stimulus measures, including, in many countries, record low interest rates.
Asia's economies are on the upswing, with China leading the way. The International Monetary Fund (IMF), in its World Economic Outlook, in January adjusted up its previous gross domestic product (GDP) forecast for China this year to 10% from 9% after the country reported 8.7% growth in 2009. It also raised its projections for India and the Association of Southeast Asian Nations' (ASEAN) top five economies - Indonesia, Thailand, Malaysia, Singapore and the Philippines.
As fast economic growth resumes, so too are pricing pressures that some say could undermine the medium-term effectiveness of government stimulus measures and, if poorly managed, open a new Pandora's box of economic troubles. Food and energy are major components of Asia's consumer price indices - accounting for as much as 60% and 15% respectively in certain economies - and are where new pricing pressures are expected to be most acutely felt.
In 2008, regional food prices rose to crisis levels and raised fears of severe shortages. The numerous factors involved included low levels of cereal stock, crop failures in exporting countries, demand for biofuel, rising oil prices, export restrictions, a weakening US dollar, price speculation, and enormous liquidity in the global financial system, according to the United Nations' Food and Agriculture Organization (FAO).
Current market conditions lack that same confluence, yet food prices are now approaching levels last seen in 2008, when a record spike in global oil prices contributed to a surge in cost-push inflation across various commodities. Oil prices collapsed with the global economic downturn, falling from a record high of US$147 per barrel in July 2008 to below $35 in February 2009. They are now again on an upward trajectory.
Market prices were just below $80 per barrel at the start of 2010 and are expected by many analysts to rise higher as economic recovery among Asian importers pushes up global demand. The countries seen by economists as most vulnerable to escalating food and energy prices are Vietnam, India and Sri Lanka, with the Philippines, Hong Kong and Korea representing the second tier of those most at risk.
Vietnam is a case in point, with inflation on course to return to double-digit levels by the second quarter of this year. Rising inflation expectations pushed the Vietnamese government into devaluing the currency this month for the second time since last November. Its not clear that Vietnam's rising inflation will have a contagion effect on other regional countries, but economists are closely tracking the situation.
In the FAO's price situation report released on January 25, the United Nations-affiliated agency reported that its Food Price Index had hit its highest level in November since the 2008 surge in inflation. The upward trend, it said, was driven by higher prices of rice, sugar, oil seeds and dairy products.
"Prices of rice are rising in several [Asian] countries, mainly in Vietnam, where they are 50% higher than two years ago; in Sri Lanka, where they have been at record levels in January; and in Bangladesh, where they have increased 30% in the past three months," the FAO report noted.
In India, the world's second-largest rice producer, the crop's price was well above the inflationary levels of two years ago and drought conditions have caused the government to scrap import taxes it maintained on the commodity through 2010. The need for more Indian imports is expected to push rice prices up across the entire region, according to the FAO.
Multinational bank HSBC noted in a recent research report that "Even in China, which has enjoyed a relatively good harvest over the past year and maintains ample stocks, food prices have risen 11.8% [quarter on quarter] in November."
Pricing pressures
What worries some economists is that unlike in 2008, commodity prices and core inflation are now pushing prices up in tandem. The HSBC report said that core inflation is no longer as "well-behaved" as previously, indicating "structural changes" in the behavior of inflation in the region driven by labor shortages and flexible wage policies.
Indeed, the bank's Asian Business Index (ABI) points to soaring input and output costs, with the latter "well correlated with core price inflation in most Asian economies". While Asia's flexible wage policies allowed many countries to avoid the massive lay-offs seen in some Western countries at the height of the global financial crisis, those same policies with recovery are increasing wages and in cycle putting more pressure on core prices.
There is growing evidence of labor shortages across the region, with Chinese firms in the country's export-oriented southern regions complaining of insufficient skilled workers and Taiwanese technology companies reportedly advancing New Year bonuses to avoid staff from being poached by competition. Increasing consumer spending power, too, is contributing to inflationary pressures.
While property prices have approached bubble territory in some markets in the region, particularly in China, Hong Kong and Singapore, many economists believe governments and their affiliated central banks understand the inflationary risks of maintaining overly loose monetary policies implemented against the global crisis and that most will begin tightening in the second half of this year as recoveries take hold.
"We expect monetary tightening will be a key feature of 2010, with higher interest rates and stronger currencies sharing the burden about equally," said Singaporean bank DBS in its first-quarter report on Asian economies. The bank expects monetary tightening to begin in the middle of the year, except in a handful of countries, including India and South Korea, which it expects will start to raise rates earlier.
That will require Asia's central banks to break their historical tendency to shadow movements of the US Federal Reserve and devise monetary policies better calibrated to the region's now dramatically different economic and financial fundamentals.
Noting that central banks may hesitate to adjust monetary policies because of political considerations, HSBC says it is best for monetary authorities to act sooner rather than later. It warned that any substantial delay in raising interest rates "inevitably involves a more aggressive subsequent move [and] may then introduce considerable volatility into financial markets".
If central banks are hesitant to raise interest rates, HSBC suggests alternatively that they withdraw fiscal stimuli; tighten banking supervision, including by beefing up capital requirements or the application stricter lending guidelines, most notably for mortgages; cap aggregate credit growth; or allow exchange rates to appreciate more rapidly. Few of the region's export-oriented countries have taken on board the advice to appreciate their currencies due to fears they will lose market share to regional competitors, including vis-a-vis China and its fixed exchange rate regime.
The IMF, for one, does not support the rapid withdrawal of Asia's fiscal stimulus measures, warning that while economies have recovered they may not be strong enough yet to stand alone. "Due to the still-fragile nature of the recovery, fiscal policies need to remain supportive of economic activity in the near term. The fiscal stimulus planned for 2010 should be fully implemented," the IMF said in a statement.
At the same time, the IMF said "countries that are already enjoying a relatively robust rebound of activity and credit will have to tighten monetary conditions earlier and faster than their counterparts elsewhere". Whether Asia's central banks do so in a timely and effective manner will determine whether Asia's recovering economies sustain growth or set the macroeconomic stage for the region's next bust.
Jennee Grace U Rubrico has been a journalist for over 10 years.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Property bounce in the Philippines (Asia Times Online)
Written for and published by Asia Times Online on January 26, 2010. Click here for the original article.
Property bounce in the Philippines
By Jennee Grace U Rubrico
MANILA - Philippine property is showing new signs of life after enduring falling rental rates and rising vacancies in 2009. As developers reactivate projects stalled with last year's global economic downturn, cranes are swinging again on the skylines of Manila and other metropolitan areas with the brightened economic outlook.
Stronger demand from overseas Filipino workers (OFWs), who sent back a projected US$15.8 billion in remittances from January to November last year, is expected to drive new residential developments. Meanwhile, resurgent demand from the buoyant business process outsourcing (BPO) industry is projected to fill current commercial office space vacancies and spur new building.
If so, it will mark a dramatic turnaround from last year's downcast trends. Real estate consultant CB Richard Ellis estimated average rental rates across the Metro Manila area slid 4.3% from the second to third quarter last year, while overall office vacancy rates were up 200 basis points to 12.8% over the same period. By year's end, rental rates had fallen 25%-30% off their mid-2008 peaks, property consultant Colliers International said.
Now, developers are tapping into local debt markets to finance optimistic new expansions. Ayala Land, a subsidiary of the country's largest conglomerate, has said it plans to issue 1 billion pesos (US$21.6 million) worth of retail bonds that will be dedicated to home financing schemes for buyers of its properties. Filinvest Land, another top residential and commercial developer, plans to raise 3 billion pesos in bonds in addition to last year's 5 billion pesos worth of issuances to meet its projects' capital requirements.
Megaworld Corp recently raised 5 billion pesos in bonds, the proceeds of which will be used for a newly acquired 8.3 hectare land plot for its Megaworld development in North Bonifacio, near Manila's central business district of Makati. Another developer, Robinsons Land Corp, raised 5 billion pesos in new capital through a retail bond offering last year.
Indications are that they are putting those funds to quick use. Statistics from the Housing and Land Use Regulatory Board (HLURB) showed a spike in property permit issues, which property developers need to market new real estate projects, at the end of 2009. Developers who stalled on projects in the first half of 2009 rushed to get sales permits before the year ended, with the number issued in November up 146% over the same month in 2008.
Retail space investors are also coming out of the doldrums. Mall developer SM Prime Holdings plans to build five new malls, adding to its stable of over 40 retail centers across the country. Ayala Land has unveiled a nationwide expansion plan to construct more BPO complexes, residential projects and retail developments.
A number of factors support the projected growth. Most notably, OFW foreign remittances are expected to strengthen with an improved global economic outlook. Augusto Santos, acting director general of the National Economic and Development Authority, estimated that remittances would likely grow by 10% this year. Despite the global economic downturn, OFW remittances were up 5% in the 11 months ending November 2009, he said.
Those resilient remittances are expected to buoy in particular the residential housing segment, of which many developers identify foreign-currency earning OFWs as their main target market. That optimism hasn't shown up yet in the statistics. While licenses issued by the HLURB for non-residential units grew sevenfold year-on-year in November, residential licenses fell by 22.8% over the same period.
Commercial developers exposed to the globally oriented BPO industry appear to be the safer bet for investors. Ramon Jose E Aguirre, head of research at Colliers International Philippines, estimates that growth in outsourcing firms alone will be enough to this year absorb half the oversupply in the office space market.
"Obviously there is a glut in office space supply, but at the end of this year we expect many empty spaces to be taken up - this means construction can resume despite the fact that there are still plenty of offices available in the market," he said.
Bubble watch
With property price bubbling up in China, South Korea and Taiwan, analysts are now looking for similar signs in Southeast Asia's fast-recovering economies. Regional analysts believe that Philippine property will outperform most Southeast Asian neighbors, and there are no signs yet of emerging price bubbles, they say.
Property prices in Singapore rose by 15.75% quarter-on-quarter in the third quarter of 2009. That's prompted concerns about possible property price bubbles, but so far the overheating situation in Southeast Asia seems unique to Singapore.
Elsewhere in the region, economies have experienced more tempered price rises due to gluts of supply. Business Monitor International notes that the Malaysian property sector is expected to recover from last year's downturn, but price rises will be tempered by lingering oversupply.
Thai property has been hampered by political concerns and a lack of buyers, although the state-run Thai News Agency reported recently that the property developer confidence index posted a record high of 57.8 in the fourth quarter of 2009.
"The relative success of the Philippines to lure outsourcing companies and the steady flow of OFW remittances to finance other property development products will set it apart from neighboring countries," projected Claro Cordero Jr, head of research and consulting for Jones Lang LaSalle Leechiu in Manila.
The sector still has a long way to go before rates return to 2008 peak levels. Average prime office space rental rates in Metro Manila currently hover around 800 pesos per square meter, down from 1,200 pesos (US$17) in mid-2008. Danilo A Antonio, president of local property consultancy firm Land Excel Consulting, said that heated competition would prevent real estate developers from hiking prices too rapidly.
The Philippine central bank has also downplayed any property bubble concerns, maintaining that recent rises in local property prices and easing vacancy rates are indicative of legitimate demand rather than speculation.
National elections scheduled for this May represent another wild card for the sector. The new incentive-laden Real Estate Investment Trust Act (REIT) "lapsed" into law in late December when President Gloria Macapagal-Arroyo failed to follow up a veto recommendation from the finance department linked to its concerns the act would have a negative impact on tax revenues.
According to Cordero, REIT-derived financial instruments will enhance private-sector participation in infrastructure projects and promote more foreign participation in construction activities. However, the REIT's implementing rules and regulations are expected to be drafted by the next government.
The property sector is expected to get a boost if Manuel Villar, a real estate magnate and senator at present running second in opinion polls to front-runner Benigno Aquino, emerges as winner in the presidential election. Industry players are keen to see whether the next government will approve tax incentives for completing projects that reduce the current housing backlog of 3.8 million units and if it will follow up on Arroyo's efforts to sell off blocks of idle property now owned by the military.
"A new government will definitely affect the direction of business in the next few years and this includes the real estate and construction industries," said Aguirre. "How will [a new government] react? The private sector will be closely watching the results."
Jennee Grace U Rubrico has been a journalist for over 10 years
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Property bounce in the Philippines
By Jennee Grace U Rubrico
MANILA - Philippine property is showing new signs of life after enduring falling rental rates and rising vacancies in 2009. As developers reactivate projects stalled with last year's global economic downturn, cranes are swinging again on the skylines of Manila and other metropolitan areas with the brightened economic outlook.
Stronger demand from overseas Filipino workers (OFWs), who sent back a projected US$15.8 billion in remittances from January to November last year, is expected to drive new residential developments. Meanwhile, resurgent demand from the buoyant business process outsourcing (BPO) industry is projected to fill current commercial office space vacancies and spur new building.
If so, it will mark a dramatic turnaround from last year's downcast trends. Real estate consultant CB Richard Ellis estimated average rental rates across the Metro Manila area slid 4.3% from the second to third quarter last year, while overall office vacancy rates were up 200 basis points to 12.8% over the same period. By year's end, rental rates had fallen 25%-30% off their mid-2008 peaks, property consultant Colliers International said.
Now, developers are tapping into local debt markets to finance optimistic new expansions. Ayala Land, a subsidiary of the country's largest conglomerate, has said it plans to issue 1 billion pesos (US$21.6 million) worth of retail bonds that will be dedicated to home financing schemes for buyers of its properties. Filinvest Land, another top residential and commercial developer, plans to raise 3 billion pesos in bonds in addition to last year's 5 billion pesos worth of issuances to meet its projects' capital requirements.
Megaworld Corp recently raised 5 billion pesos in bonds, the proceeds of which will be used for a newly acquired 8.3 hectare land plot for its Megaworld development in North Bonifacio, near Manila's central business district of Makati. Another developer, Robinsons Land Corp, raised 5 billion pesos in new capital through a retail bond offering last year.
Indications are that they are putting those funds to quick use. Statistics from the Housing and Land Use Regulatory Board (HLURB) showed a spike in property permit issues, which property developers need to market new real estate projects, at the end of 2009. Developers who stalled on projects in the first half of 2009 rushed to get sales permits before the year ended, with the number issued in November up 146% over the same month in 2008.
Retail space investors are also coming out of the doldrums. Mall developer SM Prime Holdings plans to build five new malls, adding to its stable of over 40 retail centers across the country. Ayala Land has unveiled a nationwide expansion plan to construct more BPO complexes, residential projects and retail developments.
A number of factors support the projected growth. Most notably, OFW foreign remittances are expected to strengthen with an improved global economic outlook. Augusto Santos, acting director general of the National Economic and Development Authority, estimated that remittances would likely grow by 10% this year. Despite the global economic downturn, OFW remittances were up 5% in the 11 months ending November 2009, he said.
Those resilient remittances are expected to buoy in particular the residential housing segment, of which many developers identify foreign-currency earning OFWs as their main target market. That optimism hasn't shown up yet in the statistics. While licenses issued by the HLURB for non-residential units grew sevenfold year-on-year in November, residential licenses fell by 22.8% over the same period.
Commercial developers exposed to the globally oriented BPO industry appear to be the safer bet for investors. Ramon Jose E Aguirre, head of research at Colliers International Philippines, estimates that growth in outsourcing firms alone will be enough to this year absorb half the oversupply in the office space market.
"Obviously there is a glut in office space supply, but at the end of this year we expect many empty spaces to be taken up - this means construction can resume despite the fact that there are still plenty of offices available in the market," he said.
Bubble watch
With property price bubbling up in China, South Korea and Taiwan, analysts are now looking for similar signs in Southeast Asia's fast-recovering economies. Regional analysts believe that Philippine property will outperform most Southeast Asian neighbors, and there are no signs yet of emerging price bubbles, they say.
Property prices in Singapore rose by 15.75% quarter-on-quarter in the third quarter of 2009. That's prompted concerns about possible property price bubbles, but so far the overheating situation in Southeast Asia seems unique to Singapore.
Elsewhere in the region, economies have experienced more tempered price rises due to gluts of supply. Business Monitor International notes that the Malaysian property sector is expected to recover from last year's downturn, but price rises will be tempered by lingering oversupply.
Thai property has been hampered by political concerns and a lack of buyers, although the state-run Thai News Agency reported recently that the property developer confidence index posted a record high of 57.8 in the fourth quarter of 2009.
"The relative success of the Philippines to lure outsourcing companies and the steady flow of OFW remittances to finance other property development products will set it apart from neighboring countries," projected Claro Cordero Jr, head of research and consulting for Jones Lang LaSalle Leechiu in Manila.
The sector still has a long way to go before rates return to 2008 peak levels. Average prime office space rental rates in Metro Manila currently hover around 800 pesos per square meter, down from 1,200 pesos (US$17) in mid-2008. Danilo A Antonio, president of local property consultancy firm Land Excel Consulting, said that heated competition would prevent real estate developers from hiking prices too rapidly.
The Philippine central bank has also downplayed any property bubble concerns, maintaining that recent rises in local property prices and easing vacancy rates are indicative of legitimate demand rather than speculation.
National elections scheduled for this May represent another wild card for the sector. The new incentive-laden Real Estate Investment Trust Act (REIT) "lapsed" into law in late December when President Gloria Macapagal-Arroyo failed to follow up a veto recommendation from the finance department linked to its concerns the act would have a negative impact on tax revenues.
According to Cordero, REIT-derived financial instruments will enhance private-sector participation in infrastructure projects and promote more foreign participation in construction activities. However, the REIT's implementing rules and regulations are expected to be drafted by the next government.
The property sector is expected to get a boost if Manuel Villar, a real estate magnate and senator at present running second in opinion polls to front-runner Benigno Aquino, emerges as winner in the presidential election. Industry players are keen to see whether the next government will approve tax incentives for completing projects that reduce the current housing backlog of 3.8 million units and if it will follow up on Arroyo's efforts to sell off blocks of idle property now owned by the military.
"A new government will definitely affect the direction of business in the next few years and this includes the real estate and construction industries," said Aguirre. "How will [a new government] react? The private sector will be closely watching the results."
Jennee Grace U Rubrico has been a journalist for over 10 years
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
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