Businessmirror june 21, 2018

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Thursday, June 21, 2018 Vol. 13 No. 250

BSP hikes rates anew; ‘further action’ possible 25 I By Bianca Cuaresma

@BcuaresmaBM

N an effort to lock down rising inflationary pressures in the policy horizon, the Bangko Sentral ng Pilipinas (BSP) hiked its rates anew in its monetary-policy meeting on Wednesday and expressed preparedness to take “further policy action as needed.”

At the press briefing following the fourth monetary-policy meeting for the year, BSP Governor Nestor A. Espenilla Jr. announced the decision to raise their main policy rate by 25 basis points. This came on the heels of their May monetary-policy meeting, where they decided to hike

their main policy rates by 25 basis points for the first time since 2014. Espenilla said the latest decision came as the elevated inflation expectations for 2018 and the risks of possible second-round effects from ongoing price pressures “argued for follow-through

monetary-policy action.” “Given these considerations, the Monetary Board believes that further policy action enables the BSP to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization

The basis points by which the Monetary Board hiked its main policy rate at its fourth meeting

IMF, the austerity policeman, now adopting a social agenda? Rene E. Ofreneo

laborem exercens

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BSP Deputy Governor Diwa C. Guinigundo also announced on Wednesday the Central Bank’s decision to scale down their inflation projections both for 2018 and for 2019. In particular, for 2018, inflation is now expected to hit 4.5 percent, from the earlier 4.6-percent forecast, taking into account the lower-thanexpected inflation outturn in May.

n an earlier article, we wrote that the International Monetary Fund (IMF) has been doing some kind of neoliberal revisionism. It has softened its dogmatic neoliberal stand on capital liberalization, a key component of the triple neoliberal agenda of trade and investment liberalization, economic deregulation and privatization. In a 2016 article, entitled “Neoliberalism: Oversold,” leading IMF researchers wrote that capital controls are sometimes needed to stop speculative vultures in damaging markets. The newly elected Malaysian Prime Minister Mohamed Mahathir, who openly quarreled with the IMF at the height of the 1997-1998 Asian financial crisis on the importance of having these controls, must be chuckling.

See “BSP,” A2

Continued on A7

5 Japanese banks backing Samurai bond issue: D.O.F. By Rea Cu

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HE Department of Finance (DOF) has confirmed that five Japanese banks have given their support and full backing to the Philippines’s first stand-alone yen-denominated samurai bonds issue set in the third quarter of this year. In separate meetings with Finance Secretary Carlos G. Dominguez III in Tokyo, Japan, top officials of Japan’s five largest banks—the Mitsubishi UFJ Financial Group (MUFG), Nomura Holdings Inc., Mizuho Bank Ltd., Sumitomo Mitsui Banking Corp. (SMBC) and Daiwa Securities Group Inc.—said they expect strong demand for the Philippines’s samurai bond float, the first since the last one issued in 2010. In their meeting with Dominguez, officials of MUFG, led by its President and CEO Saburo Araki, said there is “strong confidence in the Philippines now and into the future” among Japanese investors. “We are extremely supportive of the bond issue.... We are very excited and pleased for the inauguration or possible issuance,” Araki said. Araki also cited the good relationship between Japan Prime Minister Shinzo Abe and President Duterte as a positive factor in winning investors for the samurai bond issue. MUFG, which is among the leading

Besides SSB tax, govt eyes warnings

“We are right behind you, so no need to worry. We can expect a strong demand. And, of course, now the investors are looking for places to invest. Now for samurai bonds, there will be strong demand.”—Nakata

@ReaCuBM

institutions when it comes to project financing, said it would like to get involved in the Philippines’s “Build, Build, Build” (BBB) program, with Araki saying he believes “infrastructure development is a key for the future success of the Philippines.” Nomura Holdings, led by its President Koji Nagai, told Dominguez that the bank has an exemplary track record in selling samurai bonds and would strive to maximize the Philippines’s issue and “capture the most favorable conditions.” Tatsufumi Sakai, the Group CEO of Mizuho Bank Ltd., cited the Philippines’s recent investment-level ratings upgrades, its strong economy and young skilled work force as plus factors for the samurai bond issuance and the continued interest of Japanese investors in the country. “Not only the government, but also the private sector, wants to invest in your country.... By collaborating government and private-sector partnership, we can do a lot,” Nagai said. Continued on A2

PESO exchange rates n US 53.3950

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of monetary policy in advanced economies,” the BSP governor said in his post-meeting statement. The interest rates on the overnight lending and deposit facilities were, likewise, raised accordingly.

Inflation forecasts scaled back

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By Bernadette D. Nicolas @BNicolasBM

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The January-to-April stretch also saw foreign investments down by 26.5 percent. Investments from the United States, the United Kingdom, Singapore and the Netherlands—second to fifth largest sources of overseas investment pledges—declined by double digits.

RESIDENT Duterte has ordered the Department of Trade and Industry (DTI) to put health warnings on energy drinks and sugar-sweetened beverages(SSBs) in a bid to discourage consumers from taking these products, especially those with high sugar content. This was revealed by Trade Secretary Ramon M. Lopez in a briefing on Wednesday, noting that the President was bothered because these products, especially the powdered drinks, were usually given away. “Give us maybe one or two months so that we can arrange its implementation,” Lopez said. He added, however, that they still need to coordinate with the Food and Drug Administration regarding the execution of this directive from the President. Lopez said they need to first identify which products will have these warnings and discuss these with stakeholders. “So, we will have to select which of these products [to cover], especially if the main ingredient is sugar and it’s not really clear on

See “Investment,” A2

See “SSB,” A2

A supermarket attendant prepares to arrange items at the beverage section of a supermarket in Manila. Makers of juices, soft drinks and so-called sugarsweetened beverages—earlier slapped with an SSB levy under the TRAIN law—may be compelled to put label warnings on their products, if President Duterte has his way. NONIE REYES

Jan-April investment pledges down 5.1% By Elijah Felice E. Rosales

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@alyasjah

NVESTMENT pledges in January to April dropped by 5.1 percent to P234.81 billion, from P247.51 billion in the same period last year, as pledges from the country’s top foreign investors declined by double digits.

Approved fresh projects by the Board of Investments (BOI) in the first four months improved to P195.72 billion, up by 27.8 percent from P153.11 billion last year. However, pledges committed to the Philippine Economic Zone Authority (Peza) declined by 58.6 percent to P39.09 billion, from the previous year’s P94.39 billion.

n japan 0.4853 n UK 70.3853 n HK 6.8027 n CHINA 8.2362 n singapore 39.3565 n australia 39.4108 n EU 61.8955 n SAUDI arabia 14.2379

Source: BSP (20 June 2018 )

News

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A2 Thursday, June 21, 2018

Aquino faces usurpation rap over DAP spending T By Jovee Marie N. dela Cruz

@joveemarie

HE Office of the Ombudsman has ordered the indictment of former President Benigno S. Aquino III in connection with the controversial Disbursement Acceleration Program (DAP).

In a news statement issued on Wednesday, Ombudsman Conchita Carpio-Morales said her office found probable cause to indict Aquino for Usurpation of Legislative Powers under Article 239 of the Revised Penal Code (RPC) over DAP. In its earlier decision, the Ombudsman said there was no probable cause to file charges against Aquino, but it found probable cause to charge former Budget Secretary Florencio “Butch” B. Abad. However, in a resolution dated May 28, 2018—which was approved by the Ombudsman on June 14, 2018—the Special Panel partially granted the motion for reconsideration filed by complainant-movants Carlos Isagani Zarate, Renato Reyes, Benjamin Valbuena, Dante LA Jimenez, Mae Paner, Antonio Flores, Gloria Arellano and Bonifacio Carmona Jr. “We welcome the grant of our motion for reconsideration by the Ombudsman by now indicting ex-

BSP. . .

Continued from A1

The projection was also adjusted accordingly for 2019, with next year’s inflation now expected to hit 3.3 percent from the earlier 3.4-percent projection. Despite the slight scale-back and the backto-back hike, BSP officials conceded that the 2018 inflation will still most likely fall outside their target range. The BSP said the sustained robustness in economic activity for the remainder of the year, the positive base effects form last year’s inflation, the expectation of a minimum-wage hike later this year and the scheduled P2.50 per pack additional taxes on tobacco, as scheduled,

President Aquino as among the respondents,” Zarate said. “However, we believe that Aquino and Abad should not be indicted for the charge of usurpation of legislative power only, but they should be indicted, as well, for technical malversation and graft cases as both author and architect of the multibillion presidential pork barrel called DAP,” the lawmaker from Bayan Muna said. According to Zarate, they are now studying other options to make the previous administration more accountable. It will be recalled that in 2014, the Supreme Court declared unconstitutional the following acts committed in pursuance of the DAP: (1) withdrawal of unobligated allotments from the implementing agencies; and the declaration of the withdrawn unobligated allotments and unreleased appropriations as savings prior to the end of the fiscal year withare the main factors behind why inflation will miss BSP target for 2018. Espenilla said while it is highly unlikely to get inflation back to the 2 percent -to-4 percent target range this year, their recent policy actions ensure that the growth of consumer prices will be pulled back to target in 2019. Guinigundo also cited the expected decline in oil prices and negative base effects for 2018 as pull forces to ensure inflation for 2019 will not overshoot their desired range.

Ready for further action

The BSP took a bold and brazen forward guidance to the table on Wednesday, saying they are prepared to take further action even after they have already pulled the trigger for two consecutive meetings this year.

out complying with the statutory definition of savings contained in the General Appropriations Act; and (2) the cross-border transfers of the savings of the Executive to augment the appropriations of other offices outside the Executive branch. Moreover, the Special Panel denied the motion for reconsideration filed by Abad, thus, affirming Abad’s earlier criminal indictment for the same offense and his administrative liability. The charge stems from the unlawful issuance of National Budget Circular (NBC) 541 to implement the DAP involving P72 billion, which authorized the withdrawal of unobligated allotments of agencies with low levels of obligations as of June 30, 2012. “A reevaluation of the case establishes that the individual actions of respondent Aquino and respondent-movant Abad showed a joint purpose and design to encroach on the powers of Congress by expanding the meaning of savings to fund programs, activities and projects under the DAP,” the resolution read. According to the Ombudsman, in a June 25, 2012, memorandum, “respondent Aquino, by marginal notes, specified his unqualified approval on the following requests: grant of omnibus authority to consolidate fiscal year 2012 savings/unutilized balances and

its realignment; and grant of authority to withdraw unobligated ba lances of nationa l gover nment agencies for slow-moving projects/expenditures as of 30 June 2012 and its realignment.” T he resolution added that Aquino had the authority and the duty to look into each item on the memorandum before signifying his approval. “It is thus clear that respondent-movant Abad sought the approval of respondent Aquino on both the request for authority to pool savings to fund the DAP and the request for omnibus authority to pool savings/unutilized balances. In both instances, respondent Aquino knowingly gave his approval. His approval prompted the issuance of NBC 541, which directed the withdrawal of unobligated allotments and unreleased appropriations and their declaration as savings, which is contrary to law,” it added. Under Article 239 of the RPC, the penalties of prision correccional in its minimum period and temporary special disqualification shall be imposed upon an executive or judicial officer who shall encroach upon the powers of the Legislative branch of the government, either by making general rules or regulations beyond the scope of authority, or by attempting to repeal a law or suspending the execution thereof.

In particular, Espenilla ended his postpolicy meeting statement thus: “The BSP is prepared to take further policy action as needed to achieve its price and financial stability objectives.” He also said the BSP wishes to emphasize on their “continued vigilance against developments, including excessive peso volatility, that could affect the outlook for inflation.” Data from the Bankers Association of the Philippines showed the local currency closed trade at P53.48 to a dollar anew on Wednesday, losing 4 centavos from the previous day’s trade. Manufacturers and consumers have since raised concerns on the strong depreciation of the peso in recent weeks, as a peso of lower

value against the dollar aggravates the rise in prices of imported goods, such as oil and other raw materials. Espenilla told reporters that the statement of preparedness for another hike round basically reflects the BSP’s continued watchfulness to determine whether recent policy action is sufficient to secure inflation’s return to the target next year. The governor also said that while right now, the action taken seems sufficient for the information they have, they are still on their toes as “It is still a very complex environment” to tread in. The BSP’s next monetary-policy meeting is scheduled on August 9. This will be the fifth of eight monetary policy-setting meetings for the year.

SSB. . .

Continued from A1

[the label of] that product. So, it becomes really a health risk,” he said. The directive could deal another blow to softdrink and beverage makers that were slapped with the so-called SSB [sugar-sweetened beverage] tax when the Tax Reform Acceleration and Inclusion (TRAIN) law was implemented on January 1, 2018. The TRAIN—the first package under the administration’s comprehensive tax-reform program—imposed new excise taxes on oil, cigarettes, sugary drinks, and vehicles, among other goods. The DTI said, by way of example, that a Milo sachet’s price increased by 21 percent as of May this year compared to the same period last year, while Tang Powdered Juice Drink increased by 84 percent per piece on the same month this year compared to last year.

Investment. . . Continued from A1

Investments from the US and the UK fell by 20.8 percent and 57.6 percent, respectively. Pledges from Singapore dropped by 76.8 percent, while the Netherlands had the largest decline among top origins of foreign investments at 84.7 percent. Japan remained as the country’s primary source of fresh projects. It poured in P8.8 billion in the first four months, more than triple the previous year’s P2.43 billion. Onshore investments also dipped by 2.3 percent to P213.41 billion in January to April, from last year’s P218.39 billion. The largest share by industry came from electricity, gas, steam and air-conditioning supply at 44.4 percent. Investments in the sector grew by 191.6 percent to P104.35 billion, from P35.78 billion recorded a year ago. On an annual basis, transportation and storage also expanded by a whopping 1,532.5 percent to P37.52 billion, from P2.30 billion, while real-estate activities fell by 72.9 percent to P32.86 billion, from P121.17 billion. The two investment areas accounted for the second- and third-largest shares. Manufacturing investments declined in the January-to-April period by 9.7 percent to P29.66 billion, from last year’s P32.83 billion. Investments in water, supply, sewerage and waste management accelerated to P13.87 billion, from P10 million. Investments in construction and publicprivate partnership projects, as well as administrative and support service activities, also declined. Government data showed that investments in agriculture, forestry and fishing; accommodation and food service activities; and information and communication ballooned. The BOI is targeting to expand investment pledges to an all-time high of P680 billion this year, while the Peza is aiming for a 10-percent growth.

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Carpio says he’s likely to decline nomination for Chief Justice post By Joel R. San Juan

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@jrsanjuan1573

CTING Chief Justice Antonio Carpio on Wednesday said he may be inclined to turn down any possible nomination as the next Chief Justice of the Supreme Court, a post declared vacant following the Court’s final decision nullifying Maria Lourdes A. Sereno’s 2012 appointment as chief magistrate. In a television interview, Carpio said he is ready to decline all nominations that will be submitted to the Judicial and Bar Council (JBC), which has been directed to start the search for the next CJ. Carpio indicated that he will be turning down the nomination out of delicadeza, considering that he voted against the granting of the quo warranto petition that was filed by Solicitor General Jose C. Calida, which became the basis of Sereno’s ouster. “On a personal level, because I voted against it, I don’t want to benefit from it so I will decline any nomination. “I have to be consistent with my position that the quo warranto was not the correct or proper way to remove a sitting member of the Court,” Carpio said. Carpio was one of the six justices who dissented from the majority ruling removing Sereno from her post. Though he voted against Sereno’s removal, Carpio said, however, the former CJ committed culpable violation of the Constitution when she failed to submit all her statement of assets, liabilities and net

worth at the time she applied for the CJ position in 2012. In addition, Carpio pointed out that being CJ would not necessarily mean that the rest of the associate justices would follow him. “They will follow you if your ponencia, your decision is correct, if it is convincing, if it is powerful, not because you’re Chief Justice,” Carpio said. On Tuesday the High Tribunal junked Sereno’s motion for reconsideration of its May 11 decision, which found her ineligible for the CJ post. In the same ruling, the Court gave the JBC the go-ahead to start accepting applicants and nominees for the CJ position since under the Constitution, the President has 90 days to fill up a vacancy in the Judiciary. Carpio was appointed to the SC in 2001 and is set to retire from the Judiciary in 2019. Carpio, who is currently the exofficio chairman of the JBC, said the council is set to meet next week to discuss the selection process The other members of the JBC are Justice Secretary Men a rdo Gue v a r r a , S e n . R ic hard Gordon and Oriental Mindoro R e p. R e y n a ldo Um a l i , retired SC Associate Justice Jose Catral Mendoza representing the justices and chairman of its executive committee; lawyer Jose Mejia, representing academe; lawyer Milagros Fernan-Cayosa, representing the Integrated Bar of the Philippines; and retired judge Toribio Ilao, representing the private sector.

5 Japanese banks backing Samurai bond issue: D.O.F. Continued from A1

Daiwa Securities Group Inc. CEO Seiji Nakata assured Dominguez of the institution’s support for the samurai bond issue. “We are right behind you, so no need to worry. We can expect a strong demand. And of course, now the investors are looking for places to invest. Now for samurai bonds, there will be strong demand,” Nakata said. SMBC President and group CEO Takeshi Kunibe said the strong leadership in the Philippines and the expansion of the Philippine economy have made the country very popular among Japanese investors. Kunibe said SMBC, which was also among the organizers of the Philippine Economic Briefing (PEB) held at the Imperial Hotel in Japan, said the bank is also looking forward to “a successful deal” on the Philippines’s samurai bond issue. The PEB, which laid out the Duterte administration’s plan to sustain the Philippines’s status as one of the fastest-expanding economies in Asia and its programs for inclusive growth, also set the groundwork for the deal road show that the government will roll out for its samurai bonds issue, according to Dominguez.

The Tokyo visit of the Philippine delegation from June 18 to 21, includes the PEB and the fifth regular meeting of the Philippines-Japan High-Level Committee on Infrastructure and Economic Cooperation, the DOF said. In 2010 when the Philippine government raised funds through the float of samurai bonds, the Japan Bank for International Cooperation (JBIC) guaranteed the bond issue through its Market Access Support Facility, which was established to assist Asia’s developing countries in accessing international capital markets following the global financial crisis of 2008. Since 1978 the Philippines through private banks floated bonds in the Japanese market with seven samurai bond issues. The eighth in 2010 was issued by the Philippine government with JBIC support. The ninth bond issuance set this year with no guarantee fees involved would mean lower financial costs for the Philippine government. The finance chief confirmed on Tuesday that the Philippines plans to issue around $1-billion samurai bonds this year, following its two successful floats of dollar- and renminbi-denominated securities in the offshore markets in the first quarter of 2018.

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A P7-P9-trillion headache: Govt sets Aug deadline on military pension plan

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PLAN tackling how to address the ballooning problem of military pensions will be reported to the President by August, the Department of Finance (DOF) said. Finance Secretary Carlos G. Dominguez III told reporters the initial presentation of a plan to address the problem was recently presented at the Bureau of the Treasury (BTr), with President Duterte and other government officials in attendance. “The President asked us to move forward quickly, and we have to make another presentation to him on the progress by the end of August,” Dominguez said. Among the agencies represented at the meeting were the Department of National Defense in charge of the Armed Forces of the Philippines, the Department of the Interior and Local Government for the Philippine National Police (PNP), the Department of Transportation for the Philippine Coast Guard and Department of Justice for the jails. The Government Service Insurance System (GSIS) is being eyed to manage the military pension system. In January this year, the De-

partment of Budget and Management (DBM) reported that from P7 trillion to P9 trillion is seen as the cost of taking over the military pension system. Should the GSIS take on the challenge of managing the pension system of the Armed Forces, the government would have to infuse funds to the agency to make the deal more attractive, Budget Secretary Benjamin E. Diokno said In 2017 budget officials and the DOF began addressing the need for a sustainable retirement system for military personnel. One proposal was to incorporate such an entity with the GSIS and do away with subsidies from the government. Diokno categorically said earlier that addressing the cost of military pension through the annual budget was not sustainable. W it hout a se l f - su st a i n i ng militar y pension system, the cost of extending pension benefits to the uniformed services will have to be taken out of the annual budget of the military— a cost estimated at 50 percent to 60 percent of such budget. Extending a subsidy to the military is also very expensive for taxpayers, as the cost amounts to some P90 billion a year. Rea Cu

Editor: Vittorio V. Vitug • Thursday, June 21, 2018 A3

Duterte’s order vs ‘endo’ wreaks havoc in ecozones

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By Elijah Felice E. Rosales

@alyasjah

egional labor officials may not have a full comprehensive grasp on President Duterte’s policy to labor contractualization, the head of the Employers Confederation of the Philippines (Ecop) said.

As a result, Ecop President Donald G. Dee said the new presidential order is wreaking havoc on manufacturing firms in economic zones (ecozones). In an interview with reporters, Dee said more than 40 firms operating in ecozones in Laguna were ordered by the regional labor director to regularize their workers for allegedly violating labor laws and the President’s executive order (EO) prohibiting contractualization. “There were firms, mostly from Laguna, who came to us seeking help, saying they do not practice endo. We are reviewing [their employment processes] now. In fact, I have to organize Ecop for that purpose. The problem with the DOLE [Department of Labor and Employment] and its regional directors is they move on their own,” Dee

said in a mix of English and Filipino. “Every regional director [it seems, has his] own interpretation on how they should do their work. So what I intend to do is invite [Labor Secretary Silvestre H. Bello III] and the regional directors for us to discuss how the endo policy should be interpreted,” he added. Dee accused some labor officers of equating service contracting to endo. The practice of hiring and terminating workers every five months to circumvent their regularization, notoriously known as endo, has long been outlawed under the Labor Code. T he a f fec ted L ag u n a-ba sed firms, however, source their employees from manpower agencies, and are not employed through endo, Dee claimed. “That policy is crystal clear. Contract working is available in the law.

Contractualization, as defined by labor, is a different story. That was outlawed,” the Ecop chief argued. The troubled firms are mostly from manufacturing industries, such as electronics and garments. Dee said these firms will be provided with legal support from Ecop. He added the group is ready to contest the regularization order, and will go as far as filing charges in court if need be. “If we have to sue, we will sue the government,” Dee said. The Semiconductor and Electronics Industries of the Philippines Foundation Inc., for its part, denied its members are practicing endo. Seipi President Danilo C. Lachica has yet to see the list of the over 40 Laguna-based firms ordered to hire their workers for good, but said, “I wouldn’t be surprised if none of our members are included on it.” If one thing is certain, Seipi member-firms are compliant with labor laws, he said. “Our situation as far as labor contracting is concerned, we hire from legiti-

mate service firms that meet the criteria. [We make sure] they have capital and they paid government-mandated fees,” Lachica told the BusinessMirror. However, he pointed out there is a need to clarify what kind of contractual arrangement is being banned by Duterte’s EO. The Seipi chief said as long as the provision is left unclear, there will really be possible interpretation understandings of the EO. “The President’s executive order is really vague. Donald [Dee] and I are concerned it might be misinterpreted,” Lachica said. The President’s EO is aimed at implementing Article 106 of the Labor Code to protect the right to security of tenure of all workers based on social justice under the 1987 Constitution. “Contracting or subcontracting, when undertaken to circumvent the worker’s right to security of tenure, self-organization and collective bargaining, and peaceful concerted activities pursuant to the 1987 Philippine Constitution, is hereby prohibited,” the EO read.

The President’s executive order is really vague. Donald [Dee] and I are concerned it might be misinterpreted.”—Lachica

PSA reports 2.3% hike in May construction material price By Cai U. Ordinario

@cuo_bm

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etail and wholesale construction material prices in Metro Manila continued to increase in May, according to the Philippine Statistics Authority (PSA). Based on the Construction Materials Retail Price Index, the PSA said retail prices of construction materials increased by 2.6 percent in May, higher than the 1 percent increase in May last year. This brought year-to-date CMRPI growth to 2.3 percent. PSA data from the Construction Materials Wholesale Price Index (CMWPI) also showed wholesale prices grew 8 percent in May, higher than the 2.4 percent posted in May last year. Wholesale prices grew 6.8 percent in the Januaryto-May period. Retail prices of construction materials increased on the back of more expensive carpentry materials, prices of which grew 3.8 percent. However, the increase in prices in a number of commodity groups was

balanced by slower increases in the prices of tinsmithry materials. Some commodity groups also remained at the previous month’s level, such as electrical and plumbing materials. This helped maintain the growth of the CMRPI at the same growth rate as in April at 2.6 percent. In fact, the PSA said the monthon-month growth of construction prices slowed to 0.1 percent in May 2018. In April the monthly growth rate was at 0.3 percent. “Upward adjustments were observed in plywood, lawanit, common wire nails, electrical wires, PVC pipes, hollow blocks, paints, corrugated galvanized iron (GI) sheets and steel bars. Meanwhile, cement was priced lower during the month,” the PSA said. Wholesale prices, meanwhile, grew because of higher costs of fuels and lubricants. Prices of this commodity increased by 29.9 percent in May. The growth in prices of fuels and lubricants could not be offset by slower growth in the prices of sand

and gravel, as well as GI sheets. However, the month-on-month growth of wholesale construction prices slowed to 0.4 percent in May, as against the 0.9-percent growth posted in April. Price increases were, likewise, noted in commodities like GI sheets, reinforcing steel and electrical works. Apart from fuels and lubricants, which posted a monthly growth of 2.7 percent, other commodity groups posted zero growth. “Upward adjustments were observed in the prices of petroleum products, cement, steel bars and selected electrical materials. On the other hand, prices of GI sheets were generally lower this month,” the PSA said. The CMRPI is a variant of the General Retail Price Index that measures the changes in the average retail prices of construction materials. The CMWPI is a variant of the General Wholesale Price Index that measures the changes in the average wholesale prices of construction materials.

Chinese tourists power visitor arrivals

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HE first four months of 2018 saw foreign visitor arrivals in the Philippines grow by 12.35 percent to 2.64 million. Department of Tourism (DOT) data obtained by the BusinessMirror showed the increase could be attributed to the dramatic 52.65-percent growth in the number of tourists from mainland China. DOT Spokesman and Undersecretary for Tourism Development Planning Benito C. Bengzon Jr. described the arrivals from January to April as “very respectable, with the increase being above the curve of the growth in tourism in Asia [6 percent] and around the world [4 percent].” He added, “China is now the second-biggest market, recording a growth rate of 52.65 percent in the first four months of the year. We’re also seeing very strong growth in our other core markets. With the exception of Taiwan, all other markets are growing steadily. This has helped contribute to the overall rise in tourist arrivals.” He declined to say if the DOT is

still on track to meeting its year-end arrivals target of 7.4 million, even as travel agencies and tour operators estimate a drop by some 500,000 tourists with the closure of Boracay Island. “We don’t want to speculate at this point,” said Bengzon. South Korea continued to be the top market for tourists—592,060 visitors to the Philippines from January to April 2018, or 6.12 percent more than the same period last year. China followed at 481,218 (+52.65 percent); the United States, 370,519 (+7.18 percent); Japan, 230,199 (+9.04 percent); and Australia, 99,319 (+6.5 percent). Bengzon said the Japan market remains strong despite reports of lower bookings by some tour operators. “230,000 still a record. But more importantly, people have to understand the 9-percent growth rate is higher than the growth rate for the outbound tourism of Japan…. As far as we’re concerned, Japan arrivals growing by 9 percent this year has helped keep the visitors growth rate at double digit.”

The official said the DOT is pushing its marketing efforts in Japan, and will be heading to Tokyo, Nagoya and Osaka next week for the annual Philippine Business Mission. “The secretary [Bernadette Fatima Romulo Puyat] will be heading the delegation. This will be her first overseas trip as tourism secretary and this says something about the importance of Japan as a source market.” Other than the headcount, Bengzon noted that Japan is also a large contributor to the country’s visitor receipts, or tourist expenditures. Other top source tourism markets from January to April 2018 were: Canada, 89,659 (+11.24 percent); Taiwan, 82,827 (down 3.93 percent); the United Kingdom, 74,434 (+9.16 percent); Singapore, 59,891 (+10.32 percent); and Malaysia, 48,861 (+3.41 percent). Markets that showed vast improvements in arrivals include Hong Kong, whose arrivals increased by some 23.4 percent to 47,101; and India, which posted a 20.35-percent rise in arrivals to 43,020. Ma. Stella F. Arnaldo

Dry taps

Residents of Bangkal District in Makati City collect potable water leaking from a broken pipe after a backhoe dispatched by the Department of Public Works and Highways accidentally hit the main water supply line, leaving the taps in the area bone dry. ALYSA SALEN

D.A. finalizes SRP implementation on farm products By Jasper Emmanuel Y. Arcalas @jearcalas

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he Department of Agriculture (DA) said it is ready to implement the suggested retail price (SRP) on selected farm products by next week with the expected completion of the price matrix this week. Agriculture Secretary Emmanuel F. Piñol said he has already received initial feedback from industry stakeholders regarding the SRP matrix for selected farm products. However, Piñol said he still needs to meet with the stakeholders for the finalization of the SRP matrix. “I will have to meet with the stakeholders on Friday,” he told reporters in an interview on the sidelines of a cleanup program in Kawit, Cavite, on June 20. “Hopefully we will be able to [release the matrix] on Friday. [It will contain SRP] on selected commodities first, including rice, vegetables and fish,” he added. The agriculture chief said the SRP should be effective by next week. The DA said they would release an SRP on well-milled and regular-milled

varieties of rice, eggplant, pechay, galunggong, tilapia and milkfish. As for poultry products, including broilers and eggs, Piñol said it would depend on the concerned industry stakeholders. “We do not have yet the effort to really pressure them with their report [on cost of production],” he said. Piñol, likewise, said the agency remains lukewarm to the idea of releasing SRP on livestock products, including pork, as the prices of these commodities are volatile. Piñol said they will review the SRP every 15 days to adjust with the price movements of the farm products. There would be also a different SRP for every region in the country, Piñol added. The agriculture chief disclosed that his proposal to impose mandatory packaging for rice sold in the market will be implemented within the year. Piñol said the proposal would be implemented at the millers level and would require them to repack rice at a particular weight. These weight variations include: 1 kilogram, 2 kg, 5 kg, 10 kg and 25 kg, like how premium rice is sold in the

supermarkets, according to Piñol. The measure seeks to ensure the food safety of rice, as the staple is merely sold in open boxes in the market, according to Piñol. “In the context of ensuring food safety, we are even looking at implementing in the future a system where rice should not be sold in open boxes in stalls. It is not hygienic,” he said in an interview last week. “What if a buyer coughs, then the virus gets into the rice what if a leper touches the rice?” he added. Last week Piñol said the DA is now scrutinizing some of the current practices in rice trade, including the way the staple is packaged and labeled by retailers and millers. The imposition of a labeling requirement on rice products would aid the DA’s monitoring in its implementation of SRP on the staple, which is slated to start next week, Piñol said. “We are now reviewing from the policy side of DA the practice of rice retailers in the industry wherein they will just put up all sorts of tags to their rice like blue diamond, long grain. We’re doing to it to justify pricing,” Piñol told reporters in a recent interview.

TheBroa WATER: TOO BIG A P A4

Business

Thursday, June 21, 2018

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By Jonathan L. Mayuga

IKE air, it’s a commodity that used to be free but now comes in bottled form. Water, and the plastic bottle that carries it, cost Robert, an office worker in Quezon City, P20 ($0.37). “Pabili ng tubig. Magkano?” Robert (not his real name) asked inside an air-conditioned bus to a vendor selling assorted snacks and bottled water. When asked if he trusts the water inside the unlabeled bottle to be safe, he said he doesn’t know, as he’s that thirsty. Living in a country surrounded by water, Robert could be considered lucky. However, this precious commodity, as it is and its delivery to consumers, is not getting any cheaper. In Metro Manila as in many other areas, spending for water depends on the volume of water consumed. Private water companies charge higher rates than other water service providers like water districts, or those managed by provincial, city or municipal governments, or in some cases, barangay water service providers.

Water insecurity

ACCORDING to the “Asian Water Development Outlook 2016: Strengthening Water Security in Asia and the Pacific,” the region remains a global hot spot for water insecurity. “[The region] remains home to 60 percent of the world’s population and half of the world’s poorest people,” the report said. The report noted that water for agriculture continues to consume 80 percent of the region’s resources. Still, “a staggering 1.7 billion people lack access to basic sanitation and, with a predicted population of 5.2 billion by 2050 and hosting 22 megacities by 2030, the region’s finite water resources will be placed under enormous pressure.” “Recent estimates indicate up to 3.4 billion people could be living in water-stressed areas of Asia by 2050,” the report added.

Despite being blessed with rich natural resources, including abundant freshwater supply, access to water, especially safe drinking water, when and where they are needed, is a major challenge in the Philippines. “Countries such as the Philippines increasingly experience more intense rather than more frequent extreme events,” the report said. “Likewise, the number of hot days and warm nights is increasing and projected to continue to do so.” The report noted that “such changes coupled with weak resource management and limited data availability further compound water insecurity.” National government agencies with respective mandates over the water sector in the Philippines use the report as a guide in formulating policies and decisions to improve water security. Officials of the Department of Environment and Natural Resources (DENR) agree the country’s population of over 100 million is experiencing water supply shortages, especially during the dry season. Along with the projected increase in population, rapid urbanization and development in rural areas, the demand for water is sure to increase in the next two decades, they said.

Water everywhere

BASED on the latest National Map-

ping Resources and Information Authority data, the Philippines is blessed with abundant freshwater supply. Water from rains during the wet season that usually starts in June replenishes the country’s freshwater supply. The Philippines has 143 critical watersheds. It has 79 natural lakes through which rainwater drains. Excess water flows through 421 principal rivers, including 18 major rivers, and ends up in inland water bodies that include smaller lakes and wetlands and marshlands. The Philippines also has around 50,000 square kilometers of groundwater aquifers. Aside from these natural freshwater reservoirs, the Philippines also has 18 major man-made water reservoirs or dams with multiple uses, including irrigation, power generation, fishery and aquaculture, tourism, sports and recreation, and more importantly, domestic water consumption.

Threatened resource

THE country’s freshwater sources, however, are seriously threatened by natural and man-made phenomena. Its freshwater supply is diminished by environmental destruction and degradation. In some instances, the release of raw water such as for Metro Manila’s water supply that comes from the Angat-Ipo-La Mesa watershed is controlled or regulated. Environmental degradation is blamed on the massive deforestation, land conversion and expansion of agricultural areas and human settlement, saltwater intrusion brought about by sea-level rise and excessive groundwater extraction, pollution caused by poor solid waste management and direct discharge of untreated wastewater.

Water quality

THE DENR’s Environmental Management Bureau (EMB) continuously conducts water-quality monitoring all over the country. In its 2006 to 2013 National Water Quality Status Report, the DENR-EMB classified a total of 688 water bodies according to their intended beneficial usages. This constitutes 313 principal rivers, 301 minor rivers, 16 lakes and 58 coastal and marine water. “Of the 40 water bodies monitored as sources of drinking water supply, 28 percent conform to the criterion for TSS [total suspended solids], signifying the effects of sand and gravel quarrying activities and runoff sediments from denuded forests and agricultural lands,” the report said. According to the report, TSS measures the concentration of undissolved solid particles in water, such as silt, decaying plant and animal water, and domestic and other industrial waste. The higher the TSS value, the lower the ability of the water to support aquatic life due to reduced light penetration. Of inland water bodies and potential source of drinking water the DENR-EMB monitored and tested, only five have been classified as “Class AA” or Public Water Supply Class I. This classification is for water in watersheds, which are uninhabited and otherwise protected and require only approved disinfection to meet the Philippines National Standards for Drinking Water. A total of 234 qualifies as Class A or Public Water Supply Class II. This means that complete treatment, which includes coagulation, sedimentation, filtration and disinfection to meet the national standards, is needed. The rest are classified as “B”, “C”, and “D”, which are for “Recreational Water Class I,” or water for purpose of bathing, swimming, skin diving. Other classifications include “Fishery Water,” which is water for the propagation and growth of fish and other aquatic

THE 60-year-old Angat watershed reservoir, part of the AngatIpo-La Mesa water system, supplies about 90 percent of raw water requirements for Metro Manila. BERNARD TESTA

resources, and “Recreational Water Class II,” which is for boating, and “Industrial Water Supply Class I” for manufacturing processes after treatment. Water for agriculture, irrigation and livestock watering is classified as Industrial Water Supply Class II.

Water privatization

IN pre-privatization days, the only water provider in Metro Manila was the Metropolitan Waterworks and Sewerage System (MWSS). That changed after then-President Fidel V. Ramos implemented the privatization of water service in Metro Manila in 1997. The government’s justification of water privatization is anchored on the poor performance of the MWSS: nonrevenue water was high because of the government’s failure to make a considerable investment to maintain piping systems and expand their coverage. Water-borne diseases from drinking water, at that time, were also prevalent because of the contamination caused by leaks in the piping systems. With an estimated population of 12 million people, the demand for water in the National Capital Region is currently pegged at 4,000 million liters a day (MLD). This is estimated based on the current water requirement of the two private water service providers operating in Metro Manila: Maynilad Water Services Inc. and Manila

Water Co. Inc. As contractors and agents of the MWSS, Maynilad was designated as the concessionaire for the West Zone, and Manila Water the concessionaire for the East Zone. Both are responsible for treating raw water from the Angat-Ipo-La Mesa watershed and distributed as tap water to consumers. The private sector is also becoming a major player outside Metro Manila, which is still dominated by water districts and water utilities run by local government units (LGUs). Both companies also claim success in reducing nonrevenue water (NRW): water that is used but cannot be billed because of leaks.

Nonrevenue water

REDUCING NRW is a priority for both Maynilad and Manila Water. As of last year, the average NRW in the West Zone is at 32 percent. “This is a significant reduction from the 68-percent NRW in 2006 prior to Maynilad’s re-privatization. We are continuing to pursue our NRW Management Program to keep reducing water losses. The goal is to bring it down to 20 percent by 2022,” according to documents provided by Maynilad. The company said it has put in place a management program to reduce NRW, setting aside P2.86 billion this year for such move.

aderLook

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www.businessmirror.com.ph | Thursday, June 21, 2018

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PROBLEM TO SOLVE? limits of our supply allocation from Angat Dam, especially during the summer season,” he said. “There is, therefore, a need to develop new water sources to augment supply in the coming years.” Sevilla added Manila Water estimates there are up to a million residents that need their services in Rizal’s Tanay, Pillilla, Cardona and Morong towns.

Environmental programs

NONITO M. TAMAYO of the DENR’s Forest Management Bureau (FMB) said because of budget limitations, the FMB will focus next year on the rehabilitation of the country’s critical watersheds. “We will conduct a nationwide assessment of these critical watersheds,” said Tamayo, DENR-FMB director. “We have 143 [that] we need to rehabilitate to ensure water security.” He cited a report that said the Philippines and other countries in Asia and the Pacific will experience water stress by 2050. Tamayo added that since there will be a budget constraint, outside the critical watersheds, the DENRFMB will rely on its private-sector partners for massive rehabilitation of the country’s open, degraded and denuded forests, by encouraging investment in industrial forest tree plantations. The Laguna Lake Development Authority, for one, continuously monitors the quality of water being discharged by business establishments within the Laguna de Bay region.

BERNARD TESTA

Wastewater treatment

For its part, Manila Water said it expects its NRW by the end of 2017 at 11.6 percent. Jeric T. Sevilla, head of Manila Water’s Corporate Communications, said they were able to reduce NRW by replacing and rehabilitating more than 5,100 kilometers of water lines so far. He also cited a campaign the company launched in 1998 to eliminate illegal connection and provide water to low-income and depressed communities. Sevilla said Manila Water has been replacing its meters every five years to ensure these are in good working condition and register accurate water consumption. According to Sevilla, Manila Water started operating in the East Zone in 1997 with a very high NRW of 63 percent. The more than 51 percent reduction in NRW is equivalent to more than 750 million liters of water that have been recovered and redistributed to previously underserved and unserved areas of the concession, he said, adding that the reduction is equivalent to 14 or 15 Wawa Dams with a capacity of 50 MLD.

Security program

THE MWSS, which continues to exercise regulatory powers over Maynilad and Manila Water, is implementing various programs to improve water security, especially for Metro Manila, which draws about 97 percent of water from the

Angat-Ipo-La Mesa watershed. The Angat watershed reservoir, a 60-year-old dam, is undergoing continuous rehabilitation. MWSS Administrator Reynaldo V. Velasco told the BusinessMirror there’s enough water supply in Angat to last until the end of the dry season. In fact, there is enough water to last in the next 25 years, Velasco said. He added the administration of President Duterte has in place a continuing water security program that is parallel to the demand with a provision of about 7-percent to 10-percent buffer. Velasco said water concessionaires are required to submit continuous supply-demand projections to determine the amount to be invested in the water infrastructure. One such infrastructure is the Kaliwa Dam, a project Velasco believes would be finished before Duterte steps down. He added the Laiban Dam is also a project that would be jump-started within the next four tears. “After 30 years of waiting, starting in the Ramos administration, I hope we can finish these flagship projects before Duterte steps down in 2022,” Velasco said. “Because this is the only program that we think we can start and finish during the Duterte administration.” Other projects under the Duterte administration’s Water

Security Program include the Rizal Province Water Supply Improvement Project being undertaken by Manila Water, the Angat Water Transmission Improvement Water, Bulacan Bulk Water Supply Project and the Sumag Diversion and Relocation Project. According to Velasco, there will be sufficient water supply up to the year 2037 or once Kaliwa and Laiban dams are completed.

Regulated sector

FOUR years ago, the government initiated the “Listahang Tubig,” a national water survey of service providers. The Listahang Tubig came up with an 88-percent participation rate from cities and municipalities nationwide, generating a database of water-service providers. According to the National Water Resources Board (NWRB), 85 percent of the country’s total population has access to water, but not everyone gets tap water or water that underwent potability tests. There are 22,844 water service providers all over the country and only about 4,700 are piped water supply service providers. Of the number of total water service providers, 79 percent are unregulated. It noted, however, that water service providers that are regulated and have corporate governance structure such as water districts and some private utilities show

better performance. Outside Metro Manila, water service providers extract water from groundwater aquifers, thereby depleting water supposedly reserved for future freshwater requirement.

Expansion plans

MAYNILAD and Manila Water claim phenomenal success in implementing various serviceimprovement programs in their respective concession areas. Maynilad, which currently has around 9 million customers, has a requirement of 2,500 MLD per day. Aside from the 2,400 MLD it gets from the ration of raw water from Angat, it also draws 150 MLD from Laguna de Bay, which it treats in its Putatan water treatment facility. Manila Water, which has around 6.8 million customers, has a minimum requirement of 1,600 MLD. The company claims it has 20 deep wells where it can draw water in case of emergency. Maynilad is looking to replicate its accomplishments in the West Zone by exploring opportunities to provide water and wastewater services in other areas. Manila Water, meanwhile, is currently developing and implementing the Rizal Province water supply improvement project, designed to provide an additional 100 million liters of water per day to Rizal Province, Sevilla said. “We are already breaching the

UNDERSCORING the importance of preventing water pollution, DENR Undersecretary Jonas R. Leones encouraged LGUs to ensure that wastewater from business establishments is treated before being discharged. In Metro Manila, water concession agreements with Maynilad and Manila Water include wastewater treatment from households and other customers. However, he said big industrial and commercial establishments are also required to put up a sewage treatment plant or wastewater treatment facility. What happened in Boracay has become an eye opener for all public and private stakeholders, he said. “In areas where there are private water concessions, like in Metro Manila and in Boracay, where there are two water providers, wastewater treatment is the responsibility of the contractors,” Leones said. “But in areas where there are no private water concessions, LGUs should come up with a plan to invest in sewer connections to treat wastewater.” The campaign in Boracay, he said, will also be done in other tourist destinations, to prevent water pollution that may contaminate not only the coastal waters but more importantly, groundwater aquifers.

Conservation, recycling

DENR Undersecretary Maria Paz Luna said there is a need to rethink how people use water. The massive tree-planting activities under the government’s greening program, she said, make sense because they enhance the water storage capacity of watersheds, including storage in groundwater aquifers. In Metro Manila, Luna noted that reusing water becomes doubly hard because of pollution. Unlike in Boracay, which has 90-percent proper sewage connection, Metro Manila’s sewer connection is only about 15 percent to 20 percent. Being the private water concessionaires, Maynilad and Manila Water are mandated to facilitate proper sewage connection and treat wastewater before they are released back to the environment. A 100-percent sewage connection will partly address water pollution

problems in rivers and lakes, like Pasig River, Laguna de Bay and Manila Bay. But Luna, officer in charge for the DENR Manila Bay Concerns and other Water Concerns, admitted it will take time for that to happen, as doing so will impact on water consumers. “If you take note, the concession agreements of Maynilad and Manila Water are until 2037 and are to spread out the charging of their capital expenditures to their customers,” she told the BusinessMirror in a telephone interview. Otherwise, Luna said while Maynilad and Manila Water may be forced to spend big time, they will also charge such expenditures to customers, which means that rates will go up to the extent of possible unaffordability. One of the water conservation and water access measures is to reuse as much water as possible, Luna said. “There are certain buildings in Metro Manila that are already using reused water. That will reduce our dependence on Angat Dam,” she said. She noted that part of water security is to ensure that water conservation measures are integrated into day-to-day activities at the household level, by businesses or even by industries. “Part of that is also demand management. The more water we use, the more sewage results,” she added. “The more sewage systems needed and the more capital investment to clean that sewage.” Luna explained that “saving water works both ways: It reduces the need for more infrastructure to deliver water and lessens our expenses in maintaining sewage.” She said people should be able to implement rainwater harvesting to reduce their dependence on new water coming from Angat.

Extracting water

LUNA also expressed alarm that most water service providers outside Metro Manila are extracting from groundwater aquifers which may potentially deplete the groundwater reserve. She said there’s no way of gathering accurate data as to how much volume of water is extracted from groundwater aquifers, but noted that the NWRB has already ceased issuing water extraction permits in certain areas in Metro Manila, such as in Parañaque City and Malabon City. The official said the DENR, through its Mines and Geosciences Bureau (MGB), is working with other agencies in mapping the potential sources of drinking water across the country. Luna said the Philippines needs to diversify water sources and find ways to protect its precious freshwater sources like lakes, rivers, and even groundwater aquifers, against pollution, or in the case of coastal areas, saltwater intrusion. Also, Luna said drawing more water from Laguna de Bay is not a remote possibility but it will really depend on how economically feasible is the water extraction and treatment process to ensure that the rate of water will not go up to the point of unaffordability. “That is why it really makes sense to have policies to improve sewer management coverage like in the entire Laguna de Bay region to improve its water quality,” she said. Still, while the Philippines currently has an abundant water supply, the country is now facing serious water supply and water management problems that need to be addressed—quickly and in a comprehensive manner. That is, unless people are willing to concede this: has the water problem become too big a problem to solve?

A6 Thursday, June 21, 2018 • Editor: Angel R. Calso

Opinion BusinessMirror

www.businessmirror.com.ph

editorial

US-China trade war affects PHL economy

A

s the United States and China rattle their economic sabers, threatening punishing tariffs in the opening salvos of a trade war, the Philippines could be the most at risk in Southeast Asia from the worsening trade conflict between the world’s two biggest economies. About 17 percent of the country’s exports are part of China’s value chain—goods that serve as inputs to China’s exports, according to RHB Bank Bhd. That compares with 11.4 percent for Malaysia and only 2.2 percent for Vietnam. The Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi), the largest organization of foreign and Filipino electronics companies in the Philippines, concedes that the country’s $33-billion electronics exports, which yearly account for at least half of outbound goods, would be severely affected by a US-China trade war. The US imposition of tariffs on a range of Chinese imports, which means an added tax on imported goods from China, was the first step in a series of measures announced by the Trump administration. China responded in kind by announcing tariffs on American imports. Observers fear the next stage would be for the US to restrict Chinese investment into the US. If this happens, China will respond in kind. In other words, the economic conflict between China and the US can potentially go beyond tariffs and directly disrupt the global economy. Pundits said that President Donald J. Trump’s new trade barriers stem directly from the “America First” trade policy he has espoused since the presidential campaign. Trump claimed that unilateralism in trade is good for the US. This approach to trade, economists said, is based on a false understanding of how the global economy works, one that also plagued American policy-makers nearly a century ago. The Trump administration, they said, has forgotten an important lesson from the Great Depression. In the 1930s Congress generally set America’s trade policy unilaterally. Lawmakers, who were in a protectionist mood, responded to the pain of the Great Depression by passing the infamous Smoot-Hawley Tariff Act of 1930, which increased duties on hundreds of imports. Meant in part to ease the effects of the Depression by protecting American industry and agriculture from foreign competition, the act instead helped prolong the downturn. Many US trading partners reacted by raising their own tariffs, which contributed to shutting down global trade. Fortunately, the US and its global trade partners have learned a lesson from this experience…until the Trump administration. Trump must be reminded that trade barriers would not only damage the countries involved, but would also disrupt global supply chains. The consequence: Higher prices for consumers worldwide. International Monetary Fund Managing Director Christine Lagarde has warned world leaders to “steer clear of protectionism in all its forms,” following weeks of tension between the US and China over trade. The IMF chief said: “History shows that import restrictions hurt everyone, especially poorer consumers.” We believe there is still time to prevent the worst from happening. The world must avoid the pain that was felt in the 1930s. A US-China trade war would not only destroy the economies of the two countries; it won’t spare their trading partners. Since US products—like the iPhone X that has parts from China—are sold globally, consumers around the world will be affected. The same applies to Chinese products that are made by companies with foreign investors. Surely, a US-China trade war will have an adverse impact among their trading partners, including the Philippines.

Since 2005

Caught in a feedback loop John Mangun

OUTSIDE THE BOX

I

N a speech to the Modern Language Association in 1972, the famous American film critic for The New York Times said this about that year’s US presidential election: “I live in a rather special world. I only know one person who voted for Nixon. Where they are I don’t know. They’re outside my ken”.

Incumbent President Richard M. Nixon won that election over George McGovern by a monumental landslide. Nixon gained 60 percent of the popular vote and 520 electoral votes to McGovern’s 17 votes. Pauline Kael’s quote has been distorted and used to display how out of touch the “elite” is from the ordinary citizen. In the past three years or so we have seen how the so-called intellectual, political and economic elite is disconnected from the people. Across the globe voters have rejected what was once called “The Establishment” and leaders who are seen representing the interests of the members of the ruling class.

However, what is profound about Kael’s revelation is the fact that she recognizes that she operates in a closed bubble. Born in a dirt-poor chicken farm, for 40 years she was the toast of the wealthiest and powerful of New York High Society. Feedback “occurs when outputs of a system are routed back as inputs as part of a system that forms a loop.” We have all experienced it—when a microphone is too close to the speakers, the sound goes from one speaker to the other as it gets louder and louder with that ear-piercing screech. We also experience it when what we hear and read support our predetermined views, which then makes

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becomes a massive wave of market crashing panic. Another broker down the line says, “This is madness. I can’t take it anymore. Goodbye.” And, of course, this feedback loop becomes a massive wave of euphoric buying. Even economic conditions are subject to a feedback loop, inflation being the best example. A storeowner raises prices because he sees another one increasing her prices and then another storeowner follows them. The same conditions are doubly true for the stock market. Members of the “Billionaire Boys Club” of fund managers are always watching the other guy, not wanting to be the last one in during a Bull Market or the last one out in a Bear Market. That is how a “correction” on the local stock market at the 8,100 index level in the middle of March— when we went to 90-percent cash —turned into a bloodbath to 7,300 by the middle of June. Think of how wonderfully profitable it is going to be when the loop reverses direction. E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stockmarket information and technical analysis tools provided by the COL Financial Group Inc.

Wrong policies that keep oil prices and power rates rising

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our bias even stronger. A person might think that maybe the Earth is flat and then talk to people that do think the Earth is flat and eventually the person absolutely knows the Earth is flat because everyone around him believes exactly the same thing. “Fake news” is not harmful because it may be untrue. It is damaging because it supports a particular position. In the past, celebrities’ careers were ruined not by ridiculous lies but that those lies supported previously held negative views about them. Look how people go hysterical about a completely untrue story published on a satire or parody web site. We find this kind of feedback loop in almost everything. Well-respected local journalists and authors that I know, on Facebook feed each other information that supports previously held opinion and refuse to accept it when the facts prove something differently. A feedback loop is difficult to break unless you are intellectually aware of being caught in it, as was Ms. Kael. There is that cartoon of a stockbroker saying, “I’ve got a stock here that could really excel.” The word “excel” is passed on as “sell” and

Part Six

President Arroyo pushed Epira’s approval

A

FTER the senatorial elections in May 2001 that saw Sen. Juan Ponce Enrile cheated out of the senatorial race, thenPresident and now Pampanga Rep. Gloria MacapagalArroyo pushed the passage of Republic Act 9136, the Electric Power Industry Reform Act. She offered several reasons to convince Congress to pass Epira. According to her, the passage of Epira was necessary for the World Bank and the Asian Development Bank to release a $950-million loan to the country, arguing that electric power rates would immediately go down by P0.30 per kilowatthour (kWh) as soon as Congress passed the law. What happened? Instead of going down, the rates went up, triggering a public outcry. As one of the Senate members then, Enrile was the only one that voted against the Epira when it was approved on June 4, 2001. “I knew that the Epira would not benefit the people. I went against it because I realized that it would legalize and justify the imposition of unwarranted financial burden on the people under the so-called purchased power adjustment, or universal levy, as the Epira would later call it,” Enrile said. He wrote Arroyo on March 7, 2001, to warn her about the harmful provi-

sions of the Epira, calling her attention to the market control and monopoly of Meralco over a huge portion of the power industry, especially the exploitation of Meralco electric consumers. “I pointed out to her the injurious effect of giving Meralco and other distribution companies the same right given to the National Power Corp. [NPC] to charge electric consumers for stranded losses on bilateral contracts with independent power producers,” Enrile recalled. “I especially warned her regarding the danger to the electric consumers posed by stockholders, like the Lopezes and their associates, who have interest both in the generation and distribution side of the power industry,” he said. His letter was received by the Office of President Arroyo in Malacañang on March 8, 2001. He does not know whether Arroyo ever saw his letter. But one thing he

knew for sure—he never had the courtesy of any reply. True enough, shortly after the passage of Epira, Arroyo’s assurance to lower the cost of electricity in the country did not happen. Instead, the electric bills of consumers skyrocketed, to the public’s dismay and shock. To placate the enraged public, she announced in a press conference and in a boastful display of make-believe concern for the people that she was “squeezing blood out of stone” to reduce the power purchase agreement (PPA). She ordered the NPC to reduce its PPA from P1.25 to P0.40. This drove the NPC deeper into bankruptcy. This, as we have learned later from a report of the American Chamber of Commerce, was a very expensive publicity stunt to be paid for with taxpayers’ money. It turned out that the government had to borrow $500 million to cover the NPC-PPA reduction that Arroyo ordered. However, for reasons only known to her, she refused to touch Meralco’s PPA from its own independent power producers. To make matters worse, Meralco arrogantly refused to honor its 10-year 3,600-megawatt power supply contract with the NPC. This was to allow Meralco to use the power output of its own independent power producers whose prices range from P5.74 to P6.26 to P7.39 per kWh, compared with the NPC’s price of P3.62 per kWh.

Meralco’s mega-franchise

Meanwhile, the House and the Senate approved, with unbelievable dispatch, the grant of a mega-franchise to Meralco. That mega-franchise covers an area of 9,337 square kilometers or 3,647.3 square miles, where a quarter

of the entire population of the country live in 22 cities and 89 municipalities. The original area of Meralco, before the Lopezes sold and transferred it to the Meralco Foundation in the 1970s, was 1,018 square miles, embracing seven cities and 40 municipalities. The mega-franchise bill breezed through Congress despite Meralco’s dismal record as a public service utility and glaring evidence of its abuses, excessive PPA charges, its sweetheart deals with its own independent power producers (IPPs), and shenanigans in its return on rate base. We all knew, of course, that no less than the Supreme Court had ruled with finality that Meralco had been illegally passing on its own income taxes to its hapless customers. Meralco said it will go bankrupt if it refunded the billions of pesos it had exacted from the public. That Meralco is in dire financial straits, as it claimed, while its affiliate IPPs like First Gas ended up among the country’s most profitable corporation was a classic demonstration of the evils of cross-ownership, which the Epira promised but failed to curb. At the rate the mega-franchise bill swiftly passed through the legislature, it was reasonable for us to anticipate that the “last nail on the coffin”—the President’s signature, which will turn the bill into law, will come sooner than later. Undoubtedly, the PPA or universal levy, or whatever name they now call it, is anti-people. It made the people pay for electricity they have not used. It made the cost of electricity exorbitant. It made the country uncompetitive in the world market. It deprived the poor and the jobless of an opportunity to find

See “Arillo,” A7

Opinion BusinessMirror

www.businessmirror.com.ph

IMF, the austerity policeman, now adopting a social agenda?

A chosen, blessed child Msgr. Sabino A. Vengco Jr.

Alálaong Bagá

Dr. Rene E. Ofreneo

LABOREM EXERCENS Continued from A1

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owever, leaders of heavily indebted countries whose economies contracted as a result of the IMF’s liberalization dogma must be cursing. The Philippines had one too many contractionary episodes in the past as a result of a one-sided IMF prescription of peso devaluations sans any program leading to smooth recovery and industrial growth. These include the devaluation of the peso in the mid-1960s under the Macapagal administration, the “floating peso” devaluation in the early-1970s under the Marcos administration and the series of hyper devaluations in the first half of the 1980s, when the economy went into a recession and later, into a depression. Now it appears that IMF has been doing more rethinking and revisionism of some sorts. It has been tackling socioeconomic issues that were once verboten in the halls of IMF: inequality, gender, corruption, climate change and social protection. These are issues that were passionately discussed by select Asian nongovernment representatives in an IMF workshop held this June in Makati. These NGO representatives were quite blunt in criticizing the harsh social and antipeople impact of IMF-World Bank policy conditionalities under the traditional neoliberal “structural adjustment programs” (SAP). And yet, the IMF representatives in the workshop, led by Yongsheng Yang, the IMF Resident Representative in the Philippines, listened quietly to what the NGOs had to say. Moreover, they revealed that the IMF, once singularly focused on the fiscal side of the economy and the application of the dreaded belt-tightening austerity program for countries experiencing balance of payments deficits, has been debating the social impact of SAP and other fiscal measures drawn up with the involvement of the IMF. The IMF Managing Director, Christian Lagarde, is now talking of the “human face” of economic adjustment and the importance of assessing the social dimension or the “macro-critical” impact of any adjustment. Thus, to IMF, corruption, which was hardly mentioned in past IMF papers (called in the 1990s as “moral hazards”), is “macro-critical.” Lagarde spoke as follows: “…systemic corruption undermines the ability of states to deliver inclusive growth and lift people out of poverty. It is a corrosive force that eviscerates the vitality of business and stunts a country’s economic potential.” Example: “Think of a government spending taxpayer money on a glamorous, but unnecessary new convention center, whose ulterior purpose is to generate kick-backs. “A year after construction begins, it turns out that funds in the social service coffers are somehow no longer available for their original beneficiaries. “Over time, the money diverted from education or health care perpetuates inequality, and limits the possibility of better paying jobs and a better life.” Why is the IMF, decades after its foundation after the end of World War II, is now tackling the social dimension of fiscal adjustment programs? The answer is obvious. The Washington Consensus ideology, worshipping on the altar of free trade and unvarnished neoliberal economics, is under attack even within the United States

Arillo . . .

continued from A6

employment because the high cost of electric power will mean fewer investments and therefore, fewer jobs. Enrile said: “The people cannot be fooled anymore. They know now that the Epira condones the unjust, immoral and unlawful exactions against them. “They also know now that the

and Europe. IMF’s twin, the World Bank, was the first to react, in the 1990s, when the Bank tried to market structural adjustments that address the displacement concerns of workers. At the turn of the millennium, the Bank even abandoned its obsession to promote the privatization of government-run social security systems, thanks partly to the objection of then-Chief Bank Economist Joseph Stiglitz. Later, the Bank came up with a number of “social safety net” programs, the most significant of which is the “conditional-cash transfer” or CCT. The IMF has been supporting the CCT initiative of the World Bank. It also asked its “Independent Evaluation Office” (IEO) to assess further IMF involvement in the area of “social protection” (SP). In 2017 the IEO recommended a deepening of the IMF role in “assessing the distributional and social impact of policy reforms on different groups of the population, particularly the poor and the vulnerable.” Along this line, the IEO also took the position that the IMF should maintain the IMF’s policy of supporting the CCT and other SP programs that specifically target the poor. However, the IMF has expressed anxieties over the growing audacity of the World Bank to depart from this “targeting” framework in the delivery of SP to society. It noted that the Bank joined the International Labour Organization (ILO) in 2015 in declaring support for “universal and sustainable social protection.” The latter is close to the heart of trade unions and NGOs, which have been arguing that social protection is a basic human right that should be enjoyed by all and should, therefore, be designed to benefit all, without any exception. The IMF does not subscribe to the rights-based and universal social protection because the IMF is still tied to issues such as “cost efficiency” and “fiscal space” in support of any social program. Obviously, more debates on the social and human dimension of structural adjustments and globalization are waiting in the study halls and board rooms of the IMF and World Bank, the leading promoters of the Washington Consensus in the 1980s to 2000s. But one thing is clear: neoliberalism, once reigning supreme in these institutions, is crumbling.

Val A. Villanueva is on leave.

Businesswise actions taken with much boasting by the Arroyo government supposedly to help them were mere palliatives designed to relieve primarily the political pain and distress of President Arroyo. They, likewise, know that no one but themselves will pay for the corruption, incompetence and imprudence of their national leaders.” To be continued

To reach the writer, e-mail cecilio.arillo@ gmail.com.

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he birth of John the Baptizer (Luke 1:57-66, 80) is significant enough that the Church celebrates it as a solemnity, and for a moment we step out of the liturgical Ordinary Time, as we meditate on this child’s role in the mystery of the incarnation.

John is his name Naming a child is giving that child its identity. Among the Israelites, the naming of a male child and its circumcision on the eighth day after birth formed the boy’s initiation into the community. And the community was here involved; the neighbors and relatives were interested in the name the child would be given. The parents were not the only ones who had a stake in the newly born. Many thought naming the boy after his father Zechariah would link him properly with the identity and destiny of his family and kin. But the boy has a far greater significance. Both Elizabeth and Zechariah insisted that the boy be called John, the name that means “God is gracious.” God’s goodness is what is

celebrated in the child’s birth: the neighbors and relatives rejoiced with the family precisely because they have witnessed the great mercy the Lord has shown to the couple advanced in years. But the child’s name was actually given by the angel (Luke 1:13), a name coming from heaven, therefore with a heavenly destiny still to unfold and with the promise of future blessings. “What will this child be?” was really the question in the heart of everyone in the hill country of Judea who heard of the amazing story surrounding the child.

God’s hand is with him

God’s entrance into the ordinary human time, not only of Zechariah and Elizabeth but also of their neighbors and of many others, is what the

Thursday, June 21, 2018 A7

God’s entrance into the ordinary human time, not only of Zechariah and Elizabeth but also of their neighbors and of many others, is what the birth of John manifested. And the initial reaction of fear in the presence of the divine in connection with the child’s birth came upon them (Luke 1:12, 65); clearly “the hand of the Lord was with him.” birth of John manifested. And the initial reaction of fear in the presence of the divine in connection with the child’s birth came upon them (Luke 1:12, 65); clearly “the hand of the Lord was with him.” He was a chosen child, particularly cherished by his parents both righteous in the sight of God. Zechariah especially, when his tongue was freed, blessed God for the marvels done. And in the context of what the angel told him earlier (Luke 1:14-17), he was now convinced that God has great designs for this child. At this child’s birth, many indeed would rejoice. Set apart for the service of the Lord and great in His sight and filled with the Holy Spirit, “he will turn many of the children of Israel to the Lord their God...to prepare a people fit for the Lord.” John was the precursor of the Messiah, the herald of the time of salvation, the

voice in the wilderness, crying “Make straight the way of the Lord” (John 1:23), the trumpet at the entrance to the new eschatological age of fulfillment. It was his prophetic destiny to be the sharp-edged sword and the polished arrow (Isaiah 49:2), the servant who would reveal the glory of the Lord. Alálaong bagá, John, in his divinely determined destiny, was the last prophetic voice challenging the people to prepare for the coming of Jesus Christ. Bringing the people to the threshold of the new age, he then stepped aside, not keeping the attention to himself but pointing to the Lamb who would take away the sins of the world; he was just the best man to the bridegroom (John 3:29). The meaning of the birth of John hinges on the meaning of Jesus’ birth. The nativity of Jesus was placed in the calendar, according to the Fathers of the Church, when the days in the Northern Hemisphere begin to lengthen, and the birth of John when the days get shorter. This illustrates the declaration of John regarding his mission and his significance: he must increase and I must decrease (John 3:30). Join me in meditating on the Word of God every Sunday, from 5 to 6 a.m. on DWIZ 882, or by audio streaming on www.dwiz882.com.

Revisiting the local tax on holding companies Atty. Ronald S. Cubero

Tax Law for Business

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olding companies are plainly not subject to local business tax due to the parameters specified in our local tax code. As early as 2015, our Court of Tax Appeals (Court) en banc seem settled already as to the nontaxability of dividends and interests income earned by a holding company. As this becomes the local taxation regime for holding companies, it is worthy to examine the progressing justification and opposition contained in our jurisprudence. In the mother of all cases (Michigan case dated June 17, 2015), the Court held that a holding company is not of the same class as that of a bank or other financial institutions. To tax, therefore, a holding company on its dividend income is a deliberate intent to circumvent the prohibition set in our local tax code wherein the taxing powers of our local government units shall not extend to the levy of income tax, except on banks and other financial institutions. In this case, the bone of contention of the opposition hinges on the fact that

the legal basis of the assessment (i.e., the ordinance) had not been declared illegal and is thus presumed valid. Apparently, such contrary argument falls short of convincing the majority of the magistrates to rule otherwise. In subsequent cases decided by the Court in division, the opposition placed more emphasis on the notion that a holding company is actually operating as a financial intermediary. As such, in some cases, the Court held that a holding company can actually be considered a nonbank financial intermediary

The general guideline, therefore, is that an NBFI may not be considered as such in its legal sense unless it possesses all the requirements that qualify it to fall within its legal definition. To date, the above-highlighted doctrine is still controlling, valid and effective pending any contrary resolution or decision from the Supreme Court.

(NBFI) and thereby subject to local business tax on its dividend and interest income. Recently, however, the Court en banc had the occasion to reexamine the local taxation of holding companies in the cases of Te Deum (May 8, 2018) and ASC Investors (May 17, 2018). In both of these cases, the majority of the magistrates adopted the Michigan ruling and expounded its reasoning in order to squarely address the evolving oppositions. In concluding that the taxpayers are not NBFI but a holding company not subject to local business tax, the Court consolidated a number of laws and regulations in order to delineate the distinction of a holding company from a financial intermediary. Thereafter, it came up with three basic requirements for a person or

entity to be considered an NBFI. First, the person or entity is authorized by the Bangko Sentral ng Pilipinas to perform quasi-banking activities. Second, the principal functions of the said person or entity include the lending, investing or placement of funds. Third, the person or entity must perform quasi-banking functions on a regular and recurring, not on an isolated basis. The general guideline, therefore, is that an NBFI may not be considered as such in its legal sense unless it possesses all the requirements that qualify it to fall within its legal definition. To date, the above-highlighted doctrine is still controlling, valid and effective pending any contrary resolution or decision from the Supreme Court. The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a memberfirm of WTS Global. The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at ronald.cubero@ bdblaw.com.ph or call 403-2001 local 350.

Donald Trump’s misguided trade war with China

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NITED STATES President Donald J. Trump may sincerely think he’s battling to win Americans a better deal on trade with China. In fact, he’s making a better deal harder to achieve—and threatening to inflict grave economic damage on the US economy in the process. In the past few days, Trump has dramatically cut the chances of a negotiated solution to the two countries’ various trade disputes. He announced a first set of tariffs on $50 billion worth of Chinese goods, prompting an entirely predictable Chinese vow to retaliate. Now he’s followed up with a new threat to impose tariffs on an additional $200 billion in Chinese imports (and possibly another $200 billion after that). Even as he escalates the fight over tariffs, the president is trying to persuade Congress to go along with his decision to lighten penalties on Chinese telecommunications company ZTE Corp. That decision was questionable in its own right (because it harmed US credibility in sanctions enforcement), but one possible justification is that it might have encouraged China to offer concessions on trade. The

tariff fight has most likely canceled that opportunity, such as it was: No Chinese leader, least of all President Xi Jinping, could be seen to placate Trump under these circumstances. Meanwhile, the president’s actions are increasingly hazardous to the US economy’s health. If implemented, the tariffs—taxes paid in the end by United States consumers—would hurt American firms and households more than they’d hurt the Chinese. The latest ones would be applied in part to finished goods, such as electronics and sneakers, directly raising prices for US consumers (even before China’s government chose to retaliate, as it probably would). Perhaps the administration thinks China’s ability to punch back is limited, since the country doesn’t import enough from the US to penalize an equivalent $200 billion in goods. But China can retaliate in other ways—for example by obstructing United States companies operating on the mainland, promoting boycotts of US goods or throttling the flow of students and tourists to the United States. And China’s ability to thwart the Trump administration’s geopo-

litical goals remains as potent as ever—witness North Korean dictator Kim Jong Un’s surprise visit to Beijing this week. There’s no need for this reckless unilateralism. The Trump administration’s theory of trade is fundamentally wrong. It sees bilateral trade imbalances as evidence of unfair practices. In fact, in a world without tariffs or trade barriers of any kind, a roughly similar pattern of surpluses and deficits would still arise, as a result of macroeconomic imbalances and other factors. There’s no polite way to say this: Trump’s goal of smaller deficits through better deals is simply delusional. Granted, the US has valid grounds for complaint about specific trade practices. In remedying these through cooperation rather than trade war, it would have many potential allies. Other governments are aware of the difficulties their businesses face in China. There’s a consensus that its government pursues a legitimate aim—to move up the technology ladder—by sometimes improper or illegal means, including commercial espionage, heavy subsidies and coerced transfer of technology. It would be in China’s interests to

do more than curb such abuses at the margin and make largely symbolic gestures on trade, as it has up to now. Substantive economic reforms— measures to liberalize finance, increase consumption, cut overcapacity, protect intellectual property and streamline state-owned businesses—would support better-balanced growth, as well as answering the complaints of trading partners. But that doesn’t change the verdict on Trump. His clumsy machinations, which alienate allies while hardening China’s resistance to reform, do nothing to advance this prospect. By all means, let the US identify specific instances of rule-breaking on trade and investment, and build a global coalition to persuade China to conform. By all means, lead an effort, through new trade pacts, to strengthen the rules and the means of enforcing them, where that makes sense. But no good purpose can be served by taxing trade, rejecting cooperation and isolating the United States from its friends. Just how much damage Trump might do is starting to dawn on financial markets. He’d be wise to change course before he’s forced to. Bloomberg