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Tuesday, June 26, 2018 Vol. 13 No. 255

SRP on farm products in effect; sellers warned T

By Jasper Emmanuel Y. Arcalas

products in the market today.

“SRP will only allow a 10-percent adjusment in the prices. Your selling price should not increase

more than that. If you go beyond [10 percent] you can be charged with profiteering, where succeeding violations can result in as high

“We have to do it fast because we do not want the consumers complaining. We are performing a delicate balancing act...we would want farmers to earn more, [but] we cannot just sacrifice the consumers.”—Piñol

as a P1-million fine,” Piñol said.

Piñol signed on Monday an administrative circular that implemented the SRP on certain farm commodities being sold in Metro Manila.

The farm products covered by the circular are regular-milled rice at P39 per kilogram; milkfish

We need more infra partners Manny B. Villar

THE ENTREPRENEUR

T

he current administration may go down in history as the most efficient government in terms of project accomplishments. Big infrastructure projects are being simultaneously built today across Metro Manila and the rest of the Philippines.

President Duterte in just two years after his election in May 2016 has already been instrumental in the construction and planning of several toll roads, railway networks, farm-to-market roads, bridges, airports, seaports and power plants. The accomplishments of the Department of Public Works and Highways (DPWH) in the first two years of the Duterte presidency alone, for instance, are far more superior than those achieved in the previous administrations despite the lack of detailed project studies.

Continued on A6

I.F.C. ISSUES ‘GREEN’ BONDS FOR RENEWABLE PROJECTS

By Cai U. Ordinario @cuo_bm & Lenie Lectura @llectura

T

T

See “Japan,” A8

P25.00 nationwide | 4 sections 20 pages | 7 days a week

See “SRP,” A8

Japan extends ₧920-M aid to PHL

he Japanese government has pledged to provide the Philippines with P920 million in grants to finance a floodcontrol project and the education of 42 government employees.

On Monday Tokyo and Manila signed two grant agreements for the flood-control project in the Cagayan de Oro Basin and the Human Resource Development Scholarship, or JDS project.

The Cagayan de Oro Basin project will cost P639 million, while the scholarships to various topnotch universities in Japan will cost P281 million.

“We wish to extend our deepest gratitude to the Japanese government for its continued support for the implementation of our priority programs and projects,” Socioeconomic Planning Secretary Ernesto M. Pernia said.

“Being the Philippines’s biggest development partner, Japan has played a key role in helping the Philippine government toward disaster prevention, preparedness and resiliency security; and as well as its aspirations for and commitment to a worldclass Philippine civil service,” Pernia added.

The Cagayan de Oro Basin project involves the installation of a

business news source of the year

@jearcalas

HE Department of Agriculture (DA) on Tuesday warned retailers and vendors in Metro Manila they face penalties of as much as P1 million if their mark-up price on some prime farm products is way beyond the suggested retail prices (SRP).

Agriculture Secretary Emmanuel F. Piñol said the purpose of SRP “is not to bring down but to stabilize” the retail prices of farm

2016 ejap journalism awards

A man at a wet market in Kamuning district in Quezon City cleans milkfish (bangus), one of the farm products covered by the first batch of items with suggested retail prices, as the Department of Agriculture signed the order for such on Monday. The DA warned retailers and vendors in Metro Manila of penalties if their mark-up price on some prime farm products is way beyond the suggested retail prices. NONOY LACZA

BSP projects FDI at $1B higher by end-2018

By Bianca Cuaresma @BcuaresmaBM

P

ROSPECTS for foreign investments intended for longterm y ield turned more optimistic for 2018, the Bangko Sentral ng Pilipinas’s (BSP) latest assessment showed. However, expectations for short-term foreign investments continue to be weak for the year.

In the Central Bank’s most lat-

PESO exchange rates n US 53.3490

est assessment of economic projections for the year, the country’s central monetary authority revised the Philippines’s foreign direct investments (FDI) projection upward to now hit $9.2 billion by the end of the year.

This is a $1-billion revision from the $8.2 billion projection earlier.

FDI is the type of investment that is often more coveted, as it stays longer in the economy and creates job opportunities for

locals. It is also not easily pulled out of the market unlike its shorter-term counterpart, the foreign portfolio investments.

Just recently, the International Monetary Fund (IMF) expressed optimism on the country’s ability to raise its FDI over the near to medium term, citing strong domestic reform momentum in the areas of taxation and capital market development.

See “BSP,” A2

HE private-sector arm of the World Bank on Monday issued peso - denom inated green bonds with an equivalent of approximately $90 million meant to support the local capital market and renewable energy (RE).

In a statement, International Finance Corp. (IFC) said proceeds would be used to finance the capital expenditure (capex) of Energy Development Corp. (EDC), which is focused on optimizing the generation output of its geothermal power plants and improving resiliency to climate impacts.

EDC officials said last month that the Lopez-led firm is setting aside P6.1 billion in capex this year. The amount is around the same allocated a year ago. Bulk of the capex has been earmarked for geothermal drilling activities.

The first-ever “Mabuhay” bonds, as they are called, are part of IFC’s efforts to boost climate-smart investments in the Philippines.

“Addressing climate change is a priority for IFC,” said Jingdong Hua, IFC vice president and treasurer. “IFC’s Mabuhay bond showcases the powerful role that capital markets could play in mobilizing savings for climate finance. Adding pesos as a new green bond currency supports our goal to strengthen this important asset class.”

IFC said EDC is focused on optimizing the generation output of its geothermal power plants and im-

109 The number of “green” bonds issued by IFC, for a total $7.5 billion in 12 currencies

proving resiliency to climate impacts.

Big player in renewables

EDC is the Philippines’s largest producer of geothermal energy and one of the world’s largest integrated geothermal energy producers. It has also expanded to other sources like wind, solar and hydropower. It has a total installed geothermal capacity of 1,457 megawatts (MW).

Its power generation in 2016 represents approximately 9 percent of the Philippines’s total power-generation capacity. EDC operates five geothermal plants in Leyte. These are the 112.5-MW Tongonan, the 125-MW Upper Mahiao, the 232.5MW Malitbog and the 180-MW Mahanagdong power plants, and the 51-MW optimization plants.

In Negros Island, EDC operates two geothermal steam field projects and two geothermal plants under Bac-Man Geothermal Inc. These are the two units of Panlipinon geothermal facility (112.5 MW and 60 MW) and the 49.4-MW Nasulo geothermal plant.

n japan 0.4856 n UK 70.7354 n HK 6.8001 n CHINA 8.2139 n singapore 39.2850 n australia 39.6757 n EU 62.2423 n SAUDI arabia 14.2252

See “IFC,” A2

Source: BSP (25 June 2018 )

News

BusinessMirror

A2 Tuesday, June 26, 2018

House rights panel urged to probe ‘Oplan Tambay’

By Jovee Marie N. dela Cruz

T

@joveemarie

HE Makabayan bloc in the House of Representatives on Monday filed a resolution directing the House Committee on Human Rights to conduct an investigation on the Philippine National Police’s (PNP) “Oplan Tambay.”

In House Resolution 1969, the Makabayan, citing news reports, said the National Capital Region Police Office has already counted a total of 7,291 people arrested as of June 20, following the verbal order of President Duterte against tambay or idle individuals.

A f ter draw ing f la k for its “a nt i - p o or ” c r a c k d o w n t h at targeted mostly young jobless males at a time when vagrancy has been decriminalized, the police claimed that the men were arrested not because they were idle, but because they violated various local ordinances. Among the supposed violations: drinking or gambling in public, smoking, not wearing upper clothing, loud or noisy behavior.

According to the bloc, Republic Act 10158 passed in 2012 has already decriminalized acts of va-

grancy but police forces continue to conduct mass arrests.

The lawmakers said reports from the ground also point to violations on the right to remain silent, right to counsel and the right against incommunicado detention during these arrests.

“President Duterte’s verbal order to arrest vagrants, tambay or idle individuals opens a floodgate of abuses, especially in the midst of unresolved cases of police brutality and extrajudicial killings in poor communities. It provides the PNP a wide latitude in carrying out illegal arrests, illegal search and seizures and in violating people’s right to mobility,” the resolution said.

T he bloc said a verba l order from President Duterte in a speech on June 13, when he v i l i f ied tamba y a s potent i a l criminals, served as a general

President Duterte’s verbal order to arrest vagrants, tambay or idle individuals opens a floodgate of abuses, especially in the midst of unresolved cases of police brutality and extrajudicial killings in poor communities.”

—Makabayan resolution

directive for the PNP ’s campaign to eliminate them from the streets. Duterte later backpedaled and said he never ordered cops to arrest the tambay, but only to accost them. This, after a massive outcry ensued over the death in detention of 22-year-old Genesis Argoncillo, picked up for being shirtless while waiting for his cell phone to be loaded at a neighborhood store just meters from his Quezon City house.

In its resolution, the bloc cited the case of Argoncillo, a resident of Novaliches, Quezon City, who was arrested on June 15 by the Quezon City police operatives on charges of alarm and scandal following the loitering ban.

“After four days of detention, Argoncillo’s death certificate reflects that the cause of death was multiple blunt force trauma to his neck, head, chest and upper extremities,” the resolution added.

Also on June 17 the lawmakers said Matt Dimaranan posted on

social media how the police took him and his companions in prison after being mistaken as tambay while they waited outside their friend’s house.

“When they asked the police as to why they were being kept in a cell, the police showed them a clip of President Duterte’s anti-tambay movement speech. The police told them, ‘Basta sabi ng pangulo, batas agad ’yun,’” the resolution said.

The opposition solons, meanwhile, reminded the PNP that Article III Section 1 of the 1987 Constitution provides that no person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the laws.

Members of the Makabayan bloc include Gabriela Reps. Arlene Brosas and Emmi de Jesus, Act Teachers Reps. Antonio Tinio and France Castro, Bayan Muna Rep. Carlos Isagani Zarate, Anakpawis Rep. Ariel Casilao and Kabataan Rep. Sarah Jane Elago.

DENR shuts off illegal sewage pipes on Boracay beach, imposes STP compliance to curb pollution Continued from A8

Those who fail to comply will be issued notices of violation or cease and desist orders.

Cimatu said resort owners and businessmen can approach companies that offer to set up sewage treatment plants per establishment, including financial packages and other forms of assistance.

He also encouraged them to talk to Boracay’s water suppliers to explore best approaches and solutions to their sewage and wastewater problems.

The DENR chief stressed that decommissioning BIWC’s sewage pipeline is a must since it violates the 25 plus 5-meter easement rule and no-build zone along the shoreline.

He added that the sewer pipeline goes under sea water during high tide and habagat or monsoon season, thereby adding to the contamination

and posing health hazards to residents and tourists.

As this developed, the Cimatu ordered BIWC and Boracay Tubi Systems Inc. (BTSI)—the island’s two water suppliers —to expand the capacity of their respective sewerage treatment plants to help solve the island’s sewage woes.

Per estimates, Cimatu said the total STP capacity of Boracay is only 12 million liters per day but the wastewater to be treated is 15 MLD. Hence, he said, both companies must expand capacity to avoid the same problem when Boracay reopens in October.

Cimatu said the DENR team discovered that more than 200 big establishments are still not connected to the sewer lines of BIWC and Tieza.

“As of today, there is a capacity shortage, what more if the 200 is con-

nected? It will create more problems... so, therefore, those who can’t connect must build their own treatment plant,” he said.

It will be recalled that Tieza and BIWC’s undersized and clogged sewer pipes were cited as two of the many reasons why some unscrupulous business owners have resorted to illegal discharge of untreated wastewater, some of which go directly into the sea in violation of the Clean Water Act of 2004.

During inspection using ground penetrating radar, the DENR found 43 illegal pipes near the beach, which is also in violation of the 25 plus 5-meter easement rule.

Water flowing out from the more than 20 illegal pipes, was tested positive for coliform bacteria.

BSP. . .

Continued from A1

Latest data from the BSP show a 43.5-percent rise in the aggregate FDI for the first three months of the year, owing largely to what the BSP dubbed as“investors’continued positive outlook on the Philippine economy on the back of sound macroeconomic fundamentals and robust growth prospects.”

The growth in FDI in the first quarter of 2018 resulted in a net inflow of $2.2 billion, higher than the $1.5 billion seen in the same period last year.

The new projection means the country must be able to attract at least $2.33 billion in net FDI inflows per quarter for the rest of 2018.

The projection on foreign portfolio investments (FPI), however, paint a contrasting picture, as the BSP opted to keep their projection at a net outflow of $900 million by the end of the year.

FPIs are known as “hot” or “speculative” money because they are easily pulled in and out of the local platforms in the slight change of global and local sentiment.

Latest data from the BSP showed a significant rise in the FPI net outflows in May this year, hitting $206 million for the month.

This is compared to the $24-million net outflows recorded in May 2017. The BSP attributed hot money net outflows to local and international worries that hound investors.

On the local front, investors were par ticularly concerned about the weaker peso and the effect of higher oil prices on local inflation.

Hot money investors were also swayed by the higher United States treasury yields and the renewed geopolitical tension between the US and China, according to the BSP.

www.businessmirror.com.ph

Garin answers criminal raps over Dengvaxia

By Joel R. San Juan

@jrsanjuan1573

F

ORMER Health Secretary Janette L. Garin and several others on Monday answered the criminal charges filed against them before the Department of Justice (DOJ) by the parents and relatives of several children who were believed to have died due to complications after being inoculated with the controversial antidengue Dengvaxia vaccine.

Ga r i n, a long w it h for mer Health Secretary Francisco T. Duque III and 38 others, are facing a complaint for reckless imprudence resulting in homicide under Article 365 of the Revised Penal Code (RPC); torture resulting in the death of a person and the torture of a child under Republic Act (RA) 9745, also known as the Act Penalizing Torture and Other Cruel, Inhuman and Degrading Treatment; obstruction of justice under Section 1(b) of Presidential Decree 1829; and violation of Section 3 of RA 3019, the Anti-Graft and Corrupt Practices Act. During Monday’s continuation of the preliminary investigation, Garin filed her counter-affidavit seeking the dismissal of the complaint for lack of probable cause and for insufficiency of evidence.

“Contrary to the malicious, twisted and baseless accusations of the complainants and the corresponding report and recommendation memorandum [Public Attorney’s Office Report and Memorandum], the Dengue Immunization Program was implemented after a thorough evaluation process as to its necessity and urgency, as well as the readiness of the government to undertake the same,” Garin said.

“The decision was backed up with studies that date back to several years, conducted by private and public institutions, both locally and internationally,” she added.

She also denied that the program was implemented with undue haste since it was implemented in April 2016, just a month before the May presidential elections.

“In implementing the Dengue Immunization Program, we have always acted with the best interest of the people and the government in mind and exercised the diligence required of us as administrators of public health; all this while taking into consideration the prevailing circumstances and all the information available to us at the time,” Garin explained.

Garin insisted that she cannot be held liable for reckless imprudence resulting in homicide considering that the procurement of Dengvaxia underwent a thorough process and that its supposed “theoretical” risks were not yet supported by any data at the time of its implementation.

IFC. . .

Continued from A1

EDC also operates one geothermal steamfield project in Mindanao, which delivers steam to two EDC-owned geothermal-power plants on Mount Apo, which have capacities of 52 MW and 54 MW.

IFC’s commitment

“For the Philippines, the deepening of domestic capital market is critical for the long-term sustainability of the economy,” said Yuan Xu, IFC country manager for the Philippines. “The issuance of the Mabuhay bond evidences IFC ’s commitment to support the country’s efforts to address climate change.”

IFC is a triple-A rated issuer and has issued local currency bonds

Thus, she said, there is no basis for the PAO, which represents the complainants, that she “maliciously and arbitrarily” failed to inform the public of the dangers and risks related to the vaccine.

She added that the Department of Health also issued clear and specific guidelines for the implementation of the school-based immunization program, contrary to PAO’s claim that the DOH during her term failed to conduct proper screening of Dengvaxia recipients and other relevant tests to determine whether the children may be inoculated with the vaccine.

“In fact, there were students whose immunization was deferred because of existing conditions like fever.

This goes to show that the required diligence was observed and nothing was done in haste in the implementation of the dengue immunization program,” Garin pointed out.

Furthermore, Garin said the complainants failed to establish that Dengvaxia was indeed that cause of the death of the nine children subject of the complaint.

She noted that based on the PAO report and recommendations, the cause of death of the children was connected to the inoculation of Dengvaxia, as forensic examination would show the children suffered from viscerotropic-like disease secondary to Dengvaxia.

However, Garin said, the PAO’s report was contrary to the cause of death written on the death certificates of the children and that the findings of the PAO are not supported by medical and scientific evidence.

“In all these cases, there is no proof at all that there was any clinical diagnosis of viscerotropism or neurotropism based on the universally accepted Brighton Classification. Without any clinical diagnosis, it cannot be established that any individual has suffered from viscerotropism and neutropism,” she explained.

Aside from Garin, Duque and several health officials, also named respondents in the complaint were the directors and officers of Dengvaxia manufacturer Sanofi Pasteur Inc. and distributor Zuellig Pharma Corp.

The DOH suspended the vaccination program in December 2017, after Sanofi Pasteur said the vaccine poses a risk to those with no prior dengue infection. At least 800,000 children have been inoculated with Dengvaxia before Sanofi issued the health advisory.

Assistant State Prosecutor Maria Emilia Victorio, who chairs the panel of prosecutors tasked to conduct the probe, gave the complainants until July 16 to answer the counter-affidavits of the respondents; and until July 27 for the respondents to file their rejoinder. in over 30 countries to help build capital markets by attracting investors who want to put their money in low-risk investments.

IFC is one of the world’s largest financiers of climate-smart projects for developing countries. Its green bonds support investments in renewable energy, energy efficiency, green buildings and other areas that reduce greenhousegas emissions.

Since 2005 IFC has invested $18.3 billion in long-term financing from its own account, and mobilized another $11 billion through partnerships with investors for climate-related projects.

To date, IFC has issued 109 green bonds amounting to a total volume of $7.5 billion in 12 currencies.

These issuances are part of a global strategy to develop the green bond asset class in emerging markets.

www.businessmirror.com.ph

The Nation BusinessMirror

Survey shows Pinoy’s bias for college courses

By Cai U. Ordinario @cuo_bm

D

espite the availability of technical and vocational education (tech-voc) and training facilities nationwide, Filipinos are still more keen on earning college degrees, according to a recent survey.

In an Asian Development Bank (ADB) blog, Philippine Business for Education Executive Director and ADB Economics Research Lakshman Nagraj Rao Regional Cooperation Department Statisticians and Arturo Martinez said the finding was based on a recent Department of Education and ADB survey.

This is the Youth Education Investment and Labor Market Outcomes Survey (Yeilmos), which was conducted in 2017.

“The survey results show that many Filipino families still prefer their children to take up college education rather than technical and vocational education and training, in the expectation they will get better-paying jobs or earn more,” the authors said.

However, the Philippine Statistics Authority (PSA) showed that a number of the country’s unemployed are college degree holders.

Of the 2.36 million unemployed in April 2018, some 19.6 percent, or 462,560, are college graduates and 16.2 percent, or 382,320, are undergraduates.

PSA data showed this is still lower than the unemployed among junior high-school graduates at 28.9 percent, which is equivalent to 682,040 unemployed Filipinos.

“Education investments should be complemented by investments in job creation. A

conducive environment for businesses and industry promotes the creation of productive jobs, especially for youth. Decent work should also be made available to those without college or more advanced degrees,” the authors said.

Apart from these, the survey results showed that the financial costs of education is not a primary consideration despite it being a major reason students fail to complete their schooling.

The authors said Filipinos decision on education is mainly hinged on a person’s needs and not on how much it will cost.

This is somehow ironic given that family and parents are the main source of career information for students and also take the lead in decision-making.

Guidance counselors also did not rank high in terms of being sources of career information and in being part of student’s education decisions.

“Partly, as a result, many parents significantly under- or overestimated the cost of sending a child to higher education. Parents and students cited financial difficulties as a main reason some students do not proceed to higher grades,” the authors said.

In order to overcome challenges, the Yeilmos recommended the inclusion of an enhanced quality of career guidance programs.

Career guidance takes into consideration the students’ interests, abilities, aptitude and preference. It also provides insights on the reality of labor markets, particularly on skills and educational institutions that can offer a preferred course or track.

This also provides information on financial assistanceprograms,particularlywhenstudents are considering post-secondary education.

Almost half of AFP’s 2018 budget to be spent in fight vs communists

T

By Rene Acosta

@reneacostaBM

he military is spending approximately almost half of its budget in the campaign against the New People’s Army (NPA), whose membership has been placed to be between 3,700 and 5,000 armed fighters.

The Armed Forces of the Philippines (AFP) has been allocated with P195.4 billion for 2018, and almost half of the amount was allotted for the military’s internal security operations (ISO).

“The budget of the AFP is almost pointed toward counter insurgency and anti-terrorism efforts. Ammunition expenditure, casualties, equipment damages, everything is on our operations,” Military Public Affairs Office Chief Col. Noel Detoyato said.

“So, practically, the AFP budget is spent on our operations to keep the peace by keeping at bay all peace spoilers,” he added.

₧195.4B The total allotted 2018 budget for the AFP, almost of half of it allotted for ISO, or mainly in the fight against the decades-long communist insurgency

Former Armed Forces Chief of Staff Gen. Rey Leonardo Guerrero, who retired in April this year, has pegged the membership

Ombudsman indicts Abaya, 16 others over ‘anomalous’ MRT 3 upkeep deal

By Jovee Marie N. dela Cruz @joveemarie

& Butch Fernandez @butchfBM

T

HE Office of the Ombudsman has ordered the indictment of former Department of Transportation (DOTr) Secretary Joseph Emilio A. Abaya and 16 others, including Busan Universal Rail Inc. (Buri) officials, in connection with the anomalous Metro Rail Transit (MRT 3) maintenance contract.

Ombudsman Conchita CarpioMorales, in a statement, said her office found probable cause to charge Abaya and 16 others for violation of Section 3(e) of the Anti-Graft and Corrupt Practices Act (Republic Act [RA] 3019).

The Ombudsman said the respondents extended unwarranted benefits, advantage and preference to the contractor when it awarded the project to Busan JV, an ineligible and unqualified entity.

Also facing charges are DOTr Undersecretaries Edwin Lopez, Rene Limcaoco (head of the negotiating team) and Catherine Jennifer Francis Gonzales (vice head of the negotiating team); MRT 3 General Manager Roman Buenafe, Camille Alcaraz (assistant secretary for procurement), Ofelia Astrera (vice chaiman of the MRT 3 Bids and Awards Committee or BAC), Charissa Eloisa Julia Opulencia (Attorney V), Oscar Bongon (chief of engineering division) and Jose Rodante Sabayle (Engineer III).

Private respondents Eldonn Ferdinand Uy of Edison Development and Construction, Elizabeth Velasco of Tramat Mercantile Inc., Belinda Tan of TMI Corp. Inc., Brian Velasco of Castan Corp. and Antonio Borromeo, Jun Ho Hwang and Elpidio Uy from Buri were also included in the indictment.

T he Ombud sm a n sa id t he Busan JV was not technically, legally and financially capable to undertake the MRT 3 long-term maintenance contract.

“Despite its being unqualified, the contract was still awarded to it by the DOTr, in violation of Section 53 of the Revised Implementing Rules and Regula-

tions (RIRR) of R A 9184, which requires that in negotiated procurement, the procuring entity should negotiate with a technically, legally and financially capable supplier, contractor or consultant,” the resolution said.

“That Busan JV/Buri was not qualified for and is inept to undertake the implementation of the project is supported by the COA’s [Commission on Audit] audit findings as contained in its 2016 [report],” it added.

As then DOTr secretary, the Ombudsman said Abaya had supervision and control over the officials under him, and was immediately and primarily responsible for all government funds and property pertaining to his agency at the time of the questioned transaction.

“Occupying an executive position, Abaya is required to exercise diligence in the highest degree in the performance of his duties.

There is a given authority and responsibility to Abaya as DOTr secretary to regulate the acts of the DOTr officials responsible for the procurement of the MRT 3 longterm maintenance contract, and he cannot simply evade such responsibility by invoking reliance on his subordinates, especially considering that the subject contract is one with a scope and magnitude affecting a big portion of the commuting public in Metro Manila, with an accompanying financial impact on the coffers of the government amounting to more than P4 billion,” the Ombudsman said.

By allowing the award of the contract to Busan JV despite the attendant glaring irregularities, Abaya deliberately ignored applicable laws, rules and regulations, and standard operating procedures, falling short of, or disregarding the required competence expected of him in the performance of his official functions, the Ombudsman stated.

T he Ombud sma n’s Spec ia l Panel of Investigators said that in October 2014 and January 2015, the DOTr conducted two biddings for the three-year maintenance service contract for the MRT 3.

However, both biddings failed due

Editor: Vittorio V. Vitug • Tuesday, June 26, 2018 A3

abaya

to nonsubmission of bids.

In January 2015 Abaya issued a special order creating the MRT 3 BAC for the procurement of goods, infrastructure projects and consulting services of the MRT 3 system.

In March 2015 the MRT 3 BAC issued Resolution 002, Series of 2015, recommending the resort to negotiated procurement through emergency cases under the Government Procurement Reform Act (RA 9184).

Documents show that the contract was set to be awarded to a single maintenance service provider that would establish a single point responsibility for all the following disciplines: maintenance of the MRT 3 system for P2,270,400,000 (three years); general overhauling of 43 units of light-rail vehicles (LRVs) for P1,013,560,000 (three years); total replacement of the signaling system for P900,000,000 (two years); and additional maintenance works for P67,940,000 (six months).

In October 2015 the following firms submitted their proposals: (1) Busan Joint Venture (Busan JV); (2) Joint Venture of DM Consunji Inc., Beta Electric Corp., Baudis Bergmann Rosch Rail Automation GmbH, and Hamburg Consult GmbH; and the (3) Joint Venture of Schunk Bahn-Und Industrietechnik GmbH and Comm Builders and Technology Philippines Corp.

Busan JV is composed of the fol-

lowing firms: Edison Development and Construction; Tramat Mercantile Inc.; TMI Corp. Inc.; Castan Corp.; and Buri.

During the evaluation process, all offers were found to be deficient in their eligibility and technical documents, and were given the opportunity to remedy the defect.

In October 2015, however, the negotiating team declared Busan JV as being the sole entity that passed the eligibility on technical and financial documents evaluation.

The negotiating team recommended to the MRT 3 BAC the award of the MRT 3 long-term maintenance contract to the Busan JV in the amount of P3,809,128,888 as the legally, technically and financially eligible JV. In January 2016 the DOTr, the MRT 3 and Busan JV entered into a contract for long-term maintenance contract.

The Ombudsman, citing the COA 2016 report, said “The DOTr still failed to provide the riding public with a safe and comfortable transport system even with the procurement and delivery from August 2015 to January 2017 of 48 new LRVs with a total cost of P3,759,382,400.”

Welcome development

The Ombudsman’s latest finding of probable cause for graft against the former transportation officials involved in anomalous MRT 3 maintenance contracts effectively upheld earlier findings by the Senate Public Services Committee inquiry into the MRT 3 mess.

Sen. Grace Poe, who chaired the Senate probe, said on Monday the Ombudsman’s action was “a welcome development in the fight to make erring public officials accountable for their failure to exercise the highest degree of diligence in the performance of their duties.”

In a news statement, Poe pointed out that the Office of the Ombudsman’s announcement was “consistent with the conclusion of the Senate Committee Report submitted by the Subcommittee on Public Services.”

of the NPA to 3,700 up to the end of 2017.

But Defense Secretary Delfin N. Lorenzana has put it to almost 5,000, owing to what he claimed as the recruitment of members by the rebels during a previous lull in the peace talks.

The government and the National Democratic Front of the Philippines (NDFP) was supposed to officially resume the negotiations on June 28, but President Duterte decided to postpone it for 3 months in order to give way to consultations by the government.

The period, the government panel said, would also allow Duterte to review all the agreements that have been signed with the NDFP. Detoyato said that since half of the forces of the military is foc u sed or deployed aga i nst communist rebels, then half of its budget is also being spent on counterinsurgency.

“That’s a ballpark figure based on the [number of] troops and units that are in NPA areas,” he said.

Aside from operations, portions of the military’s P195.4-billion budget are also allotted for salaries and maintenance and other oper-

ating expenses (MOOE). It also includes a P27-billion capital outlay.

Meanwhile, Assistant Deputy Chief of Staff for Civil-Military Operations Col. Edgard Arevalo said that the military has recorded a total of 681 armed encounters with the NPA from June 1, 2017, up to June 25, 2018.

“Since 2017 our record shows that there was a downward trend in enemy atrocities,” Arevalo said.

“For year 2017, we have recorded a total of 455 communist terrorist group incidents, while on the first semester of 2018, that’s January 1 to June 25, 2018, we have monitored 112 incidents,” he added.

Arevalo said that the “focused” anti-insurgency operations resulted in the surrender of 6,659 members of the NPA, including regulars, members of the militiang bayan and their supporters.

The military spokesman did not say as to how many NPA regulars made up the 6,659 figure since the number far surpassed the NPA membership as claimed by both Guerrero and Lorenzana.

Arevalo said that the military seized a total of 736 firearms from the operations against the rebels.

Shift to federalism to fast-track infra buildup in regions–Palace

By Bernadette D. Nicolas @BNicolasBM

P

resident Duterte has voiced out his disappointment over the “slow” pace of implementation of infrastructure projects under his administration’s “Build, Build, Build” (BBB) program in the provinces, Presidential Spokesman Harry L. Roque Jr. said.

The Duterte administration has launched big-ticket construction of projects under the BBB program, but the President himself has noted the program’s “weaker implementation” of projects in the provinces, Roque added.

Under the BBB program, 75 infrastructure projects are expected to be rolled out with a total budget of around P8 trillion to P9 trillion in what has been touted as the “golden age of infrastructure.”

“That is the call for our economic team to focus on the projects in the provinces and, of course, that is also the call to our countrymen and Congress to support federalism so that the bias against the development of these provinces will be gone,” Roque said in Filipino.

The Palace official also noted that although the President recog-

nizes the fast economic growth of the country, the Chief Executive still sees that that the economic growth in the regions remains uneven.

“The provinces are still lagging behind in the development and the provinces are still behind in terms of projects. That is why the President is calling for a faster implementation of BBB in the provinces, and he is also calling for Charter change toward federalism because it is only [federalism] which can give the solution to the uneven development,” he said.

Since his presidential campaign, the President has been pushing a shift in the form of government in the country—from unitary to federal, because Duterte believes that federalism will help spur economic development throughout the country in all regions, and not just in “imperial” Manila.

The Palace issued this statement following the President’s observation on Friday that the “economy is in the doldrums,” notwithstanding country’s 6.8-percent growth in the first quarter of the the year, compared to the the previous year’s 6.5 percent.

He also lamented in a separate speech last week that with US hiking their interest rates, the peso has grown weaker.

BOC seizes ₧133.6M worth of illegal drugs in two weeks

By Recto Mercene @rectomercene

A

irport Customs authorities have seized some 17.96 kilos of methamphetamine crystal, or shabu, and a kilogram of dried marijuana leaves worth P133.6 million within two weeks from May 26 to June 7.

Customs Commissioner Isidro S. Lapeña presented the seized items to the media on Monday, revealing that the seized drugs came from the United States via bonded warehouses.

The marijuana found in several parcels are declared as DVD players, furniture and cereals, and were intercepted by Customs agents at a Fedex warehouse.

Lapeña identified the senders as Taylor Dizion, of Eagler Po Box Rental; Gina Gamboa, Raven Mesina

and Donna Mendoza. The items were consigned to a certain Christina Dizon, Alvin Santiago, Sergio Gamboa Natividad, Gracen Washington and Ricardo Mendoza.

The Customs agents waited for the parcels to be claimed, but Lapeña said the operations was not successful because it appears that the names and addresses of the consignees are fictitious.

The shabu valued at P133.6 million were seized on June 20 at the Port of Clark.

Lapeña said that he had signed a memorandum order addressed to all Customs district collectors nationwide to examine all hand-carry luggage of arriving passengers in a bid to curb smuggling of drugs and taxable items.

“I am also discouraging the meet and assists or salubong system at the airport,” Lapeña added.

A4 Tuesday, June 26, 2018 • Editor: Vittorio V. Vitug

Economy BusinessMirror

DTI endorses new export plan for Palace approval

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By Elijah Felice E. Rosales

@alyasjah

rade Secretary Ramon M. Lopez has endorsed the approval of the country’s new export plan to President Duterte, which, the trade chief said, will boost the government’s chances at hitting its target of $122 billion in export receipts by 2022.

Lopez on Monday said his agenc y look s for ward to t he President’s approval of the Philippine Export Development Plan 2018-2022. The Economic Development Cluster on June 14 endorsed the PEDP to Malacañang for Duterte’s signature.

The PEDP, Lopez stated, will be crucial in the government’s objective of hitting $122 billion—the lower end of a target range that goes as high as $131 billion—in export receipts by 2022. He pointed out the PEDP was instrumental in breaching target exports last year.

The PEDP identified a target of $92.15 billion in revenues for combined commodity and services exports in the previous year. However, exports went beyond that, and actual receipts amounted to $98.84 billion, which Lopez attributed to

the coordinated strategies under the export plan.

“Past PEDPs have been helpful in setting the direction that we implement to attain our targets.

With the new plan, we aim to level up our initiatives and address recurring issues through concrete and efficient action plans that will benefit both the public and the private sector,” Lopez said.

The new export plan is a five-year road map that contains strategies intended to help the country pull off its export targets and improve its competitiveness.

The trade chief added the goal of the PEDP is to consolidate initiatives that will help achieve endperiod target for exports of $122 billion by 2022 under the Philippine Development Plan (PDP). This is the reason the new export plan

veered from the usual three-year rolling plan.

Under the PEDP, three strategies were laid out that hope to support the growth of the exports industry in the years to come. The first strategy is focused on the government’s goal of improving the overall climate for export development by removing unnecessary regulations, enhancing trade facilitation, developing access to trade finance and boosting competitiveness.

The next strategy is to exploit existing and prospective opportunities from trade agreements. The Department of Trade and Industry (DTI) has existing programs that intend to increase awareness on several opportunities offered by free-trade deals the country has.

The new export plan also proposed dedicated programs, such as the DTI’s Doing Business in Free Trade Areas, to solidify promotion efforts to existing and prospective exporters. The last strategy is to craft comprehensive packages to promote select products and service sectors.

“This intensifies the mandate to the Export Development Council and the DTI to strictly implement and efficiently cascade action plans, as it becomes integral in attaining the medium-term plan in [the] PDP and, in the long run, in attaining the Ambisyon 2040,” Lopez added.

www.businessmirror.com.ph

Compliance management without process automation? Never!

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By Henry J. Schumacher

ompliance officers, risk managers, information-technology (IT) executives: They all talk about automating compliance processes constantly, and for good reason. Most compliance processes are tedious pains in the neck.

In fact, compliance departments aren’t the only ones eager to embrace automation. The idea has a catchy name—robotic process information, since “bots” will handle all that tedious work—and it promises to be one of the major IT innovations of the next five to 10 years.

So what does that mean for compliance executives, who often come from a legal background without much experience in technology? How do you get process automation started, rather than an IT executive telling you how it will go?

First, look at the tasks that need doing. Anything repetitive, done by a large number of employees or third parties over and over, might be a candidate for process automation. The determinant is how much judgment is involved, versus processes that unfold according to a series of rules. The more some task is the latter, rather than the former, the better a candidate it is for automation.

So, for example, screening third parties for politically exposed persons (PEPs) is an obvious automation target. Another example is screening the organization regarding data-privacy exposure/sensitive data exposure. Many compliance programs already do automate screening in some manner.

Beyond that, however, you can also ask: What happens after your screening gives a result? If you have a policy that all third parties with PEPs or other high-risk executives must get extra training—well, that’s a rules-based step. A bot spitting out those training alerts is possible, too.

That said, you also need to look at what should not be automated. Your policy for third party due diligence might also include a clause rejecting parties with PEPs or high-risk executives; or it might call for those parties to submit to an intrusive anticorruption audit. Your policy on data protection will have to include notification for those parties that have been affected by a security breach.

Delivering that news via automated e-mail alert might not be the wisest idea, especially if the third party is influential in your industry or region. A human being should deliver news like that, with appropriate tact and finesse.

These are simple examples, I know, but it makes a larger, important point about process automation. You, the compliance officer overseeing the process, need to sort out the correct blend of technology automation and human participation.

A strong compliance program is a collection of many processes; not all of them will be automated in the same way or to the same extent. And in the fullness of time, when you do say, “I want to automate steps X, Y and Z”— that won’t be the hard part. Artificial intelligence will be here soon enough, and it will be able to take data generated from one task and drop it somewhere else to complete another task. That’s robotic process automation.

But successful ethics and compliance is ultimately about judgment: making difficult decisions in the face of complex circumstances, rooted in a company’s core culture and ethical values. Entrust those moments to a software algorithm, and you’re sunk.

Thankfully, the hard, judgment-based work usually comes at the beginning of building a compliance program; or at the end, when you need to enforce a tough call.

There’s still plenty of process between those two points, and you can automate plenty of it.

The complexity of compliance management and understanding that the safe journey into data protection needs automation inspired me to create a cooperation with Straits Interactive, a company in Singapore that has developed the online Data Protection Management System, to equip professionals, managers and executives with the competencies to perform their jobs in data protection. The DPMS is not only assisting in the compliance with the Philippine Data Privacy Act but also with the European Union’s General Data Protection Regulation.

This cooperation has led to the signing of a partnership agreement between Straits Interactive and European Innovation, Technology and Science Center on May 30.

Comments are welcome—please contact me at Schumacher@eitsc.com

PHL, SoKor eye partnership for advanced water technology

By Jonathan L. Mayuga @jonlmayuga

T

he Philippines has received a proposal of cooperation project from Daegu City, a city in North Gyeongsang Province in South Korea, for advancedtechnologyinwastewatertreatment and better water quality system.

The proposal from Daegu, South Korea’s fourth-largest city, was submitted through the Metropolitan Waterworks Sewerage System (MWSS).

MWSS Administrator Reynaldo V. Velasco said the proposal was officially conveyed by a delegation from Daegu Metropolitan City, led

by Deputy Mayor for Economic Affairs Yon-chang Kim. The Daegu project proposal covers a government-to-government cooperation support for advanced water technology demand area; improvement of the inefficient operation of water-purification plant and sewage-treatment plant; improper sewage-discharge system improvement; and installation of water-purification system.

The proposal came on the heels of a government crackdown on the Boracay Island that is besieged by water pollution caused by the direct discharge of untreated wastewater and a proposed Senate inquiry on the state of water and used water recycling, and efficiency of wastewater treatment in Metro Manila.

“This is a welcome development for the Philippine water supply industry, particularly the MWSS, following close bilateral relations forged during the recent visit of President Duterte to Korea early

this month,” Velasco said.

Also in the Daegu delegation were Park Gihwan, director of Investment and Trade Division; Anthony Jung, deputy director; and Wonsuk Kee. The cooperation project is expected to help the MWSS address the problem of wastewater treatment and better water quality system.

Aside from the application of local water and sewage-treatment technolog y, a customized new method for energy enhancement of water and wastewater-treatment process will be applied.

Velasco added that with regards to improper sewage discharge system improvement, the proposal, once approved, will provide for diagnosis and maintenance of pipe network to prevent sewage leakage and inflow of nonpoint pollution sources. Advanced sewage management and treatment techniques will, likewise, be employed.

Installed water-purification systems are expected also to resolve water shortage in underdeveloped areas where water-supply is not provided. Small-scale water purification systems in accordance with the size of the residents will be established, including a water intake network.

Daegu’s interest in the water industry is not new.

It hosts the Korea International Water Week annually, along with the World Water Forum, held simultaneously where the MWSS chief, along with Maynilad President Ramoncito Fernandez and Manila Water President Ferdinand dela Cruz, served as resource speakers in September last year.

It was learned that Daegu City has a cooperation project on the water industry sector with China that includes a sewage-treatment cooperation.

According to Vice Mayor Kim, Daegu’s water industr y cluster has a water industry-promotion facility with a water convergence research center, a water campus and a global business center.

It also has a water-industrial demonstration complex.

Expected to be completed by the end of 2018, the water industrial cluster has attracted investments from 20 promising companies, such as Lotte Chemical.

To complement the city’s traditional industries, Daegu is focusing on knowledge and technological innovations in the development of future industries, such as intelligent automobile industry, high-tech medical industry, ICT industry and energy industry.

Its transportation system boasts of Sky Rail, a 23.95-kilometer-long bidirectional monorail line of Daegu Metro, which serves the city. The new system, which started service on April 23, 2015, is Korea’s first urban monorail transit system.

With the government’s “Build, Build, Build” program, the MWSS is optimistic the proposal will be acceptable to the Philippine government, notably the MWSS board of trustees, to fasttrack the improvement of the country’s sanitation and sewerage facilities, as well as a possible set up of a monorail transport system outside and within the “master planned” 79-hectare by Arch. Jun Palafox.

The World BusinessMirror

www.businessmirror.com.ph

Oil benchmarks clash following vague Opec pact

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h e world’s two most impor tant oil benchmarks are behaving very differently in the aftermath of the Organization of Petroleum Expor ting Countries’s (Opec) meeting in Vienna.

Brent crude is being pared back b y S a u d i A r a b i a’s p l e d g e t o b o o s t output after an ambiguous Opec pact and contradic tor y statements from other nations spurred a price jump on Friday, while shrinking stockpiles are suppor ting West Texas Intermediate (WTI). The spread between the European and US markers narrowed more than 16 percent Monday and has almost halved in under a week.

While the prospect of more Opec crude is weighing on Brent, Goldman Sachs Group Inc. says even an aggressive output boost will lead to only a slim surplus that would leave the market with little remaining spare capacity. Stockpiles at the biggest US storage hub have slumped for five weeks with the star t of the summer driving season when demand peaks. Those declines may accelerate as a Canadian oil-sands outage leads to a North American supply shortage, propping up WTI, the bank said.

“The spread between WTI and Brent is shrinking as Opec’s output increase is having a bigger impact on Brent than WTI,” said Hong Sungki, a Seoul-based commodities trader at NH Investment & Securities Co. “Cushing stockpiles are quickly withdrawing as the US summer driving season boosts refiners’ demand for crude, supporting WTI prices.”

Brent futures for August settlement fell as much as $1.81 to $73.74 a barrel on the ICE Futures Europe exchange, and traded at $74.22 at 7:40 a.m. in London. The contract gained $2.50 to settle at $75.55 a barrel on Friday.

In contrast, WTI crude for August delivery dropped only 17 cents to $68.41 a barrel, after gaining earlier. The contract jumped 4.6 percent to $68.58 on Friday.

Total volume traded was more than double the 100-day average. The differing reaction narrowed Brent’s premium to $5.81 from more than $10 last week.

Futures rose 1.8 percent to 467.4 yuan a barrel on the Shanghai International Energy Exchange in afternoon trading, after edging down 0.2 percent on Friday.

Saudi Energy Minister Khalid Al-Falih signaled a real supply gain approaching 1 million barrels a day after Opec adopted a pact aimed at lifting output. He was seeking to reassure the market after several cartel members said the actual increase will only reach 700,000 because some nations are incapable of pumping more.

The Opec deal, which was reached after a last-minute compromise with Iran, is a victory for Saudi Arabia and Russia that initially proposed an increase. Output curbs by the group and its allies since last year helped eliminate a global glut and boosted Brent to $80 a barrel for the first time since 2014. They now have more room to respond to supply risks and moderate prices at a time when US sanctions threaten to disrupt Iranian and Venezuelan exports. Bloomberg News

Tuesday, June 26, 2018

A5

US, China to discern who blinks first in crucial economic ‘chicken’ game

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he United States and China’s high-stakes game of economic “chicken” reaches a critical juncture in the next two weeks, as the world’s largest trading partners approach deadlines on tariffs and other barriers that may determine who blinks first.

The Treasury Department on Friday is due to announce restrictions on Chinese investment in the US, as well as enhanced export controls, as part of the Trump administration’s actions taken under Section 301 to respond to China’s alleged theft of US intellectual property.

President Donald J. Trump in March directed Treasury Secretary Steven Mnuchin to address investment concerns in critical US technologies.

The administration is expected to justify imposing the curbs by declaring an economic emergency using the International Emergency Economic Powers Act, or IEEPA, people familiar with the plans said.

They said the investment sanctions will focus on Beijing’s “Made in China 2025” sectors that include aerospace, robotics and new energy vehicles, among others.

Phased rollout planned

The IEEPA statute allows the president to unilaterally impose

the investment limits. Congress, in parallel, is working on reform legislation to the Committee on Foreign Investment in the United States (CFIUS), which would scrutinize inbound investment in the US on national security grounds.

People familiar with the administration’s plans said Treasu r y ’s invest ment l im its a re seen as complementing the CFIUS reform efforts, which are not only focused on China and don’t limit investments on economic security grounds.

T he people briefed on this week ’s act ion sa id t he Treasur y limits w ill be rolled out in phases, meaning not all Made in China 2025 sectors w ill be covered at once.

Meanwhile, after months of tough talk, the threats against China, Canada, Mexico and the European Union soon will turn into tariffs that are already triggering retaliation against US exports. The prospect of a global trade war has roiled financial markets for months, and prompt-

ed the International Monetary Fund (IMF) to warn of a growth slowdown.

“Nobody wins” a trade war, IMF Managing Director Christine Lagarde said in a statement earlier this month. “One generally finds losers on both sides.”

This week’s possible US action on Chinese investment follows a number of tariff threats between the Washington and Beijing in recent weeks.

On July 6 the US is set to impose tariffs on $34 billion in Chinese goods. Tariffs on an additional $16 billion in Chinese products will go into effect after a public review period is completed. When Beijing vowed to retaliate on the same amount of US goods and under the same timeline, Trump directed his US Trade Representative to identify an additional $200 billion worth of Chinese goods that could be subject to a 10-percent tariff.

China is tr y ing to deescal ate t he con f l ic t , t he S outh China Morning Post reported on

Sund ay. President X i Jinping’s gover nment has no plan to reta liate aga inst US companies o p e r at i n g i n C h i n a b e c au s e t hat wou ld r un counter to Beijing’s goal of attracting foreign i n v e s t m e nt , t h e n e w s p a p e r repor ted, citing t wo Chinese gover nment sources.

In the US, though, the rhetoric has hardened. The White House Office of Trade & Manufacturing Policy, led by adviser Peter Navarro, issued a 36-page report on June 19 on “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.”

“Given the size of China’s economy, the demonstrable extent of its market-distorting policies, and China’s stated intent to dominate the industries of the future, China’s acts, policies and practices of economic aggression now targeting the technologies and IP of the world threaten not only the US economy but also the global innovation system as a whole,”

the report said. The next stage of trade escalation comes after some White House officials gauged the possibility for a visit by high-level Chinese officials before the first set of tariffs will go into effect early next month.

This week ’s Treasury action also follows Mnuchin’s remarks in late-May that “the trade war is on hold,” no tariffs would be imposed, and the US and China had been successfully negotiating on a deal to reduce the bilateral trade deficit. Days later, the president announced the White House was moving forward with its planned actions, including the tariffs.

Mnuchin has been less visible publicly since then, as the more hawkish wing of the administration’s trade team seemed to have successfully turned the tides against the faction in favor of finding a negotiated solution for the two countries. And Trump has shown no sign that he’s willing to back down.

Societe Generale, in a research note, said that the near-term implications of the trade spat—if all threats are followed through— could result in a drag on the Chinese economy of close to 1 percent of GDP growth and 3 million to 4 million jobs, while the effect on US real GDP would be a “far more modest” 0.1 percent to 0.2 percent.

“This would be painful but manageable, and the discrepancy is one reason the US is willing to push harder,” the research note stated. “We are more concerned that such a shock could upset the positive reform momentum in China.” Bloomberg News

Trump’s trade war sets bigger booby trap for US economy T he escalating trade battle between the United States and the rest of the world is raising the risk of a meaningful slowing in an otherwise vibrant American economy.

While the tariffs already in place and set to be implemented will barely dent US growth, economists say the panoply of additional measures being considered would take a perceptible bite out of GDP if they go ahead.

“It’s going to be more noticeably painful,” said Peter Hooper, chief economist at Deutsche Bank AG in New York.

Hooper, who expects the economy to expand 3 percent this year, said the steps already taken or in the works would clip just 0.1 percentage point off GDP growth.

Throw in President Donald J. Trump’s threat to slap a 10-percent tariff on an additional $200 billion of Chinese imports and a 20-percent levy on car shipments

from the European Union (Eu) and the impact grows to 0.3 point to 0.4 point, he said. And the fallout could even be greater if heightened tensions begin to infect consumer, business and investor confidence.

“It really dings the economy but certainly doesn’t undermine it,” said Mark Zandi, chief economist at Moody’s Analytics Inc., who agreed with Hooper’s estimate of a roughly 0.3-percentage-point impact from the accumulated trade actions.

Even though markets have taken the contretemps largely in stride—perhaps in the belief that Trump’s latest threats are more of a negotiating tactic than a concrete plan—US equity futures followed Asian shares lower early Monday after an escalation of tensions over the weekend.

Corporate mind-set

Central bankers though are taking notice.

Federal Reserve Chairman Jerome Powell said on June 20 that officials are beginning to hear that companies are postponing investment and hiring due to uncertainty about what comes next.

“Changes in trade policy could cause us to have to question the outlook,” he said during a panel discussion at a European Central Bank (ECB) conference in Portugal. The increasing tariff strife poses particular problems for the central bank because it’s likely to both raise inflation and depress growth.

Trump administration officials have played down the economic impact of the trade battle. “Anyone who thinks the economy is being wrecked doesn’t know what they’re talking about,” Commerce Secretary Wilbur Ross said in a June 21 Bloomberg Television interview.

The worsening trade friction comes at a time when the US economy is, in the words

of Powell, “performing very well.”

Growth in the second quarter is on track to clock in at 4.5 percent, according to IHS Markit’s Macroeconomic Advisers, as tax cuts power both consumer and company spending.

That would be the strongest in almost four years and twice as fast as the first quarter’s annualized advance of 2.2 percent.

The tariffs though will put a crimp in activity going forward by raising costs for households and businesses.

“It’s starting to chip away at the tax cut,” said Nariman Behravesh, chief economist at IHS Markit. “If they keep down this path, all the positive effects of the tax cut will be gone.”

Thanks in part to the tax cuts, the US does look to be in better shape than its trading rivals to weather any fallout.

“The US can afford a trade war relatively more than Europe, China” and other countries because its economy is more

domestically driven, said Christian Keller, head of economic research for Barclays Plc.

Export reliance

Exports amounted to almost 12 percent of US GDP in 2016, compared with close to 20 percent for China and 43 percent for the EU, World Bank data show.

While China has policy levers it can pull to try to offset the impact from trade struggles, Europe is more vulnerable, Zandi said. The ECB’s benchmark interest rate is already at zero. Of course, Europe’s troubles could redound back on the US if the euro weakens against the dollar, as seems likely, he said.

It “would be a tipping point” for the global economy if Trump goes ahead with tariffs on $200 billion more of Chinese goods and a 25-percent tax on all car imports, said Ellen Zentner, chief US economist for Morgan Stanley. Bloomberg News

In sign of detente, North Korea skips annual anti-American rally P

YONGYANG, North Korea—In another sign of detente following the summit between leader Kim Jong Un and US President Donald J. Trump, North Korea has decided to skip one of the most symbolic and politically charged events of its calendar: the annual “anti-US imperialism”rally marking the start of the Korean War. Fist-pumping, flag-waving and sloganshouting masses of Pyongyang residents normally assemble each year for the rally to kick off a month of anti-United States, Korean War-focused events designed to strengthen nationalism and unity. It all culminates on July 27, which North Korea celebrates as a national holiday called the day of “Victory in the Fatherland Liberation War.” Last year’s event was held on Kim Il Sung Square with a reported 100,000 people attending. North Korea even issued special anti-US postage stamps. Officials had no onthe-record comment on the decision not to hold the event this year. But Associated Press staff in the North Korean capital confirmed Monday that it would not be held.

North Korea has noticeably toned down

its anti-Washington rhetoric over the past several months to create a more conciliatory atmosphere for the summit and avoid souring attempts by both sides to reduce tensions and increase dialogue.

North Korea’s state media were filled with reports, photos and videos of the June 12 meeting between Trump and Kim in Singapore.

A 42-minute documentary-style news special was aired on the state television network two days after the summit and has been repeated frequently since, meaning that, by now, there are probably few North Koreans who are unaware of the changes in the air. For many North Koreans, the program was also quite likely the first time they had ever seen what Trump looks like.

Still, North Korea’s handling of the changes and how it presents them to its people remains highly nuanced.

So far, it hasn’t said much about what Washington is interested in the most— denuclearization. But it has made significantly fewer references to its need to have nuclear weapons than it was making last year, when Kim was test-launching long-range missiles

at a record pace and tensions with Washington neared the boiling point.

North Korea’s decidedly less strident posture these days underscores the delicate position it finds itself in after decades of touting the US as its archenemy.

State media referred to Trump quite deferentially in their reports of the summit, calling him by his full name and adding the title of president of the United States of America — itself a somewhat jarring contrast to the way it normally spits out merely the surname of US officials, with no titles.

Considering how its relations with Washington could quickly slip back into acrimony if the difficult process of negotiating denuclearization and the lifting of trade sanctions breaks down, it remains unclear how much, or if at all, North Korea intends to recalibrate its other propaganda and indoctrination efforts.

Getting rid of all the anti-American propaganda would be a Herculean task.

The 1950-1953 Korean War, and the devastation the country suffered at the hands of the US and its allies, remain a major part of every North Korean’s education. AP

In this June 25, 2017, file photo, tens of thousands of men and women pump their fists in the air and chant as they carry placards with anti-American propaganda slogans at Pyongyang’s central Kim Il Sung Square, in North Korea, to mark what North Korea calls “the day of struggle against US imperialism”—the anniversary of the start of the Korean War. In another sign of detente following the summit between North Korean leader Kim Jong Un and US President Donald J. Trump, North Korea has opted not to hold this year’s “anti-US imperialism” rally.

AP/Jon Chol Jin

A6 Tuesday, June 26, 2018 • Editor: Angel R. Calso

Opinion BusinessMirror

www.businessmirror.com.ph

editorial

Helping workers during inclement weather

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e are sure many of our readers have their own horror stories about getting caught in the flash floods that hit Metro Manila on Thursday.

The state weather bureau Philippine Atmospheric Geophysical and Astronomical Services Administration said it was a thunderstorm that brought moderate to heavy rain for about two hours at most, and yet it caused floods that made so many areas in the metropolis impassable, crippled traffic and stranded commuters everywhere.

It was a bad sneak preview altogether. If a relatively moderate downpour can turn disastrous for Metro Manilans and paralyze several areas, both the private sector and the government need to give serious attention to what could happen when a storm or even a superstorm scores a direct hit on the metropolis. We should prepare for this not as a mere possibility but as certainty, and we should all try to limit our potential vulnerabilities.

Thinking about workers’ welfare in particular, the labor department would do well to work with employers to ensure that practical and reasonable work arrangements are in place when heavy rains and floods disrupt work in various workplaces.

The House of Representatives recently approved on second reading a consolidated bill (House Bill 7402, authored by Camarines Sur Rep. LRay Villafuerte) that seeks to give employees flexible work arrangements or the option to work outside the office or from home through telecommuting, a timely move in light of the worsening traffic situation in Metro Manila and the increasingly unpredictable weather. A similar measure authored by Sen. Joel Villanueva passed third reading in the Senate, and we hope these measures will be signed into law.

However, there are many companies in various industries that need their employees on-site even during the worst of times, including those in public transport, public utilities, medical services, hotels, security and businessprocess outsourcing (BPO).

When telecommuting or working from home is not possible, both the government and employers should ensure the safety of employees in their workplaces, as well as on their way to and from work. They should take into account the difficulties employees face when they need to work during typhoons and other natural calamities, and adopt a flexible approach for work during the worst of times. This would help ensure the safety of employees and the smooth operation of their organizations.

Take, for example, the employees in the BPO industry. They are required to work notwithstanding heavy rains and floods. The nature of work in most BPOs demand service for clients in the United States and other countries, where people are probably oblivious about what is happening in the Philippines at any particular time. Popular BPO services here include phone banking and customer service and technical support, which are 24/7 duties.

BPOs, as well as companies in other industries, should be more considerate of their employees’ safety and welfare if there is massive flooding in the areas where they work or reside. Workers should be able to avail themselves of their emergency leave without sanctions. Employees should also be allowed to stay in their offices, perhaps given food and lodging, if travel is no longer possible.

If travel is possible, shuttle services must be made available to them. For some companies, this is already part of their standard practice.

An example where leeway is needed is when a worker finds out that his or her children are stranded in school because classes have been suspended.

Emergencies like this must be considered with compassion. Workers should be allowed to pick up their kids or take care of other emergencies, perhaps using emergency or “compassionate” leaves.

Employers could also choose to reward employees who report for work during inclement weather by giving additional pay or certain perks and benefits.

The labor department should make it very clear to employers that if typhoons and other natural disasters strike and employees cannot report for work, they have rights like leave credits they can use under the Labor Code without sanctions. Such scenarios are very real possibilities in the Philippines, which was ranked as the third-most disaster-prone country in the world.

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THE Entrepreneur Continued from A1

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he present government was right in welcoming unsolicited proposals from the private sector to compete with what the government has in mind. Relying solely on the government to initiate infrastructure projects, in my opinion, is not the correct approach. We need the private sector to fill in the gap because the government has no monopoly of brilliance insofar as design and construction are concerned.

Take the case of the DPWH. The department thought, as it was told by the National Economic and Development Authority, that detailed studies on numerous infrastructure projects were already available for implementation. It turned out that what the Neda and the previous DPWH administration had were just proposals and plans that needed further detailed studies. The previous administration, it turned out, did not come up with the detailed engineering and financial aspects of the projects.

The current administration, thus, has to rush and complete these detailed studies to get the big infrastructure projects going. But there is a timeline involved here. The conduct of such project studies will require the budget-approval process and, eventually, state funding.

Meanwhile, the private sector on its own has its own idea and has offered the government to build several infrastructure projects, which are quite impressive. You can just imagine the momentum being built in the economy if all these projects,

John Mangun

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both from the government and the private sector, simultaneously begin construction.

President Duterte himself is eager to complete the major infrastructure projects in the Philippines. He wants the P735.6-billion Bulacan airport of San Miguel Corp., for instance, and other major infrastructure projects to be implemented quickly to fulfill his promise under his leadership.

Finance Secretary Carlos Dominguez III relayed Duterte’s marching orders in April after the Neda board headed by the President approved the construction of a new airport in the coastal town of Bulakan town in Bulacan province.

The President, according to Dominguez, “wants all infrastructure projects to be done quickly.” He doesn’t discriminate whether it’s this or that. He just wants all the infra to be done quickly because he believes that one of the reasons he was elected is to make life easier for people, and this requires precisely better infrastructure development.

The Neda board in that same April meeting also approved the Clark International Airport expansion project, Ambal-Simuay River and Rio Grande de Mindanao River Flood Control project,

The markets: It’s not that simple

Lourdes M. Fernandez

Ruben M. Cruz Jr. Angel R. Calso

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We need more infra partners

OUTSIDE THE BOX

B

ack in the 20th century, my occupation was “General Manager-Dairy Farm” with 300 head of Holstein cattle, the black and white breed seen on milk containers. Dairy farming consists of: “Feed cow; milk cow; shovel cow manure”— at least in theory.

It is more complex than that. As with other female mammals, cows lactate only after giving birth. Therefore, individual milk production must be constantly monitored, and when it falls, the cow is taken out of production to rest.

In the good old days, Bessie the Cow and Brutus the Bull were put in a corral for nature to take its course, and about nine months later, a calf would be born. But that is unpredictable and inefficient for a business.

There is no need to go into detail about obtaining semen from an 800-kilogram (kg) raging bull whose only purpose in life is to make Bessie pregnant. Further, the process of

artificially inseminating an animal whose birth canal is the length of a man’s arm is not necessary either.

Yet, dairy farming is much more than “feed,” “milk” and “shovel manure” with a small skip loader 200kg at a time.

Although supposedly at the pinnacle of human intelligence, we are always looking for simplicity in what we experience. It is easy to conclude that the Earth is a flat disk from what we see. But then we have to explain why it is daytime in Manila, Philippines, when it is nighttime in Manila, Arkansas, and that is more complicated.

We want “25 words or less”

answers to our questions and prefer one or two factors that account for what we see. We believe that we are able to think logically about issues, and often, our “logic” keeps us from discovering the reality.

Aristotle logically concluded that heavier objects fall faster than lighter ones. That makes sense. But it took nearly 2,000 years before Italian scientist Galileo climbed to top of the Tower of Pisa and empirically proved that, no matter the weight, objects fall at the same speed.

In 2014, when Brent crude oil was trading above $100 per barrel, Saudi Arabia decided to flood the market to push prices to a level that would put the shale oil producers out of business because, “theoretically,” their production costs were much higher. Oil dropped to below $40 in 2016. Except, it was Saudi Arabia that almost went out of business, because shale oil producers were able to compete and stay in business.

The Philippine tax-reform law goes into effect, and inflation starts going much higher, and of course the primary cause is the Tax Reform for Acceleration and Inclusion (TRAIN) law because of increased excise taxes.

That makes sense. But, at the same time, the crude-oil price increases

Pasig-Marikina River and Manggahan Floodway bridges and the Davao Food Complex.

Several private companies are in the mood to join the infrastructure boom in the Philippines. The Clark airport is one example of publicprivate partnership that has drawn the interest of big companies. Eight groups, so far, bought bid documents for the 25-year operation and maintenance contract of Clark International Airport in Pampanga province. These are Megawide-GMR Consortium, Metro Pacific Investment Corp., Filinvest Development Corp., San Miguel Holdings Corp., Prime Assets Venture, Central Luzon Infrastructure Consultancy Inc. Consortium, GVK Airport Developers Ltd. and Groupe ADP. These private companies are willing to invest billions of pesos to sustain the infra momentum in the Philippines. I am sure more companies are busy crunching the numbers in their respective drawing boards and finalizing their specific infrastructure projects. These companies all know too well that a solid infrastructure foundation will sustain rapid economic growth.

For comments, e-mail mbv.secretariat@gmail. com or visit www.mannyvillar.com.ph.

by 14 percent. Rice prices go higher because of government mismanagement of the reserve supply. The Philippine peso depreciates faster than other emerging market currencies.

But no matter the complexity surrounding Philippine inflation, we all know that the TRAIN law is the bad guy.

We also want to see a direct causeand-effect relation because that is as easy to understand as the clouds move in and the rain falls. But sometimes things just happen at the same time—correlation—even when we cannot identify causation.

The Philippine stock market has been trending with the Morgan Stanley Emerging Markets Index going back to 2011. Philippine inflation has been trending with US inflation back to 2008. The Philippine peso used to track the Morgan Stanley Emerging Market Currency Index until 2015.

Now it is going opposite from that index. And it is still hard to understand that a heavier object does not fall faster than a lighter one.

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.

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The EU can’t make US tech change behavior

Wrong policies that keep oil prices and power rates rising Cecilio T. Arillo

database

Leonid Bershidsky

BLOOMBERG

A

pattern is emerging in the war between the European Union’s (EU) antitrust authorities and US tech companies.

The changes that Google and Apple made after adverse rulings and large fines appear to be little but window-dressing, and left intact the problems the penalties were intended to solve.

In June 2017 the European Commission fined Google €2.4 billion ($2.8 billion) for giving priority to its price comparison service, Google Shopping, over rival services in search results. The company put in place a remedy in September of that year: All services can bid on spaces in a special box that appears on the search-result page when consumers type in an item they would like to buy; Google Shopping is supposed to bid like any other company. Yet, it’s almost always the only offering in the box. In February one of the original complainants, the trade group FairSearch, wrote an open letter to Competition Commissioner Margrethe Vestager asserting that the new setup was no better than the one it was supposed to replace. Google Shopping remains part of the search giant even though it claims to maintain an arm’s-length arrangement, so Google incurs no real cost for the spots in the box, while its competitors do. So far, Vestager’s office hasn’t directed Google to change anything, though. Instead, regulators are concentrating on other investigations against Google that could lead to more fines.

Apple has been similarly defiant, at least according to a recent report by Martin Brehm Cristensen and Emma Clancy for the European United Left-Nordic Green Left (GUE/NGL) faction in the European Parliament.

In August 2016 Vestager told Ireland to claw back €13 billion in back taxes owed by Apple. She argued that the company’s arrangement with Irish tax authorities was a form of illegal state aid. The ruling claimed that Apple had paid an effective tax rate of 1 percent on its European earnings in 2003 and 0.005 percent in 2014 thanks to a deal that assigned most of the profit to Apple Sales International’s “head office,” a subsidiary that is technically based in Ireland but was considered a nonresident for tax purposes. At the time, Apple paid no tax on the European earnings in the United States, either. The company avoided the levies by spending most of its profits to pay for the use of its own intellectual property.

Ireland was in no hurry to recover the money, which it collected only under EU pressure; it has been helping Apple fight the ruling in the courts. The GUE/NGL report provides some evidence that it has also helped the company establish a new tax structure that allows it to continue to pay very little tax.

The report picks up where Vestager’s investigation left off in 2015. That year, responding to US and EU efforts to curb its tax avoidance, Apple created a new European tax structure that it has never disclosed publicly, but that can be inferred from data that became available in the November 2017 release of the so-called Paradise Papers, a data leak detailing the use of offshore entities for tax purposes by rich individuals and some global companies, including Apple.

Here’s how the report describes the alleged new strategy: Apple transferred the intellectual-property license, which still consumes most of its European profit, onshore in Ireland, where it is now owned by its Apple Operations Europe unit. To make the purchase, AOE borrowed billions of dollars from another Apple subsidiary, which is probably based in the tax haven of Jersey. It is now making tax-deductible repayments

An activist EU official, such as Vestager, can challenge the US giants’ practices and even make them pay fines. But the US companies will essentially steamroll ahead without serious changes to their behavior.

That’s a qualitative US advantage in its trade war against Europe that cannot be fixed with quid-pro-quo tariff hikes. from Ireland to Jersey with money received from another Ireland-based firm, Apple Distribution International. This company executes the iPhone maker’s non-US sales and uses most of its revenue to AOE for the use of the intellectual property. In addition, one of the Irish companies has a cost-sharing agreement with Apple Inc. in the United States: It pays its parent company for research and development conducted in the US. For tax purposes, this is considered an investment in R&D in Ireland, creating credits for Apple.

This setup, according to the report, allowed Apple to pay an effective tax rate in Ireland that was much lower than the statutory 12.5 percent. The most realistic assumptions based on Apple’s financial disclosures point to a rate of between 1.7 percent and 5.6 percent.

Those rates are higher than those mentioned in Vestager’s 2016 ruling, and in any case, Apple makes no secret of wanting to pay most of its taxes in the US. “The changes Apple made to its corporate structure in 2015 were specially designed to preserve its tax payments to the United States, not to reduce its taxes anywhere else,” Apple wrote in November, after the release of the Paradise Papers. After President Donald J. Trump’s tax reform, Apple announced it would pay $38 billion in US taxes on the foreign income it had accumulated offshore for years. The company justified the move with the common sense argument that most of the value it creates originates in the United States.

But Apple hasn’t substantially changed its tax-avoidance practices in the EU since Vestager’s ruling. The only difference—at least according to the GUE/NGL report—is that, instead of paying an offshore entity for intellectual-property rights, it is now repaying a debt to an offshore entity for the purchase of that same intellectual property. Ireland enables the new scheme just as it enabled the old one: The taxes Apple pays are much better than nothing, and Ireland wants to keep Apple from taking its business elsewhere.

Both with Google’s shopping comparison service and with Apple’s tax arrangements, it’s up to the courts to decide whether the US companies are entitled to operate as they do. This isn’t, however, just a matter of who’s right but also of relative power.

An activist EU official, such as Vestager, can challenge the US giants’ practices and even make them pay fines (although they aren’t as painful as recent US fines and settlements have been to Volkswagen and BNP Paribas). But the US companies will essentially steamroll ahead without serious changes to their behavior.

That’s a qualitative US advantage in its trade war against Europe that cannot be fixed with quid-pro-quo tariff hikes. And it’s an incentive to other US companies, such as Facebook, which lately have had trouble with European legislators and regulators: They, too, are confident about being able to move on without changing much.

Tuesday, June 26, 2018 A7

Part Seven

Transco and gencos

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ESTRUCTURING and privatization of the power industry under the Electric Power Industry Reform Act (Epira) had three objectives: (1) rationalizing the roles of the Department of Energy (DOE), the National Electric Authority, National Power Corp. and the Energy Regulatory Commission (ERC); (2) restructuring and privatizing the NPC; and (3) cross subsidy removal and introduction of so-called competition in the power sector.

The idea of restructuring and privatizing the NPC involved the dismantling of the state agency and separating its functions in pursuing missionary electrification (NPCSmall Power Utilities Group) and setting up a National Transmission Corp. (Transco). Immediate casualties of this dismantling were 6,000 NPC employees retrenched in November 2002.

NPC plants and NPC–contracted independent power producer (IPPs) were geographically grouped together to form generation companies, according to the Epira. The gencos included other assets and liabilities that were transferred to Power Sector Assets and Liabilities Management Corp. (PSALM), which, on June 30, 2003, assumed NPC’s assets and liabilities.

Former Energy Secretary Vincent S. Perez, citing the government’s inability to operate and maintain the country’s transmission project, had stressed the importance of privatizing Transco. The government projected some P105 billion in revenues upon completion of the sale.

A Transco privatization committee was formed to oversee the competitive bidding and final awarding of contracts. The members of the committee on privatization represented officials from Transco, the DOE and PSALM. The committee scheduled the first bidding in August

2003. However, the committee had to announce another bidding failure because no investors showed interest in the deal. The government had been considering a negotiated bid with Singapore Power, the lone bidder.

The projected revenue accruing from Transco’s privatization became a long-term consideration of the government. In the short-term, however, the government needed to privatize Transco to be able to borrow again by issuing bonds.

Perez deliberately failed to mention that Transco privatization was also an Asian Development Bank conditionality for issuing a partial guarantee to the NPC through bond flotation, which was needed for its 2004 operating expenses.

The government continued to implement its finalization of privatization plan for the gencos. PSALM proposed that the gencos be privatized simultaneously with the Transco.

So far, PSALM was able to bid out and award some of the NPC-owned generating facilities.

Impacts of power privatization

The main impact of power privatization in the Philippines, particularly during President Ramos’s regime, was the continuing increase in the cost of electricity. There were two reasons for the increase in electricity rates: (1) the purchased power adjustment, or PPA, and (2) the

application for rate hikes by local distribution utilities.

The PPA combined the purchased power-cost adjustment, fuel-cost adjustment and foreign currencyexchange adjustment. These adjustments in costs represented privileges extended to IPPs, when the government contracted them to generate and supply power under PPA. Distribution utility Meralco, known as a Lopez family-owned company, also charged consumers the contractual costs of electricity bought from the NPC and other distribution utilities. These contractual costs were onerous because of the socalled take-or-pay provisions in the supply contracts. This meant that all contracted power was considered sold and to be paid for by consumers, whether the electricity supply was used or generated. Included also in the take-or-pay contract were the fuel costs, which were bought in foreign currency—US dollars— therefore, subject to fluctuation in exchange rate.

Consumers have been paying for fuel-cost adjustment and foreigncurrency adjustment since 1994.

Electricity charges have been unbundled as mandated under Epira.

Conveniently, with rates now unbundled into major services, the PPA was no longer identified in monthly electric bills, but continued to be subsidized by consumers as part of the generation charge.

Aside from the PPA, rising electricity costs resulted from rate increases filed by local distribution utilities (DUs) or rural electric cooperatives (RECs). The ERC conducts the review and approval of new rates.

Through Manila Electric Co. (Meralco), the same Lopez clan that controlled the larger water-concession area monopolized the electricity distribution in the National Capital Region. Even under the Epira, all other DUs and RECs continued to individually secure franchise to ensure that the monopoly of power utility in their respective area would be maintained.

For one, Meralco, the biggest DU, had succeeded in clinching successive rate increases using the Epira

to legitimize collection and recovery of costs for its expensive power contracts. In addition to rate increases filed to collect costs incurred in the process of distributing electricity, DUs also managed to include the recovery of their income taxes in filing for rate hikes.

When Mrs. Aquino’s administration unquestionably returned Meralco, ABS-CBN and other corporations shortly after the Edsa uprising, the Lopezes claimed they were victims of the Marcos regime.

But documents gathered by this writer belied their claim, showing that they sought President Marcos’s help for financial assistance for Meralco and offering the sale of their shares in three letters signed

by Eugenio Lopez on February 19, 1973, March 20, 1973, and September 17, 1973.

The sale was finally consummated on December 16, 1974, to Meralco Foundation Inc., which assumed the indebtedness of Benpres holdings in Meralco Securities Corp. to foreign and local banks amounting to P101.1 million.

The deed of sale was, in fact, guaranteed by the Philippine National Bank through a letter of credit it issued to the foundation for the purchase of the Benpres shares of stocks.

The foundation also assumed Benpres’s P9.5-million debt on stock subscription and an obligation to pay Benpres P48.6 million on its equity, payable by installment over a 10-year period at a 10-percent interest on the unpaid balance.

In other words, what this particular set of documents showed was that the Lopezes were not victims of martial law, but were, in fact, the beneficiaries, when Marcos helped them out of their financial mess.

Strangely, the takeover by the Lopez family of the Meralco after the Edsa mutiny was shrouded in mystery despite President Aquino’s avowed policy of full disclosure and transparency.

To be continued

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

Jeremy Corbyn has a terrible economic idea

By Ferdinando Giugliano Bloomberg Opinion

T

he UK Labor Party’s plan to set the Bank of England a productivity target must rank among the worst ideas ever conceived for a central bank.

It runs against pretty much everything economists believe should be the role of a monetary authority. And it would amount to an outright admission of defeat by elected politicians, whose task it is to raise efficiency and prosperity rather than delegating this task to technocrats.

The plan, unveiled last week by shadow chancellor John McDonnell, is based on a report on the United Kingdom financial system authored by Graham Turner at GFC Economics. The basic idea is that the Bank of England should pair its 2-percent inflation target with a new 3-percent target for yearly productivity growth (which would be a joint aim with the government). The Bank would then report annually on progress.

This all ignores a basic principle

that economists have agreed upon for decades: Central banks exist to keep inflation in check and to smooth economic fluctuations, but they can do little to change the long-run rate of any economy’s expansion. That depends on factors primarily within the domain of the state and individuals. How fast does a population grow? What technological improvements occur? Is there enough investment in education and physical capital? Of course, recessions can do long-lasting damage. That is why it’s essential for central banks to intervene promptly when demand disappears. But most central bankers understand this, as was shown by their remarkable intervention during the sovereign debt crisis.

It’s perfectly reasonable that Labor leader Jeremy Corbyn—should he ever win power—might ask the Bank of England to do more to prioritize employment. But there are more straightforward ways to do this. At the moment, governor Mark Carney’s primary mandate is to keep yearly inflation at 2 percent over the medium term. Promoting growth

and employment is secondary. Yet, the US Federal Reserve has an outright dual mandate, which targets “both stable prices and maximum sustainable employment.” Labor could copy that.

A productivity target would leave policy-makers in a bind. Labor productivity is most often measured as output divided by the total number of hours worked in an economy. But a central bank only really has the levers to boost output and raise employment together.

Improving efficiency is out of its hands because that tends to come from advances in technology or management. So the risk is that the central bank would have to keep pressing on the monetary accelerator forever to inflate output and create more and more jobs. Meanwhile, inflation would spike, and the productivity goal would still never be achieved.

The specific 3-percent aim is even more puzzling. Britain has an entrenched productivity problem. Output per hour worked in the last quarter of 2017 was only marginally above where it was 10 years ago. The Bank of England would

have to set monetary policy on the basis of an impossible-looking target. The inflationary implications of such a plan might spook the markets.

There’s no doubt that British governments have to do more to boost the economy’s efficiency. Improvements in living standards and wages depend ultimately on workers producing more in a given space of time. But governments can only stimulate this themselves. Central banks are there to provide stability.

For Carney and company to properly address productivity, they’d have to range far beyond their areas of expertise and responsibility. Would we be happy for central bankers to decide what subjects should be taught at school, how workers are trained or whether government money is spent on a railway line or a telecoms network? Were central bankers to do this, voters would accuse them of overreach. So it’s not clear why Labor would want to pursue it. Productivity growth is crucial. That’s why governments should work on it—not look for someone else to carry the can.

Cash-rich Japan Inc. offers a haven from US zombies

By Shuli Ren Bloomberg Opinion

T

here are few places for investors to hide when a global trade war is about to erupt and the US Treasury yield curve threatens to invert.

Japan may be one.

The nation’s stock market has been relatively calm this year, with the Topix index down less than 2 percent in dollar terms. This is noteworthy considering a third of revenue for Topix 500 companies comes from overseas. While some manufacturers have been spared from US President Donald J. Trump’s steel tariffs, increasing trade tensions and a stronger yen have nonetheless dented sentiment.

Valuations have provided some

support. The Topix is trading at only 14.1 times forward earnings, below its fiveyear average of 16.2. The multiple for the S&P 500 Index, by contrast, has crept up steadily to reach a demanding 21 times.

Valuations alone aren’t enough, though.

When global liquidity dries up, cash is the ultimate haven.

Whether because of the 2008 global financial crisis or the 2011 tsunami, Japan Inc. hasn’t taken advantage of the central bank’s torrent of easy money to boost leverage. The average Topix firm has narrowed its debt-to-Ebitda ratio to 2.5 times, from 3.1 times five years ago.

US companies have done the opposite, issuing risky bonds and leveraged loans. Not surprisingly, the average S&P 500 member’s ability to service debt has

deteriorated. For the moment, the US market is managing to churn on, with the S&P 500 in the green for the year. But the bearish cloud hanging over China’s A-share market offers a cautionary tale.

You might expect Mainland China to be in the middle of a bull run, considering strong catalysts, such as inclusion of the country’s shares in MSCI’s indexes this year. In fact, it’s among the worst performers in Asia. The main reason, as I have written, is tightened liquidity onshore. Defaults are popping up everywhere as firms struggle with refinancing.

There are plenty of worrying signs in the United States, too. Back in 2007, when financing conditions were loose, 29 percent of corporate loans were covenant-light; last year, the number was a

staggering 75 percent, according to S&P Global Ratings. As a result, threequarters of loans outstanding don’t give debt holders much protection. The picture in the bond market isn’t any better, Moody’s Investors Service warns.

Japan’s infamous zombie firms, kept alive by easy bank credit in the 1990s, used to be a popular topic of academic study for economists. Now, one can’t help but wonder if the US has created its own breed of zombies. When the Federal Reserve tightens further, these companies will have to raise equity, hold fire sales of non-core assets, or even enter bankruptcy. In any of these scenarios, shareholders will suffer. After all, if creditors are given little protection, what economic rights can shareholders expect?

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DENR shuts off illegal sewage pipes on Boracay beach, imposes STP compliance to curb pollution

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By Jonathan L. Mayuga

@jonlmayuga

otels and resorts near beaches on Boracay Island and other tourism areas would soon be compelled to put up their own sewage-treatment plants (STPs) to prevent water pollution.

This as the Department of Environment and Natural Resources (DENR) decommissions the illegal sewage pipeline near the shoreline owned and operated by the Tourism Infrastructure and Enterprise Zone Authority (Tieza) and the Ayalacontrolled Boracay Island Water Co. (BIWC) at the famous white beach on Boracay Island, the country’s top tourist destination in Malay, Aklan.

Environment Secretary Roy A. Cimatu wants all establishments, especially those at the beachfront on Boracay Island, to start putting up their own STPs, a proposal to which a group of Boracay businessmen have already agreed to comply with.

In a brief talk during the Boracay Water Quality Management Area (WQMA) workshop at the Boracay Haven Suites over the weekend, Ci-

Rollback on Tuesday; DOE sets unbundling

By Ma. Stella F. Arnaldo

@akosistellaBM Special to the BusinessMirror

I

Per-liter rollback of gasoline prices effective 6 a.m., June 26

By Lenie Lectura

O

@llectura

Japan. . .

Continued from A1

flood forecasting and warning network, which will be established in partnership with the Philippine Atmospheric Geophysical and Astronomical Services Administration.

The Japan International Cooperation Agency (Jica) will finance the installation of radar, rainfall gauges and water-level

no other solution,” he emphasized.

Under a DENR draft circular, all resorts and similar establishments along Boracay’s white/long beach from Stations 1 to 3 with 50 rooms or more are required to have individual STP units, while those with 49 rooms and below can have clustered STPs or separate treatment plants if they so desire.

Continued on A2

AIRPORTS PLAN IN FULL SWING, BUT NEW INTL GATEWAY UNCERTAIN

₧1.15 IL firms on Monday announced a rollback in the prices of petroleum products amid a decline in global crude prices.

Prices of gasoline will be reduced

by P1.15 per liter diesel by P0.90 per liter and kerosene by P0.85 per liter. Seaoil Philippines Inc., PTT Philippines Corp., Pilipinas Shell Petroleum Corp., Total Philippines and Phoenix Petroleum Philippines In. said in separate advisories that they will implement their respective price adjustments starting 6 a.m. of Tuesday, June 26.

Other oil firms are expected to follow suit.

Last week oil firms hiked pump prices by P0.20 per liter for gasoline and P0.45 per liter for diesel and kerosene, respectively.

The rollback comes as the Department of Energ y (DOE) is coming out with a circular that will mandate oil firms to unbundle or itemized their costs being passed on at the pumps.

The proposed policy—which certain oil players are opposing for various reasons—enables the unbundling of the base prices of petroleum products—gasoline, automotive and industrial diesel, kerosene, jet fuel, bunker fuel oil and household and automotive liquefied petroleum gas.

This is the first time that the DOE will require oil companies to make public the breakdown of the costs that go into the pricing of fuel. The unbundling was mandated by the oil price deregulation law enacted two decades ago.

The objective of the proposed circular is to mandate industry players to explain to consumers the cost components of the petroleum products. The agency is still conducting consultations with the oil firms though the plan is to issue the circular within the month.

matu again reminded that the DENR is enforcing Presidential Directive 2018-008, requiring all resorts in the country to install wastewatertreatment facilities, noting that the sewage problem on Boracay Island “poses threats to the environment, residents and tourists.”

“What we need along the shore —the establishments there—must have their treatment plant. There’s

PHL ‘MATHLETES’ SHINE Three Filipino students won medals at an international math Olympiad held in Greece. According to the Mathematics Trainers Guild-Philippines (MTG), Daryll Carlsten Ko of Saint Stephen’s High School and Sean Eugene Chua of Xavier School bagged silver medals, while Deanne Gabrielle Algenio of Makati Science High School grabbed a bronze medal at the 22nd Junior Balkan Mathematical Olympiad held from June 19 to 24 in Rhodes, Greece. “We congratulate our three contestants for winning medals in the math competition. This is another honor for our country,” said Dr. Isidro Aguilar, president of MTG, an organization of math experts training Filipino students for international math competitions. In photo are (from left) silver medalists Chua and Ko, bronze medalist Deanne Algenio and team leader Kerish Villegas in Greece. Photo courtesy of MTG

SRP. . .

(medium to big size, two to five pieces) at P150 per kg; tilapia (medium size, six pieces) at P100 per kg; galunggong (medium size; 11 to 20 pieces) at P140 per kg; red onion at P95 per kg; white onion at P75 per kg; garlic (imported) at P70 per kg; and garlic (local) at P120 per kilo.

“We have to do it fast because we do not want the consumers complaining. We are performing a delicate balancing act,” Piñol said.

“While we would want farmers to earn more, we cannot just sacrifice the consumers.”

The agriculture chief said the DA, in coordination with the Departments of Trade and Industry and Department of the Interior and Local Government will constantly monitor the implementation of the SRP on farm products. The implementation was based on the provisions of Republic Act 7581, also known as the Price Act, according to the administrative circular.

“Pursuant to RA 7581, Section 10. Powers and Responsibilities of Implementing Agencies, Item no. 5, states that the head of the implementing agency may from

time to time issue suggested reasonable retail prices for any or all basic necessities and prime commodities under his jurisdiction,” the document read.

The farm commodities covered by the administrative circular should not be sold by 10 percent higher than the SRPs as this would be investigated for profiteering, according to the Price Act. Profiteering is considered an illegal act of price manipulation under the law.

Under the Price Act, profiteering is defined as “the sale or offering for sale of any basic necessity or prime commodity at a price grossly in excess of its true worth.”

“There shall be prima facie evidence of profiteering whenever a basic necessity or prime commodity being sold: (a) has no price tag; (b) is misrepresented as to its weight or measurement; (c) is adulterated or diluted; or (d) whenever a person raises the price of any basic necessity or prime commodity he sells or offers for sale to the general public by more than ten percent (10 percent) of its price in the immediately preceding month: Provided, That, in the case of agricultural crops, fresh fish, fresh marine products, and other seasonal products covered by this Act and as determined

by the implementing agency, the prima facie provisions shall not apply,” the law read.

Under the Price Act, the agriculture chief is vested with the power to conduct investigations of any violations of the law concerning the commodities under his jurisdiction.

More so, the agriculture could impose administrative fines “in such amount as he may deem reasonable, which shall in no case be less than P1,000 nor more than P1 million.”

Furthermore, the law stipulates that violations involving basic necessities, which include farm commodities, “shall be deemed more serious” than those committed for prime commodities.

Aside from the penalty that the implementing agency could impose on violators of the Price Act, a penalty is imposed by the law on people who commit illegal price manipulation acts.

Under Section 15 of the law, a person found violating the law by virtue of manipulating prices shall be imprisoned for a period of not less than five years nor more than 15 years. Furthermore, the violator “shall be imposed a fine of not less than P5,000 nor more than P2 million” according to the Price Act.

sensors, as well as the capacity building of its counterparts on accurate flood forecasting and timely flood warnings.

Cagayan de Oro River is considered one of the 18 major rivers in the country and stretches 97 kilometers. It has a catchment of 1,364 square kilometers. In 2017, after the onslaught of Typhoon Vinta, the Cagayan de Oro River overflowed and severely affected Cagayan de Oro City.

The National Economic and Development Authority said apart from financing the education of government employees working to earn their Master’s degrees in Japan, the Japanese government has made two PhD slots available for the Philippines.

Under the JDS grant agreement, Tokyo will provide around P119 million for the 16th JDS, which will finance the Master’s education of 21 government employees from

2018 to 2023.

The Japanese government will also allocate up to P162.5 million for the 17th batch of JDS, which includes 20 Master’s scholars and two other PhD scholars between 2019 and 2025.

Scholars will focus on transportation or infrastructure development; disaster-risk reduction and management; public administration and finance; and environment management.

Continued from A1

NFRASTRUCTURE work to improve to the country’s local and international airports are ongoing, but the Department of Transportation (DOTr) stopped short of promising that a new international gateway would open in Metro Manila before the term of President Duterte ends.

In an interview with the BusinessMirror, Trade Secretary Arthur P. Tugade listed the ongoing projects to improve airports, and proposals to open a new international gateway near the metropolis, but only confirmed that the new passenger terminal at the Clark International Airport would open by 2021. Duterte’s term of office ends in 2022.

Speaking in Filipino, he said, “The new terminal in Clark will be surely finished by 2021, and will be inaugurated by our President. It’s been awarded, the work has started, and by the end of July, the bidding for O&M [operations and maintenance] will take place.

So it will be finished within the term of our President.”

The new Clark passenger terminal spans 100,000 square meters, including landside and airside facilities, and will be constructed at a cost of P9.4 billion. It will be able to accommodate an additional 8 million passengers, on top of the 4-million capacity at the existing terminal.

Tugade stood pat, however, on his decision to unbundle the regional airportsdevelopment project, to enable other proponents to participate. “It’s a security concern; do you want only one [company] to handle these airports?” he asked.

The P109-billion project, supposed to be undertaken as a public-private partnership scheme under the Aquino administration, was targeted at developing airports in Bacolod, Iloilo, Bohol, Laguindingan and Davao. In May 2017 the DOTr decided it would be more advantageous for the government to develop these airports using government funds, then bid out the O&M. Tugade attended the interagency meeting hosted by Tourism Secretary Bernadette Fatima Romulo Puyat on June 22. He said: “This was an important experience. With the leadership of Secretary Puyat, you can see that all government agencies are all joined in its efforts to cooperate with the Department of Tourism.”

Experts have deemed it necessary that a new airport be constructed within Metro Manila or nearby provinces due to the limited runway capacity at the Ninoy Aquino International Airport. The Naia was constructed to service only 30 million passengers, a level exceeded in 2016 when passengers reached 40 million.

The National Economic and Development Authority board, chaired

by Duterte, has already approved the

“The Human Resource Development Scholarship project not only strengthens the relationship of Jica and the Philippines through people-to-people exchange, it also gives us the chance to share Japan’s accumulated knowledge and expertise to promote inclusive development,” Jica Philippines Chief Representative Yoshio Wada said.

Jica is the executing agency of Japanese official development as-

P735-billion international airport project forwarded by San Miguel Corp., which will rise in Bulacan. Accorded “original proponent status,” the project will still be subject to a “Swiss challenge,” meaning other companies are welcome to meet and outdo the proposal of San Miguel, in an effort to get better terms for the government.

While no decision has been made on the proposed $12-billion international airport at Sangley Point, Cavite, forwarded by the consortium of the Solar and SM groups, Tugade said the government will definitely convert the existing Danilo Atienza Airbase at the former US naval facility to handle general aviation.

This means private planes and charter operations will have to move from the Naia to Sangley, an idea earlier raised by the Aquino administration.

“While there is no decision yet on the project, improvements there will continue. There is an ongoing asphalt overlay and a plan to put up three or four hangars,” the DOTr chief stressed.

Aside from the Solar-SM consortium, the province of Cavite offered to develop Sangley Point as an international gateway to service Metro Manila and nearby provinces. The project aims to reclaim some 1,500 hectares of land, and with two proposed runways, be able to serve 130 million passengers a year by 2035.

Asked, however, if Duterte would be able to inaugurate a new airport to cater to the needs of Metro Manila and surrounding provinces, Tugade said, “Wait a minute. You’re putting a mouthful into my mouth. The Bulacan proponent said they will be able to finish one or two runways, right? In Sangley, for sure, it will be for general aviation. We’re already implementing the project and the infrastructure there. The President will inaugurate the Clark terminal. In the Naia, whether it will be the seven taipans or the government, we will finish the improvements and renovation there.”

A “super consortium” of the country’s major conglomerates has proposed a P350-billion project to upgrade the Naia, which includes expanding the current terminals, and construction of a new runway. The group is composed of Aboitiz InfraCapital, AC Infrastructure Holdings Corp. (Zobel de Ayala), Alliance Global Group (Andrew Tan), Asia’s Emerging Dragon Corp. (Lucio Tan), JG Summit Holdings Inc. (Gokongwei) and Metro Pacific Investments Corp. (Pangilinan).

Tugade said, though, that the government work on the Naia will be more on the “improvement of facilities in terminals 1, 2, 3, and 4. Not a new terminal. Not a new runway.” At last week’s interagency meeting, the DOTr had also committed to put in new immigration booths at the Naia passenger terminals, as well as increase the number of night-rated domestic airports. (See, “Key Cabinet officials outline priorities to boost PHL tourism,” in the BusinessMirror, June 25, 2018.)

sistance , which handles technical cooperation, ODA loans and investment, and grant aid, as well as cooperation volunteers and disasterrelief programs.

It is the world’s largest bilateral aid agency with its volume of cooperation amounting to about $16.4 billion for Japanese fiscal year 2016 and a worldwide network of about 100 overseas offices including the Philippines.

Cai U. Ordinario