Businessmirror october 31, 2017

The business case for integrity: The Royal Cargo story

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By Michael K. Raeuber

he Phinma Group, which has a long experience in anticorruption and pro-integrity, invited me to present the “Royal Cargo Story”—its business case prointegrity—to its executives. I would like to share “our” story with the readers of BusinessMirror today: Boygointer | Dreamstime.com

Why did Royal Cargo sign the Integrity Pledge of the Integrity Initiative in 2011?

■ We were sick and tired of “playing” in a game that was not built on the foundation of integrity.

■ We believed in being successful in a level ptlaying field

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Tuesday, October 31, 2017 Vol. 13 No. 20

PHL to thumb down new WTO agri deal sans SSM

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By Jasper Emmanuel Y. Arcalas

@jearcalas

he Philippines may reject any new agreement on agriculture at the 11th World Trade Organization (WTO) Ministerial Conference (MC11) if it would not include the special safeguard mechanism (SSM) that would allow developing countries to protect their farm sectors from import surges.

EXECUTIVE SECRETARY GREEN LIGHTS SET UP OF 25 ECOZONES–PCCI

By Catherine N. Pillas @c_pillas29

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environment, which we were helping to create and support.

■ We wanted to differentiate ourselves from others rather than sell our services only through price leadership.

■ We wanted to serve our Continued on A2

he Office of the Executive Secretary has recommended to President Duterte the issuance of presidential proclamation for the setup of 25 new ecozones, according to the Philippine Chamber of Commerce and Industry (PCCI).

PCCI President George T. Barcelon said Executive Secretary Salvador C. Medialdea revealed in a meeting on October 25 that he has assessed and approved the application of 25 ecozones.

The meeting involving the PCCI, Medialdea and the Philippine Economic Zone Authority (Peza) was held after the annual business conference of the business group. One of the PCCI’s recommendations to the government was to fast-track the approval of the creation of new ecozones.

“The Office of the Executive Secretary called for a meeting regarding this issue [the delay in approving the set up of ecozones]. They explained that the delay is due to the issues they have to address and the requirements under the law,” Barcelon said in a phone interview.

The PCCI said Medialdea had revealed that some 33 pending ecozone proposals lacked “important documentation and requirements,” such as land titles.

Barcelon said the Executive Secretary asked the Peza and the Department of Trade and Industry to undertake due diligence in processing ecozone applications and to work“according to the letter of the law.”

“He requested the Peza and the DTI to coordinate so the proposals can be endorsed. He stressed that the due diligence in complying with requirements is the responsibility of the two agencies

33

The number of pending ecozone applications that lacked important documentation and requirements and not his office. We’re glad that this has been threshed out and we want to thank the Executive Secretary for responding expeditiously,” Barcelon said.

The Peza earlier said the delay in the establishment of new ecozones could result in the pullout of investment pledges pegged at P500 billion. The amount takes into account not just the cost of ecozone development, but the prospective investments to be brought in by company-locators into these ecozones. Peza Director General Charito B. Plaza had called out Medialdea in previous briefings, saying ecozone developers and the locators they will host are already “impatient.”

The applications that have secured the nod of the Office of the Executive Secretary will be forwarded to the President.

The agency’s founding law, the Special Economic Zone Act of 1995, mandates that proposed ecozones that have been approved by the Peza board still has to wait for a presidential proclamation.

According to the implementing rules and regulations of the Special Economic Zone Act of 1995, the issuance of a presidential proclamation will enable ecozone developers and locator enterprises to qualify for incentives.

PESO exchange rates n US 51.7990

RODOLFO: “The Philippines would be put in a very difficult position agreeing to any package of agriculture outcomes in MC11 without SSM included thereto.”

The country’s statement concerning its priorities for MC11, a copy of which was obtained by the BusinessMirror, indicated that the passage of a “concrete framework” for SSM would play a “critical role” in getting the nod of Manila for the approval of any agricultural

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Analyzing Metro Manila’s traffic problem Manny B. Villar

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THE ENTREPRENEUR

ack of infrastructure is often cited as the primary cause of the traffic congestion in Metro Manila, but even a simple analysis shows that infrastructure should not be blamed entirely for the problem. I also think that it is too simplistic to say the problem can be solved just by constructing roads.

True, inadequate road infrastructure is a big issue behind the traffic congestion in the metropolis, but the inadequacy is brought about by other factors.

See “PHL,” A2

Continued on A8

BMReports

Data-privacy law to boost PHL cybersecurity sector

By Oliver Samson

Redoble, ePLDT Inc. chief information security officer.

Both Redoble and Averia are vocal and strong proponents of the integration of data security in the curriculum for primary school students. Both agree knowledge on identity protection should be taught in the early educational formation of students since the age that has access to the Internet, for both male and female, becomes younger and younger.

Correspondent

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Part Two

Y providing personal data like name, address, birthday, e-mail and telephone number, a guest, in effect, gives an implied consent to the organizers of an event, according to Philippine Computer Emergency Response Team (PhCERT) President Lito Averia.

However, there’s a caveat.

“The disclosure of the purpose of the collection of personally identifiable information must be explicit,” Averia explained.

Such is the spirit of Republic Act 10173, or the Data Privacy Act (DPA) of 2012, he said.

The data-privacy law compels organizations, both public and private, to put in place the necessary physical, organizational and technical measures to secure their systems in safeguarding personal data in their storage, Averia said.

Under the law, the systems cover both automated and manual, he added. The organizations are mandated to put in place the necessary protective measures.

Averia pointed out an organization has to take the necessary cybersecurity measures if it stores personal information in an automated database system.

BPOs

Republic Act 10173, or the Data Privacy Act (DPA) of 2012, intends to protect personal information, especially those extracted sans the consent of the individual, according to information-technology security experts. However, a government official said those in the statement of assets and liabilities by government officials are public data. Nonie Reyes

Security solutions alone do not guarantee data protection, he revealed. “Data may get compromised by the organization’s people who lack technical know-how in terms of information security.”

Weakness

ISAAC S. Sabas, founder and CEO of managed security service provider PandoraLabs Inc., said an information and communications

technology (ICT) infrastructure usually gets compromised due to inadequate technical understanding and skill among an organization’s people.

Averia agrees: “The weakest link is still people.”

No technology, however advanced, is capable of securing data when the people in an organization have not the technical literacy and capability to secure data, said Angel

AVERIA was one of the proponents who campaigned for the original purpose of the data-privacy law back in 2001.

“Right after we completed the rules on electronic evidence, we started working on the Data Privacy Act,” he said. “The active lobbying was around 2006 and 2007.”

Averia added progress on the law was at the same slow pace of growth of the business-process outsourcing (BPO) sector. The growth of the BPO industry was slow since there was no legal framework that could have boosted the industry players’ progress, he explained.

At the time, there was no dataprivacy law yet and the BPO operators in the country and their clients were in contractual commitments, Averia said.

n japan 0.4555 n UK 68.0017 n HK 6.6380 n CHINA 7.7876 n singapore 37.9591 n australia 39.7350 n EU 60.1438 n SAUDI arabia 13.8127

Continued on A2

Source: BSP (30 October 2017 )

BMReports BusinessMirror

A2 Tuesday, October 31, 2017

Data-privacy law to boost PHL cybersecurity sector Continued from A1

The BPO operators during those years saw the absence of data-privacy law hindered the growth of the industry, he explained.

“The BPO industry began to sail smoothly after the data privacy became a law in 2012,” he said. “The BPO is a direct beneficiary of the law, which became a preventive measure to identify theft.”

Absence

ACCORDING to Averia, the dataprivacy law should not be considered a cybersecurity magic bullet.

Currently there is no law devoted to resolving cybersecurity in the country, he said.

“There’s no legal framework that specifically addresses cybersecurity,” Averia added. “Cybersecurity as a matter of concern is tucked in the Cybercrime Prevention Act.” Redoble, who advocates legislation of a cybersecurity law, agrees. He added the government should craft a

PHL. . .

Continued from A1

package at MC11 in Buenos Aires, Argentina, this December.

The Philippines’s statement was delivered by Trade Undersecretary Ceferino S. Rodolfo Jr. during the informal ministerial meeting in Marrakesh, Morocco, on October 9 and 10.

“Let me underscore that the Philippines’s priority in MC11 is SSM. Developing countries, including the Philippines, have been denied access to SSM since the July Framework Mandate in 2004, thus, it is high time that a concrete and operational decision on SSM is issued at MC11,” Rodolfo said.

“The Philippines would be put in a very difficult position agreeing to any package of agriculture outcomes in MC11 without SSM included thereto; thus, meaningful engagement on SSM must be demonstrated in good faith if we are all to succeed,” he added.

Rodolfo joined more than 30 ministers from WTO membercountries in the informal ministerial meeting, which was held in preparation for MC11, the biennial meeting of the WTO’s topmost decision-making body.

The Department of Trade and Industry (DTI) official noted that

policy as a law has yet to be enacted.

That onus falls on the shoulders of the Cybercrime Investigation Coordinating Council (CICC). The CICC was created upon the approval of Republic Act (RA) 10175, or the Cybercrime Prevention Act of 2012.

And while the CICC was able to formulate a cybersecurity plan early this year, Averia said “a lot of details have to be put in place.”

Still, he noted government’s efforts in the last decade to address cybersecurity.

THE DPA is not a scheme to prevent the processing or disclosure or both of personal information sanctioned under law, according to Raymundo Liboro, chief of the National Privacy Commission.

In a statement on data privacy and the issue on the Statement of Assets, Liabilities and Net Worth (SALN) redaction, Liboro said the DPA was not enacted to “prevent access to personal information under

any circumstances.”

The DPA encourages “responsible and lawful use of personal information,” he clarified.

Section 11 of the DPA states that “the processing of personal information shall be allowed, subject to compliance with the requirements of this Act and other laws allowing disclosure of information to the public and adherence to the principles of transparency, legitimate purpose and opportunity.”

RA 6713, otherwise known as the Code of Ethics and Ethical Standards, serves as the legal basis of the DPA for the SALN, he pointed out.

Section 8 of the law states that, “Public officials and employees have an obligation to accomplish and submit declarations under oath of, and the public has the right to know, their assets, liabilities, net worth and financial business interest, including those of their spouses and of unmarried children under eighteen years of age living

in their households.”

It includes real property, its improvement, acquisition costs, assessed value and current fair market value; personal property and acquisition cost; all other assets, such as investments, cash on hand or in banks, stocks, bonds and the like; liabilities; and all business interests and financial connections.

“The SALN must also identify and disclose a public official’s relatives in the government in the form, manner and frequency prescribed by the Civil Service Commission,” Liboro said. As required by law, the SALN should be publicly available and accessible, he added. Under this law, the right of the public to know is guaranteed.

Personal data that RA 6713 requires with regards to assets, liabilities and net worth of public official’s spouse and unmarried children under the age of 18 years could not be redacted, Liboro explained. To be concluded

a trade compromise at MC11 would only be possible if there would be a “balanced package of outcomes,” particularly for the agriculture sector.

“And the Philippines firmly believes that the right balance can only be achieved through trade-offs among key priority issues of most members, i.e. public stockholding, domestic support and SSM,” Rodolfo said. “The Philippines underscores that domestic support can only be realistically realized and harvested if a solution on SSM is found,” he added.

Rodolfo said the Philippines may not support new issues at MC11 if core issues relevant to agricultural trade, such as SSM, is not tackled.

“Denying developing countries once more the access to SSM is not only unacceptable, this is also a remiss of our mandates that all our ministers already decided a long time ago under the July Framework, Hong Kong Declaration and Nairobi Decision. Thus, inaction for SSM cannot be and is not an option if we are to succeed in MC11,” he said.

“Reaching the needed balance for success requires exhaustion of all efforts on all priorities of members for a MC11 decision, especially that there is no clear deliverable yet at this juncture,” Rodolfo added.

He also said WTO member-countries should “find a pragmatic and credible way to maintain the Doha

Development Agenda.”

“Incremental steps may be considered but clearly without abandoning the work that has been achieved so far,” he said.

The SSM has become one of the most contentious trade issues within the WTO, especially between developed and developing countries. SSM is a tool that will allow developing countries to raise tariffs temporarily to deal with import surges or price falls, according to the WTO. In 2004 WTO member-countries agreed that SSM will be established for use by developing countries, as indicated in the so-called July Framework. In the 2005 Hong Kong Declaration, WTO developing country members will have the right to recourse to SSM based on import quantity and price triggers.

However, 13 years after the SSM was first floated within the WTO, a concrete framework on it has yet to be crafted. One of the most contentious issues concerning SSM is the “trigger level” and the rate of tariffs that will be imposed.

Under the current WTO Agreement on Agriculture, the Philippines has applied the special safeguards (SSG) to at least 118 farm commodities. SSG serves as contingency restrictions on imports taken temporarily to deal with special circumstances, such as a sudden

surge in imports, according to the WTO. The purpose of the two-day informal ministerial meeting, which took place two months ahead of MC11, was to identify priorities and common ground in the positions of WTO members, according to MC11 Chairman Susana Malcorra.

Malcorra said the ministers left the Marrakesh meeting “firmly resolved” to continue supporting the negotiations so that MC11 reaffirms both the centrality and relevance of the rules-based international trading system and the WTO’s key role as the forum for determining the rules regulating the system.

However, after the informal ministerial meeting, WTO Director General Roberto Azevêdo said there are “some promising issues on the table, but, in all areas, there is still a lot of work to do.”

“If ministers want to see a successful outcome in Buenos Aires, something more is going to have to happen in the coming days and weeks,” he said.

“We need to see an approach where everyone is prepared to make some kind of contribution. We can’t be in a position where members insist on a particular outcome and expect everyone else to accept that.

This is dangerous, as one size doesn’t always work for all,” Azevedo added.

Subterfuge

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ADB extends $100-M loan to help fast-track infra buildup in PHL

By Cai U. Ordinario @cuo_bm

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he Asian Development Bank (ADB) is extending a $100-million loan to help the Philippine government finance its project preparation requirements for the “Build, Build, Build” (BBB) infrastructure program.

In a briefing with select reporters on Monday, ADB Philippines Country Director Richard Bolt said the loan will be used for the Infrastructure Preparation and Innovation Facility (IPIF).

ADB said it is estimated that the IPIF will finance the feasibility studies, procurement of consultants, detailed engineering and preparing bid documents, among others, of at least 19 projects, as of press time.

“The $100-million infrastructure project innovation facility is ADB’s first technical-assistance loan to the Philippines. Previously, most of our assistance was smaller grants, we provide grant assistance of maybe $1 [million] to $1.5 million to help prepare any one project,” Bolt told reporters.

“The fact that the government is willing to go to this scale, I think, is a solid reflection of their understanding of the task that’s ahead of them,” he added.

The total cost of the facility is $164.06 million, with the government of the Philippines contributing $64.06 million. The project is expected to be completed in the second quarter of 2021.

The list of projects that the facility can finance is about $3.8 billion. However, the indicative list from the national government includes seven roads and bridges six water projects and six transportation projects.

Initially, the loan for the facility is good for five years, but the IPIF can receive additional loans from ADB depending on the implementation of the projects and the need for additional resources by the national government.

Also, while the facility is still limited

to financing projects from the departments of Public Works and Highways (DPWH) and Transportation (DOTr), later on the use of the facility can be for other projects, such as those for agriculture, health and education.

“Anything is possible moving ahead.

We’ll see how we go with this. If things go according to plan and so forth, the prospects for expanding to other sectors are good. Whether its through modifications of this facility moving ahead,” Bolt said.

PDMF vs IPIF Bolt explained that ADB will be using its lessons learned from supporting the Project Development Monitoring Fund for public-private partnership projects.

There are also similarities and differences between the PDMF and IPIF. The ADB executive said the IPIF and PDMF are similar in the sense that they finance project preparation requirements, but the IPIF has a “wider coverage” than the PDMF, since it can finance requirements, including bidding documents.

The PDMF, the revolving fund supported by the ADB and Australian and Canadian governments, only covers the procurement of transactional advisers, consultants and prefeasibility studies.

Bolt said the IPIF provides a “good complement” to the PDMF in the sense that, while the fund helps public and private-sector projects, the facility directly aids in the development of sovereign projects.

ADB Philippine Countr y Office Economist Aekapol Chongvilaivan said another difference between the fund and the facility is the ability it gives to the government to procure international firms as consultants for various BBB projects.

Chongvilaivan said some projects financed through the IPIF will require the expertise of international consultants because of the technical knowledge needed to implement them.

The business case for integrity: The Royal Cargo story Continued from A1

customers well, with integrity, protecting their interests, too.

■ We wanted to grow our company sustainably as a fair, stable and successful employer of our staff and a good partner of our stakeholders.

■ Royal Cargo is investing heavily in the region (Asean/Asia), in Europe and the United States. We are fully aware that without a clean record when it comes to integrity, these investments will not flourish. International companies will not deal with partners in the supply chain who don’t have a clean record.

■ We felt that going along these objectives makes a lot of good business sense, trusting we will do more business and make more money for our shareholders.

After we signed the integrity pledge, we followed the rules laid down in the pledge: ■ We adopted the unified code of conduct; ■ Made regular self-assessments using the tool provided by the Integrity Initiative and, therefore, improved our internal controls; ■ After self-evaluation, our status was validated by external auditors of the Integrity Initiative; ■ The next target is certification; and ■ Additionally, we passed the audit of TR ACE International for accreditation as a company complying with international ntegrity norms.

All of this would not have been possible, if we had not created the position of the compliance officer to systemize the creation and adoption of policies that are strictly implemented. Of course, the compliance officer reports directly to the board of directors. The Royal Cargo Group Anti-Bribery and

Corrupt Practices Policy includes all reasonable steps necessary to assure that no bribery will be committed by its stockholders, directors, managers and employees, as well as by all third parties working with us in our dealings with the government and public officials.

I am glad to say that the reputation we have painstakingly built up as a compliant company with integrity has resulted into much more additional business compared to the business we have lost.

We like the slogan of the Integrity Initiative: Integrity starts with ‘I’ and decided to strictly enforce the ‘I:’ ■ No tax shields—paying the right taxes to government; ■ No bribing of employees of other companies giving favors, business or margins to us at the expense of their employers; ■ No “fixing” of incorrect or lacking documentation by paying to public officials; ■ Not taking on any flawed business where we know values are understated or goods incorrectly declared to the Bureau of Customs; ■ Every employee in Royal Cargo is informed again and again that “shortcuts” will not be tolerated and will lead to dismissal and this includes “facilitation” payments; and ■ Our customers have been informed of these changes. We lost a few but word of mouth appreciation and the upgrading of our logistics capabilities led to a substantial increase in new customers.

Was it easy? No—being anti-corruption and anti-crime, having integrity is tough—wear a helmet!

Michael Raeuber is the group CEO of Royal Cargo Inc. and the vice chairman of the integ r it y Initiative Inc.

www.businessmirror.com.ph

The Nation BusinessMirror

Editor: Vittorio V. Vitug • Tuesday, October 31, 2017 A3

Duterte to lawmakers: Assure immediate BBL passage

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AVAO CITY—President Duterte is urging Congress to act “expeditiously” on the approval of the Bangsamoro basic law (BBL), warning that more incidents similar to the Marawi siege may be forthcoming in Mindanao if lawmakers dilly-dally on the passage of the measure.

“If they [lawmakers] do not act on it [BBL] expeditiously enough, I think we will be headed for trouble.

We must continue to talk and urge Congress to fast-track it because they [the Moro people] are getting impatient,” he said at a news conference last Sunday night at the Davao International Airport shortly before he took off for his second visit to Japan.

He said the government has to continue talking with the two Moro revolutionary fronts—the Moro National Liberation Front (MNLF) and the Moro Islamic Liberation Front (MILF)—but hoped “Congress would expedite [BBL’s] approval.”

Duterte said the MNLF and the MILF have agreed to work for a federal setup as he also disclosed government’s willingness “to grant them the territories they want, and

the kind of framework of governance that they want.”

“I told them [MILF and MNLF] we have to continue negotiating with the peace, and that we would comply on the outside of what we have committed. That is our commitment to the Moro fronts,” he said.

The President also assured of government commitment to pursue the rehabilitation of Marawi City, saying that at least two powerhouse countries, Japan and China, have already gave their commitment of support.

Duterte said that, while the issue of the North Korean nuclear threat and the terror threats to regional security would “occupy much space” in his talk with Japan’s recently elected Prime Minister Shinzo Abe, he said Japan’s commitment to rehabilitate Marawi City would be discussed.

“I think the damage alone and

the dimension of the destruction would tell us, and Japan, that we would need their very best,” Duterte said. He said though, that, “I do not doubt that Japan can’t graciously grant us the help. We would not expect Japan to solve all the rest, but I would see significant assistance considering, [as] I said, the dimension of the destruction.”

China, the President said, has dispatched its construction equipment and would be arriving soon in the devastated city.

Prim and proper

Expect Duterte to be prim and proper when he convenes with his United States counterpart, Donald J. Trump, in November, as the President has expressed willingness to tone down his language just to meet halfway with Washington’s leader.

According to Duterte, he will “deal with Trump in the most righteous way” when they meet in November for a bilateral talk. Trump is stopping over Manila on November 12 for the 31st Asean summit, which the Philippines is hosting.

“I would deal with President Trump in the most righteous way, welcome him as an important leader.

I would have to also listen to him and what he has to say,” the President said in an interview with reporters also last Sunday night.

“My responses would be calibrating of what he would ask me,”

Duterte added.

The President expressed his admiration for Trump, saying he and the US leader moves their mouth in the “same cadence.”

Asked what he will bring up with Trump in their bilateral meeting, Duterte said he will raise the usual matters of convergence between Manila and Washington. “It would be terrorism, cooperation between the two countries, the fight against illegal drugs and all of these...,” the Chief Executive said.

Unlike former US President Barack Obama, Trump has backed Duterte’s war on drugs, which has reportedly claimed thousands of lives in police operations and vigilantestyle killings. In fact, the US leader has called the President on April 29 after the latter hosted the 30th Asean summit.

The two leaders have conveyed similar views on the security situation in the Korean Peninsula, with Trump aiming to bring North Korea to its knees if it does not stop its nuclear program and Duterte condemning Pyongyang’s leader Kim Jong Un for “playing with dangerous toys.”

The President, however, said he believes that the North Korean leader could be persuaded to “tone down, or stand down” in its nuclear-arms buildup “if he [Kim] could be also assured that no one is really planning to remove him.”

The problem is that “nobody is talking to him. If somebody could just reach him out, talk to him and say something like, “My friend, why just not join me at the table”, and we just have to talk about this,” he added.

“It would be good if the US, Japan and South Korea and Mr. Kim talk, and to convince him to sit down in a round table and to tell him that nobody is interested to get him out, and that there will be no war, if he would just tone down and stand down, and stop the threats,” Duterte said.

Senators’ expectations

Senators are keenly expecting Japan’s renewed commitment to boost Philippine development efforts when the President and his delegation meet with top Japanese officials during a brief visit.

Senate President Aquilino L. Pimentel III indicated on Monday that he has yet to confirm if Japan will also bare plans to provide new naval-patrol vessels to help the Armed Forces of the Philippines protect borders in the West Philippine Sea. “I have no idea [yet] what assistance Japan intends to give the Philippines,” Pimentel said, even as he admitted expectations of a sizeable Japanese funding assistance resulting from Duterte’s visit to Tokyo.

“What I monitored is their commitment of ¥1 trillion of “assistance” in the next five years.”

Senate Majority Leader Vicente C. Sotto III told the BusinessMirror he, too, expects Japan to reaffirm support for the Philippine A r med Forces border-defense capabilities. “Yes, if necessary,” Sotto said, adding: “We have very good trade and security relationships with Japan.”

Sen. Joseph Victor G. Ejercito, who joined the Philippine delegation for the Japan mission, said he is also looking forward to Japan’s funding commitment to help modernize the Philippine railways system.

Ejercito, in a text message to the BusinessMirror, said the funding assistance could come “from Jica [Japan International Cooperation Agency] ODA [official develoment assistance].”

In an earlier interview, Ejercito admitted he was hoping to bring home the good news about funding source for the railway-modernization program. Before he left for Japan, Ejercito said he was upbeat about the Tokyo trip telling reporters he was likely invited to join the delegation to witness signing of documents, likely to include “my railways advocacy.”

“So let us hope for the best,” Ejercito told reporters, voicing aspirations that funding for the “subway and other railway projects will already be signed.” Manuel T. Cayon, Elijah Felice E. Rosales and Butch Fernandez

Economy

A4 Tuesday, October 31, 2017 • Editors: Vittorio V. Vitug and Max V. de Leon

Palay production cost increased 2.08% per hectare in 2016–PSA

By Jasper Emmanuel Y. Arcalas @jearcalas

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he average cost of producing palay in the Philippines in 2016 increased by 2.08 percent to P47,625 per hectare, from P46,655 per hectare recorded cost in 2015, according to the Philippine Statistics Authority (PSA).

In its annual report titled, “Updated Production Costs and Returns of Selected Agricultural Commodities,” the PSA report noted that the cost of palay production was higher during the wet season at P48,338 per hectare, compared to the average cost during the dry season at P46,685 per hectare.

“Among regions, Ilocos Region recorded the highest production cost averaged P58,334 per hectare in 2016. Palay producers in this region spent the highest cost during the dry season at P61,465 per hectare,” the PSA said in the report published recently.

“ARMM incurred the least production cost at an average of P29,754 per hectare. This held true for dry and wet-season cropping at P29,916 and P29,739 per hectare, respectively,” the PSA added.

The PSA report indicated that 44.22 percent of the production cost were in the form of cash.

The average cash costs incurred by Filipino rice farmers last year reached P21,059, which was 1.65 percent higher than the P20,716 recorded expenditure in 2015.

Among the expenses paid in cash by Filipino rice farmers, hired labor accounted the most or about 41.43 percent of the total cash costs.

At an average, a Filipino rice farmer spent P8,725 in cash for farm employees, 6.27 percent higher than the recorded P8,210 expenditure in 2015.

The PSA report indicated that the hike in production cost meant that Filipino farmers last year spent in average P12.31 to produce a kilogram (kg) of palay.

The figure was 2.84 percent higher than the P11.97 per kg recorded production cost in 2015.

“Production costs amounted to P12.72 during wet season and P11.78 during dry season,” it said.

The PSA report added Central Visayas registered the biggest cost of palay production

per kg at P15.94.

“It was particularly highest during the dry season at P19.02 per kg. The CAR spent the highest production cost at P15.73 per kg during the wet season,” the PSA said.

On the other hand, Bicol Region incurred the least cost per kg at P10.06, according to PSA. “Across seasons, the production costs were low in Bicol Region at P9.42 per kg during the dry season and Northern Mindanao at P9.94 during the wet season,” the PSA added.

Due to higher cost of production last year, decrements were seen in terms of the net income returns of Filipino rice farmers last year.

In terms of net income returns, palay production averaged P19,811 per hectare last year, 5.11 percent lower than the P20,897 recorded net income in 2015, according to the report.

The PSA report added that rice farmers recorded higher net earnings during the dry-season cropping at P21,415 per hectare, compared to the P18,833 per hectare recorded returns during the wet-season cropping.

“In terms of net earnings, Northern Mindanao received the highest at an average of P37,763 per hectare,” it said.

“Across seasons, Central Luzon netted the highest during the dry season cropping at P42,070 per hectare and Northern Mindanao during the wet season at P44,193 per hectare,” it added.

The PSA report said for every peso of investment in palay production, farmers earned an average of P0.42.

Filipino rice farmers gained more during dry season at P0.46 than during wet season at P0.39, according to the report.

“Net profit-cost ratio, on the average, was leading in Northern Mindanao at 0.74. Likewise, the region posted the highest net profit-cost ratio of 0.96 during the wet-season cropping,” the PSA said.

“It was highest in Central Luzon during the dry-season cropping at 0.76. Central Visayas had a deficit of P0.02 for every peso invested in palay farming during the dry season,” it added.

The PSA said palay farm-gate prices received

House committee creates TWG to vest GAB with addl powers

By Jovee Marie N. dela Cruz

@joveemarie

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he House Committee on Games and Amusements has created a technical working group (TWG) to further study the proposal strengthening the Games and Amusement Board (GAB).

The TWG, which will be headed by Party-list Rep. Mark Aeron H. Sambar of PBA partylist, will fine-tune House Bill (HB) 4843 to expand the board’s regulatory powers and supervisory functions over professional sports, allied activities and other forms of amusement.

The HB 4843 was authored by Party-list Reps. Rodel M. Batocabe of Ako Bicol and Rep. Winston T. Castelo of Quezon City.

Moreover, Sambar said, the TWG is expected to discuss the expansion of the definition of “professional sports or competitions” and “professional athlete.”

He said it will also discuss the proposal granting GAB the authority to reduce the 45day rest period required of boxers, wrestlers, or fighters reckoning from the date of their last fight or bout to not less than 30 days subject to certain conditions.

Sambar added the TWG will also tackle the proposal replacing the proposed Athletes’ Welfare Fund with a Trust Fund to cover all professional athletes and not only boxers.

The TWG will identify the quasi-judicial powers of GAB in a separate provision, he added.

Sambar said the TWG is expected to review the respective powers and jurisdiction of both the local government units and GAB over gaming activities.

Created by virtue of Executive Order 120, S-1948, and further mandated with power and authority over several professional sports and activities pursuant to different statutes subsequently promulgated or enacted, the authors of the bill said the GAB continues to provide protection to the betting public against illegal betting or bookie joints and other forms of organized illegal gambling, while ensuring that professional sports activities continue to be a stable source of revenue.

The authors added with the development of new forms of professional sports, such as the mixed martial arts and new modes of betting made available through new technology, the authors said it is imperative to strengthen the powers and duties of the GAB so that it can continue to fulfill its mandate.

The bill proposes the widening of the functions and regulatory powers of the GAB due to the proliferation of new games and other sources of amusement that Filipinos have access to.

BusinessMirror

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Iata: Clark not the best alternate airport to Naia

Manila International Airport Authority General Manager Eddie V. Monreal (right) conducts an early ground inspection at the Ninoy Aquino International Airport Terminal 3 to ensure the smooth operation of its passenger terminal operations, amid the anticipated influx of passengers with the commemoration of All Saints’ and All Souls’ day.

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By Recto Mercene

@rectomercene

he head of an international airlines association has advised the Philippines to proceed with the construction of an alternate airport to the Ninoy Aquino International Airport (Naia), preferably within a 50-kilometer radius from Manila.

The proposal was aired by Alexandre de Juniac, director general and chief executive officer of International Air Transport Association (Iata), in Makati City on Friday.

“When you consider the size of Manila, it has 25 million [inhabitants] like the city of Istanbul or Mexico. This size of airport [commensurate to the size of Manila] should have the capacity for 100 million passengers,” he said.

“It’s a pity, you have a gold mine in your hands, it is very sad you’re not able to exploit this gold mine,” he added.

De Juniac said an airport with an expanded capacity would mean “more passengers, which means more jobs, more revenues, more prosperity.”

“The Naia has to be enhanced. The first time I came to the Naia, when you look at the airport, you need not be genius to see it’s impossible to go above the current ratio.”

According to the Manila International Airport Authority (Miaa), the Naia could only handle 40 events per hour, the number of aircraft that can land and take off, in one hour as dictated by the International Civil Aviation Organization (ICAO), for safety considerations.

“You can improve it, you can build a better terminal for passengers, but the capacity will not change dramatically,” de Juniac added.

According to the Iata executive, airport authorities should junk the idea of Clark as an alternate airport to the Naia.

“If you say Clark is good [but then] it’s too far to be a key hub for the city. We have several examples in the world where authorities built a second [airport that are remote to the city, and]…failed,” he said.

De Juniac said the Miaa should build a third airport closer to Manila that will be able to bring at least 50 million to 70 million passengers, “in addition to the Naia, if you want to keep it.”

Philippine Airlines (PAL) President Jaime J. Bautista said Clark, which is

about 100 kilometers from the Naia, has its own catchment area.

“Clark can serve passengers from Central Luzon, Cagayan Valley, or Ilocos region, and sometimes, passengers from Caloocan and Bulacan, when vehicular traffic becomes a problem in Metro Manila.”

Bautista called on the local airline community to collaborate with the government in addressing industry concerns by the Iata and the Association of Asia-Pacific Airlines (AAPA).

The AAPA summit called for the Philippines and other Asian governments to “commit to further investments” in aviaition infrastructure “to avoid unnecessary congestion, delays and inconvenience to the traveling public.”

He said the realization of this economic benefits would be at risk if the region does not address the big, long-term challenges of sustainability, infrastructure and regulatory harmonization.”

De Juniac, on the other hand, said Iata studies showed that by 2035, if the infrastructure plan for the Naia is implemented, “ the economic impact would be able to support 34 million jobs, which is an increase of 133 percent compared to 2014, and will support, generally, $23 billion in gross domestic product, compared to $9.2 billion in 2014.”

“Giving up such an increase would be monstrous, you have a gold mine,” he said.

De Juniac’s position paper on the Philippine infrastructure said that, first, “the government must make the investment decision and, No. 2, to warn you that privatization of airports from the airline point of view is not totally positive.”

He said the experience of air carriers using privately run airports is “the evolution of airport charges and services,” meaning airport charges usually follow because privately run airports are meant to generate income for their shareholders.

“When you look at the five best airports in the world, in terms of service, they are all in public hands, and it was not by chance,”

de Juniac said.

De Juniac added that, as important as aviation is to the Philippines, there is a need for an airport master plan to ensure that growing demand for connectivity can be accommodated. And that is apparent to anybody who arrives at the Naia.

“The facilities [at the Naia] are no match to the region’s other major hubs—Seoul, Hong Kong, Bangkok, Kuala Lumpur or Singapore,” he said.

De Juniac added the capacity of the Naia is meant to for 30 million passengers per year, yet it is handling nearly 40 million.

“And there has been much more talk than progress on building a solid airport-infrastructure foundation for Manila,” he added.

From Iata’s perspective, three things are clear: The Naia needs urgent enhancements— to the terminal infrastructure and taxiways that will provide much-needed capacity. There are short-term proposals to provide capacity relief, which we ask the government to take urgent action on. Ideally, we would like to see the Naia developed into a full-scale multi-runway hub. Realistically, however, the airport’s physical constraints will not allow this to happen.

Clark can be developed as a secondary airport for Manila, but it’s unsuitable as a candidate to become Manila’s main airport.

The 100-km [distance between the Naia and Clark] is too far and too costly to bridge.

So, the long-term and urgently needed solution is to find a site in reasonable proximity of Metro Manila area where an airport of two runways could be built and eventually expanded. Among several proposals for an alternate aiport, only conglomerate San Miguel Corp. obtained a coveted original proponent status for its proposal to build a P700-billion “aerotropolis” in Bulacan province.

This was confirmed last Friday by Department of Transportation Secretary Arthur P. Tugade, who spoke to reporters at the sidelines of the Philippine Aviation Day business forum in Makati City.

Tugade said a final decision will be made by the National Economic and Development Authority (Neda) Board, chaired by President Duterte.

“A formal proposal [for Bulacan] was submitted to us, and we have gone over the proposal, the completeness of the proposal, and by the end of last week, we have forwarded the proposal to the Neda for final approval,” Tugade said.

On another private-sector offer to build an international airport on reclaimed land in Sangley Point, Cavite, Tugade said they were waiting for the formal submission of that project. He added all unsolicited offers should adhere to the government’s requirements for no state subsidies and guarantees.

The Iata head said aviation is a highly regulated industry and well-constructed regulation has played a key role in making the industry safe, and reliable.

However, he added, excessively onerous regulation can also be a huge burden on the ability of aviation to deliver its social and economic benefits.

De Juniac said Iata is promoting smarter regulation, which has some key attributes, including:

Respect for global standards where they exist

A focus on solving real problems

The ability to pass rigorous cost-benefit analysis

And it is transparent and does not distort competition De Juniac advises airport authority not to overcharge in terms of landing, take off, parking and other charges.

Group asks ERC to probe, audit Meralco’s ₧61-B bill deposit collection since 2003

By Lenie Lectura @llectura

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he National Association of Electricity Consumers for Reforms (Nasecore) has asked the Energy Regulatory Commission (ERC) to probe the bill deposits collected by the Manila Electric Co. (Meralco) from consumers since 2003.

In a letter-complaint filed by the group, Meralco was accused of using the bill deposits as working capital, without the consumers getting equitable share in return.

Moreover, Nasecore claimed that the bill deposits are reflected as working capital, thus adding to the utility’s asset base on which the maximum 12percent profit ceiling is based.

Nasecore President Raffy Acebedo said this translates into unwarranted higher electricity rates.

In its petition, Nasecore also asked the ERC to order Meralco to refrain from using the bill deposits as part of its working capital; issue a resolution fixing a rate of interest earned by bill deposits similar to those earned by common stockholders; request the

Commission on Audit (COA) to conduct an audit of the total amount of bill deposits, including the accrued compounded interest; credit the same annually to the customer; and order Meralco to refund in cash, on a onetime basis, the accrued compounded interest earned by the bill deposits as determined by the COA. Acebedo said that, as part of its efforts to bring down power rates to reasonable and justifiable levels, his group has been in the process of closely scrutinizing all the utility charges that are factored into the electricity rates.

Without these charges, he added, power users would be paying much lower electricity bills.

Based on Meralco’s Audited Financial Statement for the year 2016, the utility does not have a separate escrow account for bill deposits, also a violation of certain ERC resolutions and the Magna Carta for Residential and Electricity Consumers.

“This practice of Meralco of not maintaining a separate escrow account for bill deposits also violates an ERC decision wherein it deemed it proper not to include customers

deposits as a component of the rate base,” Nasecore said.

This clearly defines bill deposits as a guarantee, and not a loan that can be used or be treated as part of the capital of Meralco, Acebedo said.

Since Meralco has used the consumers’ deposits as working capital, it should consider the funds as consumer equity, Acebedo said. Therefore, the ERC should fix the interest return on the customer’s bill deposits equal to what Meralco is getting, the Nasecore complaint stated.

The consumer advocacy group es-

timates that the bill deposits collected from consumers should by now be over P61 billion. Initially, the original law that allowed the deposit requirement in 2003 pegged the interest rate on the deposits at 10 percent per annum. However, in 2010 the ERC reduced it to 0.25 percent.

Nasecore further noted that of the total P61-billion bill deposits Meralco collected from its consumers since 2003, only about P26 billion are reflected on Meralco’s audited financial statements, leaving over P34 billion unaccounted for, or more than 50 percent of the funds that actually belong to consumers.

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Banking&Finance BusinessMirror

Editor: Jun B. Vallecera • Tuesday, October 31, 2017

A5

Inflation seen remaining elevated in October

By Bianca Cuaresma

areas and water rates in Maynilad- and Manila Water-serviced areas, as well as the weaker peso could contribute to upward price pressures for the month,” the BSP said in a statement released on Monday.

Data from the BSP showed the local currency averaging P51.319 per dollar in October, weaker than in September when it averaged P51.009 per dollar.

The September inflation rate stood at 3.4 percent, also an acceleration from 3.1 percent in August.

“Nonetheless, average inf lation is expected to remain within the national government’s target range of [2 to 4] percentage point for the year,” the BSP said.

Inflation averaged 3.1 percent in the first nine months of 2017. Should inflation hit the low end of the BSP’s target for the year, consumer price expansion should still average 3.1 percent.

However, should inflation accelerate to 3.7 percent, this will be its fastest in three years. It will also push the January-to-September inflation rate to 3.2 percent.

Nevertheless, these scenarios are still within the official 2-percent to 4-percent target for the year.

The International Monetary Fund previously forecasted consumer price inflation averaging 3.1 percent this year but only 3 percent next year.

The monetary board, meanwhile, remained confident inflation should still be within target this year, likely averaging 3.2 percent this year and next.

The Philippine Statistics Authority is expected to announce the country’s inflation survey results next week.

One more OFW-oriented sovereign fund proposed

September excise-tax collection continue to rise in double digit rates

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@BcuaresmaBM

onsumer prices were seen remaining elevated in October and likely to have expanded by at least 3.2 percent, owing to utility-rate hikes, as well as the weakness of the local currency.

In its monthly inf lation forecast statement, the Bangko Sentral ng Pilipinas (BSP) said inflation were to range from 3.2 percent to as high as 3.7 percent during the month, clearly an acceleration from year-ago inflation of only 2.3 percent.

“The BSP Department of Economic Research forecast suggests that October 2017 inflation could settle within the 3.2-percent to 3.7-percent range.

Increases in domestic petroleum prices, electricity rates in Meralco-serviced

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stensibly to help overseas Filipino workers (OFWs) safely invest their savings, the chairman of the House Committee on Overseas Workers Affairs is pushing for the creation of an OFW-oriented sovereign fund.

In House Bill (HB) 6519, Party-list Rep. A. Jesulito Manalo of Angkla, panel chairman, said approximately 10 million OFWs all over the world would benefit from such a fund.

“Their cash remittances peaked at $25.6 billion in 2015, and increased by roughly 5 percent in 2016. With the enormous amount of cash Filipino overseas workers bring in, the Philippines is now regarded as the third-largest recipient of foreign remittances around the world,” he said.

“Considering the huge number of our OFWs and the high volume of remittances they bring into the country, there is no doubt that they continue to largely contribute to the economic growth of the country,” he added.

With these contributions, the government can find other mechanisms to help OFWs utilize their monies better, and in the process, also help the government programs or projects and to introduce a new revenue-generation mechanism for the country.

Manalo said the proposal should encourage OFWs to invest a part of their income or cash remittances in a pool under a special fund.

“Similar to Treasury bills or bonds, but under a special fund devised solely for OFWs’ enjoyment, wherein they can invest their monies with the government through a program to be created by the Bureau of Treasury [BTr], ideally for a higher return, better tax incentives and with lesser risks than in regular banks,” he added.

The proposed “OFW Sovereign Fund Act” tasks the BTr to create the special

fund where all investments by OFWs, their immediate family members and other Filipino citizens overseas shall be initially lodged. The pooled money is then used to fund select key projects.

The bill proposes to exempt from any and all kinds of tax existing, as well as former OFWs and other investors patronizing the bonds and debt or investment instruments that the government shall issue in exchange for their cash investment.

It added projects include the purchase or the establishment by the government of strong cash-generating private or government corporations involved in the downstream petroleum industry, electric power generation, transmission and distribution industry, information and communications technology industry and other strong cash-generating enterprises to wean away the government from its reliance on taxes and fees as main source of funding HB 6519 is now being fine-tuned by a technical working group (TWG) at the committee on overseas workers affairs.

The measure also tasks the BTr to help notify and educate all OFWs, as well as create an OFW sovereign fund.

The implementing rules and regulations (IRR) of the Act specifies that the bonds and other debt or investment instruments issued by the government shall be denominated in Philippine peso and in small denominations such as, but not limited to, P5,000.

T he treasurer of the Philippines, in consultation with other concerned gover nment agencies, including the House Committee on Overseas Workers Affairs and the Senate Committee on Labor, Employment and Human Resources Development, shall formulate the IRR upon enactment of the bill into law. Jovee Marie N. dela Cruz

Case clippings

By Justice S J Ranada Jr. EVIDENCE–the equipoise rule Suspicion, no matter how strong, must never sway judgment. The prosecution evidence must be evaluated against the required quantum of evidence in criminal cases. When there is reasonable doubt, the evidence must be interpreted in favor of the accused. Under the equipoise rule, if the evidence admits of two interpretations, one of which is consistent with guilt, and the other with innocence, the accused must be given the benefit of the doubt and should be acquitted.

People v. Hermosa 20 Sep 2017

GR 211721 Martires, J

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he excise-tax collection of the Bureau of Internal Revenue (BIR) totaled P17.7 billion as of end-September, with tobacco product excise tax taking the larger chunk of P11.1 billion, the Department of Finance (DOF) said on Monday.

According to DOF Undersecretary Antonette C. Tionko, the September excise-tax collection of P17.7 billion showed a 12.9-percent jump compared to only P15.67 billion collected in the same month last year.

“The BIR collected P17.7 billion in excise in September, which represents 13 percent over the P15.67 billion worth of collections last year,” Tionko told financial reporters.

According to the DOF, P11.1 billion of the total collection came from the tobacco industry, or an expansion by 14.7 percent, from only P9.673 billion in the same month last year.

“Now, of that amount, the tobacco industry accounted for P11.1 billion of the P17 billion [worth of] tobacco products” subject to the excise, she added.

An excise tax is a tax on items considered undesirable or harmful to society that includes alcohol and tobacco products, among others.

“That was only in September,” Finance Secretary Carlos G. Dominguez III said.

The government was also able to collect excise tax totaling P4.575 billion in September from Japan Tobacco International Inc. (JTI), following its acquisition of the operations of Mighty Corp. In the same month last year, excise-tax collection for the month totaled only P1.2 billion.

This means the excise-tax collection in September this year went up by 281 percent of P3.3 billion more than last year.

According to Dominguez, he is confident that excise-tax collection from JTI will continue to increase over time, since the company wants to make a mark in the Philippine market.

“I am happy with P3.3 billion increase, but I think [excise-tax collection] will grow because you have an international company that is eager to compete in this market,” Dominguez said.

In September the Philippine Competition Commission approved the sale of Mighty Corp. to JTI. The settlement sum of some P21 billion was remitted to the BIR in the same month.

The BIR has already received the first tranche of Mighty Corp.’s settlement offer of P3.44 billion on July 20.

Dominguez said the windfall would significantly boost the national coffers at a time when the government has to find the resources to meet the unexpected costs arising from calamities and natural disasters. Rea Cu

Lender seeks place in top-performing PHL banks

By Kathreen Jose @kathryntjose

A

sia United Bank (AUB) Corp. commits to further develop its technolog y and ex plore segments of the Philippine market as it strives beyond its 20th year to be among the top 10 universal banks in the country under its new president Manuel Gomez.

After two decades that saw economic hauls in Asia from its sunken currencies in October 1997, the central bank’s restrictions to setting up bank branches in 2000 and the widespread distrust in financial institutions follow ing investment anomalies in the United States in 2008, Gomez said AUB will be evaluating again its resources and target markets to benefit from today’s challenges that especially include the Philippines’s digital transformation and large unbanked sector.

“It’s going to be a new journey for us.

We have to redefine ourselves and ask if we want to stick with our market or explore other markets. A lot of opportunities present themselves, but you can also create opportunities. We will take one step at a time,” Gomez said during AUB’s 20th anniversary last Thursday at Marriott Hotel in Pasay City.

From its establishment on October 3, 1997, as a commercial bank, AUB expanded into a universal bank in 2013 and acquired countryside lenders Rural Bank of Angeles and Cavite United Rural Bank, as well as leasing and financing firm Asia United Leasing and Finance Corp. in 2014.

Currently, AUB has a loan portfolio consisting of 70-percent corporate loans and 30-percent individual loans.

It also caters to the financing needs of small and medium enterprises and takes care of the pension of veterans of the Armed Forces of the Philippines.

Earlier this year, the bank intensified its consumer banking for personal loans and remittance with its mobilebanking services.

As AUB moves forward, the 63-yearold banker, who will replace 69-yearold founding President Abraham Co on January 1, 2018, said the bank considers partnerships with multiple firms in the finance sector, including financial technologies, dubbed fintechs and foreign banks in ensuring adequate capital to serve its current and future clients.

“It depends on the quality of our management and the kind of products that we have to serve that particular market. We can’t really be putting up branches left and right because of high

costs, but we are still well within the capital adequate ratio of the Bangko Sentral ng Pilipinas (BSP). But we cannot grow organically when other banks in the top 10 are also growing. We want to be in the top 10,” said Manuel A. Gomez, executive vice president of AUB. A s o f Ju n e 31 , AU B r e m a i n s 14th among the country’s universal banks with the largest total assets. AUB reported P197 billion in total assets, and P27 billion in equity and 227 branches.

Co said BSP regulations and the emerging needs of the various segments of the market for financial inclusion will continue to shape the development of AUB. The BSP launched the National Retail Payment System that requires financial institutions to adopt technologies and collaborate with multiple sectors for a cash-lite and digital economy in the country by 2020.

“In 2000 the BSP regulation required us to stop bank branches in so-called overbanked territories or Metro Manila. Ever since we have struggled but we learned a lot, and that forced us to look at alternatives that was technology.

The growth of our economy dictate we have better banks. You are seeing stronger and bigger middle class and for it to be sustainable, it has to be inclusive. However, still there is the unbanked sector. Technology will also replace hard-currency transactions where it is efficient and cost-effective,” he said.

In early-2000s AUB introduced its signature verification system for faster interbank loans, electronic fund transfer for 10-minute remittance service and virtual kiosk for in-branch online transactions.

AUB also promised to update employee training in protecting client funds from various risks while it deepens relationship with clients through its branch network.

“After the 2008 crisis in America, the BSP issued regulations to make the banking environment safer, and that forced banks to be more skilled in evaluating risks. Thus, we find the environment more challenging and we need a strategy,” he said.

“We empower our branch managers because we believe that to be able to increase client relationship, we have to be able to offer what they need. We are like marines; we chase profits and assets for us to build a business and create an image.

In 20 years we have matured and dreamed many things within our capabilities,” Gomez added.

Lenders announce service interruptions

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n observance of All Saints’ Day, all Security Bank branches will be closed on Wednesday, November 1. Regular operations of all branches will resume on Thursday, November 2.

Security Bank Ninoy Aquino International Airport (Naia) Terminal 1 is open only to customers with terminal passes and that its Naia Terminal 3 branches will observe banking hours on Tuesday, October 31.

The Philippines Savings Bank, the thrift arm of the Metropolitan Bank and Trust Co., also advised its clients that certain branches will not be available from November 3 to 6 as it upgrades its deposit system.

Beginning at 10:00 p.m. on Friday, November 3, up to 5:00 a.m. on Monday, November 6, all its Metro Manila branches,

and those in Guagua, Pampanga; Santo Tomas, Batangas; Carbon, Cebu City; and Monteverde Davao will be off the grid.

This means customers of the affected branches will have no access to their accounts through any of the following: n All ATMs, whether PSBank of other banks; n PSBank mobile; n PSBank online; n BOB or its corporate Internet banking; n E-credit; and n Point-of-sales services.

PSBank Flexi Personal loan accounts are not accessible through any ATM or POS. Pay ment to propr ietar y bi l lers— PSBank loans, Metrobank and PSBank credit cards, Maynilad, PLDT, Smart and Sun, AXA, FAMI, Sumisho and others are also not available.

A6

Tuesday, October 31, 2017 • Editor: Lyn Resurreccion

The World BusinessMirror

Puerto Rico cancels energy contract to rebuild power lines

briefs Syria says retreating I.S. released 25 hostages

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BEIRUT—A Syrian government official says Islamic State (IS) militants have released 25 apparent hostages as they retreated from a town in the central Homs province.

Homs Gov. Talal Barazi tells The Associated Press last Sunday there are another 19 people originally from Qaryatayn still held by IS. Government forces and allied troops regained control of Qaryatayn last week, chasing the militants out after they were held for three weeks. The militants left a trail of blood behind them, killing at least 70 residents. Bodies were found strewn in the streets and in ditches.

At the time, activists said more remain unaccounted for.

It was not immediately clear why the militants released the 25 hostages. AP

Killing of Maltese journalist

silences anti-corruption voice

BIDNIJA, Malta—A few hundred meters from the home of Maltese investigative journalist Daphne Caruana Galizia, in the field where the flaming wreckage of her car landed after being blown off the road by an assassin’s bomb, a plastic pen is stuck into the ground near a Maltese flag.

A handwritten note among bunches of flowers nearby reads: “What you wrote and what you uncovered cannot be blown away.”

Grief and anger are still palpable in this tiny Mediterranean nation, where Caruana Galizia’s web site, “Running Commentary,” was essential reading in cafés, corridors of power, boardrooms and newsrooms.

“You wouldn’t sleep at night if you hadn’t read Daphne,” said Rachel Attard, news editor at the Malta Independent, which published a twice-weekly column by Caruana Galizia. AP

Full recovery from California wildfires may take years

SANTA ROSA, California—It will take at least months and likely years to fully recover from devastating wildfires that ripped through Northern California earlier this month, destroying at least 8,900 structures and killing 42 people, Sonoma County officials said last Saturday.

“We don’t control these things, and it makes you realize how small you are in the world when something like this happens,” Sonoma County Sheriff Rob Giordano said. “I don’t think we understand the level at which it is going to impact lives, and the community will be different.”

Giordano spoke before hundreds of people gathered at a college in Santa Rosa, one of the hardest-hit cities, for a memorial service to honor the lives lost in the deadliest series of wildfires in California history. The fires sparked on October 8, eventually forcing 100,000 people to evacuate. AP

Spacey apologizes after actor accuses him of past harassment

LOS ANGELES—Actor Kevin Spacey, 58, said last Sunday he is “beyond horrified” by allegations that he made sexual advances on a teen boy decades ago.

The two-time Oscar winner posted on Twitter that he doesn’t remember the encounter. “But if I did behave then as he describes, I owe him the sincerest apology for what would have been deeply inappropriate drunken behavior, and I am sorry for the feelings he describes having carried with him all these years,” he said.

In an interview with BuzzFeed, actor Anthony Rapp said Spacey befriended him while they both performed on Broadway shows.

Rapp was 14 when he attended a party at Spacey’s apartment in 1986, he said. At the end of the night, an inebriated Spacey picked him up, placed him on his bed, and climbed on top of him, Rapp said. AP

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People react as they watch the parliament session on a huge screen during a rally outside the Catalan parliament in Barcelona, Spain, on October 27. Proindependence Catalans are cheering the regional parliament’s declaration of secession from Spain, a country they don’t regard as their own. AP/Santi Palacios

Catalonia’s parallel world collides with harsh Spanish reality

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s children return to school and parents to their jobs, it could be like any other week in the Spanish region of Catalonia. But for those who support President Carles Puigdemont and his separatists, it’s the first working day of Europe’s newest republic.

Parallel worlds persisted in Barcelona over the weekend, with Puigdemont styling himself head of the new sovereign state and the Spanish government beginning the process of reasserting control over the rebel region after its declaration of independence last Friday.

“It’s been a completely baffling weekend,” Barcelona Mayor Ada Colau told La Sexta television last Sunday night. “Decrees aren’t signed, the republic isn’t proclaimed, the same flag continues to fly over the regional government’s headquarters, and nobody says anything.”

The confusion may be cleared up quickly once officials in Madrid get on with the task at hand. Right after Catalan lawmakers voted to set up an independent state, Prime Minister Mariano Rajoy unleashed the power of his Spanish authorities to set up a confrontation that will play out this week.

The first stage of the takeover of the regional administration passed off smoothly last Saturday with a new chief installed in the Catalan police force. Over the coming days, many civil servants in Barcelona will also have to decide whether to follow the banished Catalan leaders’ calls to resist their Spanish masters or acquiesce to the new regime. Spanish prosecutors, meanwhile, plan to start pressing rebellion charges against Puigdemont and his ousted government, the El Pais newspaper reported.

Puigdemont called for “democratic opposition” in a recorded television speech, while a leading activist, Jordi Sanchez, issued a statement from jail advocating “Gandhi-style resistance.”

Defending Spain

Over the weekend, hundreds of thousands of Catalans f looded the center of Barcelona to protest against independence.

Opposition lawmakers left the chamber for the vote in the regional parliament last Friday, complaining that the separatist majority has ridden roughshod over the rule of law since ram-

1M The estimated number of people who attended last Sunday’s pro-Spain demonstration in Barcelona; the local police said the attendees number 300,000 people

ming through the framework for an illegal referendum on secession almost two months ago.

“The more moderate and pragmatic elements probably realize they’re not going to get very far,” said Caroline Gray, a lecturer in politics and Spanish at Aston University in the UK who specializes in nationalist movements. “The more radical elements, however, are in the parallel universe of the new republic—and that disconnect worries me. The situation could turn unpredictable if Spain moves in to take control.”

Rajoy last Friday dissolved the Catalan government, placed its administration under direct control of his deputy, Soraya Saenz de Santamaria, and called elections in the region for December 21.

Deputy Minister for Territorial Administration Roberto Bermudez de Castro will arrive at the regional government’s headquarters on Monday to continue the central government’s intervention, El Periodico de Catalunya, a Barcelonabased daily, reported.

‘Viva España’

Last Sunday’s pro-Spain demonstration—1 mil lion people estimated by the government, 300,000 by the local police—saw protesters carrying Spanish, Catalan and European Union flags pour through the Barcelona streets.

Three of Spain’s four largest nationa l par ties—R ajoy’s People’s Part y, the Socialists and Ciudadanos—took part in the demonstration.

Elderly people draped in Spanish flags and families with children were also among the crowds as helicopters f lew overhead.

Some shouted “Viva España” or “Puigdemont in prison.”

One moment of tension came when about 50 protesters circled around three vans of the Mossos d’Esquadra, the Catalan police, shouting, “You’re not our police, you’re Puigdemont’s bodyguards.

Get out.”

Their chief, Josep Lluis Trapero, was fired over the weekend and is facing charges of sedition as part of an investigation into events surrounding the illegal referendum on October 1. The Mossos have been ordered to take down photos of Puigdemont from their police stations, Efe newswire reported.

Besides the protest, it was business as usual in Barcelona: no visible show of force from authorities, shops were packed and tourists swarmed down the central artery of La Rambla. The red-and-gold Spanish flag flew from both City Hall and the Catalan regional government building.

Underdog’s victory

Puigdemont spent at least part of his weekend in his hometown of Girona, north east of the regional capital. The town’s soccer team, playing in Spain’s top division for the first time in its history this year, scored a surprise win over Real Madrid last Sunday.

“The victory over one of the world’s great teams is a perfect example and a reference for many situations,” Puigdemont tweeted, adding a winking emoji.

An opinion poll last Saturday projected the separatist bloc will lose its fragile majority in December’s regional election. A survey by Sigma Dos for El Mundo newspaper showed the pro-independence groups winning 65 out of 135 seats in the regional assembly, down from 72 in 2015.

While the phalanx of pro-independence activists and is unlikely to give officials from Madrid an easy ride in the coming weeks, other Catalans are keen to put the political spectacle to one side and focus on their own challenges.

“I have bills to pay and two daughters,” said Pere Garcia, 52, who mans a stall in the center of Barcelona. “Politics won’t pay bills.

I still have to go to work whether this is Spain or an independent republic.” Bloomberg News

acing withering criticism from members of Congress and the Federal Emergency Management Agency (Fema), the governor of Puerto Rico moved last Sunday to cancel a $300-million contract awarded to a small Montana company to rebuild part of the island ’s battered power grid.

While government officials in Washington and San Juan have argued over how a company from Whitefish, Montana, with connections to the secretary of the interior but only two full-time employees secured an emergency contract that requires the work of thousands of people, the majority of Puerto Rico is still without electricity, nearly six weeks after Hurricane Maria knocked down thousands of poles and lines.

Some stores, med ic a l centers, rest au ra nt s a nd a for t u n ate fe w pr iv ate residences are r unning on generators, but most of t he i sl a nd ’s 3.4 m i ll ion people a re plu nged i nto d a rk ness a f ter su n set.

The Puerto Rico Electric Power Authority (Prepa) is generating just 30 percent of its normal output, the Puerto Rican government said. The power grid is in such bad shape that the power authority does not know exactly how many of its customers are without power. The authority has estimated that repairs will cost at least $1 billion.

Gov. Ricardo A. Rosselló announced last Sunday that he had asked the power authority’s board—which he appoints—to cancel the contract with Whitefish Energy Holdings, two days after Fema issued a strongly worded statement criticizing the deal.

Fema said it had “significant concerns” and warned that it might refuse to cover the costs of the contract if it was found to be improper.

Rosselló said he had asked for a federal investigation of the contract-award process, and for the power authority to appoint a trustee to review contract bidding. He said that no wrongdoing had been discovered, but he said that the contract had become a “ distraction” and that attention had to be refocused on restoring ser vice. “ I a m m a k i ng t h i s deter m inat ion because it is in t he best interest of t he people of P uer to R ico,” Rossel ló sa id at a news conference.

T he contract had been att rac t i ng i ntense sc r ut i ny i n Washington. The House Committee on Natural Resources, which oversees Puerto Rican affairs, sent a letter last Thursday to the power authority demanding all records connected to the contract. T hat sa me d ay, t he inspector genera l ’s of f ice at

t he Depa r t ment of Homel a nd Secur it y said it was investigating. Rossel ló a lso ordered a n aud it of t he cont ract, a nd t he board that Congress created to oversee Puerto R ico’s financial a f fa irs asked a federa l cou r t to appoint a new ma nager to super v ise t he ut i l it y.

The chief executive of the power authority, Ricardo Ramos, defended the contract, which he awarded. But he said last Sunday that he understood the governor’s decision to cancel it because negative publicity and politics on the mainland had made the situation untenable.

Ramos said Whitefish had recently requested security protection because people had started throwing rocks and bottles at the company’s crews on the island, in the belief that the contract had been awarded corruptly.

“If you are in your house without power, and there’s a sense that the energy authority gave away $300 million to a company that either had or did not have experience, the reaction is not positive, and we’re seeing that,” Ramos said.

Democrats on the mainland and opposition politicians in P ue r to R ico que s t ione d t he deal and were alarmed to see that the company’s chief executive, Andy Techmanski, came from the same small town in Montana as Interior Secretar y Ryan Zinke. In an inter v iew shortly after securing the contract, Techmanski told a local news station that he had been in touch with Zinke for “more resources.” Zinke’s son worked for W hitefish last summer.

Both the Department of the Interior and Techmanski denied any impropriety in connection with the contract.

When the mayor of San Juan, Carmen Yulín Cruz, raised questions about the contract, the company fired back on Twitter, suggesting that it could withdraw its crews from her city. The company later apologized.

In a statement last Friday, Fema said it had not confirmed whether prices listed in the contract between W hitefish and the power authority were reasonable. R amos said the prices were in line with what other companies had requested.

In an interview last Thursday, Ramos said he had not heard of Whitefish before September.

“We checked them out on the Internet,” he said. “There was a list of projects that they had done in the past, including with the Department of Energy. They showed a lot of experience in using helicopters to build transmission lines. On paper, they did have the experience necessary.”

New York Times News Service

Army supporters, Buddhists march in Myanmar city

Y

ANGON, Myanmar— People marched in Myanm a r ’s l a r ge st c it y l a st Sunday to support the militar y, which has come under heav y criticism over violence that has driven hundreds of thousands of Rohing ya Muslims to f lee to neighboring Bangladesh.

More than 2,000 army supporters, including Buddhist nationalists and monks, took part in the march.

“I want to urge you to support the military. Only if the military is strengthened will our sovereignty will be secured,” a senior Buddhist nationalist monk, Zagara, told the crowd.

More than 600,000 Rohingya from northern Rakhine state have fled to Bangladesh since August 25, when Myanmar security forces began a scorched-earth campaign

against Rohingya villages. Myanmar’s government has said it was responding to attacks on police outposts by insurgents, but the United Nations and others have said the response was disproportionate.

The exodus of the Rohingya has become a major humanitarian crisis and sparked international condemnation of Myanmar.

Nyunt Yi, a 70-year-old retired military soldier who served in the army for more than 40 years, said last Sunday that “only the army can protect the national security and stop the illegal intruders,” referring to the Rohingya.

Myanmar’s Buddhist majority denies that Rohingya are a separate ethnic group and regards them as having migrated illegally from Bangladesh, although they have lived in Myanmar for generations. AP

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Tuesday, October 31, 2017

A7

Saudi promise of ‘moderate Islam’ shifts fresh power

D

UBAI, United Arab Emirates—The man who may soon be king of Saudi Arabia is char ting a new, more modern course for a country so conservative that for decades there were no concerts or film screenings, and women who attempted to drive were arrested.

Since he was catapulted to power with the support of his father, the king, Crown Prince Mohammed bin Salman has pushed forth changes that could usher in a new era for one of the United States’s most important allies, and swing the kingdom away from decades of ultraconservative dogma and restrictions.

He’s introduced musical concerts and movies again, and is seen as the force behind the king’s decision to grant women the right to drive as of next year.

Opposition to the changes has so far been muted, but some critics of the prince have been detained. When social openings in the kingdom were taking place four decades ago, Sunni extremists opposed to the monarchy laid siege to Islam’s holiest site in Mecca.

Prince Mohammed’s agenda is upending the ruling Al Saud’s longstanding alliance with the kingdom’s clerical establishment in favor of synchronizing with a more cosmopolitan, global capitalism that appeals to international investors, and maybe even with non-Muslim tourists.

The prince grabbed headlines in recent days by vowing a return to “moderate Islam.”

He also suggested that his father’s generation had steered the country down a problematic path, and that it was time to “get rid of it.”

In his sweeping “Vision 2030” plan to wean Saudi Arabia off of its near total dependence on petrodollars, Prince Mohammed laid out a vision for “a tolerant country with Islam as its constitution and moderation as its method.”

Prince Mohammed, or MBS as he is widely known, used a rare public appearance on stage at a major investor conference in the capital, Riyadh, last week to drive home that message to a global audience.

“We only want to go back to what we were: Moderate Islam that is open to the world, open to all religions,” he said in the ornate grand hall of the Ritz-Carlton. “We will not waste 30 years of our lives in dealing with extremist ideas. We will destroy them today.”

His remarks were met with applause and a front-page article in Britain’s The Guardian newspaper. In expanded remarks to the paper, the 32-year-old prince said that successive Saudi monarchs “didn’t know how to deal with” Iran’s 1979 revolution that brought to power a clerical Shiite leadership still in place today.

That same year Saudi rulers weathered a stunning blow: Sunni extremists laid siege to Islam’s holiest site in Mecca for 15 days. The attack was carried out by militants opposed to social openings taking place at the time, seeing them as Western and un-Islamic.

Indeed, Sunni extremists have used the intolerant views propagated by the ideology known as Wahhabism to justify violence against others. Wahhabism has governed life in Saudi Arabia since its foundation 85 years ago. The ruling Al Saud responded to the events of 1979 by empowering the state’s ultraconservatives.

To hedge the international appeal of Iran’s Shiite revolution, the government backed efforts to export the kingdom’s

foundational Wahhabi ideology abroad.

To appease a sizeable conservative segment of the population at home, cinemas were shuttered, women were banned from appearing on state television, and the religious police were emboldened.

Much is now changing under the crown prince as he consolidates greater powers and prepares to inherit the throne.

There are plans to build a six-flags theme park and a semi-autonomous Red Sea tourist destination where the strict rules on women’s dress will likely not apply. Females have greater access to sports, the powers of the once-feared religious police have been curtailed and restrictions on gender segregation are being eased. Unlike previous Saudi monarchs, such as King Abdullah who backed gradual and cautious openings, Prince Mohammed is moving quickly.

More than half of Saudi Arabia’s 20 million citizens are below the age of 25, meaning millions of young Saudis will be entering the workforce in the coming decade. The government is urgently trying to create more jobs and ward off the kinds of grievances that sparked uprisings in other Arab countries where unemployment is rampant, and citizens have little say in government.

The prince has to find solutions now for the problems he is set to inherit as monarch.

“What MBS is doing is a must requirement for any kind of economic reform. Economic reform requires a new Protestant ethic if you will, a new brand of Islam,” said Maamoun Fandy, director of the London Global Strategy Institute.

This new Saudi version of “moderate Islam” can be understood as one that is amenable to economic reforms; it does not close shops at prayer time or banish women from public life, Fandy said. In other words, Saudi Arabia’s economic reforms require social reforms to succeed.

Buzzwords like “reform,” “transparency” and “accountability”—all used by the prince in his promotion of Vision 2030—do not, however, mean that Saudi Arabia is moving toward greater liberalism, democracy, pluralism or freedom of speech.

The government does not grant licenses to non-Muslim houses of worship, and limits those of its Shiite Muslim citizens.

The prince has also made no mention of human-rights concerns. If anything, dozens of the prince’s perceived critics have been detained in a warning to others who dare to speak out. Some of those arrested were seen as critics of his foreign policies, which include severing ties with Qatar, increasing tensions with Iran and overseeing air strikes in Yemen that have killed scores of civilians, and drawn sharp condemnation from rights groups and some in Washington.

Meanwhile, Prince Mohammed faces a Saudi public that remains religiously conservative. That means he still needs public support from the state’s top clerics in order to position his reforms as Islamic and religiously permissible.

These clerics, many of whom had spoken out in the past against women working and driving, appear unwilling or unable to publicly criticize the moves. In this absolute monarchy, the king holds final say on most matters, and the public has shown it is welcoming the changes. AP

Trump comes ahead with fresh criticism of Russia inquiry

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ASHINGTON—President Donald J. Trump expressed renewed frustration last Sunday over the investigations into alleged ties between his campaign associates and Russian government officials, saying on Twitter that the “facts are pouring out” about links to Russia by his former presidential opponent, Hillary Clinton. “DO SOMETHING!” Trump urged in one of five morning tweets.

Trump’s tweets followed a CNN report late last Friday that a federal grand jury in Washington has approved the first charges in a criminal investigation into Russia ties led by special counsel Robert Mueller.

The Associated Press has not confirmed the CNN report. Ty Cobb, a member of Trump’s legal team, said the president was not referring to CNN’s reporting.

“Contrary to what many have suggested, the president’s comments today are unrelated to the activities of the special counsel, with whom he continues to cooperate,” Cobb said in a statement.

Trump and the White House insist there

was no collusion between his presidential campaign and Russia. Both have pointed a finger at Clinton, and have suggested that the real story of collusion with Russia is the sale of uranium to Moscow when Clinton was secretary of state.

United States intelligence agencies have concluded that Russia interfered with the election to benefit Trump, a finding that Trump has not fully accepted. Mueller and Congress are looking into allegations of ties between Trump associates and Russia.

In the tweets, Trump referenced the fact that Clinton’s presidential campaign helped fund political research into Trump that ultimately produced a dossier of allegations about his ties to Russia.

He also pointed to the uranium sale, the tens of thousands of e-mails from Clinton’s time at the State Department that she later deleted from a private e-mail server, and the decision by then-Federal Bureau of Investigation Director Jim Comey to not bring criminal charges against Clinton for possible mishandling of classified information. AP

Home values soar almost 15 percent in September from a year before in Xi’an, China’s ancient capital. Bloomberg

Global economy health at stake as China tries to hold sneeze

I

t used to be that when America sneezed, the world caught a cold.

This time around, it’s the risk of a sickly China that poses a bigger threat.

T he world ’s second-largest economy is now trying to ward off the sniffles. While output is still growing at a pace that sees GDP double every decade, the problem remains that much of that has been fueled by a massive buildup of credit.

Total borrowing climbed to about 260 percent of the economy’s size by the end of 2016, up from 162 percent in 2008, and will hit close to 320 percent by 2021, according to Bloomberg Intelligence (BI) estimates.

Economy-wide debt levels are on track to rank among “the highest in the world,” according to Tom Orlik, BI’s chief asia economist.

That path may be what prompted outgoing People’s Bank of China Governor Zhou Xiaochuan to warn of the risk of a plunge in asset values following a debt binge, or a “ Minsky Moment,” earlier this month. Given that China is forecast by the International Monetary Fund to contribute more than a third of global growth this year, controlling China’s debt matters far beyond its borders.

There are two key components of China’s credit clampdown, each posing challenges to policy makers. First is wringing out bets on property prices. As President Xi Jinping put it in a keynote policy speech to the Communist Party leadership on October 18: Housing is for living in, not for speculation.

The latest data show that in some areas, prices are still surg-

260% The percentage climb of China’s total borrowing compared to its economy’s size by the end of 2016, up from 162 percent in 2008

ing in many cities despite a raft of measures to make it harder for investors to buy real estate with borrowed money. Xi’an, China’s ancient capital, saw home values soar almost 15 percent in September from a year before.

Fine line

It will be up to regulators to come up with measures that deliver on Xi’s mandate without tipping housing into a downward spiral.

Property crashes in the United States, Japan and United Kingdom over the past three decades amply illustrated how damaging they can be to economies.

The second key challenge is progress in aligning borrowing costs with borrowers’ ability to repay—rather than with their relationship with the state.

China’s financial system has long let companies that are state owned or are seen to be implementing state initiatives get fund-

ing more cheaply than others.

That’s thanks to the assumption the government would step in if needed to back them up.

To help encourage capital to be deployed more efficiently—and to prevent firms that are effectively insolvent keep going, thanks to continued funding—policy-makers have begun to gradually take away implicit support.

In 2014 a solar-panel maker Shanghai Chaori Solar Energy Science and Technology Co. became the first Chinese company to default on a domestic corporate bond. Since then, even some state-owned firms have been allowed to default. Handling that process is delicate.

Speed danger

“If tomorrow, you suddenly withdraw that implicit government support, you would get a freeze-up in credit flow,” said Kenneth Ho, head of Asia credit strategy research at Goldman Sachs Group Inc. in Hong Kong. “If they do it too quickly, the system will collapse. They’ve been going at the right speed.”

Ho anticipates that the number of defaults allowed will go up, though doesn’t see any surge.

“We’re in an upward cycle in terms of recognizing defaults, but it’s a long cycle,” he said.

One thing that could propel defaults is higher yields, and they do appear to be on the climb again.

Benchmark 10-year government bonds hit their highest yields since 2014 on Monday.

To be sure, China’s economy continues to defy predictions of an actual debt crisis or a housing bust. Instead, there are signs of a controlled easing. Home prices in September rose in the fewest cities since January 2016, amid curbs on debt-fueled buying.

Trouble trigger

A domestically triggered crisis is unlikely, at least in the next five years, according to a report by Berlin-based Mercator Institute for China Studies.

“Trouble is more likely to come from some combination of capital flight and sudden withdrawal of external credit,” wrote Victor Shih, a professor at the University of California at San Diego and author of the report.

Still, few countries that have experienced China’s pace of debt growth have unwound things without some sort of crunch. Investors, companies and governments around the world will want China to break that mold.

An indication of the ripple effect China can have on global markets came in 2015 when a devaluation of the yuan, followed by other changes to how the tightly controlled currency i s t raded , sent shoc k w aves through globa l markets. T he move triggered capital to f low out of China, forcing authorities to burn through reserves to support the currency.

W h i le C h i n a’s pol ic y-m a ke r s a re pre a c h i n g t he com m it ment to t ac k le debt, not e ver yone i s conv i nced. Some ana lysts say aut hor ities aren’t goi ng h a rd enough. “ There is no deleveraging,” Luke Spajic, head of portfolio management for emerging Asia at Pacific Investment Management Co., said at The New Renminbi Reality Summit organized

by Bloomberg Live in Singapore.

“Debt to GDP is going up rather than down,” he said. “Certain pockets of the economy have been forced to bring leverage down, but in general this is a story of debt growth.” Bloomberg News

Saudi to allow women into sports stadium S audi Arabia will allow women into three sports stadiums for the first time, the latest step in attempts to transform one of the world’s most conservative societies. The kingdom’s

sports authority said stadiums in Riyadh, Jeddah and Dammam would be prepared to admit families at the beginning of next year, according to a statement carried by the official Saudi Press Agency.

The move follows a decision by Saudi authorities last month to remove a longstanding ban on women driving.

Easing restrictions on women is part of Crown Prince Mohammed bin Salman’s

plan to overhaul the economy to reduce its reliance on oil revenue. The government says it wants to increase women’s participation in the work force to 30 percent, from 22 percent, by 2030. Bloomberg News

A8 Tuesday, October 31, 2017 • Editor: Angel R. Calso

Opinion BusinessMirror

www.businessmirror.com.ph

editorial

A public health emergency

T

he Philippines needs to act with a higher sense of urgency to stop the increasing number of HIV (human immunodeficiency virus) cases among our young people.

Based on the latest report of the Joint United Nations Program on HIV/ AIDS (the UNAIDS’s 2017 report, which was released in August), the Philippines posted the highest increase in new HIV cases in the Asia-Pacific region over the past six years.

The Department of Health (DOH) said the country’s HIV infection rate grew by 140 percent from 2010 to 2016, with two out of three new HIV infections among 15 to 24-year-old men who have sex with men (MSM). The UNAIDS’s 2017 report showed that in 2016 alone, 83 percent of new infections in the Philippines occurred through MSM and transgender women who have sex with men.

The number of new HIV infections documented by the DOH had reached 1,098 in May—the highest since the DOH established the HIV/AIDS Registry in 1984. The DOH had documented 44,010 HIV/AIDS cases, indicating that the country is seeing 29 new cases daily. This is compared to one case a day in 2008 and 26 cases a day in 2016.

The sharp rise in new HIV infections in the Philippines stands in contrast to decreasing or stagnant rates of new infections in other parts of the Asia-Pacific region.

More than just giving away free condoms, we need strategic interventions in all levels of government and involving all sectors of society to combat this alarming HIV spread. This is clearly a health crisis that could cripple the predominantly young population of our country.

The numbers are already disturbing as they are, but let us remember that there could easily be more HIV cases out there, because there are a lot of infected people who do not know they are or do not report it out of shame or fear of being ostracized.

Time is ticking. Eamonn Murphy, director of the UNAIDS Regional Support Team for Asia Pacific, said the Philippines only has a “small window of opportunity” to act on the epidemic.

We urge Congress to immediately pass The Philippine HIV and AIDS (Acquired Immune Deficiency Syndrome) Policy Act, in order to replace Republic Act 8504, the country’s outmoded 17-year law on HIV-AIDS prevention.

We need a new law that would improve the living conditions of HIV-positive people through greater access to treatment, care and support, as well as provide heavier penalties for entities and individuals who discriminate against them and violate their rights to confidentiality.

The government also needs to allocate more funds for education and awareness programs that should address the unsafe sex practices of Filipinos, mainly among the young population.

Local governments, in particular, should have city or municipal ordinances providing facilities and immediate help to their constituents who are afflicted with HIV, such as free testing in their health clinics and free antiretroviral vaccines to those who test positive.

There should be a “treat all” approach, meaning anyone who tests positive for HIV can avail himself or herself of treatment. Community-based risk-reduction and awareness counseling services and other low-cost interventions that can prevent the spread of HIV must also be made available.

We must recognize the HIV spread in our young population as a public health emergency that requires better coordination, more funding and a more clearly defined mission to stop it. Complacency will only ensure more HIV cases and cost lives.

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Analyzing Metro Manila’s traffic problem Manny B. Villar

THE Entrepreneur Continued from A1

O

ne is the economic boom—the Philippines is now among the fastest-growing economies in Asia—which means more Filipinos are able to buy cars.

Low inflation, low interest and easy access to credit enabled the domestic automotive industry to increase sales by more than 24 percent in 2016, with total sales of 359,572 units. For 2017, the industry is expected to sell as many as 500,000 units. The figures do not include motorcycles, the sales of which reached 1 million in 2016.

In 2016 a total of 11.2 million motor vehicles were registered with the Land Transportation Office (LTO), of which 2.5 million (28.7 percent) were in the National Capital Region (NCR) and 8.7 million (71.27 percent) were in other parts of the country.

The number of motor vehicles plying Metro Manila’s roads continues to increase, but the road network in the metropolis has hardly increased.

According to some estimates, the NCR’s road network of 4,755 kilometers should be doubled to accommodate the vehicle population.

That means that the additional roads that are being built or widened are eaten up by existing demand, which continues to outpace infrastructure development.

Also, we are a flood-prone country because of the 20 or so typhoons

that hit us every year. Metro Manila is particularly prone to flooding because of its low altitude. Everybody knows that even a light downpour floods many streets in the metropolis, resulting in stalled traffic. Add to this the narrowing of streets caused by illegal settlements or vendors.

Some government policies, or lack thereof, also contribute to the traffic problem. For example, it is only now that the government is raising taxes on cars, which will, hopefully, slow down car sales by some degree.

Under the proposed reforms, the vehicle excise tax would be doubled from 2 percent to 4 percent for vehicles worth P600,000 or below, or raised to P24,000 plus 40 percent of value in excess of P600,000 for vehicles worth P600,000 but not more than P1.1 million; and P224,000 plus 100 percent of value in excess of P1.1 million for vehicles worth over P1.1 million but not more than P2.1 million. The excise tax will also be at P1.224 million plus 200 percent of value in excess of P2.1 million for vehicles worth P2.1 million or higher.

Another problem is the development of vacant public lands, which

The number of motor vehicles plying Metro Manila’s roads continues to increase, but the road network in the metropolis has hardly increased. According to some estimates, the NCR’s road network of 4,755 kilometers should be doubled to accommodate the vehicle population.

the previous administration pursued as a revenue-generating measure. It seemed the government had declared a policy against making these vacant spaces into green public parks.

Selling vacant spaces to developers means transforming the vacant spaces into malls, office buildings and other commercial structures, which further aggravate the shortage in road infrastructure.

The government might have rejoiced in raising millions or even billions from the sale of the vacant spaces, but the amount could have exceeded the cost of road and other infrastructure that the government would have to build to serve the commercial projects. In other words, the government actually loses in the deal.

The Duterte administration is currently seeking approval of a taxreform measure, which is designed to raise funds to finance a massive infrastructure program during its six-year term. I hope that the remaining vacant public lands will no longer be sold for commercial development, but for the development of open and green parks for the people.

Raising taxes on motor vehicles may be seen by some people as restrictive, but other countries with less traffic problems than the

Don’t count your chickens before...

John Mangun

OUTSIDE THE BOX

W

hich came first, the chicken or the egg? In order to create a chicken, there must be an egg from which the chicken grows and hatches. But you cannot have a chicken egg without that egg first being laid by a chicken.

While this might seem some sort of intellectual conundrum or confusing problem, it is actually a simple way of trying to explain asset and financial-market movements.

The pricing in these markets are moved and changed by money flows. Stock prices go higher because money moves into the stock market as buying makes prices go

higher. Obviously, the opposite is also true.

But then, the chicken/egg question arises. Are prices going higher because money is moving in or is money moving in because prices are going up?

Back in the good old days before the digital world, theater owners would hire people to stand in the

ticket line for a movie knowing that the long line itself would attract moviegoers. Of course, it is probably even truer in this digital age. We never know if we like a page because of the bots or because of the likes by genuine people.

Remember this reality: The highest trading volume for a stock usually comes at the low and at the high.

Certainly, sometimes, that increased volume at the low may be genuine buying. But it can also be “show” buying. However, even if that buying is for show, on the Philippine Stock Exchange (PSE), it requires genuine cash on the table because buying on margin—using borrowed money— is both expensive and relatively rare on the PSE. Likewise, when you see a volume spike at, or near, the top, you know that those are actual shares being liquidated.

Be forewarned, though. The game may change next year as the PSE

Philippines are actually imposing more restrictive measures.

Singapore, one of the most advanced countries in the world, and which probably has the most efficient and modern transportation system in Southeast Asia, announced last week that no more extra vehicles would be allowed beginning February 2018. The measure complements the government’s efforts to further improve the public transport system.

When the zero-growth policy takes effect, aspiring car buyers will have to wait for other drivers to surrender their certificates to apply for permission to buy cars.

The city-state is already one of the world’s most expensive places to own a car. At present, the Land Transport Authority (LTA) limits the annual increase in cars and motorcycles to 0.25 percent.

Under the current system, people who want to own a car in Singapore must buy a special certificate from the government, which are sold through auctions and can cost as much as $37,000.

The cost of the 10-year special certificate is in addition to various taxes and import duties, which can jack up the price of a small vehicle up to $74,000.

The new tax on cars proposed by the Duterte administration is far less severe than Singapore’s new policy, but it is a good step toward easing the traffic problem in Metro Manila.

Stopping the sale of vacant public lands for commercial development should also be part of the solution to the congestion, while the government implements road-infrastructure projects.

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

moves to allow short selling.

Short selling is a trading strategy that allows an investor to borrow shares from another shareholder and then sell those shares for cash.

The “short seller” must eventually pay back those borrowed shares plus interest.

What will happen is that there may be a volume jump at a high level.

But traders will not initially know if those are existing positions being sold or borrowed shares being sold. A volume spike at the bottom could be new buying or could equally be short sellers buying in to take profit and return the borrowed shares, leaving the market.

Now we come to perhaps the ultimate chicken or the egg—the Philippine peso and the stock market.

Maybe because everybody has at least a few amounts in their pocket, “everybody” is an expert on the See “Mangun,” A9

Opinion BusinessMirror

www.businessmirror.com.ph

Tuesday, October 31, 2017 A9

Patronage and favoritism An investment in the future Ernesto M. Hilario

Cecilio T. Arillo

database

L

EST we forget, it was largely this intractable culture of patronage and favoritism that put Presidents Ferdinand E. Marcos and Joseph Ejercito Estrada in serious trouble and eventually lost their presidency in a mutiny.

A conspiracy that included generals and Cabinet officials who claimed to be loyal to President Estrada but actually were Trojan horses of his political enemies, with self-serving economic and political interests, betrayed him at the crucial time.

In Marcos’s time, some misguided politicians in Washington, as well as the country’s leftists, prelates and elite businessmen, motivated by their own-self serving economic and political interests, stealthily exploited the assassination of former Sen. Benigno Aquino Jr. that triggered a rebellion among the officers and enlisted personnel in the police and military organizations.

It was a very sad event in the history of the country, and saw how it limped from one crisis to another under Presidents Corazon Aquino, her son Benigno III and the three others between them who spent more than P35 trillion in accumulated public funds in 31 years only to produce more miseries than happiness for the majority of the people.

The Duterte administration should take this as a very serious lesson, bearing in mind his Oath of Office: “Obey and defend the Constitution, enforce the laws and do justice to every one…”

The Constitution, particularly Sections 5, 6 and 7 of Article XVI (General Provisions), has an antidote to favoritism and patronage, to wit: “Section 5. (1) All members of the armed forces shall take an oath or affirmation to uphold and defend this Constitution. “(2) The State shall strengthen the patriotic spirit and nationalist consciousness of the military, and respect for people’s rights in the performance of their duty. “(3) Professionalism in the armed forces and adequate remuneration and benefits of its members shall be a prime concern of the State. The armed forces shall be insulated from partisan politics.

“No member of the military shall engage directly or indirectly in any partisan political activity, except to vote. “(4) No member of the armed forces in the active service shall, at any time, be appointed or designated in any capacity to a civilian position in the Government, including government-owned or -controlled corporations or any of their subsidiaries. “(5) Laws on retirement of military officers shall not allow extension of their service. “(6) The officers and men of the regular force of the armed forces shall be recruited proportionately from all provinces and cities as far as practicable. “(7) The tour of duty of the Chief of Staff of the armed forces shall not exceed three years. However, in times of war or other national emergency declared by the Congress, the President may extend such tour of duty.

Mangun. . .

continued from A8

peso/dollar exchange rate. One pundit theorized recently that the peso “always” loses value in the fourth quarter. No explanation for that hypothesis was given, and including 2009 through 2016, the peso has lost value against the dollar from September through December four times out of eight years.

Another expert decided that the stock market “always” loses ground in the fourth quarter. But his success is even worse. The market has been

The practice of giving choice positions to officers and men who have been assigned in Davao must not also take precedence over merit, academic qualifications, seniority and field experiences. If not, it will continue to cause serious demoralization among career and other qualified officers in the more than 30,000 officer corps of the armed services.

“Section 6. The State shall establish and maintain one police force, which shall be national in scope and civilian in character, to be administered and controlled by a national police commission. The authority of local executives over the police units in their jurisdiction shall be provided by law.

“Section 7. The State shall provide immediate and adequate care, benefits, and other forms of assistance to war veterans and veterans of military campaigns, their surviving spouses and orphans. Funds shall be provided therefor and due consideration shall be given them in the disposition of agricultural lands of the public domain and, in appropriate cases, in the utilization of natural resources.

“Section 8. The State shall, from time to time, review to upgrade the pensions and other benefits due to retirees of both the government and the private sectors.”

Specifically, provisions 4,5,6 and 7 are clear and very specific mandates that must be explicitly obeyed. Defense Secretary Delfin N. Lorenzana, who announced in public that he will recommend the extension of Gen. Rey Leonard Guerrero, the acting chief of staff, who is due to retire in two months time must have missed these constitutional provisions.

I have no personal antipathy toward General Guerrero, who I think is a fine officer with excellent records, but the Constitution must take precedence over other considerations.

Not only that. The practice of giving choice positions to officers and men who have been assigned in Davao must not also take precedence over merit, academic qualifications, seniority and field experiences. If not, it will continue to cause serious demoralization among career and other qualified officers in the more than 30,000 officer corps of the armed services, many of them have served with distinction, loyalty and dedication elsewhere in the country.

Besides, appointing to a choice position is not just a presidential prerogative but more so a question of principle and abiding obedience to the Constitution.

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

up five out of eight years. Maybe if the peso is down, the stock market is also down. Sorry. Both the peso and market being down has happened twice; both being stronger has also occurred two times.

The answer to the chicken or the egg may be buried in a Tibetan cave known only to the Dalai Lama or in secret Vatican files. For the financial markets, it is still a mystery.

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.

ABOUT TOWN

‘A

N investment in the future of our children” is how it’s been described by its main proponent, and, well, it’s right on the money.

We’re referring to the implementation next year of the school-based feeding program for malnourished students. A bill recently filed by Sen. Grace Poe wants an additional P2billion budget for this project.

The additional funding, she said, would address the nutritional needs of the 2.5 million “wasted and severely wasted” students, or those who are classified as very thin for their height, and those diagnosed as afflicted by chronic malnutrition. It would also be used for procurement of equipment necessary to establish new and upgrade the existing school kitchens and, likewise, equip them with adequate storage facilities.

We agree that we do need enough and proper facilities to prepare nutritious food for the millions of children under this program.

There is a huge backlog in food preparation and storage equipment in public schools—which cater mostly to children from the low-income families—which, in turn, hampers the latter’s mission to provide education and nutrition.

The Department of Education has allocated P5.3 billion in the proposed 2018 General Appropriations Act for the feeding program. In this year’s national budget, there’s an allotment of P3.9 billion to feed 1.8 million students.

The feeding program targets wasted and severely wasted Kinder to Grade 6 pupils nationwide for a total of 120 feeding days.

Various studies done by local groups and international monitors have suggested that hunger, malnutrition and stunting—referring to children who are short for their age—are still prevalent in the Philippines. This program will help poor students who go to school hungry, and who receive insufficient nutrients in their homes. This is truly an investment in the future of Filipino children through nutrition, and it’s a program worth the full support of our government and our people.

Dr. Martin Bautista recalls hardships as OFW

DR. Martin Bautista has come out in the open to prove that his brother, resigned Commission on Elections (Comelec) Chairman Andres “Andy” Bautista, did not amass hidden wealth while working in the government.

“It is no secret that my brother and his wife, Tisha, have been having marital problems for the past five years, and that she wanted out.

Upon the advice of her lawyer, she forcibly removed documents, electronic records, bank statements and personal effects from my brother’s

storage area and proceeded to weave a fantastic tale of corruption and depravity calculated to bring him to his knees and concede to all her demands,” Bautista said.

Andy Bautista had previously strongly denied his wife’s accusations. “Tisha refused to return all the files she took from my brother,” Dr. Bautista said.

“My wife and I had been investing in the Philippines since our residency years in New York in the 1990s. Sifting through all those records made me realize the tremendous amount of sacrifice and labor that my wife and I had to pay in order to achieve what we have today,” Dr. Bautista said.

“I’m sure our stor y is not unique. Why is the remittance business in the Philippines booming?

How many Filipinos who live abroad send their money to their trusted siblings to invest in real estate, condominium units, and perhaps small businesses?” he said.

“When my wife and I moved to New York in 1989 to further our training in Internal Medicine, we never forgot where we came from.

At all times, we kept in mind those people who had helped us become physicians.”

“We began remitting money in 1993, as soon as we could start saving. We sent money to Andy for investing. We left the country in search of greener pastures, more opportunities to make money, but the hope of returning home, perhaps to retire, was always a hope at the back of our minds,” he emphasized.

“There were periods when we would not see the sun for three days straight, while we worked nonstop at the height of the AIDS epidemic in New York City. We lived simply and frugally.”

Dr. Bautista and his wife helped then young lawyer Bautista with the

latter’s tuition in Harvard law school, which he paid back within a year by working as a lawyer in the US. According to Dr. Bautista, “In 1996, we moved to rural Oklahoma, as we had to render service in a medically underserved area for two years in order to comply with the requirements of our J1 visa. We still live in the house we purchased when we arrived in Guymon. I worked seven days a week during our first five years. I published my number in the phone book and was on call 24/7.”

“In four years we were able to build our own clinic, where I performed my endoscopies. Along the way, we added more facilities,” he recalled.

Since 1998, young lawyer Bautista has been the couple’s “treasurer, managing our money and making sure that all our hard work was for something worthwhile,” Dr. Bautista said.

“Our remittances and investments may look like a huge amount of money, but people should remember that this is the culmination of everything my wife and I, two doctors in the US, have worked at for the past 20 years.

He pointed out that “most Filipinos who have toiled abroad, who have encountered challenges, including loneliness, prejudice and overt racism will immediately understand this story because through all the pain and sacrifice, what sustained us was the idea we were making life easier for those we left behind.”

“Aside from us both being doctors, our OFW story is really not that different from our kababayan: we have struggled for years, away from home, hoping that our efforts turn into a better future. And that is the painful, but incontrovertible truth,” Dr. Bautista concluded.

E-mail: ernhil@yahoo.com.

Those giant pumpkins are a marvel of science

O

By Faye Flam | Bloomberg View

nce upon a time, before the development of modern plant breeding, it was only in fairy tales that a young lady could ride to a grand ball in a giant pumpkin. Now the biggest pumpkins are well able to accommodate several passengers.

(The notion of pumpkin transport was made real this year when a man from Massachusetts put an outboard motor on his homegrown giant and piloted it across Boston Harbor.)

How is this biologically or physically possible? At the opening of this decade, growers of giant pumpkins saw a 1-ton pumpkin the way runners once saw the four-minute mile.

But the ton barrier was crossed in 2012, and record pumpkins have gotten larger every year. Surely there must be some maximum pumpkin size set by the laws of physics and the biology of squashes. Can they just keep getting bigger forever?

Watch out, say some scientists.

Pumpkins could, in theory, get a lot bigger.

Zachary Lippman, a plant biologist at Cold Spring Harbor Laboratory, has grown a few giant pumpkins in his day. He’s also an expert on the emerging technology known as gene editing—a new, precise way to make custom changes in DNA. Gene editing, using a tool called CRISPR, has been in the news lately for its potential to correct genetic diseases in people, but Lippman believes that, just as with earlier forms of genetic engineering, the more immediate applications will be in agriculture.

Right now he’s working on applying CRISPR to tomatoes—tweaking genes to make them bigger, but also to make plants that are simply more prolific tomato producers. The older, more traditional form of gene editing usually involved transferring genes from one organism to another. Scientists were still reined in by what nature provided. CRISPR changed that, he said, by allowing people to alter the code letters in DNA directly and at will—like editing a Word document.

“It’s an unprecedented change in the way we approach biology and what’s possible in agriculture,”

he said. And while the technique is more versatile than earlier forms of genetic modification, it’s also much close to traditional breeding, where people simply used nature, or sometimes x-rays, to induce variation and then breed those with desirable traits.

Armed with CRISPR, someone like Lippman could be dangerous in the field of giant pumpkin growing.

He said while gene-editing technology could potentially make bigger pumpkins, he sees giant pumpkins as an illustration of the incredible power of modern conventional breeding.

A grower named Howard Dill in Nova Scotia is credited with inventing truly giant pumpkins, said Lippman. Dill grew a 438.5-pounder in 1979, and then used selective breeding to bump up the size still more. Now all giant pumpkins originate from his seeds—called Dill’s Atlantic Giant.

Over the years, the genes for enormity have been further refined —and that means not just genes that control growth, Lippman said, but others that allow the plants’ leaves to take in more energy, and the stems, more water. But to get a really big pumpkin, he said, you need to push the envelope of nurture as much as nature. Giant pumpkins need special mixes of nutrients, and hundreds of gallons of water.

But not too much water too fast.

There are tragic stories of drenching rainstorms that caused prize giant pumpkins to explode.

So, perhaps, it’s not biology but physics that will put the upper limit on pumpkin size. Giant pumpkins are, after all, contending with a crushing force of gravity. Georgia

Tech engineering professor David Hu investigated the issue a few years ago, wondering just how much a pumpkin can take.

The laws of physics determine the optimal size for plants and animals, said Hu: a phenomenon called scaling. In a famous essay published in 1928, biologist J.B.S. Haldane explained that if you scaled up a man to 60 feet tall and proportionally increased his thickness and width, he would not be able to walk without breaking a leg, because each square inch of his leg bones would have to bear 10 times as much weight as that of a correctly sized man. That’s why bigger animals and plants have to be quite sturdy—or live underwater.

What does this all mean for giant pumpkins? To find out, Hu did what many physicists do: He developed a model. He studied the shapes of 50 giant pumpkins and he also used a special vice to squeeze a bunch of ordinary pumpkins, thus simulating the pressures of being giant. He found that indeed, plus-size pumpkins can’t look nice and round like their petite counterparts. As Hu describes it in one of his scientific papers, gravity creates, “abnormally large tensile and compressive stresses on the pumpkin bottom and top, respectively.” What this means is they inevitably flatten and develop a lumpen shape, as if the mere act of existing has worn them out.

It’s not just the size but the rate of growth that produces stress, he said. Pumpkins can put on 50 pounds a day in their peak growth periods, which puts them at risk of cracking. They grow through both the expansion of cells within the pumpkin and the creation of new cells through division, he said.

Pumpkins are less prone to crack if they have the right combination of growth and division—you want the cells to divide faster at the weak points.

Beyond that, he said, the friction between the bottom of the pumpkin and the ground is so powerful that it inhibits the pumpkin from spreading out, often leading to a concave shape at the bottom. Growers, he said, sometimes put slippery vinyl under their pumpkins to reduce the coefficient of friction.

In the absence of gravity, he said, a pumpkin could grow forever, which would make a great space station experiment. How could anyone doubt the space leadership of a country that produced a recordbreaking pumpkin in zero-g? But Hu says that’s not yet necessary for pumpkins to get far bigger than the 2,600-plus-pound record holders of today. There’s nothing in the laws of physics that say you can’t, in theory, get to 20,000 pounds—well big enough to ferry a whole town to the ball.

Global Eye BusinessMirror

A10 Tuesday, October 31, 2017 • Editor: Angel R. Calso

www.businessmirror.com.ph

Tough China central bank rules to trigger sell-off in corporate bonds on leverage focus

I

nvestors in Chinese company bonds have so far avoided the brunt of a debt sell-off that’s driven 10-year sovereign yields to the highest in three years. Their luck may be about to run out.

Now that the Communist Party congress is over, China’s bond holders may be about to get hit by “daggers falling from the sky,” Huachuang Securities Co. said, referring to aggressive deleveraging policies. Plus, accelerating inflation and the risk that China’s central bank may follow the Federal Reserve (the Fed) in raising borrowing costs are casting a shadow over the entire bond market.

That all means that the situation that’s existed for most of 2017—sovereign yields rising, and corporate debt remaining relatively resilient—is at risk of cracking.

As appetite for bonds of any kind dwindles and authorities roll out measures that target higher-risk investments, company securities are in the line of fire.

“It’s very likely we will see a significant increase in corporate yields in the coming year,” said David Qu, a market economist at Australia & New Zealand Banking Group Ltd. in Shanghai. “The trigger could be tougher regulations or a default. A majority of nonbank financial institutions’ debt holdings are corporate bonds, so their sell-off can lead to severe consequences. Banks are underestimating authorities’ intentions to tighten regulations.”

Signs of a turnaround are already beginning to show, with the yield on three-year “AAA” notes— the most common grading for Chinese corporate debt—rising 21 basis points this month to the highest level since early-June. The spread between those notes and

government debt has climbed in October and was last at 116 basis points, though it’s still a long way from this year’s peak of 150 basis points in April.

Losses accelerated earlier this month after People’s Bank of China (PBOC) Governor Zhou Xiaochuan voiced concern about high borrowing levels and signaled that growth could beat expectations. If concerns on regulation intensify and risks of a debt-repayment failure appear, the market may go through a major correction in the near term, Huachuang analysts, including Qu Qing, wrote in a note last week. China’s benchmark 10-year government bond extended a slump on Monday, pushing the yield up by six basis points to 3.9 percent, the highest since October 2014. The cost on five-year notes jumped nine basis points to 3.97 percent.

Rate risk

The PBOC may boost borrowing costs in open-market operations before or after a potential Fed rate increase at the end of the year, said Ming Ming, head of fixedincome research at Citic Securities Co., China’s biggest brokerage. He added the government could roll out more deleveraging measures

by the end of this year.

Previous parts of the campaign have included a spotlight on entrusted investments—funds that Chinese banks farm out to external asset managers—which are big investors in corporate bonds.

Authorities have also attempted to discourage the proliferation of wealth-management products, and

added curbs on what money market funds can buy. The Shanghai Securities Times cited Ji Zhihong, head of the PBOC’s financial market department, as saying that the nation will further boost oversight of Internet finance misbehavior and guard against systemic financial risks.

“The deleveraging campaign

hasn’t even gone half way, and the risk of banks redeeming entrusted funds could surface at the end of this year,” said Qin Han, chief bond analyst at Guotai Junan Securities Co. in Shanghai. “The chance of a selloff in corporate bonds is increasing, which will result in a widening of their yield premium over sovereign notes.” Bloomberg News

Investors play on Opec as Saudi prince ups the ante Australian banks get slap on the wrist

for attempts to break securities laws

By Jessica Summers Bloomberg

T

he Organization of Petroleum Exporting Countries (Opec) trade is back, and Saudi Arabia is in the driver’s seat.

Just before the de facto Opec leader doubled down on its plan to drain the oil glut, propelling Brent crude prices beyond $60 a barrel for the first time since 2015, hedge funds were almost as bullish on the global benchmark as they’ve ever been. Short sellers retreated to levels last seen in February, when Opec production cuts were fueling an oilprice surge.

Saudi Crown Prince Mohammed bin Salman said in an interview with Bloomberg that “of course” he wanted to prolong the Opec’s outputreduction deal into 2018. That was after Russia’s President Vladimir Putin said an extension should run through at least the end of next year.

With the leaders of the world’s two biggest oil-exporting countries on board, an agreement is all but certain at a meeting in Vienna next month.

“We have evidence that people are positioned long into Opec in November. The consensus trade on the street is that they’ll extend cuts,” Chris Kettenmann, chief energy strategist at Macro Risk Advisors Llc., said in an interview in New York. Prince Salman showing support has led to more seriousness around a potential extension of cuts and “it makes it very hard to be aggressively short.”

The fundamentals are looking brighter, too. United States crude inventories are near the lowest levels since January 2016. Saudi Arabia’s minister of energy and industry, Khalid Al-Falih, said oil demand is more resilient than people think, and Statoil ASA’s CEO Eldar Saetre said the oil market is “definitely balancing.” There’s a stronger belief that the “supply-demand setup has turned the corner, particularly with the push by the Saudis to keep the deal going and to drain global inventories,” John Kilduff, a partner at Again Capital Llc., a New York-based hedge fund, said in a telephone interview. “It’s worth betting that prices will go higher.”

Things started going south in the oil market in March as concern over rising US stockpiles overshadowed confidence in Opec’s efforts. Hedge

By David Fickling Bloomberg

I

fund bets and rising futures indicate that the confidence is coming back.

Hedge funds boosted their Brent net-long position—the difference between bets on a price increase and wagers on a drop—by 2.6 percent to 506,737 contracts in the week ended October 24, according to data from ICE Futures Europe. That’s close to a record at the end of September and the previous high in February. Longs increased by 1.5 percent, while shorts slid 6.6 percent to the lowest since February. The WTI net-long position rose by 7.2 percent to 234,878 futures and options, the first increase in four weeks, the CFTC data showed.

Shorts fell 4.2 percent, while longs rose 2.7 percent to the highest level since April.

In the fuel market, money managers boosted their net-long position on benchmark US gasoline by 11 percent, with long positions rising to the highest level in more than three years. Meanwhile, the net-bullish position on diesel increased 0.8 percent.

Front-month Brent contracts have been trading at a premium to later-dated contracts, a market structure known as backwardation that indicates strong demand and

tight supplies. This is a shift away from contango, typical of a glut, that had loomed over the market for the past two years. WTI is also in backwardation in some areas of the futures curve.

“People are starting to think that the global inventory situation is better than they thought,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone.

“The contango is getting very small, which suggests the markets perceive we’re a lot closer to being rebalanced than people had thought earlier.”

Yet, optimism around surging oil prices comes with risks. US crude output remains above 9.5 million barrels a day and rose by the most since 2012 in the week ended October 20.

“My concern is what happens now that we’re getting to these pricehighs where we’ve typically seen a supply response,” Rob Haworth, who helps oversee $142 billion in assets at US Bank Wealth Management in Seattle, said by telephone.

“Fundamentally, you should see a supply response and that’s going to make it tougher for these bulls to hang in there.”

F a tree falls in the forest and no one’s around, does it make a sound? If a bank tries to manipulate an interest-rate benchmark and gets off with a slap on the wrist, does it make a difference?

The question is worth asking because the Australian Securities and Investments Commission (Asic), seems to be moving toward just such a deal with banks accused of attempting to rig the bank bill swap rate, the country’s homebrew answer to Libor.

A preliminary settlement with National Australia Bank (NAB) Ltd. was reached late Friday, under which the bank will pay A$50 million ($38 million) over 12 attempts to break the country’s securities laws.

Australia & New Zealand Banking Group Ltd. (ANZ) will also settle, a court said on Monday, with final approval of the agreement set for next month. Only A$10 million of NAB’s sum is a penalty; the rest consists of the bank paying Asic’s costs and a A$20-million donation to a consumer-protection fund. The spare 0.2-percent gain in NAB’s shares on Monday, trailing the broader S&P/ ASX 200 index, suggests investors weren’t seriously contemplating anything more punitive.

One thing that’s notable about NAB’s settlement is what it doesn’t claim. The lender isn’t admitting to complaints by Asic of misleading or deceptive conduct and creation of artificial market prices. The only admissions are of breaches of the bank’s financial-services license and an attempt to “engage in unconscionable conduct”—a notoriously hard-to-prove standard which has, for instance, protected a casino in a case where it had offered rebates and the use of a private jet to a problem gambler who went on to lose A$20.5 million at its tables.

The shape of this agreement is oddly reminiscent of the Australian Financial Review’s prediction last week that ANZ was seeking a settlement designed to limit the risk of lawsuits from customers.

While the details of the settlement will emerge in time, we do know that the banks were reluctant to admit guilt because it opened

them up to class actions at the hands of affected customers.

So it’s safe to assume that the agreement is structured to limit the prospect that ANZ, and the other banks should they settle, will go straight from one courtroom to another. In other words: In return for paying out some pocket change, the lenders want a settlement that won’t mess up their defense against other litigants—a matter that really shouldn’t be any concern of the regulator. The contrast with the Libor scandal couldn’t be more stark: While that case was more egregious, involving collusion between financial institutions that isn’t being alleged in the Australian situation, the investigations into Libor resulted in $9 billion of fines, without any side-deals being offered on third-party lawsuits.

The lighter touch in Australia has been good for the country’s banks. The value of legal settlements against them since the start of 2009 is equivalent to just 0.3 percent of net income, according to data compiled by Bloomberg, compared with 16 percent at United States banks, 45 percent in the United Kingdom and even higher relative figures in Germany and Italy. Among wealthy countries, only lenders in Canada and Japan got off more lightly.

Asic isn’t alone in donning velvet gloves. One of the less-remarked-on aspects of the case against Commonwealth Bank of Australia brought by Austrac, the money-laundering regulator, in August is that almost two years elapsed between the agency first discovering some of the main alleged activity and a case being brought to court.

To some extent, Asic’s hands are tied. Its powers of enforcement are weak: The maximum penalty it’s allowed to levy in civil cases for violations of Australia’s Corporations Act is just A$1 million, and the costs of bringing suits through the courts can be substantial, giving the agency a strong incentive to settle for whatever it can get.

A government report last week concluded that the regulator should instead be allowed to demand fines equivalent to 10 percent of annual revenue, or three times the benefits obtained by the misconduct.

The change can’t come soon enough for Asic, for the public and for the banks themselves. In the absence of regulators with the power to keep the financial industry’s lawn trimmed, a host of populist weeds have grown up instead: The federal opposition calls for a high-level inquiry into the banking system. The government resists those calls, but puts executives in the stocks at periodic parliamentary hearings instead.

A federal levy is imposed on the banks’ balance sheets in the worthwhile cause of financial stability, but the money is put into the government’s general revenues rather than a resolution fund. Cash-strapped state governments start proposing their own levies. It’s a mess.

Bank executives and shareholders may fear the prospect of a beefed-up regulator, but they have much more to gain than to lose. In a competitive market, lenders need strong rules to help them resist the temptation to take advantage. When the penalties for misconduct are weak, it’s probity that ends up being punished.

Global Eye BusinessMirror

www.businessmirror.com.ph

Azerbaijan eyes 826-km railway planned as new Europe-China corridor

By Zulfugar Agayev Bloomberg

A

zerbaijan is opening a long-delayed railway intended to cut transport times for goods between Asia and Europe.

President Ilham Aliyev is due to host Turkish counterpart Recep Tay yip Erdogan and Georgian leader Giorgi Margvelashvili at a ceremony on Monday for the departure of the first train from the Caspian Sea port of Alat, south of the Azeri capital, Baku. The event, which Kazakh President Nursultan Nazarbayev is also expected to attend, marks the conclusion of a 10-year project to open a rail corridor linking central Asia and Europe through the Caucasus region.

The 826-kilometer (513 miles) railway from Baku to the Georgian capital, Tbilisi, and the Turkish city of Kars may deliver cargo between China and Europe in 12 to 15 days, making it a competitive alternative to existing routes that go via Russia or Iran, and much faster than sea freight, according to the Azeri government. The port at Alat, which Azerbaijan says is the largest in the Caspian Sea region, was built to provide connections to central Asia.

As much as 8 million tons of cargo may be carried on the Baku-TbilisiKars railway by 2025, according to the Azeri government. Passenger services are also planned to start along the route next year, including sleeper-car services between Baku and Istanbul.

The project, initially scheduled for completion in 2010 and then in 2012, suffered repeated delays as construction costs mounted. It failed to win

financial backing from the United States and the European Union (EU) because the railway deliberately avoided passing through Armenia, whose Soviet-era track would have offered the most direct route to Turkey. Azerbaijan and Armenia are in an unresolved conflict over the territory of Nagorno-Karabakh. Turkey closed its border with Armenia in 1993 in support of Azerbaijan as the two former Soviet neighbors fought a war over the disputed territory.

Missing piece of global growth jigsaw starts to fall into place

‘Grand adventure’

Azerbaijan has invested $640 million from its sovereign wealth fund into upgrading existing track on its section of the line, and helping Georgia to modernize 153 kms of railway to the Turkish border. Turkey built a new 76-km section of rail from Kars to the Georgian border.

“Asia and Europe will meet in this grand adventure through the Baku-Tbilisi-Kars railway project,” Georgian Prime Minister Giorgi Kvirikashvili said in a speech to the United Nations General Assembly in September. The railway and Georgian plans for a deep-water port at Anaklia on the Black Sea coast will help promote “a more prosperous and peaceful region,” he said.

While the new line offers a shorter route for transporting Chinese goods to Europe by rail, “the competition is really tough,” said Akif Mustafayev, permanent representative in Azerbaijan of the intergovernmental commission of TRACECA, an EU-backed transport program. Azerbaijan and other countries on the route will have to offer lower tariffs and simplified customs procedures to win business and avoid delays, he said.

ON this file photo, a vendor shows off his goods on a street in downtown Baku, Azerbaijan.

Bloomberg News

Tuesday, October 31, 2017 A11

A

By Enda Curran | Bloomberg

missing piece in the global growth jigsaw appears to be falling into place. Spurred by higher profits and buoyant stock markets, some of the world’s best-known companies from Amazon.com Inc. to Volkswagen AG are ramping up spending on new plants and equipment after years of caution. For an international economic expansion already gathering speed, that could prove a boon.

The thinking is that capital investment, or capex, will stoke not just demand but, ultimately, higher wages and inflation. That’s a positive for central banks and governments yearning to see profits trickle into workers’ pockets. Employers have been reluctant to spend even amid an economic upswing spanning 75 percent of the globe.

“Capex is definitely picking up,” said Chetan Ahya, cohead of global economics at Morgan Stanley in Hong Kong. “This is a very important part of the global growth story.”

A new tracker of business spending by economists at JPMorgan Chase & Co. underpins such confidence. It points to capex growth running at a pace of around 8 percent.

While the picture varies from country to country, there’s enough evidence that spending is improving. US orders for business investment, for example, increased by more than expected in September, and the economy’s 3-percent spurt of the third quarter was aided by a 1.5-percent climb in business fixed investment.

“The pickup in business investment is like a fountain of youth for an aging recovery,” said Jim Paulsen, chief investment strategist at Leuthold Group Llc. in Minneapolis.

“US companies have an incredible amount of dry powder right now.”

Green shoots

For investors, the “green shoots” of greater business spending should prompt a better performance from United States industrial stocks and higher yields on 10-year Treasury notes, analysts at Pavilion Global Markets told clients in a recent report. Amazon is spreading its international reach with operations in India, Australia and Latin America.

It also has invited US states and local governments to submit proposals for a new headquarters that will cost $5 billion and create 50,000 jobs over the next 15 to 17 years.

Caterpillar Inc., the largest maker of construction and mining equipment, raised its sales and earnings forecasts, citing increased demand across markets. “We are seeing broadbased sales increases across a number of industries in all regions,” CEO James Umpleby said on a conference call. It’s not just the big names. The Pavilion analysts calculate capital spending by smaller US companies in the Russell 2000 index rose 33 percent this year through Wednesday.

‘Real change’

“Small business owners are

definitely spending more on equipment,” said Mark Vitner, senior economist at Wells Fargo Securities Llc. in Charlotte, North Carolina.

“This marks a real change and partly reflects the improved regulatory environment, which is seeing less new regulation coming on line.”

In Japan core machinery orders, which are a leading indicator for future capex, rose in both July and August from a month earlier, after dropping in April through June. Auto giant Mitsubishi Motor Corp. plans to boost annual research expenses by 50 percent to ¥133 billion ($1.2 billion) in three years, while others, including Toshiba Corp. and Toyota Motor Corp., are also spending. In the euro area, a September survey of 600 companies by UBS Group AG found capex set to jump for the first time in two years. Volkswagen is investing €1.4 billion ($1.6 billion) in new technology for commercial vehicles including electric drive trains and autonomous systems.

Meantime, China’s industrial profits jumped the most since 2011, underscoring the resilience of the world’s second-biggest economy.

Electric vehicles are tipped to drive an investment surge.

Tesla Inc. is in talks with the Shanghai Government about setting up a factory, according to a Commerce Ministry spokesman. And China’s plan to build a new silk road trading route, known as the Belt and Road Initiative, is expected to create more than $1 trillion of investment on rail, highways and ports linking Europe and Asia.

For sure, rising capex won’t solve all the world economy’s challenges.

Along with weak productivity and low inflation, worries include geopolitical risks and simmering trade tensions. The International Monetary Fund this month lifted its 2017 global growth forecast to 3.6 percent but cautioned the recovery is far from complete.

Still, Tim Graf, head of EMEA macro strategy at State Street, predicts companies will be jolted into action by the pending removal of monetary stimulus across the world.

“The impetus will be to improve investment spending, simply because the cost of financing is likely, at the margin, to go up,” Graf told Bloomberg Television. “We’re exiting the era of ultralow policy rates, ultralow long-term real interest rates, and what tends to typically happen is companies try to get ahead of that.”

Investor appetite surges for metals as world economic engine fires up

By Jack Farchy & Mark Burton Bloomberg

G

lobal growth is on a tear, and that can only be positive for metals prices.

That’s the message coming from the industry ahead of LME Week. For the first time in years, optimism is widespread among traders, smelters, miners and brokers gathering in London, buoyed by a combination of strong growth across the world’s key demand centers, supply curbs in China and a return of investor interest.

“The global economy looks much better than it has done probably since the crisis, maybe before that,” said Saad Rahim, chief economist at Trafigura Group Pte., the secondlargest metals trader. “I’m pretty bullish.” The upbeat mood shows how much has changed in two years, when the commodities collapse brought the titans of mining to their knees.

In September 2015 Glencore Plc. was forced to raise money when its stock was cratering, an effort to sooth investors frightened by a staggering debt load. Now, the mining giant has regained its swagger, reaping profits and inking deals worth billions

for natural resource assets around the world.

Industrial metals have rallied sharply since the middle of the year. Copper is approaching $7,000 a metric ton, zinc topped a decade high and aluminum has jumped almost 30 percent this year. With that backdrop, macro hedge funds—once major players on the London Metal Exchange—are beginning to look again at metals markets, according to brokers.

Metals demand

“Investor appetite has been increasing for metals since late summer,” said Sid Tipples, cohead of metals at JPMorgan Chase & Co. Volumes on the LME have picked up, hitting the highest level since 2015 in September. Matthew Chamberlain, chief executive of the exchange, suggested there’s further room for growth.

“Before the funds are actually in the markets, they’re working out the best entry strategy and getting ready, and that certainly seems to be the mood music in the market,” he said in an interview.

For the first time in years, the outlook for global metals demand

Industrial metals have rallied sharply since the middle of the year. BLOOMBERG

doesn’t hinge solely on China. Manufacturing in the euro area is growing at its fastest pace since at least 2014.

This month the International Monetary Fund upgraded its growth outlook for the United States, the euro area, Japan and China, and said the global economy’s performing at its best pace in the last 10 years.

Metals demand in Europe is picking up on the back of rising demand from the construction and automotive sectors. Codelco,

the world’s largest copper producer, raised the premium it charges to deliver metal to European customers for the first time in four years. Forecasters including Bank of China International see further gains for base metals in a period of synchronized global growth.

“The economic outlook is stronger than it has been for a while across the major economies with more consistent growth in Europe, the US and China,” Tipples said.

While strong global demand is underpinning the optimism, supply issues are also creating pockets of tightness. Glencore’s output cuts helped fuel the zinc rally, and Chinese capacity cutbacks have spurred higher aluminum prices.

The supply issues are being felt in corners of the physical metals industry that are largely inaccessible to financial speculators.

For example, the price of alumina, used to make aluminum, has jumped 56 percent since August, according to data from consultancy CRU Group, amid Chinese production cuts that fueled a wave of buying by aluminum smelters.

Lead ore-treatment charges, which miners pay smelters to convert the ore to metal, are moving negative. Cargoes of lead concentrates have changed hands at treatment charges of minus $40 a metric ton, traders said, an unusual situation that implies traders are paying more for lead ore than the value of the metal.

On the LME, overall inventories are being drawn down. Stocks of metal in the exchange’s warehousing system have dropped to the lowest since 2008.

“We’ve seen inventory draws across the board on the LME, and the underlying demand picture would suggest those draws are real,” said Ingrid Sternby, senior research analyst at Blenheim Capital Management Llp., a commodities hedge fund in London. “The market now is at a point where fundamentals are playing a more important role.”

Still, global growth can’t continue at a fast pace forever, said Mark Hansen, chief executive of mid-sized metals trader Concord Resources Ltd. “I’m concerned we have got into this zone where people think everything is just going to get better and better,” he said. “China has just done its party congress. We’ve probably reached peak credit creation for this cycle in China.”

He warned that miners could respond to the recent rally by adding new production, especially in zinc, where prices are trading far above the cost of production.

“Two years ago, things were pretty dreadful for the mining industry.

Things are pretty good now. The supply discipline that kicked this rally off can dissipate in the next six to 12 months,” he said.