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Greed and wrong economic policies
Rev. Fr. Antonio Cecilio T. Pascual
SERVANT LEADER
database Second part
T
O deal with the worsening energy situation, Congress, despite strong opposition, passed into law Republic Act (RA) 7648, or the Electric Power Crisis Act of 1993 (EPCA) empowering then-President Fidel V. Ramos with emergency powers to enter into negotiated contracts with independent power producers (IPPs). Subsequently, Congress complemented EPCA with RA 7718, or the expanded build-operate-transfer (BOT) law, granting the private sector a broad range of investment incentives. Between them and Gloria Macapagal-Arroyo, a total of 46 IPP contracts were signed with the National Power Corp. (Napocor) playing the lead role for the government’s overall power project. Before the end of Ramos’s term, however, Napocor gradually went down into bankruptcy; its liabilities grew as income declined over the years, while the ratio of loans to capital expenditures consistently increased. In terms of debt-to-equity ratio, Napocor had become increasingly dependent on debt, registering from 60-40 in 1993 and 82 in 1997. According to the Bureau of the Treasury and the Freedom from Debt Coalition (FDC), obligations to the IPPs rose to P244 billion from only P35 billion in 1995, while long-term debt had risen to P441 billion in 1997. By June 2003, Napocor had $7 billion worth of debt to its name. These debts do not include the $250-million bond partly backed by the Overseas Private Investment Corp. (around $500 million of $7 billion had matured toward the end of 2003) and other sovereign contingent guarantees. Napocor obligations as of mid2004 reached more than P1 trillion, P700 billion of which is due the IPPs. Napocor’s financial obligations represented at one time more than one-fifth of the P5.39-trillion national debt. Earlier, a government study commissioned by the Credit Suisse First Boston and Arthur Andersen estimated Napocor’s net liabilities from obligations to the IPPs at a staggering range of between $6.1 billion and $6.77 billion. Worse, these liabilities and obligations continued to grow. The heavy financial losses, the huge capital requirement for upgrading power facilities and so-called inefficiencies of the public sector eventually became the government’s major reasons for pushing the passage of the emergency-power law. More compelling reasons, however, lay in new loans dangled by international financial institutions (IFIs), the approval of which depended on the enactment of the proposed measure, the FDC said. The emergency-power bill met sustained opposition from people’s organizations, led by Sen. Juan Ponce Enrile and the FDC, who vigorously exposed some of the onerous contracts and the many threats they posed to consumers’ interests. In reaction, the International Monetary Fund (IMF) intervened. In a letter addressed to the Lower House Committee on Energy, Marcos Rodlauer, IMF’s chief mission officer, called for the immediate passage of the emergency-power law, stressing the importance of “investor confidence and the adherence to international financing institutions’ conditionality.” The letter further noted: “We are disappointed to learn that the ‘Electricity Reform Bill’ which you have sponsored appears to have run into some further delays in passing through the House of Congress. As you are aware, the program supported by the IMF expected passage of this bill before the end of the year which already represented a significant delay from earlier schedules.” The IMF pressure was part of its Precautionary Standby Arrangement for the Philippines worth $1.4 billion for the year 1998-1999. The IMF had
included the privatization of Napocor as part of its “exit program” prescription for the Philippines. According to the FDC, the policies of the IMF, the World Bank and the Asian Development Bank toward power-sector reform stemmed from the perspective that developing countries need energy for social and economic development. Today, their primary focus is on rural electric cooperatives (RECs), allocating almost $201.3 million thus far. Other energy projects in the Philippines with World Bank loans amounted to $1.5 billion, including $65.5 million in loan extended to the country’s biggest distribution company, the Manila Electric Co. The World Bank’s other lending window, the Global Environment Project, financed some $442 million in different Philippine power projects. These projects carried sovereign guarantees. Another indicator of significant IFIs’ involvement in power privatization was the role of the ADB, whose biggest lending in the Philippines goes also to the power sector. The bank’s investments are designed to create a competitive market in the electricity sector through the privatization of Napocor and the restructuring of the entire sector. Six months after assuming office, President Arroyo hastily enacted a new version of the reform, the Electric Power Industry Reform Act. After its approval, the ADB and other funding agencies recommended changes in the law, stipulating that the changes are a precondition to loan approval and disbursement. These changes included an unbundling process of Napocor’s power plants into several groups. For instance, transmission has been transferred to the newly formed National Transmission Corp. Heated controversy surrounded the issue of Napocor’s stranded costs. In 1995 the lease obligation to IPPs only amounted to P35 billion; by 2002, the amount had reached P700 billion. In large part, the government’s contractual obligation to the IPPs, whose revenues it guaranteed regardless of whether the contracted electricity was actually generated or used, caused the huge increase. Moreover, the government continued to forge 25-year contracts with IPPs even as the country was already experiencing power oversupply in the late 1990s. Privatizing the transmission asset is a key element in the power privatization program. However, the Power Sector Assets and Liabilities Management Corp. has already failed many times to bid out Napocor’s transmission assets. It recently announced plans to enter into negotiation with lone bidder Singapore Power. In 2002 the ADB awarded the Philippine government $40 million of $105 million Electricity Market and Transmission Development project outlay. The ADB further extended its support to the power-sector restructuring program by guaranteeing ¥61.8 billion. This increases the total financial assistance to the power-sector reform program to more than $1 billion (ADB, 2003). To be continued
To reach the writer, e-mail cecilio. arillo@gmail.com
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Buying is the new way of giving in Caritas Margins expo
(A historical perspective)
Cecilio T. Arillo
Saturday, September 19, 2015
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n its third consecutive year, Caritas Manila will hold its Social Enterprise Expo “Buy and Give Expo 3” this September 23 to 25 in the Activity Center of TriNoma Mall in Quezon City.
The expo will launch Caritas Margins as the social brand to help end poverty. Caritas Margins provides skills and training to the urban poor communities and marginalized sector, as well as honing them to become social entrepreneurs. It upholds each person’s dignity through the spirituality of work, the building of a culture of self-reliance and community empowerment, and inculcating the discipline of entrepreneurship and financial literacy. The three-day Expo will showcase various Caritas Margins products from different marginalized community partners, ranging from food, home and ladies accessories, personal-care products, artwork from resident inmates of penal communities cared by Caritas Restorative Justice Ministry, and other gift items and décors. The opening and ribbon-cutting ceremony will be led by His Excellency Most Rev. Rolando J. Tria Tirona, DD, chairman of Episcopal Commission on Social Justice and Peace, and Archbishop of Archdio-
cese of Caceres with special friends Julius and Tintin Babao (TV personalities and Caritas Manila donors), Mayor Herbert Bautista of Quezon City, and Ambassador Leonida Vera (trustee of Caritas Manila). Tintin Babao, a mompreneur, will likewise be giving an inspirational message on entrepreneurship, and will, likewise, be donating copies of her children’s books and some of their family’s personal items for the Expo fund-raising. Other celebrities who have donated their personal items for this event are Chris Tiu, Caritas Manila Youth ambassador, and his teammates in Rain or Shine PBA team; celebrity couple Marian Rivera and Dingdong Dantes; Senators Nene and Koko Pimentel; Senators Bam Aquino, Loren Legarda and Nancy Binay; Charo Santos-Concio; Cherie Gil; Richard Yap; Aiza Seguerra and many more. Get the chance to own your beloved celebrity’s personal items for a special cause! Celebration of the Holy Mass and Healing will be held every afternoon,
with guest priests Rev. Fr. Jerry Orbos, SVD, and Rev. Fr. Ferdinand Hernando, MB. Come, shop and help, and enjoy variety shows with featured performing artists, Caritas Manila Youth Servant Leadership and Education Program (YSLEP) scholars, and Caritas Margins product demonstration. Buy and Give Expo 3 not only supports the livelihood of micro-entrepreneurs, but, likewise, helps send youth to college through Caritas Manila’s flagship program, YSLEP. To date, Caritas Manila supports over 900 micro-entrepreneurs and more than 5,000 youth scholars nationwide. Caritas Margins is one of the social-entrepreneurship programs of Caritas Manila, the Archdiocese of Manila’s lead social services and development ministry. It is a disaster-risk reduction and management program (DRRMP) that allows for quick-response relief operation and effective crisis intervention. Apart from Caritas Margins, Caritas Manila runs diverse projects that help the poor fulfill their human potential, such as YSLEP, All is Well Health Program, Restorative Justice Ministry, Caritas Damayan and Segunda Mana. Meanwhile, to keep the “Pope Francis fever” alive among Filipinos, Radio Veritas, the No. 1 faith-based AM radio in the Philippines, together with Pioneer Films and SM Cinema, held a special screening of Papa Francisco: The Pope Francis Story on September 17 at SM Megamall Cinema 3. The film on the life of the current
Supreme Pontiff and Successor of Saint Peter, told from the point of view of a young Spanish journalist named Ana, is based on a book titled Pope Francis: Life and Revolution written by world-renowned journalist and Vatican correspondent Elisabetta Pique. According to Rev. Fr. Anton C.T. Pascual, president of Radio Veritas, the showing of the film in local cinemas is a way to keep the fervor and goodwill of the recent visit of Pope Francis and his message of mercy and compassion imprinted in the hearts and minds of Filipino Catholics. The film stars Dario Grandinetti, who won an International Emmy Award for Best Actor in 2012, as Pope Francis, and Silvia Abascal, Malaga Spanish Film Festival 2006 Best Actress, as Ana. It is directed by award-winning director-writer Beda Docampo Feijoo. Regular screenings of Papa Francisco: the Pope Francis Story will be on September 30 on SM Cinemas nationwide. We will continue with our series on Laudato Si next week. To know more about Caritas Margins and other programs of Caritas Manila, visit www.caritasmanila.org. ph. For your donations, please call our DonorCare lines 563-9311, 564-0205, 0999-7943455, 0905-4285001 and 0929-8343857. Make it a habit to listen to Radio Veritas 846 in the AM band, or through live streaming at www.veritas846.ph. For comments, e-mail veritas846pr@ gmail.com.
Alibaba’s wipeout leaves investors questioning what comes next
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By Lulu Yilun Chen | Bloomberg View
libaba Group Holding Ltd. looked like a sure thing a year ago when it pulled off the largest initial public offering (IPO) ever. It had a lock on China e-commerce as the economy was surging and consumer spending was steadily rising. Shares soared 76 percent from the IPO price in just two months. Then it all crumbled. Alibaba came under fire from a China government agency, it cut deals that baffled investors and it replaced its chief executive as growth slowed. Most important, China’s economy turned wobbly, jeopardizing the rise in consumer spending Alibaba needed. Its stock slid down, down, down to the IPO price and then below. The sure thing was no such thing. W hat now? Investors who watched $128 billion in market value disappear shouldn’t expect a reprieve any time soon. Atlantic Equities Llp.’s James Cordwell, the top-ranked analyst covering the stock, predicts the slowing Chinese economy will undercut e-commerce transaction growth until at least 2016. The many deals Alibaba has negotiated will take time to pay off too. “All the operating metrics seem to be pointing in the wrong direction,” said London-based Cordwell, who topped Bloomberg Absolute Return rankings for his calls on Alibaba and also recommendations across the portfolio he covers. “Until investors feel some comfort in that slowdown bottoming out, it will be hard for the stock.”
Deal spree
Jack Ma, Alibaba’s chairman and cofounder, isn’t known for
coddling investors. In a letter with the IPO filing, he said explicitly shareholders would be the third priority after customers and employees. He and his partners didn’t want short-term market volatility to distract from building a successful business for the long term. Indeed, many of Alibaba’s troubles derive from a domestic economy over which it has no control. While conceding some missteps in its first year, Alibaba isn’t one for introspection. “We don’t think about events backward looking, we try to look forward,” Vice Chairman Joseph Tsai said in an interview. “We have made our mistakes and we learned from them.” The Hangzhou-based company is trying to push beyond China and e-commerce, announcing $15 billion of deals. Many of the investments make clear strategic sense, but others have been harder to rationalize, like the stakes in a Guangzhou soccer team, a minor player in Chinese smartphones and an unprofitable entertainment studio.
Come together
“Its investment strategy does sometimes seem befuddling,” said Li Muzhi, a Hong Kong-based analyst at Arete Research Service Llp., who
rated Alibaba a D for wealth creation in his one-year report card on the stock. “When its core business was doing fine all these investments for future development were option values, but with the slowdown they make less sense.” Ma and his partners do have a vision for how all this comes together in the next decade. The aim is for Alibaba to evolve beyond commerce into content like movies and sports, to provide payment systems for its own trade and for others and to get technology, like its homegrown operating system and its cloud-computing service, used more broadly. The billionaire is also counting on new investments to help connect information on the Web to consumers in the real world. The idea, known in the technology industry as O2O for online-to-offline, is to let people tap their smartphones to get almost anything they want, from groceries or dinner to a TV or a car wash. To make this a reality, Alibaba has invested in a department store chain, an electronics retailer and the ridehailing service Didi Kuaidi.
Government dispute
The deals may ultimately make sense, but they aren’t adding to earnings yet and the company hasn’t said when they will. “If the e-commerce business was growing really well, then investors wouldn’t worry at all about all these investments that Alibaba’s making,” Cordwell said. Along with disputes with China over counterfeits, the company has had to deal with media criticism. Barron’s magazine this month
The Fed tests the market’s patience
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arely has the policy announcement of a central bank commanded such close attention. For weeks, investors and analysts have been talking about little else but whether the US Federal Reserve (the Fed) would raise interest rates this week, or wait awhile longer. On Thursday it gave its answer: not quite yet. In one sense, the decision matters less than the fever of anticipation would suggest. The precise timing of a small rise in interest rates—this month, next month or soon after that—is no big deal. More important is the longer-term schedule of interest-rate changes as monetary policy gets back to normal, and whether the Fed explains itself clearly as this process unfolds.
The case for a first rise this month was finely balanced. The economy continues to strengthen, if slowly, and spare capacity is gradually declining. In August the unemployment rate fell to 5.1 percent. A year ago, that would have been seen as “full employment”—the point at which the demand for workers starts to push wages up, with prices of goods and services right behind. In addition, the Fed has to take account of lags in monetary policy. If it waits until inflation is moving briskly toward its 2-percent target before acting, it will be too late to stop an overshoot. It would also have to raise rates more abruptly, causing greater turmoil in financial markets. As Fed Chairman Janet Yellen said during her news conference, a certain amount
of anticipation is necessary. And there is this: The financial world is hungry for leadership, and a dysfunctional Congress has failed to provide it. The central bank needs to be in command —and be seen to be in command. Any suspicion that it’s dithering is dangerous. The Fed was not without reason to stay the course. The recent stock-market corrections have reduced demand: They amount to a financial tightening in their own right. Consumer confidence, a good indicator of future demand, has fallen. Dig deeper into the unemployment figures and there’s a bit more slack than the headline rate suggests. That’s why there’s little sign yet of mounting wage pressure. Core inflation is still below target, and
predicted the stock could tank another 50 percent. Alibaba said the report was based on incorrect calculations, contained factual inaccuracies and selectively used information. John Choi, an analyst at Daiwa Capital Markets, says that despite the bad press and unfavorable economy, the fundamentals of Alibaba remain positive with e-commerce still growing. “It’s really about the sentiment right now, the sentiment on China is so negative right now,” said Choi, who has a buy rating on the stock. “E-commerce is one of the very few verticals that is still delivering decent growth in the overall Internet sector.”
Bullish analysts
Other analysts haven’t given up on Alibaba either. Of the 52 tracked by Bloomberg, 44 rate the stock a buy with just two recommending investors sell. Shareholders haven’t been so bullish. Billionaires Daniel Loeb and George Soros have sold all or most of their holdings in Alibaba, as have funds run by protégés of Julian Robertson, the so-called Tiger cubs. In addition, bearish bets on the stock have risen, with short interest rising to a record. Atlantic’s Cordwell, who has a neutral rating, sees light at the end of the tunnel, with the company ultimately emerging stronger. “There’s going to be another two to three tough quarters for the company,” he said. The current challenge “is making Alibaba a better company for the next 10 years.”
expectations of inflation are also low. For nine of the Federal Open Market Committee’s members (Jeffrey Lacker of the Richmond Fed dissented), a further delay was warranted. Most of the policymakers, though, still expect rates to lift off before the end of this year. Yellen explained that the decision will continue to depend on the data. And that’s the real problem: Which data, exactly? The confusion that preceded this meeting doesn’t speak well of the Fed’s forward guidance. The longer the economy stays at the so-called zero lower bound, even as output and employment continue to expand, the more potential there is for confusion—and the greater the risk on that account to financial stability. Patience has its limits. Bloomberg News