W E D N E S D AY: M AY 1 3 , 2 0 1 5
OPINION lettertotheeditor@thestandard.com.ph
BABY STEPS TOWARD ECONOMIC DISASTER By William Pesek THE longer China’s economy stalls, the lonelier Zhou Xiaochuan, governor of the People’s Bank of China, is certain to get. There’s simply no playbook for a central banker facing so many competing challenges: deflation, excessive debt, chaotic global financial markets and vested interests resisting reform. Zhou seems to have little choice but to make things up as he goes along. But if Zhou is interested in consulting a cautionary tale, he might consider the decisions made by policy makers in Japan in 1998, when that country was on the precipice of deflation and bore an eerie resemblance to China’s present situation. (Japan’s deflationary slide was triggered by a massive debt buildup, a greying population and rigid industrial policies; if that sounds familiar to China watchers, it should.) Unfortunately, Zhou seems committed to repeating the mistakes made by Masaru Hayami, the former governor of the Bank of Japan. On Monday, Zhou cut the PBOC’s one-year lending rate by 25 basis points to 5.1 percent, his third cut in six months. That excited China’s stock traders. But, as Hayami’s experience shows, incremental moves of this sort aren’t a long-term fix. If Zhou hopes to avoid deflation in China, he should pay particular attention to three of Hayami’s missteps. First, Hayami should have been far
ON SEEKING... From A9 allies—DILG Undersecretary Rico Puno, then Mayor Alfredo Lim and the chief of police—culpable for the botched Luneta hostage-taking of Hong Kong tourists. On a personal note, aside from Atienza, I would also like to see former Senator Richard Gordon, Reps. Martin Romualdez, Rufus Rodriguez, and Leni Robredo in the Senate. It’s time non-productive movie actors in the Senate are replaced Ill-fated diplomat The remains of Philippine Ambassador to Pakistan Domingo Lucenario, Jr will arrive today with a memorial service set on Friday at the Department of Foreign Affairs. The ill-fated diplomat died in a plane crash together with the Norwegian ambassador during an inspection tour of government projects in Pakistan. Lucenario is a career diplomat who is respected by his colleagues and loved by overseas Filipino workers
#FAILOCRACY
more aggressive with monetary stimulus. Initially, his problem was sheer denial. Two months before he took the helm at the BOJ in 1998, his predecessor Yasuo Matsushita insisted that there was no reason to expect deflation in Japan; Hayami operated under the same delusion after taking office. Hayami eventually acknowledged that deflation was an issue, but even then he wasn’t bold enough. Although Hayami is sometimes remembered as the father of quantitative easing, which he pioneered in 2001, his initial attempts at monetary stimulus were far too timid. Part of the reason current BOJ Governor Haruhiko Kuroda is still pumping liquidity into the Japanese economy today is that 14 years ago Hayami only lowered rates hesitantly and incrementally. (The U.S. Federal Reserve, by contrast, is preparing an exit strategy from its more ambitious quantitative easing program after just six years.) The second thing Hayami should have done—and Zhou should do now—is take toxic assets off bank and local-government balance sheets. For a decade, Tokyo underreported the magnitude of its bad-loan problem; as a result, corporate Japan only got serious about writing off bad debt beginning in the early 2000s. If the BOJ had loaded up on distressed assets during Hayami’s tenure, Japan’s financial sector might have healed long ago. Instead, Japan’s
distressed debt festered, its falling price cycle accelerated and its banks refused to extend credit because they suffered from what Kuroda calls a “deflationary mindset.” Hayami’s third failing was that he was too timid with his bully pulpit. He was right to insist that Japanese deflation was less about the supply of yen than growth-stifling regulations, monopolistic behavior and a dearth of policy imagination in government. But he enabled Tokyo’s political paralysis in ways Zhou would be wise to avoid. Hayami, for example, could have sought a series of quid pro quos: I’ll print more yen, he might have told the government, if you shake up the banking sector, reduce trade barriers, cut red tape and tweak taxes to encourage innovation. China can steer clear of these costly mistakes. Zhou could cut rates faster and by bigger increments as China’s deflation risks deepen. The PBOC could start taking loans that are destined to default off the books of big banks and municipalities. And Zhou could leverage his international gravitas to prod President Xi Jinping’s team to internationalize the country’s financial system and foster greater competition in the economy. But until now Zhou has only initiated baby steps, just as Hayami did. And there’s no reason to expect the results this time will be any different. Bloomberg
in his postings in Islamabad and Nairobi, Kenya. As former head of the consular department, he is credited with starting the shift to electronic passport of the Philippine document. The Philippine Ambassadors Foundation, Inc. issued a statement mourning the passing away of Lucenario. “Ambassador Lucenario died while performing his official duty of promoting the friendly relations between the Philippines and Pakistan .The tragedy is a great loss to the country and the foreign service of a distinguished civil servant,” said the PAFI statement. I met and got to know Jun Lucenario during my tenure in the diplomatic service. I join PAFI and the DFA in expressing my deep sorrow and condolence to his family. Showing our cards The Senate joint committee on defense and foreign affairs conducted a public hearing of China’s aggressive reclamation activities in the West
Philippine Sea. Senator Antonio Trillanes IV summoned Armed Forces top brass including AFP chief Gregorio Pio Catapang and foreign affairs officials. Shouldn’t a sensitive matter involving national security be held in a closeddoor session? We are witnessing a public spectacle of officials discussing before live television cameras the country’s lack of resources— funds and military hardware— that can only embolden Chinese encroachment into our territorial waters. The Chinese must be laughing at us for compromising our national security. You don’t hear the Chinese announcing their military buildup in the South China Sea. They just go and do it. They’re now right on our front door in the West Philippine Sea where they built on reclaimed land an airstrip and pier for their warships. Meanwhile, we are engaged in our national pastime of talking issues to death.
ADELLE CHUA EDITOR
A11
CONGRESS... From A9 only to coconut oil, is doing a lot of the heavy lifting already. And now, thanks to an ill-conceived House measure, the Cavendish banana industry – the second-biggest in the world – could use some saving itself. House Bill 5161, like a particularly virulent agricultural pest, might just kill the banana industry, according to the Pilipino Banana Growers and Exporters Association Inc. The industry association has written the bill’s author, Ifugao Rep. Teddy Baguilat, to tell him that his measure, aimed at regulating the establishment and implementation of agribusiness ventures arrangements in land reform areas, will have a chilling effect on the industry. And the banana industry is no small venture: in 2014, the total land area planted with different varieties of bananas all over the Philippines reached 441,951 hectares. The Cavendish banana export industry employs 503,058 people receiving an estimated P44 billion in annual wages. Together with the workers’ families and relatives, more than three million individuals are dependent on the banana export industry. Baguilat’s bill, PGBEA said, is unnecessary because there is no need for a law on the specific and restrictive regulation of AVAs between private investors and Agrarian Reform Beneficiaries (ARBs). HB 5161 will unnecessarily allow interference by the government in purely private commercial transactions. PBGEA said that the private sector is the most efficient and effective mover of business and investments. Involving the government in AVAs will further increase the presently cumbersome regulatory requirements for investments in the Philippines, including investments in agribusinesses in tandem with ARBs. If Congress wants to protect the interests of ARBs who enter into contracts with the private sector, Congress should provide support services to these ARBs instead of mandating governmental approval of all contracts which they enter into.
CHONG ARDIVILLA