(Free Press editorial cartoon from 1940)
The President -and the Palace- is extremely pleased about wangling an invitation to attend the National Prayer Breakfast in Washington, D.C. on Thursday, thereby dispelling the conventional wisdom that it is in bad odor with the Obama administration, and that the President and her husband are in hot water concerning their financial transactions. To be sure, the ever-active rumor mill says the President enjoys diplomatic immunity and so, wouldn’t undergo any actual indignities going to, or while in, the United States; but that it’s an entirely different story for her husband (and so supposedly explains his sudden deplaning in Tokyo and his absence at the Pacquiao fight).
The Palace is being unusually tight-lipped about who, exactly, invited the President and who or how the invitation was wangled; it remains to be seen if the President actually gets any face time with the new American president or a superficial “photographed in the same room” Kodak moment. Still, the signal’s clear: reports of the President’s sinking status in Washington are greatly exaggerated.
Interestingly enough, a Filipino in Macao apparently texted a sighting at the international airport, of the President’s husband. No announcement has been made in the media of his having gone off overseas for what can only be a bit of R&R, since Macao is the last place one would go for cardiovascular convalescence or treatment (note that the President and her husband have been there quite often). What’s significant about this sighting, if true, is that it’s par for the course as far as the President’s husband and political issues heating up are concerned. The moment an issue starts pointing to him, he hies off overseas, beyond the clutches of media, the courts, or Congress. And the issue’s getting closer and closer to the President’s husband:
Right before him, “They first discussed bribes. They had a rough approach.” From that meeting, it was impressed on him that “bribe money was important to do business in the Philippines.”
This was how the Japanese contractor described his meeting with First Gentleman Miguel “Mike” Arroyo and a former senator to World Bank
investigators who looked into alleged collusion and rigging in the Bank’s funded road projects.
On another occasion, the Japanese executive met the former senator and “it had been made clear to him that there would be no business in the Philippines without paying money,” the WB report, as prepared by its Integrity Vice Presidency (INT) unit, noted. He was also told “that money would have to be paid as high up as the president, senior government officials and politicians in order to do any further business in the country.”
The Japanese contractor, however, had no direct contact with the President.
The report further added: “To win a contract, it would also be necessary to pay the head of the bureau and politicians several million yen.”
We obtained parts of the World Bank report but we are not disclosing the name of the Japanese contractor and other witnesses. The Japanese contractor has since left the country.
The Japanese contractor was among those interviewed by the INT in connection with its probe on bid rigging. His firm purportedly participated in two bid packages, which were later confirmed to be false. In fact, the company denied placing any bid and that the signatures of the company president were forged.
It was the only direct testimony in the WB inquiry alluding to the First Gentleman’s possible link to bid rigging controversy that has led to the blacklisting of seven firms and one individual for alleged collusion in WB funded road projects worth $33 million. Three other interviewees gave testimonial evidence that indirectly linked Mr. Arroyo to bid manipulation.
The pages mentioned above seem to have been obtained by Senator Panfilo Lacson, who released them in turn to the media. Click here to see scans.
The problems of the congressmen’s patrons aside, this is not a good time for the House of Representatives. While I was in the hospital, much as I try not to follow the news, I had the impression the whole World Bank contractor issue, combined with the Legacy Group’s collapse, could have been much worse.
Consider the situation of the Speaker of the House. Uniffors lays it out as follows:
Mikey Arroyo’s errand boy, putative Speaker Prospero Nograles, is in deep shit because of the collapse of rural banks owned by Celso de los Angeles Jr. His ever-changing stories about his relationship with the man whose classmates at the Ateneo called “Boy Kadena” have been the subject of an editorial by the Philippine Daily Inquirer. See “Prospero’s Legacy?”
Also, a former president of the Philippine Deposit Insurance Corp revealed that Nograles tried to pressure him to go easy on de los Angeles. Nograles disputes the expose.
But here’s something Nograles admitted and Boy Kadena confirmed at the Senate hearing on the Legacy collapse. Nograles invested millions, around 18 to 20M, in the failed banks.
So the question is this: Was Nograles’ investment in the form of deposit accounts?
You see,according to a PDI news report “The rural banks held a combined P14.03 billion in insured deposits in 132,642 bank accounts that each held amounts at or below the P250,000 limit of Philippine Deposit Insurance Corp.”
So the enticement behind the de los Angeles’ double your money ponzi scheme is that all your deposits are guaranteed because they are insured by the PDIC. Your capital is safe.
However, the maximum amount any one depositor can collect from the PDIC is P250,000. So, even if one has multiple accounts, those accounts will still be considered as one depositor account. In other words, the limit is on the depositor not on the account. So, to get around this limitation, depositors use fictitious names for their other accounts.
However, they still run the risk of getting caught by the PDIC and, if caught, if the PDIC finds out about the dummy accounts, those accounts will be counted as accounts in the name of one depositor and will be subjected to the P250,000 limit.
Now, Nograles had 18 to 20M in the Legacy banks.
Was he a depositor with a single account? Or were his deposits made under different names? If his deposits were made in his name then he will recover only 250K from PDIC. If his deposits were in different names, then Nograles knowingly participated in a scheme to defraud the PDIC, which incidentally, his brother now heads.
Now if Nograles has a brother in the PDIC, which has to bail out banks, like the ones Speaker Nograles invested in, that’s quite a big public relations pickle to be in. Worse, it plays straight into the hands for someone lusting for the Speakership or simply, to take Nograles down.
Personally, besides the long-standing mutual antipathy between Lakas Speaker Nograles and Kampi Grand Pooh-Bah Villafuerte, the Speaker is embattled on a front in which Villafuerte happens to have some experience -investment banking- and let no one forget Villafuerte’s wife sits in the Monetary Board, which has a say in the bailing out of the PDIC which has to bail out depositors; who wouldn’t put it past Villafuerte to have politically career-killing information on the Speaker now, thereby toppling him?
That would make two Lakas Speakers toppled for careless deal-making, and strengthen Kampi’s demand to be the dominant partner in the new Ruling Party.
But instead, it seems the full arsenal of administration crisis management’s been deployed.
Step I: Delay
The Palace and friends had months to digest the contents of the World Bank report and dot all the i’s and cross all the t’s with regards to a legal defense, as well as lobbying; after doing their bit to maneuver legislation that might be beneficial to the Legacy Group and other friends, and failing, the House still had time to maneuver things so that when the issue broke wide open, some sort of damage-control could be undertaken. Notice the length of time the Ombudsman’s been in possession of the WB Report, with no preliminary investigations taking place. But then, if pressure keeps up, they can use preliminary investigations as a way of buying time (remember the handling of ZTE?)
Step II: Dispute
The Senate wants to investigate contractors? The House will investigate, too -faster, and gentler, too (see Contractors in Congress). At the very least everything’s reduced to House-said, Senate-said.
Step III: Decamp
The President goes overseas. Her husband goes overseas. Out of sight, out of mind. No lightning rods.
Step IV: Divert
And so, after being so quiet as to make everyone think they were comatose, or resigned to the status quo, the Committee on Constitution Amendments of the House has announced that the Nograles Resolution has made it out the gate and can be sliced and diced in plenary, which will hog the headlines for a few weeks, making opposition and administration congressmen happy.
Richard Gordon’s given Congress another way to get what it wants (so long as enough of them get reelected… see, it’s all connected, somehow!):
Gordon… said that the Charter should be revised by the elected lawmakers of the Senate and the House of Representatives sitting as delegates of a Constitutional Convention.
He filed Senate Joint Resolution 20, which calls for a Constitutional Convention after the May 2010 elections with the newly-elected members of the 15th Congress as its delegates.
Meanwhile, get the 2010 Beauty Contest going, just to create buzz but no real political momentum. Take your pick:
A. Scuttlebutt on candidates, such as Bossman Eduardo Cojuangco anoints Escudero and not Teodoro; or Manuel Villar wooing Vice President de Castro to join the Nacionalista Party.
B. Ordering that long-delayed merger to proceed.
C. Additional efforts to muddle things by means of spectacles (see Pagcor chief launches 2010 Coalition) that give reform a bad name.
Message 1: don’t tread on us. Message 2: The Speaker’s a statesman. Message 3: We’re all in this together, nyah, nyah, nyah.
What’s happening is a whitewash on one hand, and juggling political balls in the air to help the whitewash. All these things carry a price, and they’re not of the opposition’s making. The two issues involve collusion between the private sector and officials firmly in the administration’s ranks. The ranks of the administration, meanwhile, have an election coming up and need to grease the wheels of governance through pork barrel spending. As Ricky Carandang recently pointed out in his blog,
The P50 billion in additional spending will be used for infrastructure and social services. Much of that will be funneled through administration friendly lawmakers districts.
The pork comes in two forms: first is the outright earmarks that have increased in the 2009 budget. The second is in te form of “hidden” pork. Outlays included in the budget of the Department of Public Works and Highways that must be spent “in consultation with lawmakers.”
Mon Casiple, in his blog, apropos of the long-delayed Lakas-Kampi merger, describes the lay of the land:
The situation on the ground in the 2010 national and local elections is one wherein, in many places, it is Lakas and Kampi political dynasts who are vying for elective positions, including scheming at electoral cheating and, in some cases, at electoral violence. It’s a dog-eat-dog world out there, in the absence of a strong political party system.
The only attraction a GMA-brokered merger brings to the table is the political weight the presidential endorsement carries, including the financial resources and government network that goes along with it. Many, if not most, of those in the ruling coalition will definitely need it and thus will be expected to echo the merger call.
However, such an attraction will have to be tempered with the sobering fact of a hugely unpopular president. Her endorsement of a candidate “in many places” is the sole factor for a great many voters to drop the candidate. It is a kiss of death in national electoral contests and in many local contests.
The GMA endorsement will matter only in those contest areas where her popularity is not an issue. Ironically, there it will not matter much. The money and the government resources from the presidential deepwell will be the major reason if ever a candidate in these areas accepts the endorsement.
The merger likewise will actually weaken both parties in the coalition when a spurned Lakas or Kampi member who wants to run under the merged coalition bolts out and run as an independent or under other parties. As I said before, party affiliation is based on the interests of the candidate-member, not the party.
GMA’s motive in calling for a merger obviously has everything to do with her political situation and nothing to do with the 2010 prospects of Lakas or Kampi. She needs to fend off as long as possible “at least in appearance” the lameduck character of her post-Cha-cha administration. She also needs the leverage to maintain her influence over her chosen presidentiable and ensure the candidate’s victory. A merged ruling coalition (or the appearance thereof) is crucial.
Whichever way you put it -from the perspective of a President saddled with a mercenary political coalition, or the point of view of the mercenaries in that coalition, and the mercenaries in the opposition for whom election or re-election is as much an end-all and be-all imperative- this requires money. And you wonder why there are rumors of grand heists?
LPG shortage (?) ->justifies raising LPG prices. Rice price increase (again?) without any justified reason in sight. Power Lotto, on top of several megamillion Super Lotto and Mega Lotto prices recently. Buy-in in Meralco, Petron, Liberty Communications. New mining corporations. No land reform but million-hectare corporate farms carved out of public lands and land reform areas. Huge national budget, including funds for mega-infrastructures or (a new favorite) recession-proofing and poverty-alleviation. And, horrors, a jack-up in smuggling cars, rice, drugs, DVDs, and what have you. Also, “taxing” drug lords and jueting lords or arranging tax amnesties for tax evaders or laundering for a fee the infamous hoards of corrupt officials.
But now the whole cozy system’s been subjected to an unwelcome spotlight, arming political opponents (whether just as dirty or not) up and down the line with a juicy issue: squandering resources at a time when belt-tightening is in order. And pursuing a policy of shifting resources around. Today, Jarius Bondoc writes that half of the 50 billion stimulus plan will come from the Social Security System (and only revealed because the SSS Chief, Romulo Neri, Jr., was asked about it by the opposition).
As Abraham Lincoln famously said, “too many piglets, too few teats.”
Which may help explain news stories like Investors see RP defaulting:
ADB senior economist Dr. Cyn-Young Park said the widening credit default spreads lead many investors to think that the Philippine government may default on its debt, or not pay these when it becomes due.
“This is the investors’ assessment of the creditworthiness of the Philippine government,” Park said in a seminar organized by the Yuchengco Center and the De la Salle University.
“Generally, the market is more cautious in giving credit; that’s why sourcing funds overseas may be too costly at this time,” she added.
A company’s credit-default swap spread is the cost per annum for protection against a default by the
company. Park, however, said that with the global economic crisis, the Philippines fares well compared with newly industrialized economies in Asia, such as Hong Kong, Singapore, South Korea and Taiwan.
She said most of these have been heavily affected since they have a “substantial financial market,” mainly being linked with the United States market.
It will be in the hands of the national governments in the region to spur the economy – such as what the Arroyo administration is doing – by providing stimulus packages to perk up market and consumer demand, she said.
Here are some readings on the issue. As far as the (reading, and specifically, On Line) public knows, what is floating around is pretty much an Executive Summary from the World Bank.
Much has been made of “collusion” being the main, provable, offense. To understand the process is to see where people like the President’s husband come in (see Newsbreak’s Bidders spill names, modus operandi in bid fixing):
But this time, it is now the politicians who set the rules. “Contractors engage in a sort of auction, where the contractor willing to pay the largest bribe can win the politician’s support,” one local contractor told WB probers…
Normally, one has to deal with politicians in both the national and local level – the former who controls the implementing agency and the latter, whose area is hosting the project…
At this point, word of honor is not honored. The one who has the money reigns supreme. Bribe, preferably, should be given at once to seal any agreement.
It is also crucial to be in the favor of the “facilitator” of the bidding manipulation, which bidders say is contractor Eduardo de Luna, owner and proprietor of the now-blacklisted E.C de Luna Construction Corp. for public works projects. Contractors interviewed by WB says de Luna has connections in the public works department who are part of the cartel…
Several witnesses told WB probers that de Luna enjoys the backing of First Gentleman Miguel “Mike” Arroyo. De Luna, they say, acts as Mr. Arroyo’s go-between in foreign assisted projects.
One contractor said E.C de Luna is so powerful that it controls most of the bidding at the Department of Public Works and Highways. The WB source said it was through E.C. de Luna operations that China Geo Engineering Corp., China Road and Bridge Corp, and China Wu Yi Co. Ltd., three of the blacklisted firms by the WB, won the bidding for WB-funded projects. The source had predicted that these three Chinese would win the bids before the tender offers were opened.
Once the “winning” firm has been identified with the blessing of the cartel, the sham bidding begins. Designated “losing” bidders, in collusion with the syndicate, complete the charade.
The previous standard operating procedure (SOP) was for the “winning bidder” to provide three percent of the advance payment for the project to the losing bidders. SOP to the politicians is also taken from the advance payment…
But recently, the practice is to split a percentage of the advance payment between the politicians and the intermediary. A lawmaker who acts as sponsor to the bidder gets 15-20 percent of the project value while local officials share between 2-3 percent. The intermediary is responsible for the share of the losing bidders…
The kickback is nothing to scoff at. Total payoff, according to the local contractor, ranges from 15-27 % of the total value of the contract. This does not include up to 20 percent in “unnecessary costs added to the project,” a former government official with intimate knowledge of bidding in the public works told the WB’s Integrity Vice Presidency unit. The “unnecessary costs” are mean to cover the costs incurred for the bribe.
Expectedly, all payments are in cash. “Company books do not reflect any of these payments in any event, because the books are faked to avoid taxes,” said a local contractor.
The former government official supported this assertion, adding that bribery extends to internal revenue officials to keep the company’s financial books above board.
For a report on how this process may have worked, see the PCIJ’s Special Report on the World Bank’s bidding findings (As for why the behavior of Congress can be said to constitute a whitewash, see the Inquirer editorial, Whitewash, from January 30, 2009.
You may want to visit The Legacy Group Watch blog, set up by a disgruntled investor.
For a broader perspective, see these papers:
And
We hope she finally meets President Barack Obama for that much esteemed and sought-after PHOTO OPPORTUNITY.
She needs that photo so badly to improve her image in the country.
We are sure her image makers will use that photo opportunity to show how “close” she is to the very popular American president.
I’m interested on what Senator Lacson might have up his sleeves yet. The game is barely heating up and surely the aces are still up very close to the senator’s chest given his reputation as an astute player of the game.
Bert,
But Ping Lacson doesn’t necessarily know when to drop bombs, like Gordon with the pictures… Lack of tact, head-on attack. Very inadvisable and ineffective as usual…
And darn it, I need to see what the heck are the provisions about to be changed in the constitution… sigh
@the post,
I’m not sure that Gloria’s sinking reputation at the US is actually overestimated… Made me laugh to think about Obama’s inaugural speech. She fits the bill quite perfectly of those who are in the wrong side of history.
Re credit & government default: – does THIS Philippines yield curve look scary, or what.
Today’s Inquirer carries the following Editorial:
http://opinion.inquirer.net/inquireropinion/editorial/view/20090204-187458/Poor-blameless-Celso
The above Editorial mentions this interesting piece of information:
“…industry observers warn that the real scheme may lie with the insured deposits in the shuttered Legacy banks: from P4 billion in 2006, the total has ballooned to P14 billion in 132,642 accounts, each one safely at or under the Philippine Deposit Insurance Corp.’s limit of P250,000 per account. Sounds like a neat outlet.â€Â
If that amount of P14 billion is confirmed, the government will be left holding a pretty heavy bag for this scam.
By the way, Manolo mentions the possibility of accounts under fictitious names, particularly in relation to Speaker Nograles. That is certainly a possibility. But I don’t think too many people will go down that road when they can always put accounts in the names of wives, children, siblings, in-laws, or even househelp and employees. That’s what most of the ones I know have done. And, in the case of Nograles, if it is really true that he has money invested in that scam, I doubt he would do something like that when he has so many relatives and “alalays†who would be only too happy to accommodate him. But that shouldn’t make him less of an accomplice in a scheme to defraud the government. Especially because he should know better, being a lawyer, a legislator and the Speaker of the House.
What amazes me is how things like this can sneak in under the radar, are business reporters simply not up to scratch or following the news?
there’s a link above, to the Nograles Resolution that lists the precise amendments, as proposed by him (though the proposal can be amended in plenary).
Fortunately or unfortunately for the Philippines (depending on which side one places ones bet on)The country will be able to service its foreign debts well into the next 4-5 years.
Most of our foreign debts are medium to long term. We also have currency default swap agreements with China, Japan and S. Korea.
How merchandise export receipts are going to suffer a hit. Since merchandise and service exports are a small part of the entire economy the degree of dislocation will be small.
The main problem in the banking system remains the overhang of the Asian Crisis. The SPAV’s that supposedly relieved the banking sector of their problem assets are themselves heavily leveraged.
The slowdown in economic consumption which includes business expenditures and personal expenditures will affect the price of the underlying assets that these SPAVS have taken over.
Celso Angeles the magician of the Legacy group is guilty of only one violation. Operating a universal bank without a license. Under a monetary system based on fiat currency, the state monetizes credit as currency. They also have the power to demonetize credit. It is actually a legalized form of a Ponzi scheme.
When you have a liquidity glut caused by falling interest rates you will have a blowout.
The entry of the formal banking institutions into micro finance has brought the rates down for micro finance from 3-4% a month to 1.5% -1.8%.
The supply of money went up rates come down. and those who borrowed money at high rates to lent out got caught with falling prices.
The Philippines is still mainly an informal economy more than it is formal. Micro and small enterprises is what keeps this domestic economy going. Even GRO’s can avail themselves of micro finance for their working capital.
http://opinion.inquirer.net/inquireropinion/columns/view/20090205-187470/Microfinance-in-these-hard-times
“CARD-MRI’s interest rate, which used to be like three percent per annum, is now down to 1.8 percent. Who needs the “Bombay†whose “five-six†scheme charges 182 percent (20 percent for 40 days)?”
The problem with micro finance is and will remain to be the administrative cost of maintaining the accounts. The shift to digital currency could alleviate this problem. Money is after all only a medium of communicating value for exchange purposes.
The basic systemic problem of the Philippines which has never been resolved by the simple expediency of kicking the can forward is the huge debt overhang over the entire economy. (private and public) and on top of that the debt overhang also due to foreign investments which are totally apart from the direct foreign loan obligations of the entire economy. Foreign investments are legal obligations due from the domestic economy.
There is no free ride.
All this nonsense of a fiscal stimulus by the government is nothing but hot air. There is no fiscal stimulus simply because under a dollar reserve system countries cannot move to go into large enough deficit spending or quantitative easing since the dollar is not our currency.
Only the U.S. can do it. So debt dependent countries are stuck. The U.S. can go into huge deficit spending and be supported by their Central bank which can monetize government long term debt. That is the “in case of fire break glass” aspect of monetary policy. When businesses and people stop spending and simply save the government can come in and use those savings to spend.
We do not have that luxury here. The new BSP law restricts the BSP from monetizing government debt paper. Our “in case of fire break glass” is run to the IMF.
Tetangco does not have the power to print money here unlike Bernanke who does.
We do not have a sovereign Central Bank. Only three countries in Asia have. India, Japan, China and partially Taiwan.
We have never been a sovereign republic. Never!!!!!
On deposit insurance. Major transnational corporations operate through hundreds and even thousands of on shore and/or off shore legal or juridical personalities. The same can be true with the legacy group.
The same with bank depositors. The law recognizes the property rights of each individual person and juridical persons (Partnerships and corporations) provided their registrations are valid.
The issue on the Legacy banks and other rural banks are the stories that even dead people were registered as depositors.
In this country dead people own properties and can vote.
Unfortunately the sanctity of official documents in this country has been perverted for so long that the trust in official documents is totally lacking. Even presidential pronouncements and appointments are faked.
It also matters if each rural bank allegedly owned by Legacy is a totally separate and distinct legal entity. Citigroup owns part of hundreds of distinct legal entities all around the world.
I am shocked after the Marcos era why everyone is still so dumb. Marcos had his own crew of brilliant technocrats. Mostly crooked starting with Roberto Ongpin who ran the Binondo Central Bank.
Marcos considered himself a lawyer technocrat. His brand of legal engineering still reverberates in this country.
Now we have a whole new generational breed of this animal.
Manolo,
Thanks for the link. Still escapes my mind on why foreign ownership has the main push, rather than strengthening and propagation of SMEs.
Anybody considered that our procurement guidelines are stricter than the foreign financial institutions.
I may sound like a broken record, here I go again.
remember what I have been hammering on the IRR B
or the implementing rules for foreign funded projects.
The problem is this.
(from PCIJ)
http://www.pcij.org/stories/2008/oda6.html
It is the foreign lenders who does not want to put ceilings as it goes against their guidelines.
since we have no IRR B for our procurement act we follow section four of RA 9184.
even the Scorp recognizes that our foreign lenders does not recognize price ceilings.abaya vs Ebdane.
http://ph.news.yahoo.com/star/20090128/tph-world-bank-banned-p100-million-road-541dfb4.html
So that means we follow their guidelines?
Then if there are no ceilings talagang recipe for collusion talaga.
Their money their policies. They operate on the basis of he who has the gold rules. They also work on the theology that price caps are heresy. They are technocrats after all. Plus they get top dictate the terms to benefit their own.
So what is new? Self interest is the guiding belief system. That would mean the person who supplies the loan will most assuredly want to get the most benefit from the loan. Multilateral or bilateral institutions are funded by their own taxpayers.
They have to bring home most of the bacon.
It’s true that Marcos spawned a new generation of crooks who have tried to emulate him. It’s actually on its third generation by now. Bobby Ongpin, Danding Cojuangco, JDV, FVR, Louie Villafuerte and others were the next generation after Marcos. Nograles, GMA & Co. are the third generation. And, after them, there is a new generation just waiting to take over.
It wasn’t strange that de los Angeles was greeted in Congress as a kindred soul. After all, they called him an “evil genius”. In Congressional parlance, that is the highest form of compliment. That sort of tribute was usually reserved for someone of the likes of . . . YES!!! . . . Ferdinand Marcos!
Any hidden agenda why you linked the Anointed One to a column that laid bare his direct connection to Marcos? That the Anointed One’s father attended the final inauguration even Tolentino skipped. Honestly, does anyone truly think there’s change coming with an Escudero-Cojuangco alliance that is nothing but a reprise of the old KBL days?
nothing new about FG. He is really the man who mastered the art of corruption. Ateneo should take away from him his diploma bearing the ad majorem dei gloriam…for FG has lived up to his motto of “to have the money is the greatest glory”.
and yes it is true, when the eyes of everyone are prodding on some present hot issues, they are cooking some bad old medicine down the committee halls of the congress to surprise us like thieves in the night.
gloria will never get the reverence and respect that people has for obama for unlike the US president…first, she is not legitimate to rule, second, she does not have the moral authority, third, she is a big shame to the country, fourth, she is the country’s biggest joke, and last, her first gentleman is far from having the decency of obama’s wife.
…leaves a bad taste on the mouth…
The Inquirer reports this. Would anybody even argue against his claim?
Gordon’s Senate Joint Resolution 20 is stupid. Isn’t a Con-Ass composed of the Senate and the House. The only difference of Gordon’s Con-Con vs. a Con-Ass is the 12 members of the Senate that are not for re-election. All the members of the House will be “newly elected” members.
Constitution experts, correct me if I’m wrong.
In what way does the yield curve look scary?
@ Karl Garcia
Generally, setting a ceiling price on a commodity creates price distortions. This has been the experience of communist-oriented economies where the State sets the price. Economists now know better precisely from the experience of communist China and Russia.
Besides, it is easy to imagine that setting a maximum contract price wouldn’t stop a moro-moro bidding: it simply narrows down the set of prices players could choose. It’s really pointless, isnt it?
Of course, the belief that free competition will set the correct (hence fair) price assumes that competitors act indepedently. That’s where the role of the government becomes relevant by ensuring that players do not talk among each other. For the inexperienced (like Ebdane), the bewildered response is “how the hell do you do that?”
Fact is, there are established methods of detecting collusion. The arsenal of methods is generally outlined in the 5-pager WB decision in this page. Hence, it is alarming to hear that the WB and the House of Reps can look at the same thing and conclude differently. Alarming because the House of Rep committees were either ignorant or essentially looked the other way.
@ CVJ
The Philippine yield curve is the steepest among those surveyed. This means creditors are demanding more money for their buck the longer the term of the loan which is indicative of their uncertainty over the long-term outlook for the country. This result validates an earlier report that foreign creditors are predicting that the country will default.
There is also
For example, the double-your-returns-ultra-fast that LEGACY offers may not be attractive to a Fil-Am living in New Jersey because the pesos (from LEGACY) must later be converted back into US dollars, and changes in the value of Pinas currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back.
Bid ceilings or none, colluding bidders will cluster just a tad below the limit with the pre-arranged winner far below the pack. I’ve frequently seen this happen even in private industrial projects.
Check this table from PCIJ (http://www.pcij.org/stories/2008/oda7.html) Amazing how losing bids vary by less than one percent and the “diver” wins by about 20%.
Yield curves where the spread between short term and long term is steep is more an indication of inflationary expectations.
Interest rates are an indication of risk and future inflation.
The last 10 year ROP sold by the RP paid out a yield of 8%.
It was six percent over prevailing U.S. treasuries then. naturally it was healthy yield when dollars prices are deflating.
If there was a danger of default it would move higher.
Check out rates in the emerging markets of Europe and compare.
Indonesia is paying higher rates.
Check the rating agencies too. Yield curves are a measure of inflation and deflation. Hence you have inverted and flat yield curves too.
When spreads between short and long converge then you have the makings of a liquidity trap. That will signal deflation. Who would lend out money for 10 years at a 2% yield? One who is seeking protection of principal. Who do you lend it to? The U.S. treasury.
The BSP targets an inflation rate deliberately. I hope everyone understands the word deliberately. Their target is between 4-5%.
Gordon ought to recall voters rejected a similar proposal -to have Congress act as Convention- in 1967, which is why he ended up a Delegate in 1971.
So Manolo, what’s the difference between his Proposal and a Con-Ass? A Con-Ass is already defined in our constitution. It seems similar to me, and trying to file this Joint Resolution would just involve “Legislation Costs”.
Mike, same dog, different collar, sounds nicer than Constituent Assembly. Also, may make amendments easier, they can pass their own rules, I suppose instead of voting separately they can vote jointly wearing the hat of delegates and not just representatives/senators.
thank god you got it wrong this time!
your report of the President’s NON-sinking status in Washington is greatly exaggerated after all.
no Obama meeting again! Not even a photo-op. Nada. Zilch. Wala man lang silip through the door to say “Hi, hello, kumusta ka…” Barack must have actually read the briefing papers on GMA and immediately noticed that Gloria stinks more than Blago.
I have it on very very reliable information that Mike Arroyo is believed to be a crook at the highest levels of the international community of multilateral institutions and transnational private institutions. In the world of public works development the community is very very small.
Little do these guys know that he is simply the pawn of the Queen.
Governments and governance is in. When money was easy it was different.
People are angry at governments failure in many parts of the world. Except here that is. Forget her she is history.
The utter loss of trust and confidence makes it very difficult for her to maneuver. She will soon be running out of options.
Apart from the regular General Appropriations Act she has no actual concrete policy plans for the probable incoming crisis except for more media events.
Let us all see who will be heir apparent amongst the next batch of presidential wannabes.
More of the same. If the crisis does bite here her administration could be mud by the time may 2010 comes along.
Carlito and J_ag, thanks for the responses.
@Carlito, my understanding is similar to J_ag’s in that a positively sloping yield curve is a reflection of increasing inflationary expectations (which usually are a consequence of economic recovery).
Krugman, however, explains why this is not necessarily so in particular cases, such as of the United States.
benjpedro, not good for the country but a comeuppance for her. she could pursue restoring our formerly warm ties to indonesia since for some time now, the americans have looked more to indonesia than to the philippines as their reliable ally in the region. much more so now.
If I may venture somewhat of an analogy: ‘It is a recession if your neighbor loses his job and a depression if you loose yours’ …
We’re in deep depression, politically and morally. The worst kind. Even my own brothers are behaving like our greedy politicians. Nothing is sacred, they even cheat their own kin for a buck.
Hi Manolo,
Senator “Dick” Gordon changed the abandoned Subic. He changed the automated election. He represents change that Filipinos badly needed.
Senator “Dick” Gordon for 2010 president!
To Paul: Between Gordon and Villar, I prefer Villar. [One of the reasons : Dick started with inherited money; Villar created his wealth. Villar personally knows the difficulties faced by the isang-kahig-isang-tuka sector.]
Krugman is dead on in the case of deflationary expectations. Preserverance and precaution become the overwhelming consciousness of the broad consuming public which in turn will affect business investment plans.
That propelled the shift from classical economics – (supply side) to demand side management – Keynesian macroeconomics.
Rich people have very small marginal propensities to consume. You have to create demand by putting money in the most number of people working and create jobs for those who have lost it.
In basically agricultural based economies this cannot be applied. There is no existing overcapacity. Thus the stimulus will not so much create jobs but will stimulate imports.
to mlq3 onn your comment 12:56 am about Indonesia.
Indonesia is the country with the largest Muslim population. Now go back to one of the major lessons of World Trade Center 09/11. The lesson (Afghanistan and Yemen the exhibits) —- radicalized Muslim countries can do great damage.
USA was not even thinking of the Philippines or that cute phrase “..reliable ally” when the US began to pay more attention to Indonesia. The US needs to assure that Indonesia’s population does not get radicalized.
to Ja_g: did you just say that the Philippines with its horrendous unemployment even as far back as just a year ago does not have excess capacity?
I beg to disagree as i believe that stimulus given to the poor majority can help. Back in 1983, it was the underground economy (or informal sector) that sustained us and this was during a time when Virata and Jobo were ‘mopping up excess liquidity’ (as per misguided IMF prescription which of course the US is not following today). A payroll tax cut (for middle income earners), universal taxation and subdidy program (aka negative income tax) coupled with import and capital controls (making an example a-la Lim Seng of those who violate such capital controls) can jumpstart domestic industry and mitigate the effects of the carnage outside. Now is the time to address inequality, putting money in the hands of the poor majority to build up our domestic consuming base and protect us from drop in demand from the US consumer.
A major-objective of stimulus-payments is “money velocity”, i.e. the multiplier-effect when a peso is introduced into the economy.
I have no idea what multiplier-effect ratios are for the Philippines. But but for the US, the multipliers are:
$1.00 tax rebate —> 1.02
$1.00 spending for highways, bridges, etc —> $1.59
$1.00 extra spending for food stamps —-> $1.73
(Using USA statistics, the multiplier for payroll-tax-cut ):
$1.00 Payroll tax holiday —-> 1.29
USA negative-income tax:
$1.00 Across the board tax cut 1.03
So if Philippines econometric-ratios conform to US ratios, then across-the-board tax cuts is not-good (unless GMA is odorifying herself for Con-Con and/or or for 2010-elections).
The top-three are:
– food-stamps (which Pinas does not have);
– highways,bridges,etc
– payroll-tax holiday
[Minor note: OFW’s do not benefit from an across-the-board tax-cut. ]
And again to highlight that there may be a contrast between USA-stimulus goals (and problem-environment) and what is intended for Pinas, this paragraph:
[Additional note: a lot of Filipino families do not benefit from programs intended to provide partial- or across-board tax cuts. ]
@Carlito on Fri, 6th Feb 2009 3:14 am
hi! i know that ceiling prices can create distortions, BUT only if the market clearing price is above the ceiling price.
also, this is an auction, where the goal is for the auctioneer to extract as much value from the bidders. specifically, this means that the cost of having bidders do the project must be lower than if the govt (holder of the auction) does it themselves.
also, you say correctly:
“Besides, it is easy to imagine that setting a maximum contract price wouldn’t stop a moro-moro bidding: it simply narrows down the set of prices players could choose…”
i think so too, amd importantly, it narrows down the bids in the directions that is desireable — i.e. in a downwards direction
also, its very hard to determine cheating just by looking at bid data. i don’t think what WB has is enough. judging by the pcij article, what they have a witness, which i think is their smoking gun. if all they had is data analysis, they wouldve not banned anyone.
CVJ, UPN it is nice to talk theoretical about the 83-84 crisis but before you look at the past and talk about overcapacity you must look at what overcapacity means.
First you cannot use money velocity to pump prime an agricultural economy simply because you do not have a standing industrial capacity that has thrown off millions of workers due to collapsing demand. Point to your unemployed millions that form the backbone of an industrial manufacturing sector.
We have structural unemployment and underemployment. The political correct words for underdevelopment. The major bulk of the population is still engaged in agriculture and a major part of the service sector is linked to agriculture.
When a country moves into a depression it is a structural downturn. Too much production and the excess production must be destroyed or shut down. Just take one example – the world car industry. Shut down in credit has shut down sales in cars and this has flowed back into the car makers and back down to the mining industry. (basic metals) Then back to the oil industry.
Then look at ripple effects to lay offs and personal consumption. The ripple effect has a lag time as the multiplier effect is going into reverse in a wave of destruction of businesses and jobs.
Now point out to me an industrial downturn in the Philippines. Our crisis here has always been a balance of payments blowout. We are a consumption based economy. always have been. Our labor capital factor of productivity is very low simply because we are not an industrialized society. Of a total labor force of almost 50 m only 2m pay income taxes. Labor force participation rate is at 60%.
Full time labor force including government workers amount to only 7M… Point out where you can pump prime. The stimulus package in the U.S. will be giving subsidies to buy cars and keep people in their homes. They will increase military expenditures to replace destroyed and aging equipment. They want to increase broadband use. All this will pump prime the manufacturing capacities that have been left idled by the downturn. They are all retreating into protectionism as Sarkozy himself wants French manufacturers to bring back their factories from Eastern Europe if they want to continue to sell to France.
Most of the consumer products we use at home are produced by foreign manufacturers. Very little of it is Filipino value added. The proof of the pudding is the horrendous foreign obligation against the domestic economy. The U.S. can get away with being a debtor country since their foreign obligations are denominated in their own currency. They can devalue their debts forward so in real terms they pay less.
The U.S. is doing it to the whole world and they can get away with it because the surplus countries have no choice but to continue to lend to the U.S. to protect what they have already lent.
China has lent close to $1 trillion to the U.S. government directly and indirectly. If she wants to move out of dollars she has to find someone to buy it from her. The dollars cannot be extinguished. It can be debased by printing more of it.
So all the countries that have surplus dollars have to sit with it even if the yields are so low.
Only one institution in the world can monetize dollar credits and demonetize them. The U.S. Federal Reserve.
They are now moving to debt restructuring on massive scale – home mortgages, credit card debts, car loans etc. That is what organized bankruptcy procedures are you lower the huge amounts of credit outstanding in an organized manner of credit destruction or demonetization of credit. It
simply disappears. But stockholders, lenders and workers take a shave.
A depression is a cleansing process. No matter what you have to work out the hangover. Government steps in to put in safety nets so society does not collapse. Having millions of men unemployed in an urban area is Marx’s recipe of an unemployed army of workers.
Hvrds talks in economic terms. The term overcapacity is explained by Business Week published by McGraw-Hill the owners of S&P rating agency. They are business journalists who research business facts. Too much capacity too little buyers in the physical sectors of the economy. You cannot replace high paying jobs in the formal sector with low paying livelihoods in the informal sector.
It is the disease of capitalism…Falling prices based on overcapacity.
http://www.businessweek.com/magazine/content/09_07/b4119000357826.htm
http://www.businessweek.com/magazine/content/09_02/b4115040763998.htm
“Automakers’ Overcapacity Problem
Automakers have to cut factory overhang without losing their ability to ramp back up when people start buying cars again
By David Welch
With sales tanking from Beijing to Boston, automakers find themselves in an embarrassing position. Having indulged in a global orgy of factory-building in recent years, the industry has the capacity to make an astounding 94 million vehicles each year. That’s about 34 million too many based on current sales, according to researcher CSM Worldwide, or the output of about 100 plants.
In other industries, a cleansing wave of mergers and acquisitions often scrubs away the excess. It’s true that Chrysler may well vanish or be folded into GM or another major player. But other marriages are unlikely because even potential suitors like Renault-Nissan are in a holding pattern until global economies turn around and credit for deals loosens up. So, yes, over the next year or so carmakers will idle factories and lay off thousandsâ€â€and U.S. and Chinese carmakers will absorb much of the pain.
The challenge will be to cut the production overhang without losing the ability to ramp up when people start buying cars again. On the one hand, Toyota and other Japanese automakers are whacking production at home, where sales have slipped. In November, Toyota slashed production in Japan by about 27%, the biggest cut in 30 years. Japanese automakers also are letting go thousands of temporary workers and not renewing their contracts. But in North America, where the industry has the capacity to build some 7 million more vehicles than the market is buying, Toyota, Honda, and Nissan are so far slicing on the margins. They are slowing production, cutting contract workers, and postponing plans to open more factories because they’re keen to grab share once the U.S. comes back.
The so-called Big Three don’t have that kind of wiggle room, and shrinking at home promises to be wrenching. To become profitable, according to Michelle Hill of consulting firm Oliver Wyman, U.S. automakers will need to close at least a dozen of their 53 factories in North America in the next few years. Demoralized factory hands are bracing themselves. “Someone has to go,” says a resigned Ray Johnson, who makes Chrysler sedans outside Detroit.
CHINA STRATEGY
“Nowhere is there greater overcapacity than in China. Much as the crash of 1929 reordered the U.S. auto industry, a sudden dearth of buyers will do the same in the People’s Republic. Industry watchers expect local companies to absorb much of the pain as the weakest players close and large state-owned companies gobble up the stronger ones.”
“That could be good news for foreign makers and their joint-venture partners. GM may be closing plants at home, but it is not retrenching in China, where it is much easier to furlough workers and rehire them when things pick up. Toyota is actually expanding its Chinese operations: In October it announced its sixth plant.”
“As in China, the global downturn has hammered automakers in Russia and Eastern Europe. Hardest hit: Russia’s top two car manufacturers, Avtovaz and GAZ, both of which began slowing production in October. Multinational car companies, which have grabbed about three-quarters of the Russian market, are hurting too but are reluctant to pull back for fear of losing out in the long run. Heidi McCormack, GM’s director of new business development in Moscow, calls Russia “our No. 1 growth market” and says the slowdown in sales has more to do with tight credit than consumer demand.”
“Many Western European governments are giving their carmakers financial assistance, but there’s a catch. They get the money only if they don’t close plants at home. Since the likes of Volks- wagen and Renault-Nissan don’t want to shut new, low-cost plants in the east, they’re eyeing cuts in places like Spain, Portugal, and Italy where there is less political pressure, says Jim Schmidt, a vice-president at Oliver Wyman.”
These are not normal times….. Every national economic policy framework based on their self interest is on the table. The unemployed in national economies will pressure national governments.
Only in the Philippines we will beg from the U.S., Japan and China. We have no choice!!!!!
Paul Krugman – New York Times Blog
February 1, 2009, 4:47 pm
Protectionism and stimulus (wonkish)
Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.
The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.
But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.
And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports  but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.
And this in turn means that if macro policy isn’t coordinated internationally  and it isn’t  we’ll tend to end up with too little fiscal stimulus, everywhere.
Now ask, how would this change if each country adopted protectionist measures that “contained†the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy  and the world would get closer to full employment than it would have otherwise. Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced. And as the late James Tobin liked to say, it takes a lot of Harberger triangles to fill an Okun gap.
Let’s be clear: this isn’t an argument for beggaring thy neighbor, it’s an argument that protectionism can make the world as a whole better off. It’s a second-best argument  coordinated policy is the first-best answer. But it needs to be taken seriously.
What’s the counter-argument? Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics.
The right argument, I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations  and it might take decades to put Humpty-Dumpty back together again.
But there is a short-run case for protectionism  and that case will increase in force if we don’t have an effective economic recovery program.
The Philippines still hasn’t felt the full brutality of the worldwide economic downturn for pretty much the reasons that are cited here. Waning industrial exports and layoffs resulting from a slowdown in industrial exports, while not welcome developments, are not such a big part of the economy so as to cause a huge dislocation.
Fortunately, call centers are still doing well and expected to hold up for the rest of this year. This helps.
The main pillar of our economy remains the inward remittances from OFW’s and that, at least for the full year of 2008, has remained very resilient. Remittances have defied the rules of gravity, so far.
I do not know what 2009 remittances will be like. But if there is, as some foreign financial institutions calculate, as much as a 20% drop in foreign exchange remittances this year, that would hurt the Philippine economy tremendously. The Philippine peso will have its legs taken off from under it and we can expect consumption to decline.
Tnose Paul Krugman blogpost-threads are interesting reading, but one must be aware of two things. One, that Krugman blogpost threads are focused on the USA economy. Then two, to remember what hvrds has again highlighted —- “different folks, different strokes” — USA economy and Pinas economy have different structures; the remedies for USA economic woes may be the wrong prescription for what ails Pinas economy.
It may be time for folks to identify, then start quoting China’s lead economists, since 43% of China’s labor-force is in agriculture (while 35% of Pinas-labor-force is in agriculture).
Carlito,
Many thanks for the inputs!
alarming but not surprising.
it is now public knowledge that many congressmen are contractors themselves.
J_AG,
yeah, the Golden Rule.