Multipliers

First it was the so-called rice crisis which proved to be no crisis at all but rather an increase in prices as a result of global commodity trends. Then miraculously the rice issue disappeared from the front pages of the newspapers to make way for an attack on the largest electrical power distribution company in the Philippines over the high price of electricity. The issue of high energy prices has been with us for some time but the Manila Electric Rail and Light Company—or Meralco as it is better known—is a favoured target of politicians, especially as its majority shareholding is owned by a well-known family that also controls the country's foremost media empire and has been a thorn in the side of the present administration.

On this occasion, it was the head of a government insurance corporation (who sits on the Meralco board as a government representative, since government—through its agencies—retains a minority shareholding) who was making all the noise and declaring he would unseat the incumbent board, take over the company and lower power rates in the process. Brushed aside was the obvious question—what does an insurance executive know about the power sector? He failed of course but in all the bluster and uncertainty, the damage was done. Once again the Philippines hit the press in a manner that could only strike fear into the hearts of potential investors. The problem has not gone away and the bluster continues. It makes good headlines but scary for the investor.

At the AMCHAM energy briefing last week, Energy Secretary Angie Reyes defended the actions of Winston Garcia in taking on the Meralco board. "It was in the interests of transparency" he said. Yes, right; in the same manner as ramming an APV through the front door of a six-star Makati hotel was in the interests of peace and order. That may indeed have been the case, but the message that was sent out to the world via the media gave an entirely different perception.

The two issues or power and rice are worlds apart of course except in two aspects. Firstly, they got the bad press over corruption in high places off the front pages of the country's newspapers and secondly, they provided the opportunity for President Arroyo to be seen as a "take charge" president. The President gives a directive for government to solve the rice problem and, as if by magic, the following day there is an announcement that the problem has been solved (albeit at a higher purchase price to consumers). In the case of the energy sector, the president issues a directive to bring down energy prices and within a short space of time, her Energy Secretary, Angelo Reyes, announces that the government is on top of the situation and really all it wants from Meralco is transparency and good governance. This brings us to the second aspect: in each case President Arroyo came across as the person who saved the day—defending the rights of the downtrodden masa.

Now we are seeing the resurgence of another red herring—free texting for the masa, as if this country's workers do not have enough distractions at their place of work. Populism is alive and well and living in the Philippines. Forget about workplace productivity. Come to the Philippines and text for free is the message.

To many, it looks as though President Arroyo is hitting the campaign trail with an eye on the 2010 elections but then of course, President Arroyo has not been able to change the Constitution and cannot possibly run in 2010—or can she?

It was actually a "good news month" in more positive ways. Despite all the problems of the global economy, growth in GDP during the first quarter of 2008 at least came in within the range of 5.2 to 6.2 percent in the first quarter of the year. In the first quarter, the economy saw a 5.2 percent increase in GDP. This was lower than last year, as high fuel and food prices cut into consumer spending during the period but was better than many had expected. The country is far away from recession and is still hoping for a full year growth target of around five percent or more.

The other piece of good news came in the form of a jump in the country's competitiveness as measured by the annual survey conducted by the Switzerland-based Institute for Management and Development (IMD). From 45^th spot in 2007, the Philippines climbed five notches to 40^th place this year on the basis of 331 criteria spanning four major areas identified by IMD and its partners. The United States and Singapore topped the index.

Out of a possible score of 100, the Philippines was given this year a score of 50.478 in 2008, higher than the previous year's 47.163 points. The Philippines exhibited better scores this year, in all the four major indices, moving up to 42^nd from 45^th in economic performance. In terms of government efficiency, it improved its ranking to 41^st from 47^th; business efficiency, 31^st from 39^th; and infrastructure, 48^th from 51^st. At a briefing in Manila following the announcement, Dr. Federico Macaranas, executive director of the Asian Institute of Management (AIM) Policy Centre, which is the local partner of IMD, linked the country's improvement in ranking to the country's 7.3 percent gross domestic product (GDP) growth last year. In fact the Philippines topped the index in terms of cost of living. Manila has the lowest cost of expatriate living among all 55 cities included in the survey (and benchmarked against New York). The index confirmed what local expatriate executives claim to have known for some time—that the Philippines is actually an undiscovered secret when it comes to quality of executive living. Now, if only the business environment could match the living environment, this country would really have it made.

Sadly of course, life may be good for those at the top of the pyramid but that is not true for the population in general and despite the good news stories, life remains hard for the majority of the people of this country. Now with higher oil prices and food prices, the cost of living is again rising—last month it reached 8.3 percent and is likely to go higher.

There is already evidence that the number of poor and malnourished is again on the rise.

In this regard we should note that a new study by the Asian Development Bank (ADB) has warned that the recent surge in food prices—an estimated 10 percent increase—will drag a further 2.3 million Filipinos or more into poverty. "During the first quarter of 2008, the 9.45 percent decline in the average standard of living was solely due to food price increases. Likewise, the 50.2 percent increase in the severity of poverty in the same period was attributable to the increase in food prices," the study said.

The study also estimated that a 10 percent increase in non-food prices will drive an additional 1.7 million people into poverty—that is 4 million in total or close to another 5 percent of the population. In fact that threshold has already been crossed. This is in a country where already some 30 percent of the population are below an official poverty line which is already absurdly low. According to the official definition a person is below the poverty line if annual per capita income is less than $300 per year—less than the $1 per day criterion used by the United Nations. Even so under this definition more than 4.6 million families subsist below this level. Now there are likely to be more.

Here is the Gordian knot that afflicts the country. With interest payments on debt now below 100 percent of the budget, supposedly more money becomes available for spending on much needed physical infrastructure as well as social infrastructure—principally education, health and nutrition. But high commodity prices are likely to negate these gains. Already the balancing of the government books, that was to have happened this year has been pushed out to 2010 or beyond. The poor still get poorer and the rich still get richer. What this country desperately needs—now more than ever—is investment; instead we get the bread and the circuses. Can Mrs. Arroyo, like Alexander the Great, cut her particular Gordian knot?

What happened to the $10 billion in investment that is supposed to come in from mining? Despite the rhetoric it appears that corrupt local officials still have their way, conniving with Chinese "investors" and others who invest in small-scale mining (which is anything but small scale) and who ship out the country's mineral wealth without permits and without a centavo being paid to the national or provincial governments (in contrast to the provincial governors, mayors and barangay captains who are doing very nicely thank you very much.) In consequence, large-scale investors remain cautious and are starting to look elsewhere for their returns.

Nongovernmental organizations such as Oxfam that continue their tirade against international mining interests are either entirely gullible or in cahoots with those who would defraud the people of the Philippines.

The mineral wealth of the Philippines has been estimated at more than $840 billion. If "exploited" in the proper way, with an excise tax of 2 percent being paid to government that is $16.8 billion in royalty payments alone of which $6.7 billion would be paid to local government units. Plus a further one percent in royalties to indigenous communities—$84 billion. Now those numbers would start to make a difference.

But if local interests have their way, this money will go to the pockets of illegal miners and the local officials in bed with them. The national government and the communities will get nothing.

But the problem goes well beyond mining and appears to pervade many aspects of economic life. And as was commented on at a foreign chamber briefing last week, no longer do people talk about percentages when it comes to government projects (especially those funded by China under so-called "concessional loans), instead the talk now is of "multipliers." "Moderate their greed" was the instruction given by one senior public official to his consultant when the escalated cost of the now defunct national broadband network came to light. The multiplier in that case was assumed to be the cost of delivering a win to the ruling party in the 2007 elections. But that is not an isolated case. Sadly it seems, overpricing has become rampant to the degree of obscenity both in national projects and also in provincial ones where the price of a government permit is an overblown contract to some provincial official that is a multiplier of the true cost. ZTE was no isolated case. More will come to light.

Until there is sign of the "obscene greed" being reined in by President Arroyo, we will not even be "muddling through." Instead, the Philippines will get ever closer to becoming the basket case of Asia. It does not have to be that way.

It’s all the fault of the British

Newspaper columnist Conrado de Quiros (Philippine Daily Inquirer, May 15 2008) takes up the issue of "the Church" and "Gays." From this he goes onto a discussion of the attitude of the "Church" towards marriage and sex and the teaching that "Marriage and sex… are solely for reproduction."

The act of being gay says the "Church" is not sinful rather it is the acting out of a same sex relationship that is, because by definition such a relationship is outside of marriage. The answer he says (I assume tongue in cheek) is to "shop around for another religion."

Mr. de Quiros always has something interesting to say although oftentimes I find him a tad too radical in his thinking; but this time he struck a chord with me. What struck me the most as a foreigner living in the Philippines is the manner in which the Roman Catholic Church in this country has been able to masterfully appropriate the brand. Christianity for most Filipinos is synonymous with being a Roman Catholic. Any other form of Christianity and celebration of the Eucharist is an "aberration" that possibly ranks along with the practice of sodomy in the eyes of many. How sad that I cannot break bread with my fellow Rotarians with whom I enjoy fellowship each week. My Church allows it but theirs does not.

It is a great pity because it confines the Philippines to a pre-reformation time warp of its own making. As a Christian - but not a Roman Catholic Christian - the "Church" in the Philippines comes across as being firmly rooted in the sixteenth century unlike the Roman Catholic Church in other places which has moved forward and accommodated others while still retaining its own core values. How else can you explain the attitude of the "Church" here towards sex and to human relationships? Indeed as Mr. de Quiros says "whatever happened to love? Whatever happened to ecstasy?" Well Sir, both are alive and well but it seems many in the Philippines—even heterosexuals—have to enjoy closet love and closet ecstasy because the "apple pie" type seems to be the only kind naively allowed by the powers that be.What a pity! What a travesty! Where is the celebration of the joy of life that sexual experience can bring?

It reminds me of another item from the same newspaper, this time a cartoon. The cartoon was written in Tagalog so I may have missed some of the salient points but the gist of the storyboard was an academic claiming that in order to move forward and get the country out of poverty, we needed to practice population control in this country. To which poor old Juan dela Cruz replied to the effect "No, the problem is corruption." So easy to ignore another inconvenient truth and deflect reason when of course the Philippines needs to make progress on both population control AND corruption.

Well Mr. de Quiros, the Anglican Church (Church of England or Episcopalian in the United States) is both Catholic and Protestant at the same time.  To many it offers the best of both worlds: Catholic forms of worship but tempered with a level of rationalism that comes from knowledge and understanding. It is a small church in the Philippines but claims adherence of more than 77 million people globally. After Roman Catholicism and Eastern Orthodox it is the largest branch of the Christian faith. Of course, the Roman Catholic Church does not accept the view that it is a "branch" of Christianity at all but rather that adherence to the Roman tradition defines the Christian faith. To those outside, this is a dangerous proposition and shackles any attempt at reasoned debate. "I am right and you are wrong" has never been a good means of handling dissenting opinions. People, even churches, that cannot accept that they may be not be the sole repository of truth have never moved humanity forward. Often they have held us back.

Anglicanism follows many of the rites of the Roman Church but has also embraced many of the reforms of the age of enlightenment, most notably that both faith and works are the pathway to salvation and that while accepting the "sufficiency of scripture," scripture has to be interpreted in the light of reason and knowledge. Mankind moves forward; so does our understanding. Actually the Vatican embraces a very similar approach nowadays to some issues of faith but from the silence of many in "the Church" on the social ills of this country you would never know it. "Sin all you like during the week just as long as you attend Mass on a Sunday" appears to inform the approach of many (although I would be the first to admit, not all. I have many wonderful Catholic friends). No wonder there is little incentive to change attitudes. To those who have lived outside of the Philippines, some of the practices of the "Church" do appear to fly in the face of rationalism and at times borders on irresponsibility.

Yes, the Anglican Church does have women priests, even women bishops and—shock and horror—in the United States it has also ordained a gay bishop. Gay relationships are accepted. So what? Perhaps to some this may be overly progressive but it is as well to remember that it was the Anglican Church that has time and again taken the lead in defining social justice, be it the abolition of the slave trade, the abolition of child labour, the right to a decent wage and working conditions (a century before the ILO took up the same issue) and the universal right to education even among the very poor. More recently it was Archbishop Desmond Tutu, the Anglican Archbishop of Capetown and Primate of South Africa who was instrumental in leading the fight against apartheid. Time and again, in the U.K. and America it was the Anglican Church which directly as a Church and indirectly through its adherents, that influenced the course of participatory democracy.

I mean no disrespect to my Filipino friends, but where was their "Church" on these issues? Where is their "Church" today? Yes, Mr. de Quiros, social justice seems to be of little concern to many clerics in the Philippines. "You cannot be pro-mining and also a Christian" rants one bishop. What poppycock. Does the "Church" have a vested interest in keeping people in ignorance?

What happened to the spirit of Oscar Romero, the late Roman Catholic Archbishop of El Salvador who was assassinated in 1980 for his social stand against oppression of the poor by the right-wing government of the day? Who fights for social justice in the Philippines? Sadly too often, in spite of its infallibility, the "Church" has been found on the wrong side of history.

Back in 1762 a British invasion force briefly occupied Manila during the European "Seven Years War" which Britain had entered earlier that year with a declaration of war on Spain. In 1763, the Treaty of Paris ended the war although bereft of internet and cell phones, the news did not reach Manila until the following year. The British, so the history books tell us, were farewelled with much banqueting and fanfare by the Spanish. It was not until the arrival of the Americans that the Anglican Church gained a toehold in the Philippines with missionary work among the un-Christianized mountain people of Northern Luzon. In the Philippines today it remains regarded as a church of the poor and the marginalized. 

Had the British decided to stay back in 1764 and, with an enlightened and reformist church following them, the story of this country might have been written somewhat differently. You can blame the present state of affairs on the British. 

Mr. de Quiros' article may be found here.

http://opinion.inquirer.net/inquireropinion/columns/view/20080515-136597/Natural

The consequence of consequences

In dealing with Climate Change, adaptation as well as mitigation is needed in order to protect human activity and develop social resilience

Our Executive Forum meeting last month (April 2008) looked at the issue of climate change. The record of that meeting has already been circulated to members. Our meeting was followed in quick succession by a second meeting on a similar subject hosted this time by the Asian Institute of Management as part of its globalization lecture series.

That meeting gave an entirely different—but equally valid—perspective, to the issues confronting humankind.

Whereas our own meeting took the traditional path and looked at climate change from the standpoint of mitigation efforts needed to slow, and eventually reverse, the rate at which anthropogenic greenhouse gas emissions are changing climate patterns, the AIM meeting took a rather more radical approach and looked at adaptive patterns of behaviour needed now in order to address change already upon us. It was an interesting contrast and in the interest of providing a holistic and balanced perspective to the issue, needs to be reported.

The A.I.M. meeting, which was sponsored by the Konrad Adenauer Institute, took as its own reference point the report "A climate of conflict—the links between climate change, peace and war" produced by London-based think-tank, International Alert (IA). IA is an independent peace-building organization that works to lay the foundations of lasting peace and security in communities affected by violent conflict. According to its website the organization works "…in over 20 countries and territories around the world, both directly with people affected by violent conflict as well as at government, EU and UN levels to shape both policy and practice in building sustainable peace."

The proposition examined was that climate change was already upon us and that the physical consequences of these changes have started to unfold. The consequences will be both physical—in terms of more extreme weather patterns, melting glaciers and shorter growing seasons, and social—in that the added uncertainty will heighten the risks of conflict and political instability, both within communities as between the "haves" and "have nots" and internationally between those responsible for climate change and those suffering the consequences. Change will come in the form of both sudden shocks as well as slow and incremental shifts but one thing is certain, the past cannot be used to predict the future.

Hardest hit will be people living in poverty in under-developed and unstable states and those under poor governance. Extreme weather events will cause drought, floods, reduce land fertility, create drastic changes to the crop output, rising sea levels, famine, displacement of communities, disease and pestilence. And these are just the start. Climate change has the potential to become a "threat multiplier" if the consequences are not addressed through appropriate policy and attitudinal shifts.

Thus alongside mitigation strategies (which are now the focus of growing political attention) we also need adaptive strategies to allow us to survive as cohesive societies. Adaptation has so far failed to attract serious advocacy, yet the need is the more urgent one. The key risks to be addressed through adaptation include (a) increased political instability, (b) economic weakness, (c) food insecurity and (d) demographic shifts.

This proposition is of particular importance to the Philippines as it is one of 46 countries—home to 2.7 billion people—considered to be most at risk. A total of twenty provinces in the Philippines are vulnerable to a one-metre rise in sea level and these are in those regions with both the highest poverty incidence and greatest food insecurity. Naga City in Albay province would be among the first to suffer and would all but disappear with a one-metre rise in sea-level.

The IA report puts forward the proposition that climate change needs to be treated as an opportunity and become the occasion for enhanced interational, national and local cooperation. It has to engage governments, the private sector and community organizations within the process. Although adaptation is starting to feature on the international agenda, it is mitigation that takes the lion's share of the headlines and the focus of funding and policy initiatives. A more balanced approach is necessary.

Two central motives should drive the international debate on adaptation: the need to maintain international peace and security as well as support for sustainable development. With cataclysmic events within the bounds of possibility, demographic shifts may be sudden and dramatic—remember the Vietnamese boat people of the 1970s? That sudden demograhic shift took more than a decade to address.

But while there is a need to direct international attention towards the adaptation aspects of climate change, the community is the vital level for action to take hold since at the end of the day; adaptation and conflict resolution has to take place within the communities themselves. Elsewhere it is called "stakeholder engagement." In this case, most communities are not aware that they are yet stakeholders.

International companies operating in at-risk countries have both an interest and a responsibility in safeguarding their investments by working together with governments and communities on climate adaptation. Business practices need to be climate sensitive. This is not a problem to be addressed in the future but needs to be integrated into corporate planning as of now—both as a contingency and as a further aspect of community engagement.

The key take-away from this meeting was that that there is a real and immediate risk that climate change will compound the propensity for violent conflict and that the Philippines is especially vulnerable. It is not poverty alone that drives the risk but the uncertainty and the perceived risk of future insecurity that amplifies current problems.

While the Philippines contributes only one half of one percent to global pollution and is not among those causing global climate change, it is certainly a country that will be among those suffering the most devastating consequences as a result of it.

Any programme—government or private sector—focused on adaptation has to be a bottom-up, rather than a top-down, approach starting at the community level; because community buy-in is essential to the process. A study of conflict dynamics shows this lesson very clearly. Now in dealing with conflict management and resolution, an additional variable needs to be factored into the equation or the risk of ultimate failure is heightened.

As an under-developed country, the Philippines faces an especially high risk of violent conflict created by climate change interacting with and compounding persistent economic, social and political concerns. On the other hand, as one speaker at the meeting noted, the Philippines was also known for its "adaptive" capacity. Sadly, however, the capacity for adaptation in this particular case is constrained by a number of factors: weak institutions and limited technology, poor resource bases and inequality of income. For government to address these problems, it will require some long-term strategic planning that goes beyond the next election. As Congress starts to debate Charter Change yet again, that may be too much to hope for.

Clearly there is opportunity here for the private sector and especially those which operate in rural areas to include these issues in their own planning and community consultations. Government is unlikely to take the lead but the issues are too important to ignore.

The times they are a changin’

Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone.
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'.

Bob Dylan on climate change
1964

Times are tough and by all accounts they are becoming more so. We read about it every day in the press now and, thankfully for Malacañang, people are becoming more concerned over rice, oil and the prospects of a US recession than they are about the latest scandal to hit government. This is a pity really because it makes reform,or the groping towards reform, even less likely than it was before. This can only lead the country into a tailspin.

Finance ministers from around the world met last weekend to grapple with the deepening financial crisis that started in the United States but which is now spreading like a virus to the rest of the world. Forget the 1997 Asian meltdown; the looming crisis has been described as "the biggest threat to the global economy since the Great Depression."

The latest US employment data suggests a labour market that is rapidly deteriorating. This is putting further pressure on the US housing market which in turn is facing a credit crunch. The problems of the US housing sector are now being felt more widely. The problem has grown beyond the US sub-prime market and—in part because some central bankers are responding to the weakening US dollar by raising interest rates in an effort to avoid inflation—now has global implications with house prices receding in many markets. The US dollar continues to slide putting additional pressures on those countries who have tied their own currency to the greenback.

Both the Economist Intelligence Unit as well as the IMF have this past week reassessed their global growth forecasts for this year and next. Both come up with very similar numbers. The IMF now sees world growth this year at 3.7 percent and at 3.8 percent in 2009. The EIU forecast is 3.7 percent this year rising to 3.9 percent next year. (Both are at Purchasing Power Parity rates although assumptions may vary.)

The IMF believes that there is a "25 percent chance that global growth could fall below 3 percent this year—equivalent to a global recession." This is scary stuff. Up until recently we were all expecting slower growth this year but nobody was talking about a global recession.

Both the IMF and the EIU see the chances of a mild recession in the United States as becoming more likely. Indeed the EIU believes it to be a certainty although a slow rebound is expected in 2009. The pace of the rebound will be largely governed by lingering problems in the housing market and balance sheet adjustments of US banks.

Inflation at a decade high

Rising food and energy costs are prime drivers of global inflation at the moment. In developed economies the annual consumer inflation rate is now up at around 3.5 percent while in the emerging economies is has risen to around 6.5 percent (a consequence of the fact that food and fuel prices assume a higher proportion of spending patterns in such markets). Both are trending sharply upwards. Core inflation is not rising as quickly as overall inflation and responses have varied. Central bankers in the US and in the UK are focusing on the risk of recession by cutting interest rates so as to stimulate spending while elsewhere interest rates have been raised in an effort to reduce liquidity and slow the inflation rate. The results are uncertain—remember "stagflation"?

The benign inflation environment of recent years is believed to have come about as a direct consequence of globalization and the transfer of much of the world's manufacturing resources to countries such as China, India, Russia and the former Eastern bloc. But wage rates in these countries are now increasing rapidly and the goods they manufacture for the world market are becoming more expensive adding to the squeeze on consumers and nowhere is this more pronounced than among the poorer sections of society. Globalization as a factor in ensuring a low-inflation growth climate may now be a thing of the past.

Many countries, China and the Philippines included are raising workers base salaries to mitigate the effects of inflation but this itself is inflationary and only protects those in the formal sector (which in the case of the Philippines is only a fraction of the workforce) and only serves to worsen the plight of those in informal employment and who are usually at the bottom of the social pyramid.

Exchange rate volatility

While the US currency continues to show a longer-term decline, financial markets generally are becoming more volatile.

According to a recent G7 communiqué, the Euro has risen more than 17 percent against the US dollar over the past year and is believed to now be overvalued—"no longer in line with economic fundamentals" is how the EC Commissioner for Economic and Monetary Affairs described it recently. This overshoot has already impacted on European exports and contributed to the economic slowdown there.

Part of the currency problem is due to the present current account imbalances—most notably that of China and the Gulf States. And emerging markets are flexing their financial muscle—as the Philippines knows only too well in its recent dealings with China.

A realignment is called for but it will not come about easily. China, the biggest winner so far from recent growth is slowly appreciating the Renminbi but continues to do so at a slow pace and to the chagrin of the United States which pays much of the price for an undervalued Chinese currency.

Food and energy

According to the World Bank, global food prices have increased by 83 percent during the past three months and by 147 percent over the past year. Farm costs are increasing around the world and cost pressures on the agricultural sector are intensifying as fuel and fertilizer costs soar in price.

Rice prices have more than doubled since the beginning of 2008. World Bank President Robert Soellick warned recently that 33 countries—the Philippines and Indonesia among them—were at risk of social upheaval because of rising food prices. Rioting over the rising cost of food, which can account for up to 75 percent of a family budget in the poorest communities, has already broken out in several African countries and in Haiti the president was forced to resign over the food price issue. No wonder Malacañang is taking the rice issue very seriously indeed.

The high price of oil—which this past week broke the $112 per barrel for May 2008 delivery—has been blamed largely on speculators but while speculation is playing a role in the food market too, it is not the primary factor. US policies pushing corn-based ethanol have been singled out for criticism at recent international meetings but this too is only part of the story. Commodity prices are rising generally as populations in emerging markets become more affluent and with the emergence of a middle-class with middle-class appetites. The general consensus is that high food prices will be around for a while. Countries such as Brazil that base their ethanol production on sugar are in a good position to reap the benefit of the changing market condition. Is there a message her for the Philippines?

As several analysts have pointed out the real danger of food scarcity comes from reverse protectionism as countries move to protect their own food reserves by banning or taxing exports. Indonesia, which is experiencing a bumper harvest and is expected to produce 32.63 million metric tons of rice this year (and with a surplus of 1.2 million tons), has said it will ban private commodity traders from exporting Indonesian rice. Indonesia's long-term position remains precarious however, although for the moment it appears to have the situation under control.

Not so in the Philippines which continues to be the world's largest importer of rice due in large part to the short-sightedness of agricultural policies. According to the Bureau of Agricultural Statistics, annual per-capita rice consumption in the Philippines grew by 28 percent to 118.7 kilograms per year in 2006 from 92.53 kg in 1990. That works out to around 11 million tons of rice a year in total. This year local consumer needs will be met by importing 2.2 million tons of rice from neighbouring countries—assuming supplies are available.

Per capita rice consumption is higher in the Philippines than elsewhere in Asia, mainly because of the lack of other dietary alternatives. Rice consumption generally declines as per capita income increases. In Japan the comparable per capita figure is 61 kg; in Taiwan, 48 kg and in South Korea, 79 kg. These numbers put the political importance of rice supply into perspective.

As pointed out in the April 14 2008 issue of the Wall Street Journal, "alone among World Trade Organisation member nations, the Philippines imposed quantitative restrictions on rice imports, implemented by a government monopoly." The result has been domestic rice prices that have been historically around twice the global price while, ironically, local rice farmers have remained among the poorest of the poor. In the highly politicised environment (which will only get worse in the run up to the 2010 presidential election) there is much finger-pointing and stop-gap measures being put in place but no sign of a longer-term strategy.

Climate change

This commentary is about global uncertainties and would be incomplete without a mention of climate change. Climate change remains the wild card in the pack. There is now little doubt that human-induced activities are changing the world's weather patterns and the rate of change is accelerating. Extreme weather events are increasing. Eleven of the twelve warmest years on record (at least insofar as the last two centuries are concerned since records were first kept) have occurred since 1995. In the summer of 2007 the Arctic Ocean had 23 percent less permanent ice cover than it did in September 2005. This not only means rising sea levels but also—because of reduced reflectivity and greater absorptive capacity of sea water compared to ice—the rate of global heating is increasing. A number of scientists believe that the world is close to the "tipping point "if it has not been reached already. (At present rates of decline in the polar ice cap, it will be possible to sail to the North Pole during summer months by 2015.)

The Philippines because of its long coastline and coastal communities as well as because of its location in a typhoon belt is one the countries at greatest risk. More on climate change another time (this subject will be dealt with in our Executive Forum meeting next week) but we point out here that once more the Philippines appears to be ill prepared.

Uncertain times indeed

The Philippine government now concedes that it may have to lower its official gross domestic product (GDP) growth target range (of 6.3 percent to 7.0 percent ) for 2008 though is still hopeful that growth may yet come in at the lower end of the forecast provided remittances continue to grow and support domestic consumption.

But already there is an obvious shallowness in efforts to talk up the economy. While remittances, investments and exports may be increasing in dollar terms (helping the balance of payments data and gross international reserves), in peso terms the reverse is the case. Filipinos are earning less for their exports and remittance income is buying less. Heaven help the country if remittances actually start to decline. The net OFW outflow appears to have been around 370,000 last year compared to twice that number the previous year. This is not a good sign.

The IMF takes a more sober view and assesses domestic growth prospects for the Philippines this year at 5.8 percent and the same for 2009. The Economist Intelligence Unit, its latest country forecast, predicts 5.4 growth this year and 5.5 percent for next. We believe that these numbers are more believable but may yet turn out to be optimistic. The trend of forecasting is clearly downwards.

Even so, the number of people going hungry in the Philippines has increased despite the unprecedented global growth of the past decade which has washed off onto the Philippine economy. If the government could not get it right before, what chance does it have now?

The times they are a changin' indeed. Times are not only getting tough; they are getting downright dangerous.

The mining industry in India starts to be noticed

An article in last week's Wall Street Journal Asia (see: India Unveils Details in New Mining Policy dated April 11) should be a salutary reminder that the Philippines is not the only game in Asia when it comes to country prospectivity and development of the minerals industry. India is certainly playing catch-up—according to reports, only 2.3 percent of the country has been explored for mineral deposits—but suddenly the Philippines may have competition for the investment dollar.

India is not there yet. The intention to develop a new National Mining Policy was foreshadowed in mid-2006 and the draft legislation was approved by India's Cabinet only last month. It still has to face the hurdle of a rambunctious national legislature and easy passage is not a certainty. But the new policy signals a more aggressive approach by India to attracting the investment dollar and, if approved, will likely bring that country into sharper focus.

Mr T. Subbarami Reddy, Union Minister of State for Mines, said at a recent infrastructure conference that the Indian government is looking for fresh annual investment of up to $2 billion as a result of the new policy.

According to reports, this new policy has three major focuses designed to fast-track investment into the mining sector. Firstly, the new policy will allow minerals exploration companies to go direct to the production phase without risk that others will come in and exploit the discoveries made; secondly it will allow exploration companies to sell their mining concessions to others at a profit if they do not wish to carry out the commercialisation themselves and finally, it will permit the auction of rights to minerals discoveries made by publicly funded entities to private sector investors.

India is understood to have substantial reserves of bauxite, iron ore, manganese and gold. In addition the minerals map of India shows deposits of lead and zinc, copper and coal.

In a market where there is growing global demand for metals across the spectrum, these are not necessarily commodities that are in direct export competition with the Philippines; the primary danger could come at the exploration stage with companies attracted by the vast expanse of India that remains untapped so far and the fact that minerals discoveries once located can be exploited or the rights sold to others. Clearly this seems a much better defined concept than the tangle of production sharing or FTAA agreements required of companies operating in the Philippines. At least it may appear so although we would be the first to admit that the devil will be in the detail. The point is that attention of investors may be distracted. There is the added factor that much of the metals production that will be taking place in India will be meeting the domestic demand of the world's second fastest growing economy. Export? Who cares?

Before getting too carried away we should add also that India is not immune from the problems of local governments, environmental lobbyists and insurgents. Mining in India is likely to encounter many of the same troubles faced by the Philippines. But will the Indians prove to be fleeter of foot in solving them?

Secretary Atienza, the present "Philippines mining czar" was in Singapore last week leading the Philippine delegation to the annual Asia Mining Congress and, as expected, he gave an up-beat assessment of the local industry. Between now and 2011, according to Secretary Atienza, the industry is expected to grow five-fold and bring in another $9 billion to the 1.4 billion already invested.

We agree that progress is being made in developing the industry here in the Philippines but the pace of that development remains agonizingly slow. We are told that minerals exports were up by 5.5 percent last year in US dollar terms; but in a situation where the dollar declined against the peso by more than 15 percent, that is hardly much of an accomplishment?

And if there is a shortage of industry specialists now, how will mining companies cope if the industry is five times the size? Nine billion dollars within the next two to three years? Given the present track record, we doubt it.

Indeed, with financial problems in the global economy becoming more serious, the investment shine may already be starting to fade. If Mr. Atienza is serious about bringing in the investment he has promised then now more than ever "time is of the essence."

Mulcting motorists (revised blog)

Local governments argue over traffic ticketing—but read between the lines

 

It seems simple in theory; a single traffic and vehicular enforcement system for Metro Manila roads and to be implemented by the Metro Manila Development Authority (MMDA). As the situation is now, each "city" within the greater Manila metropolitan area sets its own rules and enforcement procedures. Executive Order 712 issued by President Arroyo on March 11, the same day as a one-day transport strike that crippled the national capital, was intended to resolve this problem by making the MDDA the agency responsible—but as is so often the case, the local mayors cannot agree.

Republic Act 7924 which provides the mandate for operation of the MMDA states that the agency "will install and administer a single ticketing system, fix, impose and collect fines and penalties for all kinds of violations of traffic regulations, whether moving or non-moving." However the Supreme Court has ruled that the MMDA can only enforce traffic laws or regulations when given the power to do so by local government units involved. So far, four of the cities that make up the greater Metro Manila area are opposing the scheme. Those opposed are Makati, San Juan, Navotos and Pasay City, each of which wishes to continue to issue their own regulations and set their own standards for traffic violations.

This can lead to absurd situations in that vehicles that are perfectly legal in one metro jurisdiction can be illegal in another. Protective number plate covers—for example—is illegal in Makati even those affixed to a vehicle at the factory prior to delivery. Yet so-called "vanity plates" (special plates such as "ASEAN SUMMIT" that cover and disguise the real licence plate number are tolerated.

As of the time of writing an interim compromise appears to have been reached whereby, according to MMDA Chair, Bayani Fernando, MMDA will enforce laws on national roads while local roads will continue to come under the supervision of local mayors. The new scheme, supposedly went into force on Saturday March 29. In the meantime a "technical working group" will seek to thrash out the differences.

On the surface this issue is about a logical rationalisation and harmonisation of Manila's chaotic road system but many suspect the real fight is about money. Mulcting of motorists by so-called "enforcers" is a lucrative pastime on Manila roads and the confusing mismatch of rules and regulations makes it so much easier to redistribute wealth from motorists to the enforcers. Traffic violations are usually settled on the spot with payment of a non-receipted fee.

So at risk of getting personal, let us quote a few examples:

The "no right turn on red" sign outside the InterContinental Hotel in Makati appears to be there just to catch motorists. It is a non-standard sign in a non-standard place that might just as well be hand-written and goes unnoticed by many motorists. The first time that is. Why is it that when traffic is turning left (thereby preventing any through traffic) it is illegal to turn right? The option is to get a ticket or pay on the spot.

While in Makati, we cannot overlook the scam that occurs at the Ayala and Makati Avenue intersections where one group of enforcers waves the traffic on in spite of a red light while a second group waits the other side of the intersection to fine the motorists who obey the first group. This is designed to catch people who wish to make a left turn towards Greenbelt.

From experience, Makati police typically charge motorists Php200 as an alternative to license confiscation while MMDA enforcers charge between Php500 and Php850. Receipts are not issued.

Motorists of course have an option. Option 1 is that the enforcers will write a ticket, take your license and force you to go to their head office to pay the P2,000 fine before you can legally drive again.

Or to save the inconvenience, you have Option 2. You can plead guilty to a lesser charge (unspecified) and pay an on-the-spot fine of Php850 which goes unreceipted. Ask for one and the stock answer is "If you want a receipt we have to fine you Php2000 and you can get the receipt when you pick up your license." Is it surprising that most motorists plead "no contest."

Want to know what you are being charged with? Usually it is "reckless driving." This can be manoeuvring ("swerving") to avoid a tricycle, an alleged illegal turn or crossing an intersection on an orange light. This at least was the claim of the officials that stopped us last weekend in Alabang (but what were they doing on a local road anyhow if the MMMDA were supposed to be on national roads?) The defence that the choice was between proceeding across the intersection as the lights changed or jamming on the brakes and being rear-ended by the jeepney behind us cut no ice. Our only consolation—the jeepney got collared also.

A few weeks back we were travelling north on EDSA and trying to enter the Farmer's Market in Cubao but were unable to make the right turn needed because buses were blocking the intersection. We had no choice but to continue along EDSA. We had gone only a few yards when the MMDA stopped our vehicle because we were in a "bus only" lane. "No, we are not we declared, we are trying to make a right turn." But we didn't make the turn did we? It cost us Php500 on that occasion. And yes, you are right, the MMDA had no interest in the buses causing the obstruction.

Last weekend in Alabang, we stood and observed the sting operation (for that is what it was) for 30 minutes and on average with each change of lights, five vehicles were flagged down. If that works out to one vehicle per minute and each motorist chooses to pay the P850 (rather than the unattractive alternative of going without a license, having to go to MMDA headquarters to reclaim it and then pay a Php2000 fine) then that one intersection nets the enforcers around Php50,000 per hour. No wonder there is a fight over who controls this particular racket.

In the overall scheme of things, this hardly rates as an issue except that it is yet a further example of how petty corruption pervades society and undermines the image that the Philippines tries to project of itself as a friendly and caring society. The system appears designed to confuse and hinder—thereby providing the opportunity for mulcting.

There are solutions of course: legalise on-the-spot fines for genuine offenses, have a single national set of rules for vehicle enhancements rather than the absurd situation where places such as Makati can override national rules, and make receipts for violations mandatory. But that would spoil the fun wouldn't it?

Mulcting motorists

MMDA officials soliciting donations outside
Filinvest in Alabang on 29 March 2008

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