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Posts Tagged ‘recession’

[My forthcoming column in Catalyst].

The predicament of Philippine Air Lines, the nation’s flag carrier essentially parallels the problem of the Philippine National Bank, the erstwhile government’s own bank (which is in the process of a merger with Tan’s own Allied Bank). In both cases, the cause of the problem was named Lucio Tan.

The essence of the Tan strategy was to buy into the government asset at a minimum share percentage to establish a bridgehead, cajole the government (or as some put it, put forward an offer some key public officials cannot resist) into deciding for the privatization of the asset. When the asset is sold to the Tan group, the most profitable components of the asset are stripped away or transferred to a similar Tan-controlled company. Then, the now-unprofitable government asset is left withering on the vine and eventually dies.

Or, if it can still be cajoled further, the government infuses more money into the asset and the asset redirected to new markets (with the big advantage of having the government on its side). Eventually, the asset is still merged into a Tan-controlled company and is left to die.

PAL has always been a problem for the TAN group because it has been milked before by the past managements and it miscalculated the effects of the Asian crisis of 1997 and the rising oil prices. It has also to contend with various new competitors, notably the Cebu-Pacific Air. Its own Air Philippines languishes.

Tan has an additional problem with PAL. As a national carrier, it has certain advantages in the international routes, such as preferential treatment for national carriers, first choice in newly-opened routes, and as official government carrier. However, these advantages cannot be carried over to Air Philippines in a merger, and if Tan continues to operate PAL, it would only compete against Air Philippines and cause losses for both. Additionally, it has to contend with stricter requirements for air travel as a national carrier, suffer stricter government supervision (it is still partly owned by government), and cannot compete favorably against the new king of the sky—the budget airlines such as Cebu-Pacific Air.

Tan’s solution is to squeeze PAL more within these limits while attempting to convince government to assist it in its merger plan (straightforward or de facto) and to transfer the national carrier status to Air Philippines. This is the context of the move to emasculate PAL’s independent capability for various services such as catering, maintenance, and other ground operations by outsourcing these to other TAN companies (which also service Air Philippines). At the end of the day, the two TAN airline companies will have been indistinguishable from each other.

In the meantime, the 2,600 PAL ground-based workers are forced into early retirement or re-hired into TAN’s service companies at reduced benefits. The fate of PAL’s pilots and air stewards and stewardesses is not far behind.

PAL should not have been outrightly privatized and should have remained under government control, not only for economic reasons but also for political and security reasons. Tan himself is heavily investing in China and has partnered with prominent Chinese businessmen identified with the Chinese government. Just like in the ZTE-NBN case –in which security concerns have been raised—the PAL case also has a security angle, especially in the light of tensions in relations with China.

The PAL case demands a longer-term solution from government. So far, the Aquino administration has sided with Lucio Tan. What magic does Tan have to inveigle Philippine presidents, all the way from Marcos, into agreeing with his schemes?

Remember, in PAL’s case, greed does not fly planes.

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So far, the China visit of President Aquino has produced agreements on the economic and business side but minimal on the political and boundary issues. There is a definite toning down of expectations regarding the latter although much hype has been done on the former.

Of course, this is as it should be, given the complexity of the territorial claims issue, intertwined as it is with strategic geopolitical ones and the prospects of huge gas and oil deposits in the areas being claimed. To the extent that they can play down the tensions associated with widely-varying positions on the claims, the two sides evidently relegated the issue to future negotiations, including the latter’s terms of reference.

What the two sides are doing is still in the confidence-building stage. Aside from the obvious business and economic benefits derived from the agreements so far, the visit conveyed to each party the other side’s willingness to talk over the territorial claim issue.

The Philippines, in addition, also offers its own incentive to include the possibility of a joint oil exploration in the contested areas outside of its own exclusive economic zone. China seems hesitant so far but the offer is tempting since it does not bind future arrangements.

China also tempts the Philippines with prospects of more economic ties, including a US$60 billion investment, a US$7.7 billion development investment loan, and a ten-fold increase in tourist arrivals. On its own, this economic package, if realized, offers a huge safety net in the face of the worsening global recession. If used wisely, this can stabilize and expand the domestic industries and lay the foundations for sustained economic growth, at least in the medium term.

The visit will not, of course, stop the current military, diplomatic, and political strategies being pursued by each party in relation to the claims in the South China Sea (also called West Philippine Sea). However, it should lead to a more manageable future negotiation and less tension in the area.

China has made a major move in the Chinese checkers game with the economic and business gambit. And it seems, the Philippines wants to be part of the play, rather than be a mere chip on the board. It wants to reconfigure its ties with China—as a friend and partner rather than as a perceived minor power with overweening ambitions.

How will the United States, a close Philippine ally with considerable interests of its own in the area, craft its reposté? Definitely, it will not let its own bargaining power weaken in the face of the success of President Aquino’s China visit. An official visit to the US perhaps?

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The Social Weather Station, in its survey from March 4-7, 2011, disclosed a disturbing trend in President Noynoy Aquino’s satisfaction ratings. Across all the ABCDE groups and throughout the entire country, there is a definite downward trend.  His net satisfaction rating went down 13 points to +51 (69% satisfied minus the 18% dissatisfied) from November’s +64 (74% satisfied, 10% dissatisfied).

This is not yet something to be worried about, and the over-all trend is still positive. However, there are two conclusions that can be made: first, there is already a transitioning away from his political honeymoon with the people; and second, the primary basis for judging him from now on is his performance.

To be sure, President Noynoy’s satisfaction ratings has started at a very high level and there’s no way but down. However, he has gone down  more rapidly and now is unfavorably below the comparative ratings of previous presidents, except Gloria Macapagal-Arroyo. Nine months into their term, his mother, Cory Aquino, has satisfaction rating of +69, Fidel Ramos has +66, Joseph Estrada has +67. Gloria Macapagal-Arroyo has only +27 in November 2001 and -12 in March 2005.

Apart from the symbolism of the ill-advised Porsche purchase, the more serious cause of the present downtrend of President Noynoy’s satisfaction rating is the perception that his administration does not have a comprehensive program of government, reacts only to current events, and has misplaced priorities that do not address the urgent crises situations that confront the nation.

From the high inflation rate, job insecurity and perils of the overseas Filipino workers, and local job creation to urgent political reforms, there is a developing unease on how this administration tackles them. Worse, there is the growing impression that this administration is more intent on power consolidation, flexing its political muscle, and vindictively going after its political enemies.

An example is the complete lack of appreciation of necessary electoral reforms such as the passage of the political party reform bill and reforms of the automated election system. It would rather spend its political capital in an unnecessary synchronization of ARMM elections and in setting aside the scheduled ARMM elections, thereby complicating an already complicated situation. Its anti-labor decision in the PAL case is also being seen as an indicator of future labor policies. Now, everybody is waiting for the presidential approval for the Marcos burial in the Libingan ng mga Bayani.

The greatest fear here is for the matuwid na daan to turn into detours and eventually ending up at the same crossroads. There is still time to straighten things but the seemingly unending string of patience is simply not there anymore. The honeymoon is ending, and soon.

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The plight of overseas Filipino workers in the Arab and Middle East countries should be attended to and immediately!

A new order is coming into being in these countries–and depending on specific national conditions–Filipino OFWs will have to contend with its implications. The Aquino government should not underestimate these implications, not only to the OFWs themselves but also to our oil supplies, to inflation, local and global job availability, government tax income, Moro situation, great-power rivalry, international terrorism, and our democratic people power legacy.

The loss of possibly hundreds of thousands of jobs in these countries can lead–in the medium term–to a dip in the Philippine GNP growth. In a situation of global recession, this can lead to a “squeeze” effect when foreign jobs gets scarcer even as new graduates enter the labor market and the local job market cannot sufficiently expand to accommodate the slack.

Oil supplies may also suffer even as the oil prices shoot through the ceiling. This is also a “squeeze” situation where scarcer but pricier oil and gas products drive up inflation even as foreign reserves scramble to cover higher-priced oil importation.

The government basically and indirectly taxes the OFWs through their remittance spending (consumer goods in malls, land and housing acquisitions, tourism, and other family-based spending). This will slow down and marginal business may collapse. Government income may thus take a hit.

As instability engulf the Arab world and the Middle East, big powers will increasingly compete for scarce resources–not only in these countries but throughout the world including southeast Asia. We are already well within the ambit of this hidden “resource war,” as a possible major resource for oil, gas, and other minerals.

Politically, we are also vulnerable to the events in the Arab world and in the Middle East because of our own Moro Muslims–who have living ties to the Arabic world. The Al Qaeda network extends into the region and into the Philippines. And to a certain extent, the events there mirror our own 1986 people power.

It is now a question of when–and not if–a major global crisis hits us from the events in the Arab world and the Middle East. The crisis opens both the door to our own crises and our own opportunities. Interesting but dangerous times. Also, dangerous but interesting times.

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This early, the opposition tries to highlight and bring to the fore the issue of Hacienda Luisita and its redistribution to the farm workers and peasants in the hacienda. In so doing, there is the attendant pressure on one of the  hacienda‘s more prominent stockholder, President Noynoy Aquino, to order the redistribution.

The call for putting the Hacienda Luisita under the Comprehensive Land Reform Program is correct. This is not only because the constitutional and legal requirements are fulfilled but also because the Hacienda has become a politically-sensitive issue that will have a bearing on the entire government land reform policy and on the Aquino administration’s popularity itself.

The call for redistribution of individual plots to farm workers and peasant-tillers may not necessarily be correct however. The hacienda falls under the category of an enterprise farm–its main crop is sugar–that is best planted and managed on a large scale. CARP itself–and for that matter even the CPP agrarian reform program–recognized this characteristic of a large plantation and recognized the retention of the plantation. Chopping off small plots (less than a hectare) for individual farm worker or peasant family will be an impractical proposition.

The real issue then is: how to apply the concept of a large farm enterprise within a regime of the land reform program. Obviously, redistribution is an option, although not a viable one. The other options are to maintain the enterprise farm as a corporation or to establish as a cooperative  with the farmer/peasant together with the former owners (who have their own shares) acting as stockholders and jointly deciding on the management of the farm.

The current option by the Cojuangco family is to form a corporation and distribute minority SDO stocks to the land reform beneficiaries, while retaining the majority control and management of the corporation. they also contend that only a portion of the hacienda is subject to CARP. This option effectively goes against the spirit and even the letter of the land reform law. If upheld by the Supreme Court, this would pin down the generations of farm worker and peasant families to a life of penury.

The only viable option within the context of the present administration, I think, for both sides to the controversy is for the state to buy out the hacienda, give the Cojuangco family their share of the land, and run the rest as a single cooperative enterprise. The alternative is one of mutual destruction–neither side has the capacity to force the other side to accept its position.

The SDO option is touted as a solution because of the claim of its acceptance by at least 70% of the beneficiaries. However, on its face, it cannot support on a long-term basis the families of the beneficiaries. The issue will only recur again and again.

The other extreme–distribution of individual plots–is also not capable of sustaining even on a short-term basis the families of the beneficiaries. A distributed plot is simply too small to sustain a family. It will only open the situation for land speculators to come in and get the land.

The Aquino administration has the opportunity to make a grand gesture for land reform in the country. How it will handle the Hacienda Luisita  issue will have repercussion on the other and more problematic cases of privately-owned haciendas all over the country. It will also have an implication on whether or not it can create a wide enough domestic market for a sustainable economic development for the country and our people.

The benefits of democracy start with the solution to the Hacienda Luisita issue.

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Let me project to 2009–the crisis year for the Philippines.

1. Cha-cha and GMA’s drive to retain power.

2. Seven retirements, seven appointments, and the crisis of independence and relevance of the Supreme Court.

3. Global recession and its effect on the Philippine foreign trade, foreign credit, foreign investments, overseas and local jobs, local business viability, local banking, and political stability.

4. The poverty and hunger crisis.

5. Oil price, exchange rate, and inflation crisis.

6. Continuing crsis of extrajudicial killings, forced disappearances, and media killings.

7. Crisis of the failed peace process and talks with the MILF and the CPP.

8. Election violence and election manipulation.

9. Credibility and popularity of the GMA administration.

10. Threat of some form of martial law and military’s political meddling.

11. Crisis of rampant government corruption.

12. Crisis in delivery of government basic services to the poor.

Some of these will be solved in 2009; others will worsen; and still others are treated by the government as non-crisis. The GMA politics of survival–if continued into the new year–can easily bring her administration into a role as part of the problem, not into the role as part of the solution.

A people power greeting to us all as we usher in the year 2009.

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The global recession is all but certain. The indicators point to this impending event: the negative or inconsequential gross domestic products in leading economies, near-bankruptcies in Iceland, Hungary, Ukraine and a few other marginal economies, free-fall of all stock markets, bankruptcies or near-bankruptcies of major national banks, investment houses, and insurance firms, dramatic profit losses or loss of earnings of vast swatches of industries, capital flight from emerging or marginal economies, falling exchange rates, increasing jobless situations, and reversals or huge decreases in foreign direct investments.

In the Philippines, the effects are beginning to show, as discussed in the article “Initial Tremors: Investments, Exports, Remittances” by Aya Fabros of Focus on Global South.

Foreign direct investment (FDI) declined by a sharp 60.2% in January-July 2008 compared to the same period in 2007, from US$2,400 million to US$960 million. This is a huge reversal from the figures in 2007, which showed a 138.9 % growth in FDI compared to the $ 1 Billion investment posted in 2006 for the same period (January-July). The US direct investment, in particular, dropped from US$621 million to US$205 million for the same period in 2007 compared t 2008.

Foreign portfolio investment or “hot money” also showed the same dramatic shift. From January to September 2008, it showed a net outflow of US$521.7 million, a sharp reversal from the same period last year, which posted net inflows of US$3.4 billion. The article cited BSP September figures that showed a net outflow of US$312 million, from net inflows of US$187.5 million in August and US$20.2 million in July.

Philippine exports are not yet affected much but the the growth rate has slowed down to 4.4%, comparing the figures from January-August 2007 to the same period in 2008. The growth is not however expected to last because of declining demand in major markets for Philippine products as a result of the coming recession.

The OFW remittances remain the bright spot it is with the continued growth of 17.2% for the period January-August 2008 compared to the same period in 2007. This is based on a continued growth of 26.4% in the OFW deployment. Again, this is the sector that is also vulnerable in the coming months due to the global recession.

The global recession to come will deliver a one-two punch to the Philippine economy. First, the direct effects of the global recession will affect the vulnerable sectors that are linked to the global economy: export-import, banking and finance, investment, OFW remittance, outsourcing, local franchises, and service contracts. Second, the induced local recession will affect basically the entire Philippine economy: businesses, jobs and employment, investment, real estate, mall operations, etc. Only those involve in basic industries such as retail trade, agriculture and food production, health, clothing, and education will be minimally affected.

We should all prepare for the inevitable. The recession, as an issue, has the promise of overshadowing all other issues.

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