Thinking politically

Opinion

Introspective by Calixto Chikiamco

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Posted on October 23, 2011 08:23:50 PM

To solve our economic problems, we have to think politically. Yes, you read that right. We need political solutions to economic problems. We don’t lack capital. Our savings rate exceeds the investment rate. There are 1.5 trillion pesos in Special Deposit Accounts in Bangko Sentral that banks are unwilling or unable to use for lending. With interest rates in the US and most developed countries near zero, there are trillions in capital that can be tapped for investment projects here.

We don’t lack technology. Technology can be imported especially in an age of globalization in markets, finance, and transportation. Singapore, for example, has powered its industries with imported technology in such areas as biotech, medicine, and IT. We can do the same.

We don’t lack skilled human resources. We have the scientists, engineers, doctors, and accountants, not to mention the craftsmen, plumbers, and electricians who can provide the soft capital for growth. We even have a surplus of human resources relative to jobs here. This is why we are exporting them.

We don’t lack natural resources. In fact, we have plentiful natural resources, compared to a country like Singapore or Taiwan.

What we lack is in the political realm -- in the realm of institutions, governance, accountability, and rule of law. People normally ascribe their parlous material condition to “corruption.” However, “Corruption” is a catchall phrase because what we confront are problems of collective action, regulatory capture, rent-seeking, and patrimonialism.

The recent floods in Bulacan and Pampanga illustrate the political dimension of economic problems. Because of the floods, investors now hesitate to put up factories and generate jobs in those flood-stricken areas for fear of a repeat of the disaster. However, is climate change to blame for the floods or is it government failure?

Scientists have pinpointed fish pens impeding the flow of water to Manila Bay as a cause but nothing was done in the past to dismantle them. The state is too weak to assert public interest at the expense of narrow vested interests.

Furthermore, disaster prevention, response, recovery, and rehabilitation are public goods that the state must provide. However, the state has failed miserably to fulfill a major function, partly due to lack of resources: lack of money for dams, drainage canals, communications equipment, rescue boats, medicines, etc.

And why does the state perennially lack resources? Again, because it cannot assert the public interest at the expense of narrow, private interests. It gives away valuable communications spectrum instead of selling them. It gives away tax revenues in the forms of tax and duty-free incentives to economically and politically powerful groups, such as mining companies, renewable energy developers, cooperatives, etc.

How do we go about thinking politically to strengthen the state?

1. We need to separate the political class from the economic class. Only a political class that’s accountable to the people via credible elections can provide the power balance to the economic oligarchy.

To do this, most feasible idea at this point is the public financing of political parties, and possibly of electoral campaigns. Without public financing, the political class would be totally financially dependent on the economic oligarchy to fund increasingly expensive campaigns and its own political activities. The other alternative for the political class is to self-finance campaigns through its own corrupt money-making schemes, which undermines its will and capacity to do good governance. We have seen how the corrupt schemes in the Erap and GMA administrations can be very destabilizing.

2. We need to solve the collective action problem of the political class. Because of the absence of genuine political parties, the political class is simply outmaneuvered, outmanaged, and outclassed by the economic oligarchy. The economic oligarchy has its conglomerates and legions of agents who can do collective, unified action on its behalf. The political class, however, is dependent on kaklase, kabarkada, kabarilan, kanayon,kumpare, kapamilya or other fragile ties cemented by personal relationships to do its unified, collective action. Because the political class lacks the organizational ability to act on behalf of the public interest, it’s too weak to confront the maneuvers and machinations of the economic oligarchy.

The vacuum of collective action in the public sphere is sometimes filled by religion (hence, the outsized influence of the Catholic Church in Philippine politics), an unhealthy characteristic for a supposedly secular society.

3. We need to strengthen the bureaucracy. The political class alone cannot act to balance the power of the economic oligarchy. By its nature, the political class has a very short-term orientation since it’s fixated on the next election. It also must raise money, somewhere, somehow, perhaps illegally or from donations given by the economic oligarchy, to be able to get elected again and remain in power.

We must strengthen the bureaucracy because it can complement and provide a balance to the political class: it can have a longer-term orientation than simply the next election, it can be professionalized so that merit rather than politics can be the basis for positions, and it can provide stability to policies since the bureaucracy will be there, irrespective of who gets elected.

Will mining companies invest in the country if the government can’t provide basic security? Will manufacturers invest if distributors of fake imported goods cannot be caught? Will farmers plant if their produce rots because the roads are too bad to transport goods on? The answer is obviously No, and not because interest rates are too high or the yield curve is too steep.

The path to economic progress doesn’t lie in economic reforms alone. We need to think politically. Making that connection -- between politics and economics -- is the real meaning of “kung walang korupt, walang mahirap.”

Calixto V. Chikiamco is a board member of the Institute for Development and Econometric Analysis.

For comments and inquiries, please e-mail us at idea.introspective@gmail.com.

http://www.bworldonline.com/content.php?section=Opinion&title=Thinking-politically&id=40369

Cheaper renewable energy plans urged

By ELLSON A. QUISMORIO

Manila Bulletin

September 26, 2011, 5:58pm

MANILA, Philippines — Groups from the labor and industry sectors have proposed before the Aquino government a more discerning path toward its renewable energy (RE) program.

In a joint statement, the groups said the government should concentrate on developing cheaper RE projects which in the end would be more beneficial to consumers of electricity in the country.

“Defer any high-cost Renewable Energy Program – i.e., solar, wind, ocean – and focus on the cheaper ones such as biomass and run-of-river hydro and implement them through public auction like in other countries,” the joint statement read.

Signing the statement were Francis Chua of the Philippine Chamber of Commerce and Industry (PCCI), Ernest Leung of the Foundation for Economic Freedom (FEF), Sergio Ortiz-Luis Jr. of the Philippine Exporters Confederation (PhilExport), David Chua of the Philippine Steelmakers Association and Rep. Raymond Mendoza of the Trade Union Congress of the Philippines (TUCP) Party-List.

The groups stressed that the application of such lower-cost RE programs should give priority to the off-grid or so-called beneficial areas and bring their dispatch to the level of distribution, in order to avoid additional transmission charges.

According to them, the direction and action of the RE Board must “focus on evaluating the development of RE generation in the country and its impact on the economy as well as the buying power of consumers.”

“R.A. 9513 is already complied with in substance as of now,” the groups said, referring to the Renewable Energy Act of 2008. The proposals were given amid concerns on the cost of electricity in the Philippines, now regarded as the highest in Asia.

Meanwhile, Energy Secretary Jose Rene Almendras insisted that the RE prospects in the country remain “bright” and continues to be one of the investment spots for power generation.

“There are available technologies that are now ready for aggressive implementation,” Almendras bared. He said each technology has its inherent economic and technical characteristics and must be applied to specific local realities.

"There are also primary economic considerations which require that we pace our RE programs learning from the difficulties experienced by other countries," he added.

http://www.mb.com.ph/node/335706/cheaper-renewable-energy-plan

Who are we?

BUSINESS
Who are we?
DEMAND AND SUPPLY By Boo Chanco (The Philippine Star) Updated September 05, 2011 12:00 AM



The 80-year-old Gen Jose Almonte was supposed to talk to the Foundation for Economic Freedom (FEF) about our China engagement strategy during our monthly meeting last week. But the general told us there is a more basic question we have to answer first, Who are we?


It is an important question, he said, because it is at the root of our malaise, our lack of credibility as a people not just to our neighbors and the world, but more importantly to us. We ourselves are not taking ourselves seriously. 


The Filipino has lost credibility with many Filipinos who in turn have expressed their disgust with their feet.


The general seems to be saying that if China is showing some disrespect in the handling of the Spratlys issue, it is only because we have made ourselves less respectable, less credible. We have to first put our internal house in order, the general admonished us, before we can move on as one people towards a common goal… like putting China in its place on the West Philippine Sea issue.


The general explained: “Though we were the first nation in Asia to recover its independence, we have yet to come to terms with ourselves. We have yet to settle the basic issue of nationhood: Who are we?


“We are supposed to be what our forebears fought and died for: a people of honor, dignity, freedom, justice, tolerance, compassion, hard work, discipline, caring – a people at peace with itself and the world. And when our people called for it, we did continue the struggle for dignity and freedom. During the 1986 People Power revolution, the world recognized our country as a leader in the global democratic movement.


“But the core values we won in blood, we did not use to truly define who we are – we did not use to build our nation --- we did not use to build our national identity, our Pilipino identity. We degraded ourselves when we allowed President Estrada to use the Presidency to indulge his personal vices. We diminished ourselves when we let President Gloria Macapagal Arroyo break our nation’s word of honor to our allies in the Iraq war to protect her domestic politics.


“We did violence to the legacy of the 1986 People Power revolution when President Aquino — to make up for government’s incompetence in the Aug. 23, 2010 hostage-taking rescue — boycotted the Oslo Nobel Peace Award at Beijing’s behest.


“We compromised our nation’s moral and spiritual development when some of our religious leaders proved inadequate at resisting worldly temptations.”


The General made his most telling observation and warning when he said: “And we do ourselves a grave disservice whenever, individually, we focus on serving our personal fortunes, without regard for what happens to the nation --- because individual success becomes meaningless in a failing – or a failed State.”

The General went on to bewail our inability to focus on national purposes and achieve national goals… our government unable to enforce all its writs, control corruption in office, eliminate patronage and guarantee even the basic liberties. We must, the General said, work to earn the world’s respect. “We must work to deserve our honor, our dignity, our freedom. We must live our core values. We must end our internal wars. We must transfer to the people the power of the few over the State.”

How do all of these relate to our problem with China over the Spratlys? The General thinks “even China cannot defy world opinion, whose moral authority derives from the global connectivity of humankind’s collective sense of right and wrong. And world opinion will incline to the nation that deserves the respect of the world community.”
Indeed!

George and Gloria

The reference of Gen Almonte to Ate Glue’s withdrawal of our troops from Iraq reminds me of a story I heard some years ago about how we lost our credibility with the Americans. As I recall the story, Ate Glue was supposedly on the phone reassuring then State Secretary Colin Powell that we will keep our forces on the ground. Secretary Powell then went on to call President Bush to convey the message of reassurance.

But shortly thereafter, the news wires reported we were pulling our troops. Powell couldn’t believe it. He checked the report himself and to his dismay, the report was correct. Powell tried to get back to Bush but Bush was already told by White House staff about it and he refused to talk to the state secretary. Powell lost his credibility in the eyes of his boss. So Powell told his aides that he was just astounded how a leader of a nation allied to the US, a woman at that, could tell him one thing and do exactly the opposite in a matter of seconds.

I guess the story was told to Obama when he took office, which explains why he refused to see Ate Glue on several occasions even when he was just within spitting distance in a couple of public events. Sending our troops to Iraq was stupid, as was that war. But breaking the promise once it was made, diminished not just Ate Glue but the Filipino nation in the eyes of our long time ally, the only remaining superpower on Earth. And we must have such chutzpah because after we have proven ourselves unreliable allies, we now expect the Americans to defend us if push comes to shove with China!

By allowing a two-timing (did I hear cheating too?) head of state to represent us in the world stage, what kind of people are we?

As Gen. Almonte puts it, if we can’t keep our word or live according to our ideals for which our heroes died, who are we?

Smuggling

Jesus Lim Arranza, Federation of Philippine Industries (FPI) Chairman and also concurrently the Chair of the FPI Anti-Smuggling committee, noted in his association’s newsletter that the government is losing P127 billion annually in smuggling alone. He noted that based on the International Monetary Fund data, the total exportation to the Philippines from 2002 to 2007 amounted to US$284.70 billion while the Bureau of Customs’ (BOC) records only showed US$195.01 billion or a disparity of US$89.69 billion.

Hence, the average annual disparity is US$14.95 billion or the equivalent of P747.50 billion (at the rate of US$1 to P50). Twelve (12%) percent VAT and an average duty of five (5%) percent will amount to a total revenue loss of P127.075 billion per annum. Looks like the new Customs Commissioner has his target all set.

San Miguel and PAL

I heard that San Miguel and PAL have engaged investment bankers to advise them on the proposed purchase of a significant number of shares in the airline by the energy and infrastructure conglomerate. In fact, I am told the due diligence is almost over.

If the deal happens, Ramon Ang will become CEO of still another major Philippine company. But the scuttlebutt is that Mr Ang will engage a large international airline to help him manage the Philippine flag carrier in a world class manner. That’s probably why the current PAL management is dead set on pushing through its plan to outsource non core functions in the airline. Not only will outsourcing improve PAL’s profitability and increase its sale price to San Miguel, it will hasten completion of the deal and thus liquefy a large part of Lucio Tan’s capital stuck in PAL. I guess San Miguel isn’t about to buy an airline that is over staffed, suffering serious labor unrest and sporting a bleeding bottom line.

San Miguel recently acquired the Malaysian subsidiary of Exxon supposedly to gain more refining capacity needed to enlarge its market share here. There are rumors in the industry that Caltex is thinking of leaving this market because it is too small and too troublesome to be worth it. If that happens, Mr Ang wants Petron to have the means to step up to the plate and take over the market share Caltex will leave behind.

A doctor and a lawyer

Atty Sonny Pulgar sent this one.

A doctor and a lawyer were talking at a party. Their conversation was constantly interrupted by people describing their ailments and asking the doctor for free medical advice. After an hour of this, the exasperated doctor asked the lawyer, “What do you do to stop people from asking you for legal advice when you’re out of the office?”

“I give it to them,” replied the lawyer, “and then I send them a bill.”


The doctor was shocked, but agreed to give it a try.


The next day, still feeling slightly guilty, the doctor prepared the bills. When he went to place them in his mailbox, he found a bill from the lawyer.


Boo Chanco’s e-mail address is bchanco@gmail.com. He is also on Twitter @boochanco

http://www.philstar.com/Article.aspx?articleId=723796&publicationSubCategoryId=66

RE policy: Is it trailing a not-so-happy ending?

By MYRNA M. VELASCO (SPECIAL REPORT PART II)

October 11, 2011, 2:52am

MANILA, Philippines — Are we missing the boat – or we’re recklessly rushing into bids of accelerating RE installation targets?

If the country, or the government for that matter, drifts into abandoning its own RE policy, stakeholders opine that such move would be tantamount to telling the whole world that: “while we have a fancy of passing laws, we are not really serious in implementing them. So next time, don’t even bet on placing your investments here!”

National Renewable Energy Board (NREB) chairman Pete Maniego Jr. has already started raising the concerns of investors and prospective ‘green energy’ lenders (including the multilateral financing institutions, banks and export credit agencies). That as gleaned from recent turn of events, “there were already apprehensions whether the Philippines would really implement the RE Act” – primarily its provisions on feed-in-tariff and renewable portfolio standards (RPS) among the major sub-policies.

“We might miss the boat again,” he cautions, adding emphatically that “it is almost the same sad story. The Philippines was the leader and innovator in the region. Other countries follow our example and eventually surpass us.”

Perhaps, the major consensus here is for the country joining the RE investment bandwagon. The differentiating factors albeit will still lie on cost impacts and what technology choices must flourish.

‘Bragging rights’?

Bids for the country’s supposed ‘glory’ at getting ahead into emerging RE developments is an idea being brushed aside by the Foundation for Economic Freedom.

FEF vice chairman Romeo L. Bernardo laments that “we cannot afford to spend recklessly just for bragging rights. Why do we have to buy expensive toys that we cannot afford now, just to show off to our neighbors?”

For the groups feigning that expensive technologies be installed immediately alongside the cheaper ones, Mr. Bernardo reiterates that the Philippines is not really lagging behind when it comes to RE integration on its power mix. “We have our own competencies, geothermal among them,” he says.

He further imparts that, in fact, “we have a very low carbon footprint and a very high renewable mix,” therefore; “we have nothing to be guilty about.”

Latching on the “polluter-must-pay-principle” of the Kyoto Protocol, he notes that countries like the Philippines “whose contribution (to global carbon emissions) is less than half of one percent (a rounding error)” will actually benefit from financial transfers via carbon emissions credits emanating from the so-called polluter-countries – which incidentally are the rich nations.

FEF opines that “the basic reason we are being bullied by developed countries into adopting their climate change agenda is that they see the growth coming from the emerging countries, while they have largely plateaued.” Yet if Asian giants, chiefly China and India would be taken off from the equation, the group notes that “we shouldn’t even be in their radar screen.”

Benchmarking

During the initial deliberations at the ERC on the FIT application, some groups have proposed rate benchmarking to ascertain if the proposed RE charges in the Philippines are within competitive levels with our Asean neighbors or at least, with similarly-situated countries.

State-run National Power Corporation observes that NREB leaned in part on its FIT rate computations on the experience of European countries, but “Europe’s condition may not be totally applicable to the prevailing conditions in the Philippines.”

The power firm notes that cost comparisons may be best matched up with the FITs being imposed in Malaysia, Thailand or a similarly-situated country like Ecuador in Latin America. The company points out that for solar, the Philippine rate of P17.95 per kWh is comparable to Malaysia’s P17.45 per kWh equivalent (but that is for its lower capacity solar range of only approximately 4 kilowatts (kW) not for the larger-scale installations envisioned here). For wind, Malaysia has no FIT because it has not batted for any installation on that technology yet. For hydro, the FIT rates of both Malaysia and Ecuador are lower at P3.256-P3.386 per kWh and P2.70 to P3.11 per kWh respectively, as compared to P6.15 per kWh in the Philippines.

The puzzling twist in FIT cost benchmarking, of course, tugs its way into Thailand’s case – wherein the country was able to offer cheaper FIT rates, and that is even within conditions that their lock-up period is shorter at 7 to 10 years. Its FIT rates (or what it refers to as “adder” rate for RE) would be as follows: 8 baht or an equivalent of P11.36 per kWh (solar): 3.5 baht or P4.97 per kWh (wind); and 2.50 baht or P3.55 per kWh (biomass). Of course, that would have to be added to Thai’s retail power rate of 3.0 baht or P4.20 per kWh equivalent.

Bidding or no bidding?

Another hotly-debated topic relative to the flow of investments in the renewable energy sector is: whether to have a bidding on the award of the DoE-approved installation targets or these megawatt-capacities can just be cornered by some parties according to their own whims.

It is not helping much also that Energy Secretary Rene D. Almendras doesn’t seem to have a firm stand on the issue yet – in spite of the fact that his department will be committing billions of pesos of the Filipino people’s hard-earned money to subsidize these RE projects.

Industry talks are rife that some investor-groups have already divided “secretly” among themselves these installation targets – or that they already set the rules to ensure that their projects can be accommodated into the allocations.

The discomforting pretext is that: it’s not the government policymakers – not the DoE, Congress or the industry regulators – who have been calling the shots here. If policies are not implemented right, the RE subsidies would turn out to be the energy sector’s biggest scam yet.

“Everything would just be a legal play. The RE Law does not provide for a bidding, therefore, there is no need for a bidding,” one RE project developer reasons out.

This early, House committee on energy chair and Joint Congressional Power Commission co-chair Henedina Abad cautions that “an auction process must happen” in the award of the installations. Otherwise, she avers that the law’s implementation will not be done in a manner “that will be fair to all.” The legal framework for the bidding, she says, will have to be provided in a resolution that will be issued by the oversight congressional body after the approval of the FIT rates by the ERC.

The FEF can’t also lend a sober voice on the wishes of some groups to have a ‘sneaky’ award of the RE allocations, which if based on previous pronouncements of Energy Undersecretary Jay Layug, the whole process must only be done by having an “eligibility criteria.” The danger here is that the framers of the ‘eligibility criteria” at NREB, who are supposed to be helping the DoE on the policy, are the same groups of project developers which already worked allegedly on cornering their own shares in the pie.

“We complain about the P1.0 billion Pagcor expenditure over the last several years for coffee not going through a public bidding, yet the NREB proponents dismiss the idea of an auction process for the RE installations when the expected cost is P8 billion a year for 20 years,” the FEF chides.

Rule-making or rate-setting?

Public hearings on the FIT rates have been stalled, primarily because of questions on whether or not the NREB filing under the tenet of rule-making be held as acceptable to the regulators.

Several parties, including the FEF, Manila Electric Company, National Grid Corporation of the Philippines and even consumer groups, stipulate that since the FIT-Allowance charges will directly affect all electricity consumers and its impact on the rates will likely be an increase, the application of NREB shall be deliberated within the ambit of a “rate-setting exercise” and not just merely hinged on a rule-making procedure.

By this, they mean that full-blown hearings and deliberations be carried out. “It is without doubt that, the FIT-Allowance determination is a rate-setting mechanism which is quasi-judicial in nature and hence, subject to more stringent requirements such as publication, public hearings and presentation of evidence,” they point out.

The FEF, in particular, questions that “the present course of the ERC, which is rule-making and not rate-setting, is contrary to the intent of the framers of the Constitution’s promotion of general welfare as these shortcut the right of the public to be notified.”

The rationale for the rate-setting deliberations, they say, is to give the general public wider assessment leverage on what they ought to pay for under the FIT regime.

Technical considerations

Yet another distressing concern raised by NGCP would be the scale of reserve or back-up capacity that must be required for wind capacities.

Developers are of the view that it shall just follow the ‘reserve level’ being mandated in the system, which is roughly 32 percent. But the grid operator can’t sit comfortably with the idea as it deems that there should be one-is-to-one matching on megawatt capacity for reserves because wind is highly ‘intermittent’ and it could adversely affect the system

“We have our specific recommendations to the DoE as to the level of reserve that the system will need to operate efficiently with intermittent wind generation. We will follow whatever policy direction (the department) will have to lay down,” officials of the grid company note.

Bringing back the spotlight on solar, there are parallel proposals for rooftop installations. What the solar developers ought to re-assess here, however, is that most of the roofs of Philippine houses are bungalow-designed and could be shadow-prone, hence, such solution may not necessarily be apt.

The collision-course on solar installations is expected to escalate further as discussions on the FIT would move forward.

Nevertheless, the energy secretary and Mr Maniego see some “applications where solar power would literally shine” – these would be in the off-grid areas, wherein people are stanchly begging that their communities be energized. Additionally, the avoided cost is higher because the technology being matched would be diesel – which would be to the tune of P12 to P15 per kWh. That said, the cost reprisal would not be as intense compared to the avoided cost on-grid at P4.50 to P5 per kWh.

For large-scale solar installations which shall be integrated into the grid, Mr. Maniego qualifies that “deployment must be strictly calibrated, so that arable lands for agriculture are not utilized for solar plants.”

He explains that “solar power requires flat areas with no shades. These are the land areas which are also ideal for agriculture.” The cautionary word for the energy department then would be “to ensure that the solar installations would be limited to land which are not agriculturally productive.”

All told, stakeholders maintain that solar’s grid integration must be done with a lot of “prudence.” Solar electricity, they concur, is going to be a large part of our energy future, it just doesn’t belong in our present.

One of my interviewees tossed this as a food for thought: “Good things come to those who wait, and patience is a virtue. Have we forgotten these lessons?” Yes, what is so wrong with waiting then when the reward would be lower cost in our electric bills?

http://www.mb.com.ph/articles/337340/re-policy-is-it-trailing-a-notsohappy-ending

Cha-cha not silver bullet for investments

Cha-cha not silver bullet for investments DEMAND AND SUPPLY By Boo Chanco (The Philippine Star) Updated October 07, 2011 12:00 AM In the last Global Competitiveness Report of the World Economic Forum, we ranked near the bottom. ThePhilippines is second-to-the-last among Asean (75th) countries that matter, 10 notches below Vietnam (65th) and better only than another war-torn country, Cambodia (97th). There is small comfort that we improved our ranking 10 notches from 85th out of 139 countries. This is what WEF has to say about our competitiveness: “The quality of the country’s public institutions continues to be assessed as poor: the Philippines ranks beyond the 100 mark on each of the 16 related indicators. Issues of corruption and physical security appear particularly acute (127th and 117th, respectively). The state of its infrastructure is improving marginally, but not nearly fast enough to meet the needs of the business sector. “The country ranks a mediocre 113th for the overall state of its infrastructure, with particularly low marks for the quality of its seaport (123rd) and airport infrastructure (115th). Finally, despite an enrollment rate of around 90 percent, primary education is characterized by low-quality standards (110th). The Philippines continues to have a vast opportunity for improvement. In particular, the largely inflexible and inefficient labor market (113th) has shown very little progress over the past four years.” To improve our competitiveness, leaders of Congress want to amend the Constitution. Senate President Juan Ponce Enrile said he firmly believes that “the restrictive economic provisions of our Charter are anathema to our efforts to achieve economic development and to compete in the global arena.” The economic provisions congressional leaders want changed are those that limit foreign ownership of businesses and real estate. Enrile said “there are so many restrictions that impede foreign investors from freely staking their investment in very viable and potent business opportunities in the country and thereby create jobs for our countrymen.” I guess revisiting these provisions is not a bad idea. We are living in this era of globalization whether we like it or not. And this means we have to adjust our laws to best benefit from it. Even the Americans who introduced the concept to the world are now finding out that they have not prepared to compete in such a globalized world. But I just want to point out that changing our economic provisions that prevent foreigners from owning land and restrict their participation in certain businesses like utilities, media and exploitation of natural resources is not going to solve all our problems. Foreigners can’t own land in China either, the state owns all the land, but that has not prevented foreign investors from going to China in droves. Liberalizing our economic provisions will improve the investment climate in our country by a few degrees but there are other things we have to attend to in order to truly encourage investors to invest here... both foreign and local. Lack of confidence by local investors is why there is some P1.8 trillion in idle funds owned by Filipinos frozen in BSP SDA accounts that could have been invested in productive ventures here. But they don’t have the confidence to risk their money here, owners decided to just put all that money under their pillows so to speak. In other words, the factors that make local investors hesitate to invest in the Philippines are likely to be the same factors that make foreign investors stay out. Corruption is a key deterrent to investments. And we are not just talking about corruption at the BIR or Customs but corruption at the LGUs when entrepreneurs apply for business permits, etc. We are also talking about corruption at the judiciary where TROs and decisions are for sale. We are talking of a lack of a level playing field in the competitive environment because vested interests are too powerful for new entrants to many businesses. Toti Chikiamco, president of the Foundation for Economic Freedom, describes this investment conundrum: shortages abound, capital is plenty and available, returns should be high, but investment spending remains low. Why? He cites an Italian World Bank economist, Alexander Magnoli Bocchi who attempted to answer this question in a paper entitled, “Rising Growth, Declining Investment: The Puzzle of the Philippines.” “According to Bocchi, first, the public sector cannot invest because of poorrevenue performance, weighty debt burden, and high cost of inputs. Second, the capital intensive private sector expects low returns here. MPK (marginal productivity of capital) is low, for two reasons: a) the public sector does not invest enough to provide incentives for private investment (as the return to private investment depends on both quantity and quality of public capital spending); and b) inputs are expensive because of elite-capture in the traditional sectors of the economy (agriculture, sea and air transport, power, cement, mining, banking, etc.) “Third, the politically connected conglomerates, protected by favorable rules and regulations, enjoy barriers to entry and market power, and hence sell at a high price their products (agricultural commodities, transport services, electricity, cement, etc.), which are critical inputs for both upstream and downstream sectors.” The investment conundrum clearly lies in the realm of political economy, Chikiamco concludes. He cites a paper entitled, “The Philippines: Weak institutions a drag on economic performance,” wherein PIDS President Josef Yap stated that “the corporate conglomerates are symptoms of an oligarchy in the Philippines.” Josef explains: “Weak institutions and an oligarchic private sector are two symptoms of the same coin. A gridlock has evolved wherein stronger institutions are required to loosen the grip of the oligarchs, but at the same time the grip of the oligarchs has to be reduced to strengthen institutions. Crafting appropriate development policies in the Philippines requires a political economy framework supported by a variant of new institutional economics.” P-Noy is right to say we don’t need cha cha to improve our competitiveness. Ah, but getting our competitiveness up to par requires hard work on the points raised by the WEF in their criteria. The P-Noy administration must also show it has the political cojones to reform our structures the way FVR broke up the stranglehold of the dominant oligarchy in the telecoms sector. Like it or not, P-Noy or any President for that matter, must prove he is not a captive of the local vested interests. That is infinitely more difficult to do than cha cha. In the end, all that investors want is fairness, a level playing field and they can’t see that happening unless corruption is dealt with and institutions strengthened to deal effectively with the vested interests. Open Skies is a step in the right direction. But we need more... a helluva lot more! Buko Economy I got this e-mail from Manuel Cantos reacting to the column on buko juice. I was in Canberra (Australia) in October 2001 on training. In one supermarket, I saw & bought a can of buko juice. I thought it came from the Philippines, but when I turned the can around, it said made in Thailand. I can’t recall how it tasted. This was 2001 yet! In the early 1980s, relatives who worked in Saudi Arabia told me that they have Tentay (or Rufina) patis there. The bottle and packaging are the same; it even tastes the same. But if you turn the bottle around, you will find out it was made in Thailand. It could only be done by former Thai students in the Philippines. No doubt Thais are more entrepreneurial than Filipinos. In Thailand, you find stalls on the way to conference halls displaying export-quality Thai goods during international meetings, whether sponsored by the Thai government or private sector. You don’t find similar stalls during international meetings in the Philippines. Is Sec. Greg Domingo a fit in DTI? He’s a finance man! But then, why were former DTI Secretaries drawn from the field of finance? You had then Min. (now Rep.) Luis Villafuerte (Bancom), Min Roberto Ongpin, Secs. Rizalino Navarro & CesarPurisima (all from SGV). Secs. Peter Favila (PNB), Jesli Lapuz (Land Bank). Mar Roxas was also a finance man before he became a Representative and Senator. Regards. Weird Market The market is weird. Every time one guy sells, another one buys, and they both think they’re smart. Boo Chanco’s e-mail address is bchanco@gmail.com. He is also on Twitter @boochanco http://www.philstar.com/Article.aspx?articleId=734673&publicationSubCategoryId=66