Privatization, SONA 2014

How Aquino betrayed public interest in LRT 1 privatization

Photo from Bulatlat.com

Photo from Bulatlat.com

Read the first part – How MVP-Ayala will squeeze LRT 1 commuters dry

In forging the Concession Agreement with the MVP-Ayala group, President Aquino has betrayed the public interest and welfare and has put government in a patently disadvantageous position.

While DOTC officials claim that the MVP-Ayala group submitted a negative bid of P9.5 billion – meaning they will pay government such amount to do the project – it is the commuters who will ultimately bear the burden as the concessionaire will recover the money from the riding public through higher fares as I explained in the previous post.

Furthermore, the P9.5 billion will also be offset by the numerous perks that the MVP-Ayala group will enjoy under the Concession Agreement such as the P5-billion government subsidy as project startup and government assumption of payment of real property taxes (estimated at P64 billion!)

Why is the Concession Agreement designed so favorably for the MVP-Ayala group? The idea behind PPP/privatization is to create the most conducive environment for private business. And to ensure that, the private investors will utilise all their connections and resources. The Ayala family, of course, has long been a political ally and crony of the Aquino family while there are claims that DOTC Undersecretary Rene Limcaoco, who was among those who pushed for LRT 1 privatization, is related to top Ayala executive Jose Teodoro Limcaoco.

Anyway, with its permission, I am posting in full the position paper prepared by the Alliance against LRT Privatization which discussed the different issues related to the takeover by the MVP-Ayala group, including the onerous terms of the Concession Agreement and the displacement of hundreds of LRT 1 employees.

Position Paper on the Privatization of the LRT1 Operations and Maintenance and the Implementation of the LRT Line 1 Extension PPP project

The Alliance Against LRT Privatization (AALP) opposes the privatization of the LRT1 Operations and Maintenance and the Public Private Partnership program for the construction the LRT1 Cavite Extension. The project is grossly disadvantageous to the riding public, the government and the employees of LRTA.

Why PPP?

The government’s privatization program dubbed Public Private Partnership has been touted as the solution to the lack of services and infrastructure plaguing the government. Under this scheme, private investors will supposedly bring in investments that will benefit the people, thus easing the financial burden on government.

As stated in its PPP brochure, “the PPP seeks to encourage greater participation of the private sector in the provision of basic public infrastructure through investments, construction, and operation and management programs. The program intends to provide the public with adequate, safe, efficient, reliable, and reasonably-priced infrastructure and development facilities while affording the private sector a level playing field, reasonable returns and appropriate sharing of risks. Government sees this as a reliable and solid strategy to efficiently deliver its services, create more job opportunities through a dynamic and solid infrastructure program.”

But beyond the rhetoric is the grim reality that the government, in adopting the PPP scheme, is essentially abandoning its role in the development of the country, leaving it instead to the hands of private investors. Government refuses to learn from the bitter lessons of earlier privatization schemes that have raised the fees for services, increased government debt and resulted in mass retrenchment of state workers

Attracting investors via “sweeteners”

In the early phase of the PPP Program, the Aquino government has vowed not to employ “sweeteners,” purportedly to avoid pitfalls besieging PPP predecessors such as, among others, the Build-Operate-Transfer (BOT) Scheme employed in the privatization of the National Power Corporation (NPC), and the Build-Lease-Transfer (BLT) Scheme of the MRT3, that consequently increased government’s debt burden due to sovereign guarantees given to entice private sector participation (PSP).

However, the privatization of the Operations and Maintenance of the entire LRT1 has served as a sweetener to the LRT1 Cavite Extension Project. While the winning bidder is in the process of constructing the extension from Baclaran Station to Niyog, Bacoor, Cavite, the national government has offered the private concessionaire the operations and maintenance of the entire LRT1 system, from Roosevelt Station to the Baclaran Station.

Currently, the profitability of the entire LRT1 system has been maintained after the national government took over the operation and maintenance of the entire system from the private sector, specifically, Metro, Inc. a subsidiary of the Meralco Corp. in 1999.

Based on its 2013 financial statements, the LRTA has earned a gross revenue of PhP 2.5 Billion from its LRT1 operations. Prudent spending and high public patronage has enabled the LRTA to achieve a 1.26 farebox ratio, one of the highest in the international rail community. Farebox ratio is the fraction of operational expenses, which are met by the fare paid by the passengers. It is computed by dividing the gross revenue by the total operating expenses.  LRT1’s high farebox ratio signifies that rail revenues generated, excluding non-rail income (from advertising, lease, etc.), were more than enough to cover the operating expenses for the year with extra funds for other expenditures (e.g. subsidy for LRT2 operations). In the present set-up, where the LRTA operates and maintains LRT1, the working capital is not subsidized by the government.

The privatization of the operations of an entirely profitable system will ensure another source of profit to the winning bidder in the Line Extension. We should question whether the profits earned from the operations of LRT 1 would be the source of the investments for the Line 1 Extension.

Disadvantageous to the government and commuters

To attract investors, government assumed even more financial risks while passing on increased financial burdens on the consumers.

  1. Government assumes payment of Real Property Taxes. On November 21, 2013, the NEDA revised the terms of the Cavite Extension Project to conform to the demands of the bidders, including the payment of Real Property Taxes (RPT) to be shouldered by the national government. This means government will pay around PhP 64 Billion for the entire 32-year contract period. This will only result to more debt burdens for the government.
  2. Fares will increase as a result of privatization. The government agreed to a  5% fare increase upon project completion, The government is also keen on implementing the new distanced-based fare adjustment that has been stalled since 2011 due to public opposition. At the earliest, the DOTC hopes to increase fares by August 2014 prior to the target effectivity of the Concession Agreement on September 2014. This will ensure higher profitability for the Concessionaire, as well as higher base fare for any future fare adjustments it will require upon project completion.
  3. Government guarantees automatic fare adjustments as well as fare hikes based on inflation. Not only is the Concessionaire allowed a 5% fare increase upon project completion, the government, based on the Concession Agreement, also allows for succeeding adjustments of the Notional Fare:
    • “The Notional Fare shall be adjusted on August 1, 2016 and every second anniversary thereafter (Notional Fare Setting Date) by an effective rate of 5% per annum or 10.25% per adjustment (Schedule 9, Part 1B: Financial Matters, page 173, Schedules, CA).”
    • “The Concessionaire or the Grantor may request that the Notional Fare be examined every 4 years from the first Notional Fare Setting Date and may be adjusted to reflect movements in inflation (Inflation Rebasing), on a Notional Fare Setting Date, where the first Inflation Rebasing may be implemented on August 1, 2018…(Schedule 9, Part 1D: Financial Matters, page 175, Schedules, CA).”
  4. Private concessionaries will pass on VAT to commuters. If a Sales Tax or Value Added Tax (VAT) is levied on the fares, the government allows the Concessionaire to pass this cost as part of the fare collected from the passengers of LRT1 (Schedule 9, Part 1E: Financial Matters, page 177, Schedules, CA).
  5. Changes in power rates will be passed on to commuters. The government agreed to a Differential Generation Cost (DGC) adjustment under the Concession Agreement (Schedule 9, Part 3: Differential Generation Cost, pp. 183-187, Schedules, CA). The DGC mechanism “is intended to take into account extreme fluctuations in generation costs, which comprises the largest component of power cost for the system, and allows upward adjustments to the Notional Fare and Approved Fares.” Under this scheme, the Concessionaire “shall be compensated for the DGC through fare adjustments…in relation to purchase of electric power from Meralco

With all these assurances from government, privatization removes from the private Concessionaire any financial liability and business risk, transferring instead all risks and liabilities to the government and the commuters.

The hybrid PPP mode itself is very lopsided and biased against the government. It is essentially called a hybrid PPP variant because if a project is more than PhP 60 Billion, half the cost is supposedly shouldered by the government through Official Development Assitance (ODA).

But under the LRT1 Cavite Extension Project, it is the government that will be shouldering the lion’s share of the cost of the project. Of the PhP 64.9 Billion total project cost, the private sector will shoulder PhP 30B for the civil works, electro-mechanical systems and other components of the viaduct, trackworks, stations and facilities, and the operations and maintenance. On the other hand, government will shoulder PhP 34.9 Billion of the cost for Right of Way Acquisition, Purchase of Coaches, Civil Works for the upgrading of the existing Depot and construction of the Satellite Depot.  On top of these expenditures, government will also shoulder the roughly PhP 64 Billion payment for Real Property Taxes.

Displacement of Workers

In the privatization of the LRT1 Operations and Maintenance, around 964 Contractual Employees of the LRTA are to be hired by the Concessionaire subject to a probationary period of 6 months, in which the Labor Code provisions, no longer the Civil Service provisions, shall govern. Some of these Transferring Employees have been with the LRTA for almost 15 years when the LRTA took over from the Metro, Inc. and would have been eligible for old age pension under the GSIS Law by 2015 or after 15 years of government service.

Within 3 months, the Concessionaire shall conduct an assessment of the transferred employees and determine who shall continue to be employed by the Concessionaire after the lapse of the 6 months period. After the lapse of the 6 months period, “if the Concessionaire wishes to dismiss any employee due to Economic Causes (e.g. installation of labor-saving devices and/or redundancy), then the Concessionaire may do so in accordance with relevant rules and procedures (Section 6.3, page 58, CA).

The privatization of the Automated Fare Collection System this year has clearly provided the LRT1 Concessionaire with the “economic cause” to terminate employees after the lapse of the probationary period. Conservatively, only around 241 or a fourth of the transferred employees will remain with the Concessionaire, possibly to be sub-contracted.

Hence, contrary to the government spin that the PPP program will create more job opportunities, it will in effect displace workers, after the 6 months probationary period.

Horrors of Past Private Sector Partnerships

From the current provisions of the Concession Agreement and the TOR for the PPP Project, it seems that the government has once again refused to learn from its past failures in privatization.

The previous BLT and BOT schemes indeed delivered the required infrastructures for the public but with horrific consequences for the government and the people in general. The Privatization of the MWSS has resulted to periodic increases in the cost of water, now totaling nearly 400%. The privatization of the assets of the National Power Corporation has placed power generation in the hands of big business and has increased power rates by a 100% from the time EPIRA was enacted.

Closer to the LRT1 scenario is the MRT3 experience, which invariably had the most lopsided risk allocation profile against the government. At first the government promised no state subsidy, but with 8 revisions to the Concession Agreement, government assumed the financing for the Right of Way Acquisition, and up to now has been assuming the traffic risks, and extended loan guarantees. Government allocates some P7 billion a year to pay for the financial obligations of the MRT arising from the lopsided contract. The government is now trying to buy back MRT3 from the MRTC.

What the government seems to forget is the basic dynamics between the government and the public sector for past PPP or BOT project implementations. The PPP or BOT projects revolve around financial viability for the private sector and economic viability for the public sector. Both sectors have varying objectives: for the government, it is to implement the project, while for the private sector, the objective is to maximize the Return of Investment (ROI), which can only occur by increasing the cost of the project assumed by the public sector or increasing support from the government either in terms of tax breaks, credit enhancements, subsidies, and the like, or reducing risks.

To expose vital government infrastructures to the desire of the private sector to maximize profits is to expose the government to more risks, instead of benefits. The past has proven that the benefits have far outweighed the benefits derived.

What is also frightening is the power wielded by the winning bidder. The Ayala-Metro Pacific (MVP) consortium would eventually control Line 1 operations, the Automated Fare Collection System, and the construction of the Line 1 extension. Metro Pacific also controls part of the MRT 3. This is a virtual monopoly in the train line which will remove any possible checks and balances regarding its performance and give them tremendous control to dictate fares.

Call to action

We, the Alliance Against LRT Privatization, a network of concerned individuals, employees and commuters, call on the people to reject the privatization of the LRT Line 1 Operations and Maintenance and the hybrid PPP mode of implementation of the LRT1 Cavite Extension Project.

We call on Congress to conduct an inquiry on the present state of the LRT Line Systems, amend the Procurement Law to fast track the procurement of vital capital spare parts and arrest the downgrading of the LRT systems and facilities, and to increase the capitalization of the LRTA from the current PhP3 Billion to PhP300 Billion.

Finally, we call on the people to resist the on-going privatization of vital government services to the detriment of greater access of these services for the people.###

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Consumer issues, Privatization, SONA 2013

Sona 2013: Silent on water tax, all-out on LRT/MRT fare hike

Two things stood out in the State of the Nation Address (Sona) that reaffirmed the big business and neoliberal bias of President Benigno Aquino III. First, which stood out because of its conspicuous absence in the Sona, is the issue of passed on income taxes and other expenses by Manila Water and Maynilad. Second is the all-out push by Aquino to hike the fares in LRT and MRT, which is tied to the regime’s public-private partnership (PPP) or privatization program.

Incidentally, both involve two influential business interests that are widely seen to have close ties with the Aquino administration – the Ayala family and the group of Manny V. Pangilinan (MVP). The Ayalas control Manila Water while the MVP group controls Maynilad. These big business interests have also set up the Light Rail Manila Consortium, one of the bidders in the scheduled privatization of LRT 1 this month.

Double standards

Aquino’s evasion of the water income tax issue underscores the double standards of his daang matuwid and anti-corruption rhetoric, which as usual was again prominent in his speech. In his Sona, the President praised the Metropolitan Waterworks and Sewerage System (MWSS) for instituting reforms in the agency. It will be recalled that in his first Sona, Aquino hit the water agency for hefty bonuses enjoyed by its officials. Such anomaly has already been addressed, said Aquino, citing the almost P2-billion income of MWSS last year from a P34-million deficit in 2010. He also praised Sec. Rogelio Singson, who used to be president and CEO of Maynilad, for addressing corruption in the Department of Public Works and Highways (DPWH).

But while extolling the MWSS and Singson for the supposed good governance reforms in their agencies, Aquino did not mention the onerous Concession Agreement that involved MWSS and Singson and made consumers pay for the income taxes, corporate donations, advertisements and other expenses of Maynilad and Manila Water. More importantly, the President said nothing on what he intends to do with the said anomalous PPP contract. Did Sec. Rene Almendras, who as former Manila Water president was also involved in implementing the controversial Concession Agreement had a hand in determining the content of the Sona in his capacity as Secretary to the Cabinet?

The presence of former top executives of the Ayalas and MVP in key Cabinet positions and the PPP as centerpiece economic program of the Aquino administration explain the deliberate silence of the President on the controversy hounding Manila Water and Maynilad. While the MWSS-Regulatory Office is disputing the private water concessionaires on the issue of income taxes and other pass-on charges, it is still Malacañang that will be decisive ultimately.

Through their paid ads weeks before the Sona, Manila Water and Maynilad have warned not only the regulators but Malacañang itself on the supposed sanctity of privatization contracts. They know that the privatization of MWSS is regarded as the barometer of PPP in the Philippines and a decision detrimental to the water concessionaires (and favorable to the consumers) will seriously undermine the PPP initiatives of Aquino. Aquino’s refusal to issue a categorical statement backing the widespread public clamor against the questionable charges of Manila Water and Maynilad in his Sona speaks volumes about where the President’s loyalty lies. Malacañang apparently does not want to upset the Ayalas and the MVP group which have been among the most aggressive in securing PPP contracts from government.

Fare hike and privatization

While Aquino was silent on the abusive pricing of Manila Water and Maynilad and the oppressiveness of the Concession Agreement, the President was clear in his relentless push to increase the fares in LRT and MRT. Like the MWSS, the LRT and MRT fare hike was also among the controversial issues raised by Aquino in his first Sona.

Reiterating his position in 2010, Aquino claimed that increasing the LRT and MRT fares to approximate air conditioned bus fares is justified. He raised the argument repeatedly pointed out by Department of Transportation and Communications (DOTC) officials – that government is supposedly subsidizing P25 (LRT) to P45 (MRT). Freeing up such subsidies means more funds for social services that will benefit the entire country and not only the Metro Manila commuters, argued the President. The DOTC has earlier announced that it will implement a P10-fare hike to be implemented in two tranches.

But it has been pointed out that the supposed subsidies, in the case of MRT, actually go to service debts arising from the guaranteed profits and sovereign guarantees given by government to the train system’s former private operators. LRT lines, on the other hand, are generating enough revenues to cover its maintenance and operation, although debts also bloat the total costs. Debts, however, should not be passed on to commuters as mass transportation is a public investment that generates economic and social gains.

Aquino and his transportation officials are not saying it, but the real reason behind the persistent drive to raise LRT and MRT fares is the government’s grand PPP program for Metro Manila’s light rail system. It will start with the P60.63-billion LRT 1 extension and privatization, the biggest PPP project so far of the administration. Increasing the fares would demonstrate government’s resolve and ability to regularly adjust fares, despite its unpopularity, to make the system profitable as planned in the draft 35-year Concession Agreement for LRT 1.

The said LRT 1 Concession Agreement is as onerous as the MWSS Concession Agreement. Its latest draft (as of June 27) still contains the so-called regulatory risk guarantee. Section 20.4.a of the draft agreement allows the private LRT 1 operator to secure “deficit payment” from government (i.e., taxpayers) when the approved fare is lower than the “notional fare”. The notional fare is a pre-determined fare level set out in the Concession Agreement that will ensure the commercial viability of LRT 1 and the profits of its private operator. This effectively deregulates the setting of fares and renders meaningless any intervention from Congress, the courts and other regulatory agencies.

Aside from the Ayala-MVP group, other LRT 1 bidders are presidential Uncle Danding Cojuangco’s SMC Infra Resources Inc.; the Consunjis’ DMCI Holdings Inc., which also lists Japanese giant Marubeni Corp. as one of its partners; and the MTD Samsung Consortium of Malaysia and South Korea.

Aquino packaged his Sona as the Sona of the people. He claimed that inclusive growth is behind every initiative of his administration. The past three years say otherwise. His silence on the Manila Water and Maynilad controversy, his all-out push for LRT and MRT fare hike, his rabid promotion of neoliberal privatization, all say otherwise. (END)

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Economy, SONA 2013

Prices, profits and poverty: Three years of the Aquino presidency

gutom at dukhang pilipino

Two weeks before the fourth State of the Nation Address (SONA) of President Benigno Aquino III, the National Statistical Coordination Board (NSCB) revealed that the income gap between the rich and poor in the country continues to widen. The high-income class saw their income grow much faster (10.4% between 2010 and 2011) than those of the middle (4.3%) and low-income (8.2%) groups. To be sure, the NSCB’s “revelation” is nothing new, but nonetheless, it affirmed widespread criticisms that the economic growth being hyped by the three-year old Aquino administration merely benefited the rich and has been meaningless to the poor.

But as always, Malacañang was quick to dismiss any claim that challenges the illusion of economic prosperity it is trying to sell, even if it comes from an official government body like the NSCB. The gap is not widening, said the Palace’s chief spokesman, because all income classes have posted growth. Never mind if simple math says that a 10%-increase in a company executive’s monthly salary of P200,000 and an 8%-increase in an ordinary employee’s monthly income of P10,000 means that their income gap has widened by P19,200 a month. There is a serious problem when government readily distorts basic facts and logic to suit its propaganda.

Indeed, the glaring reality in the first three years of the Aquino administration is that the number of poor and hungry families and jobless workers has been constantly rising while a handful of super-rich amass wealth at unprecedented levels. All the publicity about high gross domestic product (GDP) growth, unparalleled trading in the stock market and historic investment grade rating merely points to how profitable the economy has become for the country’s elite and their foreign patrons.

This phenomenon can only be adequately explained by examining the political and economic structures of Philippine society. For starters, Aquino did not re-orient the economy and created conditions that will dismantle its semi-colonial (i.e., export-oriented, import-dependent economy) and semi-feudal (i.e., vast countryside with backward production and intense land monopoly) character. Industries remain stunted and vast haciendas remain intact depriving millions of Filipinos of long-term, gainful and productive employment and livelihood. Infrastructure development, which has become the favorite investment destination of big compradors and foreign banks and corporations under Aquino’s public-private partnership (PPP), is being pursued not for national industrialization but to facilitate the plunder of the economy by big local and foreign business interests. This also explains why Aquino’s “kung walang corrupt, walang mahirap” (without corruption, there is no poverty) is fundamentally flawed and deceptive.

Such underlying reality is being aggravated by the neoliberal policies of privatization and deregulation that result to ever rising prices, with big business groups and families that control privatized and deregulated sectors of the economy massively accumulating wealth while the people are oppressed and impoverished by soaring cost of living. This has been one of the easily discernible trends in the first three years of the Aquino presidency.

Prices

The prices of basic goods and services have sustained their steep rise due to the continued implementation by Aquino of neoliberal privatization and deregulation programs. This has been most felt in the sectors of water, electricity, petroleum and education. The average inflation rate (i.e., the pace of change of prices) of water, electricity, gas and other fuels (plus housing) from July 2010 to June 2013 is 4.3 percent. The inflation rate of education during the same period is 4.6 percent. Both are higher than the overall inflation rate of 3.6 percent. Only alcoholic beverages and tobacco posted a higher inflation rate with10.4% mainly due to the Sin Tax Law, also a neoliberal reform, which took effect this year. (See Chart 1)

inflation rate, by commodity

Note that the costs of water, power and oil products are rising at a much quicker pace today. The mentioned 4.3% inflation rate of utilities and fuels posted in the first three years of Aquino is faster than the 3.4% recorded in the last three years of Arroyo. It does not mean, however, that Arroyo was better than her successor at keeping prices in check. They both adhere to the same neoliberal policies of privatization and deregulation that let prices spiral. It’s just that Aquino is a more ardent implementor of neoliberalism than his former Economics teacher at the Ateneo.

Prices have soared as government ditched its regulatory duties like in the case of oil, and turned over to profit-oriented private firms many of its key functions like in the case of water and electricity. These paved the way for the profiteering of huge private monopolies. Among the first challenges to Aquino when he assumed power was to reverse these neoliberal prescriptions of the International Monetary Fund (IMF) and the World Bank that his mother Cory first implemented in the late 1980s.

Alas, when pump prices escalated in 2011, Aquino immediately defended the Oil Deregulation Law amid mounting calls for price control. He also rejected demands to scrap or at least reduce the 12% value-added tax (VAT) on petroleum products as an immediate relief. For Aquino’s inaction on skyrocketing oil prices, youth activists popularized Noynoying or lazing around. (Read more on oil deregulation here) Under Aquino, the pump price of diesel has increased by 24%; gasoline, 17%; and liquefied petroleum gas (LPG), 7-14 percent.

When Mindanao faced a power crisis in 2012, Aquino pushed for the full implementation of the Electric Power Industry Reform Act (Epira). The solution, said Aquino, is to privatize the region’s hydropower plants and for Mindanaons to pay more for electricity. His administration also started imposing this year Epira’s universal charge on stranded costs to pay for the post-privatization residual debts of the National Power Corp. (Napocor). These debts arose from the sweetheart deals of Napocor with independent power producers. (Read more on Napocor privatization here)

Since Aquino became President, the distribution charge of the Manila Electric Co. (Meralco) has already jumped by 43 percent. The transmission charge of the National Grid Corp. of the Philippines (NGCP) has already increased by 28 percent. Due to the imposition of the universal charge on stranded costs, the universal charge being imposed by Meralco has ballooned by 213 percent.

Meanwhile, Malacañang has remained silent on the raging controversy surrounding the privatization contract of the Metropolitan Waterworks and Sewerage System (MWSS). But it is noteworthy that the Aquino administration has been showcasing the privatization of MWSS to lure investors to its public-private partnership (PPP) program. The public now understands why MWSS is such an appealing model to PPP investors. In their Concession Agreement with MWSS, Maynilad Water Services Inc. and Manila Water Co. Inc. have been allowed to pass on to consumers billions of pesos in past and future income taxes, corporate donations, advertisements, projects, etc. and earn guaranteed profits from such onerous charges. This is on top of automatic adjustments in the basic rates as well as the collection of questionable items. (Read more on MWSS privatization here) The all-in water tariff being charged by Manila Water has already gone up by 24% and Maynilad by 41% since Aquino took over.

Table 1 below sums up the movement in prices of oil products and water and electricity rates in the first three years of the Aquino presidency.

oil prices, power & water

Tuition’s steady increase resulted in the high inflation rate of education. In the past three years, the Aquino administration approved almost nine out of every 10 applications for tuition hikes by tertiary schools. For this school year, the Commission on Higher Education (CHED) approved the tuition hike application of 354 tertiary schools and of at least 903 private elementary and high schools. In 2011 and 2012, CHED allowed 281 and 267 tertiary schools, respectively to increase tuition.

Profits

Big business has been cashing in huge amounts of profits due to the ever increasing prices of basic goods and services (and continued depression of wages). Due to rising electricity rates, for instance, the net income of Meralco has been growing by 42% or P3.67 billion annually from 2010 to 2012 and that of the National Grid Corp. of the Philippines (NGCP), by 17% or P2.91 billion (from 2010 to 2011).

Meanwhile, oil companies’ net income during the period has been weighed down by relatively lower prices in 2012. Petron’s net income, for instance, grew by 46% a year from 2010 to 2011 but declined by 73% last year, pulling down its annual net income expansion to just 7% in the last three years. Nonetheless, it still averaged an annual net income of P6.23 billion during the period. As an industry, electricity and oil and gas firms that belong to the top 1,000 corporations posted a collective 48% or P42.64 billion yearly net income growth from 2010 to 2011.

Similarly, because of rising water rates, Maynilad’s net income has been increasing by 36% or P1.33 billion every year and Manila Water by 19% or P737 million from 2010 to 2012.

Another indicator of the robust financial health of these firms is the gross profit margin. Among all industries in the top 1,000 corporations, electricity, oil and water companies registered some of the largest gross profit margins. In 2010 and 2011, the average annual gross profit margin of electricity and oil firms reached 32%, higher than the 27% they registered in 2008 and 2009. On the other hand, water firms posted a gross profit margin of 36.1% in 2010 and 2011, slightly lower than the 36.7% it recorded in 2008 and 2009. Other profitable industries include mining (50% profit margin in 2010 and 2011), banking and other financial activities (47%), information and communication technology (42%), and real estate (36%).

All in all, the average gross profit margin of the top 1,000 corporations improved from 21% to 23% in the periods being covered.  Also, their total net income grew from P755.97 billion in 2009 to P804.07 billion in 2010 to P868.08 billion in 2011, or an annual expansion rate of more than 7 percent.

Richest

Not surprisingly, a small group of super-rich families, which together with their foreign partners and financiers, control the country’s utilities, energy and oil companies, banks, mining firms, and real estate and infrastructure development among others, are amassing unimaginable wealth.

Forbes’ annual list of the world’s richest people shows a steadily and immensely growing wealth of the super-rich in the Philippines, who control the country’s largest companies, in the first three years of the Aquino administration. From $16.4 billion in 2009, the combined wealth of the 40 richest Filipinos has ballooned to $47.4 billion in 2012, or a 189%-increase. (See Chart 2 and Table 2) Forbes listed only 11 richest Filipinos for 2013 but their combined wealth has already reached a whopping $39.9 billion.

forbes richest filipinos 2009-2012

Table 2

Richest Filipinos as listed by Forbes Magazine ($ billion)

Name

2006

2007

2008

2009

2010

2011

2012

2013

Henry Sy

4.00

1.70

3.10

3.50

5.00

7.20

9.10

13.20

Lucio Tan

2.30

1.60

1.50

1.70

2.10

2.80

4.50

5.00

Enrique Razon Jr.

0.29

0.82

0.53

0.62

0.98

1.60

3.60

4.90

John Gokongwei

0.70

0.43

0.68

0.72

1.50

2.40

3.20

David Consunji

0.15

0.21

0.11

0.30

0.72

1.90

2.70

2.80

Andrew Tan

0.48

1.10

0.70

0.85

1.20

2.00

2.30

3.95

Jaime Zobel de Ayala

2.00

2.00

1.20

1.20

1.40

1.70

2.20

George Ty

0.83

0.87

0.44

0.52

0.81

1.10

1.70

2.60

Roberto Ongpin

3.00

1.30

1.50

1.20

Danding Cojuangco

0.84

0.54

0.61

0.66

0.76

1.40

1.40

Roberto Coyiuto Jr.

0.29

0.31

0.40

1.30

1.60

Tony Tan Caktiong

0.58

0.79

0.69

0.71

0.98

1.00

1.25

1.40

Lucio & Susan Co

1.20

2.00

Inigo & Mercedes Zobel

0.66

0.43

0.44

0.73

0.98

1.15

Emilio Yap

0.35

0.45

0.42

0.51

0.67

0.93

1.10

Jon Ramon Aboitiz

0.13

0.13

0.36

0.76

0.96

Andrew Gotianun

0.28

0.86

0.24

0.31

0.50

0.80

0.83

1.20

Manny Villar

0.11

0.94

0.43

0.53

0.38

0.62

0.72

Beatrice Campos

0.16

0.22

0.33

0.41

0.84

0.69

0.70

Vivian Que Azcona

0.08

0.67

0.36

0.39

0.45

0.56

0.69

Alfonso Yuchengco

0.23

0.37

0.20

0.23

0.26

0.37

0.57

Mariano Tan

0.10

0.14

0.20

0.18

0.33

0.38

0.42

Enrique Aboitiz

0.28

0.38

0.05

0.15

0.31

0.40

Eric Recto

0.20

0.37

Jose Antonio

0.25

0.30

Glibert Duavit

0.21

0.19

0.13

0.16

0.15

0.19

0.27

Menardo Jimenez

0.21

0.19

0.13

0.16

0.14

0.19

0.27

Frederic Dy

0.07

0.07

0.04

0.07

0.11

0.26

Manuel Zamora

0.08

0.11

0.13

0.11

0.12

0.15

0.26

Alfredo Ramos

0.13

0.12

0.12

0.18

0.25

Oscar Lopez

0.28

0.25

Felipe Gozon

0.16

0.24

Betty Ang

0.17

0.24

Wilfred Uytengsu Sr.

0.15

0.23

Juliette Romualdez

0.16

0.20

Bienvenido Tantoco Sr.

0.10

0.20

Jacinto Ng Sr.

0.12

0.19

Tomas Alcantara

0.16

0.16

Michael Cosiquien

0.15

Edgar Sia II

0.09

0.14

2006-2012 data as compiled by Rappler
2013 figures as reported by The Philippine Star

Cojuangco

Among the country’s richest based on the Forbes list is presidential uncle Danding Cojuangco, whose San Miguel Corporation (SMC) has stakes in Petron and Meralco as well Jaime Zobel de Ayala, whose many business interests include Manila Water. Cojuangco has a declared wealth of $1.4 billion in 2012, or 112% higher than his recorded wealth in 2009. Manned by his right-hand man Ramon S. Ang, Cojuangco’s San Miguel Corp. (SMC) registered a 61%-increase in its net income between 2010 and 2012. Originally a food and beverages company, the conglomerate has aggressively expanded into oil and energy (Petron, SMC Global Power Holdings, and San Miguel Energy Corp. and Meralco) as well as infrastructure. Taking advantage of Epira, SMC now holds the largest share, about 20%, in the country’s power generation capacity. SMC is also investing in mining through a stake in the Sagittarius Mines Inc., operator of the controversial $5.9-billion Tampakan copper-gold project in South Cotabato.

Ayala

Meanwhile, Ayala’s total wealth was pegged at $2.2 billion in 2012, 83% higher than his wealth in 2009. Aside from Manila Water (which is also lists as investors the World Bank’s International Finance Corp., UK’s United Utilities, Japan’s Mitsubishi Corp., as well as American and European investment firms), the Ayala group has interests in banking (Bank of the Philippine Islands), real estate (Ayala Land) and telecommunications (Globe).

Pangilinan

While conspicuously absent in the Forbes list, Manny V. Pangilinan is widely considered as among the richest billionaires in the country due to his various business interests including Maynilad and Meralco. Aside from utilities, Pangilinan also has interests in telecommunications (PLDT, Smart), infrastructure and tollways (Metro Pacific Tollways Corp. which operates SCTEX and NLEX), media (TV5 and various newspapers), mining (Philex Mining Corp.) and a growing number of hospitals (Makati Medical Center, Cardinal Santos Medical Center and Asian Hospital, among others). However, it must also be noted that these business interests are under the Hong Kong-based First Pacific Company Ltd., which is part of the corporate empire of Indonesia’s largest conglomerate, the Salim Group.

Top 5

The richest Filipino, based on the Forbes list, is Henry Sy, known for his chain of SM malls (the Philippines’ largest retail business) with a declared wealth of $13.2 billion in 2013. His wealth has increased by 277% since 2009, boosted by his expansion in the power industry through the NGCP, which because of Epira now has a monopoly over the country’s transmission system. His holding company, SM Investments Corp., saw its profits grow by 34% between 2010 and 2012. Sy’s BDO Unibank Inc., the largest bank in the country, posted a 61%-increase in its net income during the same period while SM Prime Holdings, which handles the SM malls, had a 29%-increase.

Following Sy is Lucio Tan, whose wealth jumped by 194% to $5 billion during the same period. Tan’s Fortune Tobacco and American giant Philip Morris have partnered under the PMFTC Inc. to monopolize the local cigarette market. Between 2010 and 2012, PMFTC Inc. saw its net income swell by 3,189 percent. Tan also controls Tanduay, Asia Brewery, Eton Properties (notorious for occupational hazards), the recently merged Philippine National Bank (PNB) and Allied Bank, as well as the University of the East (one of the educational institutions included in the top 1,000 corporations). Enrique Razon came in a close third with $4.9 billion, an enormous 690% expansion from his wealth in 2009. Razon is known for his International Container Port Terminal Services Inc. (ICTSI), which makes its fortune from privatized ports here and abroad, but is also expanding into casino operation through Bloomberry Resorts and Hotels Inc., which operates the recently opened Solaire Resort and Casino.

The fourth richest Filipino based on the Forbes list is Andrew Tan ($3.95 billion, 365% higher than 2009). He lists among his business interests the Alliance Global, which controls property developer Megaworld and the local franchise of US-based global food chain giant McDonalds. Like Razon, Andrew Tan will soon build and operate hotel and casino facilities at the so-called Pagcor Entertainment City in Manila. Completing the five richest Filipinos is David Consunji whose $2.8-billion wealth in 2013 an enormous 833% increase from his reported wealth in 2010. His main business interest is construction giant DMCI Holdings, which has also expanded to mining (Semirara Mining Corp.), energy (DMCI Power Corp.) and water (Maynilad). The Consunji group is among the most active in the privatization of power plants and IPP (independent power producer) contracts under Epira.

Poverty

Wages and incomes could barely cope with the ever rising prices of basic goods and services. In Aquino’s first three years, the daily minimum wage in NCR has increased by just P52 – from P404 (June 2010) to P456 today. The family living wage, which approximates the cost of living or the amount needed by a family to meet daily basic food and non-food needs, was pegged at P983 in end-2010 and at P1,034 in end-2012, using think tank IBON Foundation’s estimates, or an increase of P51. This means that the wage hikes have just been wiped out by the increase in the cost of living. Thus, the minimum wage remained way below the amount needed for a family to live decently, pegged at 44% of the cost of living today.

Based on SWS surveys, the number of poor families (annual average) climbed from 8.9 million in 2010 to 9.9 million in 2011 and further to 10.5 million last year. In the first quarter of 2013, the SWS reported that 10.6 million families consider themselves poor. This means that under Aquino, the number of poor families has increased by 1.7 million, or about 8.5 million Filipinos. Even official statistics indicate that poverty, at best, did not improve under Aquino. The National Statistical Coordination Board (NSCB) reported that poverty incidence among families stood at 22.3% in the first semester of 2012, which it described as practically unchanged from 2006 (23.4%) and 2009 (22.9%) figures.  (See Chart 3)

sws poverty 2010 - 2013 q1

SWS surveys also show that the number of families experiencing hunger has increased as well under Aquino. From 3.6 million families in 2010 (annual average), the number rose to 4 million in 2011 and further to 4.1 million last year. The first quarter 2013 SWS report indicates that hunger has not tempered, with 3.9 million families reporting that they experience involuntary hunger. In Aquino’s first three years in office, about half a million families or some 2.5 million Filipinos were added to those who go hungry. NSCB data, on the other hand, indicate that the incidence of food poor families (i.e., those who live in extreme poverty, with incomes not enough to buy even basic food needs) remains unchanged as well. In the first semester of 2012, it stood at 10% of families, identical with 2011’s 10% and just a bit lower than 2010’s 10.8 percent. (See Chart 4)

sws hunger 2010 - 2013 q1

The supposed economic growth is not creating jobs. SWS survey shows that the number of unemployed workers remained at 9.5 million in 2010 and 2011 (annual average), then jumped to 11.6 million in 2012. In the first quarter of 2013, SWS reported that there were 11.1 million jobless workers. This trend is being affirmed by government’s official unemployment data. Based on figures from the National Statistics Office (NSO), unemployment rate increased from 7.1% when Aquino took over (July and October 2010 average) to 7.3% this year (January and April 2013 average).  (See Chart 5)

sws unemployment 2010 - 2013 q1

Worst is yet to come

Aquino, in a recent speech, confidently declared that “the best is yet to come”. He promised that services will gain more speed in the second half of his term. Claiming to have realized that so many things still need to be done, the President said that his SONA will reflect the true state of the nation.

But if Aquino will stick to the same neoliberal policies that further impoverish the poor, the people should expect the worst. After the SONA, those who live in Metro Manila face the prospects of higher water rates and fares in LRT and MRT. Maynilad and Manila Water are seeking basic rate hikes of P8.58 and P5.83 per cubic meter, respectively. The planned increases are part of the so-called rate rebasing under the privatization of MWSS, which has been further exposed as a highly onerous PPP deal. Consumers in other parts of the country like Bacolod and Davao are also confronted with higher fees due to privatization efforts aimed at their water districts.

Meanwhile, LRT and MRT commuters will shoulder an initial P5 average fare hike that officials reportedly want to implement by August. Another P5-increase is set for next year. The fare hikes are part of Aquino’s plan to privatize the light rail system. LRT 1 is already slated for bidding this July with the groups of Pangilinan, Ayala, Cojuangco and Consunji as well as South Korean and Malaysian investors participating. The draft LRT 1 privatization contract provides for a regulatory risk guarantee wherein taxpayers will shoulder the cost in case the private operator could not implement a fare hike due to intervention by the courts or Congress.

Power rates, on the other hand, will again rise as another round of increase in the universal charge is expected soon to recover Napocor’s stranded debts as mandated under Epira. This is on top of the regular increases in the generation, distribution, transmission and other charges. Oil prices will remain artificially high and volatile due to foreign monopoly control and deregulation. Even the price of rice is starting to climb up, increasing by as much as P2 a kilo last week due to the continued operation of rice cartels and privatization of the functions of the National Food Authority (NFA).

The second half of Aquino’s term is shaping up to be three more years of increasing prosperity for the elite and worsening economic exclusion of the poor. Thus, while the Aquino clique savors the illusion of having consolidated its power after the midterm elections, in reality, social contradictions will surely further intensify and challenge the regime. (End)

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Consumer issues, Cronyism & patronage, Privatization, SONA 2013

PNoy and the Big Water monopolies

big water and pnoy

Daang matuwid pa ba when big business is practically running the government and profiting immensely at the expense of the people?

By July, the 14.2 million consumers of Maynilad Water Services Inc. and Manila Water Co. Inc. will have to shell out more for their water bill. If your household is consuming 30 cubic meters (cu. m.) a month, be ready to pay an additional P234 (if your service provider is Manila Water) to P342 (Maynilad). That’s how huge the looming rate hikes are. Apparently, the 42% annual increase in the profits of Maynilad and 18% for Manila Water in the past five years are not enough for the Big Water monopolies. They want more, at our expense, of course.

The increases are due to the so-called “rate rebasing”. It’s a rate adjustment process mandated by the 1997 privatization contract or the Concession Agreement between the MWSS and its private concessionaires – Maynilad and Manila Water. Under the Concession Agreement, the concessionaires are entitled to adjust their basic rates every five years throughout the 40-year contract to achieve a guaranteed rate of return. During the rate rebasing exercise, the concessionaires submit their previous five-year performance, their new five-year business plans and their proposed tariffs to implement it, which the MWSS-Regulatory Office (MWSS-RO) reviews and approves. Since the last rate rebasing exercise in 2007, Maynilad has been posting annual profits of P3.92 billion and Manila Water, P3.68 billion. During the public consultations, Manila Water said they expect to earn P5 billion annually in the next five years after the rate rebasing; Maynilad refused to disclose its anticipated profits.

Planned increases

According to regulators, Manila Water wants a rate hike of P5.83 per cu. m. and Maynilad, P8.58 (revised from the P10.30 reported earlier). But these refer to the basic charge only. If you look at your water bill, there are other items in it that will also increase when the basic charge is raised. The environmental charge, for example, is 20% of the basic charge. Then, there’s the foreign currency differential adjustment (FCDA), which accounts for the quarterly fluctuations in the foreign exchange (forex). The FCDA is negative when the peso gains against the dollar and is positive when the peso weakens. The FCDA is currently at negative 0.37% of the basic charge for Manila Water and negative 0.98% for Maynilad. The FCDA is expected to be positive as the dollar is gaining strength in recent months. Then, there’s also the value-added tax (VAT), which is 12% of the basic charge plus the environmental charge. Factoring in these other charges, the rate hike of Manila Water could reach P7.81 per cu. m. and Maynilad, P11.41 per cu. m. Thus, the estimated P234 to P342 increase for households consuming 30 cu. m.

The table below compares our estimated monthly bills today and after the rate hikes are implemented. (Note: The table has been revised to adjust the estimated monthly water bill for Maynilad customers using 10 cu. m.)

water rates current vs hiked revised

Unreasonable rate hikes

The rate increases being sought by Maynilad and Manila Water are unreasonable for two major reasons. First, the rate hikes cover not just the cost of past projects (which consumers also finance through water tariffs) but also include future expansion and improvement plans. This means that the private concessionaires want to charge consumers the cost of projects that are yet to be implemented. This is clearly anti-consumer and allows the abuses of Maynilad and Manila Water. In their previous rate rebasing exercises, the private concessionaires charged the costs of unimplemented projects to their consumers such as the Laiban Dam Project and the 15 CMS Water Source Replacement Project, among others. According to the MWSS-RO, the costs of unimplemented projects are recovered through succeeding rate rebasing exercises. If that is the case, then water rates should have been reduced during the 2007 rate rebasing. But this did not happen because the cost of new future projects as well as new assumptions in the business plans (population growth, demand, etc.) of the concessionaires negate the supposed cost recovery of unimplemented projects in favor of the consumers. The same scenario is expected in the ongoing rate rebasing exercise.

Second, the private concessionaires are earning profits at unreasonably rapid pace. Using the return on rate base (RORB), for instance, it appears that Maynilad and Manila Water are earning beyond the 12% limit imposed on public utilities. Estimates peg the RORB of the concessionaires at more than 14 percent. The rate base is computed by adding up the value of all the assets used in the operation of the public utility and from it, the allowed rate of return is calculated. Thus, the RORB of Maynilad and Manila Water could further go up beyond the estimated 14% if the total value of the old MWSS assets already built prior to privatization is excluded. Meanwhile, using the return on equity (ROE) as standard, it also appears that Maynilad and Manila Water are profiting tremendously from their operations. It is estimated, for instance, that Manila Water has an ROE of around 19% while Maynilad has about 45 percent. These are way higher than the ROE of those in other public utilities such as telecommunications (16%) and electricity (15%). The ROE is a measure of profitability wherein the net income is computed as a proportion of the equity or the investments poured in by the investors. Maynilad and Manila Water has a very high ROE because of the very high tariffs they set while a very large chunk of the cost of MWSS privatization is financed by loans (which are fully passed on to consumers) and not by their actual investments.

Big Water running the government

Alas, despite this really onerous burden awaiting us, we should not expect the Aquino government to step in and restrain the greed of Big Water. Maynilad and Manila Water managed to put their top officials in strategic Cabinet positions, advising the President on key government policies. Secretary Rogelio Singson used to be the president and chief executive officer (CEO) of Maynilad. He now heads the Department of Public Works and Highways (DPWH), where the Metropolitan Waterworks and Sewerage System (MWSS) is an attached agency. Secretary Rene Almendras used to be the president of Manila Water. He is now the so-called “Little President” of the Philippines, after a stint as chief of the Department of Energy (DOE). Almendras is reportedly one of the closest to Aquino, being in the innermost of the inner circle of the President.

Singson has the notoriety of generating the first political controversy faced by the Aquino administration. Just a week after taking over as DPWH Secretary, Singson appointed himself as ex-officio chairman of the Board of Trustees of the MWSS. While the move was obviously sanctioned by Malacañang through Executive Secretary Paquito Ochoa, Singson was forced to backtrack after his self-appointment as MWSS head was widely criticized due to conflict of interest. Prior to his appointment as DPWH Secretary, Singson, as Maynilad CEO, tried to seal a midnight deal with Efraim Genuino, Gloria Arroyo’s appointed chairman of the Philippine Amusement and Gaming Corp. (PAGCOR). It involved a water concession deal for the Bagong Nayong Pilipino Entertainment City in Parañaque City that would have reportedly deprived government of an estimated P3.6 billion in water fees. Days before Aquino’s inauguration, Genuino and Singson allegedly teamed up to lobby the MWSS Board to approve the deal because Maynilad was concerned that the new PAGCOR leadership under Aquino might not be as accommodating as Genuino. President Aquino, however, defended Singson, saying that he was satisfied with the Cabinet official’s, as well as PAGCOR’s, explanation that there was no contract yet.

Almendras, meanwhile, enjoys a close friendship with Aquino, which dates back to their Ateneo days. His current office, Cabinet Secretary, was created by the President to accommodate Almendras, whom Aquino had to remove from the DOE after a dismal performance underlined by the Mindanao power crisis. The office of the Cabinet Secretary used to be the office of the Cabinet Secretariat which simply facilitates information in Malacañang, according to a Philippine Daily Inquirer report. But Aquino transformed the office through Executive Order (EO) No. 99 and gave Almendras the mandate to among others, determine priorities in the Philippine Development Plan (PDP) and sit in the National Economic and Development Authority (NEDA) board executive committee and subcommittees on infrastructure, social development and investment. NEDA approves public-private partnership (PPP) projects such as MWSS’s Concession Agreements with Manila Water and Maynilad. Changes in the contract between the MWSS and the private concessionaires, including those that concern water rates, also require NEDA sanction.

Aquino indeed has deep ties with the Big Water monopolies. The Ayala family, which controls Manila Water, has a long history of close association with the Aquino family, dating back to the time of Aquino’s late mother Cory as Philippine President. Manny V. Pangilinan, who controls Maynilad, has done a number of mega business deals with presidential cousin and officially declared top Aquino funder in the 2010 polls, Tonyboy Cojuangco such as the PLDT and TV5 deals. MVP and the Ayalas are seen as among the major backers of Aquino in his presidential bid. So don’t be surprised that the chief executives of their business interests landed strategic Cabinet positions.

Don’t be surprised as well that Aquino made PPP or privatization his centerpiece economic program. PPP creates more opportunities for MVP and the Ayalas to further expand their business empires. In fact, Pangilinan’s group and the Ayala family are among the most aggressive in cornering PPP contracts being offered by administration. The Ayalas, for instance, clinched the very first PPP project of Aquino – the P1.96-billion Daang Hari-SLEX Link Road Project. Meanwhile, MVP and the Ayalas have teamed up to bid for the P60-billion extension and privatization of LRT 1, the largest PPP project of the Aquino administration. Incidentally, Malacañang is even using the privatization of MWSS as a showcase in promoting PPP. MWSS privatization is truly a showcase of how PPP can be so profitable for big business. But it’s also a showcase of how privatization can be so oppressive and onerous.

MVP’s Metro Pacific Investments Corp. (MPIC) holds 43% of Maynilad. The Consunji family, which also has close ties with Aquino, controls 25% through DMCI Holdings. Big foreign companies have a substantial share in Maynilad as well with MCNK JV Corp., a unit of Japanese giant Marubeni Corp., and Lyonnaise Asia Water Limited, a unit of French firm Suez, one of the world’s largest water companies, each holding a 16% stake. The Ayala Corporation, on the other hand, has a direct 43%-stake aside from the share being held by Philwater Holdings Co. Inc., which is 60% owned by Ayala and 40% by UK-based United Utilities. Other investors in Manila Water include another Japanese giant, Mitsubishi Corp. (8%) and the World Bank’s IFC (6%) as well as First State Investments of the UK (10%), Singapore-based global fund manager Aberdeen Asset Management plc (5%) and US-based equity mutual fund Smallcap World Fund Inc. (5%).

Daang matuwid pa ba when big business is practically running the government and profiting immensely at the expense of the people? Water rates today are about 585% to 1,119% higher than the initial rates when MWSS was privatized. Our water bill is now among the most expensive in Asia. Still, we face more increases that the Aquino administration will allow despite the harsh impact on the people and despite rising poverty and joblessness.

The Aquino administration, Maynilad and Manila Water must be held accountable for exploiting and oppressing the consumers. We have to end the greed of the Big Water monopolies of Ayala and Pangilinan and their foreign partners, and reverse the anti-people policy of MWSS privatization. (END)

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Global issues, Human rights, Military & war

Sabah crisis: Is Aquino siding with Malaysia to protect relatives’ business interests?

Presidential cousin and funder Tonyboy Cojuangco's AirAsia pals transport Malaysian army reinforcements to Sabah. (Photo from Borneo Inside)

Presidential cousin and funder Tonyboy Cojuangco’s AirAsia business pals transport Malaysian army reinforcements to Sabah. (Photo from Borneo Inside)

The “journey home” to Sabah of some 200 followers of the Sultanate of Sulu more than a month ago has escalated into a full blown humanitarian crisis. More than a thousand Filipinos have fled Sabah that for decades they called home. Men, women and children took any boat available in a frantic and perilous voyage away from the brutality of Malaysian forces. The number of refugees in Tawi-Tawi from Lahad Datu and other affected towns in Sabah is expected to grow in the coming days.

Those who fled recounted the atrocities that Filipinos suffered in the disputed territory. “Malaysian policemen ordered Filipino men to run as fast as they could and shot them,” said a report by the Philippine Daily Inquirer. “Even pregnant women and children have been hunted down and killed as the Malaysians fire mortars and embark on a house-to-house search,” according to the Philippine Star. These people are not part of the armed followers of Sultan Jamalul Kiram III. They just happen to be Filipinos.

Some are baffled while most are enraged by the attitude of the Aquino administration towards the Sabah crisis. From the onset, President Benigno Aquino III took a hardline stance against the Sulu royal forces. Jamalul’s brother Rajah Mudah Agbimuddin Kiram and his men must surrender before any talks can happen, Aquino insisted. Charges are being prepared versus the Kirams, claimed the Justice department. They may also be turned over to Malaysian authorities to face prosecution. Malacañang sowed intrigues to cast doubt on the motive and legitimacy of the Sultanate. The National Bureau of Investigation (NBI) is probing the alleged conspiracy between the Kirams and certain politicians. All these even as Aquino ignored appeals by the Sultanate and the United Nations (UN) to stop the Malaysian military assault and for parties to talk.

Palace and Foreign Affairs spokespersons, of course, expressed concern over the reported human rights abuses in Sabah. But their statements are meaningless amid the brutal military offensive launched by Prime Minister Najib Abdul Razak that Aquino practically sanctioned with his reckless position. The public perception is that Aquino abandoned his own people, surrendered the country’s rightful claim to Sabah and sided with Malaysia. Thus Aquino, like Razak and his forces, is responsible for the carnage of Filipino men, women and children in Sabah.

But why is Aquino siding with Malaysia? One plausible explanation noted by analysts is the ongoing peace talks with the Moro Islamic Liberation Front (MILF) where Malaysia plays a key role as facilitator. Aquino does not want to displease Malaysia and risk undermining the negotiations.

However, it is also notable that since taking over in 2010, Aquino’s relatives who bankrolled his presidential bid have inked business deals with Malaysia. Could these business interests be another possible explanation for the administration’s handling of the Sabah crisis?

What are these business deals? One involves San Miguel Corporation (SMC) of Aquino’s uncle Eduardo “Danding” Cojuangco Jr. In August 2011, SMC acquired three subsidiaries of US oil giant Exxon Mobil’s downstream oil business in Malaysia. Worth $610 million, the transaction included the purchase by SMC of Esso Malaysia Bhd, Exxon Mobil Malaysia Sdn Bhd and Exxon Mobil Borneo Sdn Bhd. In its website, SMC said that the three companies form an integrated business engaged in refining, distribution and marketing of petroleum products. The physical assets include the 88,000 barrels per day Port Dickson refinery; seven fuel distribution terminals; and about 560 refilling stations.

SMC’s entry into the Malaysian downstream oil industry could be just the initial steps. Ramon S. Ang, president of the giant conglomerate, recently disclosed that SMC is eyeing big oil and natural gas field overseas. “If we were able to buy one of those, it would be like printing money forever,” Ang was quoted as saying. SMC is so serious about the plan that Ang said they are willing to let go of longtime core business San Miguel Brewery Inc. and new assets in power generation to raise funds. With its acquisition of Exxon Mobil’s downstream assets, SMC is in a strategic position to also corner upstream deals in oil-rich Malaysia.

The disputed state of Sabah itself is abundant in oil and gas resources. An article by the Philippine Star, quoting a 2012 study by Singapore-based FACTS Global Energy, reported that Sabah has reserves of about 11-12 trillion cubic feet of gas and at least 1.5 billion barrels of oil. The figures represent 12% and 15% of Malaysia’s natural gas and oil reserves, respectively, according to the report. Another article, by the Centre for Research on Globalization, noted that Sabah has 15 oil wells that can produce as many as 192,000 barrels a day. Also, four new oil fields have been discovered in its territorial waters in the past two years further increasing Sabah’s potential as oil producer.

Is Aquino avoiding displeasing Malaysia over the Sabah dispute so as not to undermine the grand multibillion dollar oil and gas ambitions of SMC and uncle Danding?

Another business deal involves AirAsia Philippines, the local affiliate of Malaysia-based AirAsia Bhd, the largest budget carrier in Southeast Asia. In November 2010, the Board of Investments (BOI) approved the formation of AirAsia Philippines as a joint venture between Malaysian investors and Filipino businessmen led by the President’s cousin Antonio “Tonyboy” Cojuangco Jr. Tonyboy and his Malaysian partners are aggressively expanding their operation in the Philippines with their recent acquisition of at least a 40% stake in local rival Zest Airways Inc.

Does Aquino fear that the contentious Sabah issue could somehow complicate the blooming Malaysian business partnership of his cousin Tonyboy?

Aquino could not just ignore the interests of his rich relatives. He won’t be President without their vital support.

Tonyboy was the biggest campaign donor of Aquino in 2010, based on the President’s official declaration to the Commission on Elections (Comelec). Out of the P440 million in campaign funds declared by Aquino, Tonyboy’s contribution accounted for almost a quarter with P100 million. While Danding was not officially listed as a campaign donor, it is widely known that the tycoon and Marcos crony also supported the candidacy of his nephew.

If these business interests of his relatives played a key role in Aquino’s handling of the crisis, then the slaughter of our men, women and children in Sabah becomes much more revolting and enraging than it already is. (End)

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Economy, Governance, Labor & employment, Poverty

Economy in 2012: Rising joblessness, poverty amid Aquino admin’s claims of growth

Joblessness, poverty and hunger are reaching record highs under the Aquino administration amid claims of growing economy

Joblessness, poverty and hunger are reaching record highs under the Aquino administration amid claims of growing economy (Photo from www.flickr.com)

In 2012, the dominant theme peddled by the Aquino administration was “good governance is good economics”. The main propaganda line of Malacañang is that the “daang matuwid” (straight path) has created a favorable environment for economic growth that is inclusive. From being the sick man of Asia, the country now brims with vitality, declared President Benigno Aquino III in his State of the Nation Address (Sona).

To the uncritical, such assertions would seem hard to doubt. For one, the national accounts do show rosy numbers. The Philippines is beating expectations and has been one of the supposed few bright spots amid a gloomy world economy. International banks, local and foreign investors, credit rating agencies and multilateral financial institutions are one in saying that the prospects are indeed upbeat for the country. There are even claims that we are the new tiger in the region, joining the likes of Singapore and South Korea.

Good news for big business

After growing by 7.1% in the third quarter, way above the market’s media forecast of 5.4%, the gross domestic product (GDP) has now expanded by 6.5% for the year. The strong third quarter performance prompted economic managers to revise upwards their 2012 full year GDP growth projection with the National Economic and Development Authority (Neda) claiming that the GDP will likely grow by 7% this year, well beyond the earlier official forecast of 5-6 percent. Many share the same optimism like the World Bank which also raised its projection to 6% from the previous 4.2 percent.

Meanwhile, Standard and Poor’s (S&P) upgraded the credit rating of the Philippines from “stable” to “positive” following the GDP report which put the country on track to make investment grade by next year. Officials say this means lower borrowing cost for government and lower cost for doing business in the Philippines. Prior to the S&P upgrade, the country has already posted eight credit rating upgrades since 2010. These developments continued to feed optimism in the market with trading at the Philippine Stock Exchange posting 38 record highs this year, making it one of the most vibrant equities market worldwide.

Other economic data, as culled by the Christmas Day Inquirer editorial, also seem encouraging. In the first nine months of the year and amid the global crisis, exports grew by 7.2% and foreign direct investments (FDI) by 40% compared to the same period in 2011. Consequently, as of November, the country has an all-time high of $84.1 billion in gross international reserves (GIR) and a balance of payments (BOP) surplus of $2 billion, five times its value during the same month last year.

The country’s big business groups share government’s high optimism, citing the so-called good economic fundamentals in 2012 that can lead to a “super-year” in 2013. They see more opportunities to further boost profits with the anticipated investment grade rating, the implementation of public-private partnership (PPP) projects and the upcoming midterm elections.

Big business, of course, has every reason to be upbeat. High GDP growth, robust stock market and favorable credit rating all reflect not the state of the ordinary people but of how lucrative the economy is for the moneyed few. Further, past and present policies of privatization and deregulation have allowed them to monopolize and greatly profit (through generous perks, incessant hikes in rates and user fees, and exploitation of workers) from key economic activities including public utilities and infrastructure development.  This small group of the super-rich has seen their wealth balloon in recent years. In 2009, the Forbes magazine reported that the 40 richest Filipinos had a combined wealth of $22.4 billion and in 2011, the amount more than doubled to $47.43 billion. The economy is growing but that’s good news only for big business.

Hard realities

Because amid the purportedly stellar growth of the economy, series of credit rating upgrades, streak of stock market highs and favorable reviews by banks, fund managers and investors are the hard realities of rising joblessness, worsening hunger and deteriorating poverty. Social indicators which are most vital to the people have been deteriorating in the past three years amid the record-high profits and wealth of elite families, high investor confidence and positive market sentiment.

Official unemployment rate as measured by the National Statistics Office (NSO) averaged 7% in 2011 and 2012 from 7.3% in 2010. We are supposed to be the second fastest growing economy in the region just behind China but the official jobless rates of our neighbors are much lower. Thailand’s is 0.7%; Singapore, 2.1%; Malaysia, 3%; South Korea, 3.8%; China, 4%; and Taiwan, 4.2 percent. To be sure, like in the Philippines, these official unemployment figures understate the true extent of domestic joblessness in the respective countries. But we cite them for the simple comparison of official data on the labor markets in the region. (Data on Asian countries are as of first quarter 2012 as compiled by the Bangko Sentral ng Pilipinas or BSP. During the same period, our official unemployment rate was 7.2 percent.)

And we have not even looked at the quality of available jobs. A quick peek at the NSO’s preliminary October 2012 Labor Force Survey shows that underemployed workers – those who are employed but are still looking for additional work – numbered 7.2 million; self-employed without any paid employee, 10.7 million; and unpaid family workers, 4.1 million. That’s easily 22 million out of the reported 37.7 million employed workers (more than 58%) with disputable quality of jobs.

Then for wage and salary workers, there’s the issue of extremely low pay amid a very high cost of living (made even worse by Aquino’s enforcement of the two-tier wage system which imposes a floor wage that is even lower than the minimum wage) as well as job insecurity amid widespread labor contractualization. The last time the National Wages and Productivity Commission (NWPC) issued its estimate of family living wage (which could approximate the amount needed by a regular family to live decently) it pegged it at ₱917 per day as of September 2008 in Metro Manila. More than four years later, Metro Manila’s daily minimum wage is still a measly ₱419-456.

To have an idea of how massive job scarcity in the Philippines could be, we may refer to the regular surveys of the Social Weather Stations (SWS). In 2010, 22.5% of Filipino workers said they were jobless which increased to 23.6% in 2011. This year, it ballooned to 30.1 percent. In absolute terms, there were about 9.5 million unemployed workers in 2010 and 2011; this year, it climbed to 12.1 million workers. In Aquino’s first three years in power, the number of workers who said that they were jobless increased by 2.6 million based on SWS surveys.  (Results of SWS surveys cited in this article all refer to annual averages.)

With the economy not producing enough jobs and livelihood opportunities even as wages become even more depressed, poverty and consequently hunger have been at their worst. Again using the SWS surveys, 47.5% of Filipino families considered themselves poor in 2010. Since then, the percentage has steadily climbed to 49.3% in 2011 and 51% this year. There are now around 10.3 million families who consider themselves poor, up from 9.9 million in 2011 and 8.9 million two years ago. Thus, in the first half of Aquino’s term, the number of poor families ballooned by 1.4 million. This means that some 7 million Filipinos have been added to the number of poor in the past three years. Note that between 2009 and 2012, the budget for the controversial conditional cash transfer (CCT) program swelled from just ₱5 billion to ₱39.4 billion (a whopping 688% increase) but apparently failing to make a dent on poverty.

Hunger incidence, still as surveyed by the SWS, follows the same path. In 2010, the percentage of families who reported to have experienced hunger was at 19.1 percent. It climbed to 19.9% the next year and to 21.1% this year. In absolute figures, there were 3.6 million hungry families in 2010; 4 million in 2011; and 4.3 million in 2012. Under Aquino, the number of Filipino families who experience hunger has so far grown by 700,000 or about 3.5 million people as measured by the SWS.

ph economy in 2012 - table

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Economy

“Growth” built on maldevelopment

BPO and labor export as growth drivers is an aberration because their prevalence is symptomatic of the economy’s continuing failure to industrialize (Photo from callcenterphilippines.com)

Written for The Philippine Online Chronicles

The National Statistical Coordination Board (NSCB) reported that the Philippine gross domestic product (GDP) grew by 7.1% in the third quarter of 2012. The expansion was beyond the general expectation of 5.4% and second only to China’s 7.7 percent. Encouraged by the “surprising growth”, government chief economist Arsenio Balisacan is predicting that the country will surpass its 5-6% growth target for 2012. Earlier, the International Monetary Fund (IMF) also forecast that the Philippines will grow faster than projected and could become the only economy in the world that will beat expectations.

It’s not every day that the economy outperforms forecasts and ranks behind the region’s largest economy so this must be good news, right? But if you are assuming that we are finally on the path toward sustained and inclusive growth thanks to the good governance reforms of the Aquino administration, you might want to rethink your optimism.

Because the hard truth is that our supposed economic growth is an aberration, a result of our maldevelopment. It is “growth” that is being spurred by volatile foreign capital and markets and not by dynamic and reliable domestic productive sectors. It is growth that underlines the structural defects of our economy. Thus, it could never be banked on to produce long-term jobs and curb poverty, much less jumpstart national industrialization. (For a discussion on job creation and inclusive growth, read this earlier article on GDP growth.)

Let us look at the latest national accounts released by the NSCB. The 7.1% expansion in the GDP was mainly the result of the extraordinary performance of the construction sector both in the production and consumption sides. NSCB data show that by industrial origin, the gross value added (GVA) in construction grew by 24.3% in the third quarter, the largest among all sectors. Manufacturing, on the other hand, expanded by just 5.7 percent. Meanwhile, construction expenditure expanded by 24.8% during the same period, easily the fastest growth rate among all types of expenditures that contributed to the GDP growth. (See Table)

What’s driving the scorching growth in construction? Is the country constructing new infrastructure and factories to support the building of national industries? Is the economy producing domestically sourced surplus income that spurs the demand for residential construction?

Sadly, no. The high growth in construction, and consequently the acceleration in the GDP growth, is mainly attributable to the inflows of funds from external sources, in particular the foreign direct investments (FDI) for the business process outsourcing (BPO) sector and the remittances of overseas Filipino workers (OFWs). These externally driven funds are fuelling the so-called “construction boom” in the country, which in turn pushed the substantial GDP growth.

BPO, according to industry sources, has been driving up demand for new office space which is expected to hit a record 400,000 to half a million square meters this year, or an increase of as much as 25% from 2011. Such expansion in BPO commercial space is extremely limited to the country’s BPO hubs. Of the 2.2 million square meters in additional office space for BPO up to 2015, 69% are in Quezon City, Makati, Mandaluyong and Manila while the rest is in other major urban centers like the cities of Davao and Cebu. Certainly, this isn’t inclusive growth both geographically and in terms of the demographic of the domestic labor market. Meanwhile, OFWs continue to stimulate residential construction, with foreign buying of property increasing by 61% this year, according to industry sources.

Why is growth stimulated by BPO and OFWs an aberration?  Because their predominance in economic production is actually symptomatic of the country’s continuing failure to develop and industrialize. Both are the results of the domestic economy’s longstanding structural inability to generate sustainable and productive jobs from vibrant local industries including the manufacture of consumer and industrial goods and modernized agriculture.

Without a national industrialization plan, we are forced to rely on what the US and other rich countries require us to do for their advanced economies.  Since the 1970s, they made us production workers in their global assembly lines and factories. Since the 2000s, they made us call center agents to service the various needs of their clients. In both cases, the rationale has been the same – for American and other foreign firms to exploit our cheap labor in order to cut costs and maximize their profits. To be sure, they do create some jobs but just enough to meet their needs while the jobs generated are totally detached from our own development needs. They are just squeezing dry our labor and human resources while the economy is left with crumbs in the form of several million dollars in investments and several hundred thousand jobs amid tens of millions in employment needs.

The same thing is true with labor export that deprives the economy of the productive capacity of its own work force. Certainly, the remittances keep the economy afloat and provide the much needed boost for consumer spending. But when measured against what is being taken away from us when millions of our skilled workers, scientists and engineers, health workers, teachers, etc. use their invaluable skills to serve the needs of other countries instead of ours, the net impact is far more disastrous economically (not to mention the social costs of labor export).

The maldevelopment of our economy is further emphasized when Malacañang and the IMF boast that the Philippines will continue to grow and be resilient amid the global economic crisis. The reason behind such resilience is not because the economy is internally-driven but because our main drivers of growth – BPO and labor export – are precisely useful cost-cutting schemes for the crisis-hit economies of the First World to cope with the economic crunch. In other words, we may continue to “grow” amid the global crisis at the great expense of our workers who will be forced to accept further exploitative arrangements in the form of more depressed wages and lack of social protection whether as an irregular call center agent here or an undocumented migrant worker in the States.

A country of call center agents and exported workers will just never industrialize. ###

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2013 elections

Noynoy relatives actually funded ₱18 M of Akbayan’s whopping ₱112-M 2010 poll expenditures

Akbayan actually received ₱18 million in campaign funds for the 2010 elections from President Aquino’s relatives. RG Cruz of ABS-CBN News reported that Akbayan, which is facing disqualification complaints before the Commission on Elections (Comelec), received ₱14 million from presidential sisters Kris (₱10 million), Ballsy (₱2 million) and Viel (₱2 million). But Akbayan also received funds from Viel’s husband Richard Dee (₱3 million) and Aquino’s maternal relatives from the Lopa family (₱1 million). Thus, the total amount that Akbayan directly received from presidential relatives could reach at least ₱18 million.

(See Table below)

Another ₱1 million came from a member of the Board of Trustees of the Cory and Ninoy Aquino Foundation (NCAF), Daniel Lichauco. As Cruz reported, Aquino family friend and presidential appointee Margie Juico, chair of the Philippine Charity Sweepstakes Office (PCSO), gave another ₱1 million. So that puts the amount contributed to Akbayan by people with direct ties to Pres. Aquino at ₱20 million, a staggering sum by any standard, and especially so in a party-list standard.

Download the full list of Akbayan’s 2010 campaign contributors 

It’s safe to assume that there are other rich family friends of the Aquinos who contributed to Akbayan’s 2010 election war chest because of the group’s ties to the then presidential bet. There’s no way that a truly under-represented and marginalized party-list group could have raised a total of ₱112.18 million in campaign funds for a single election, even higher than the declared funds of the Nacionalista Party (NP), pegged at ₱80 million. NP is a major political party that the law bars from participating in party-list elections.

Note likewise that Akbayan officials, who supposedly come from marginalized sectors, have also contributed millions of pesos in campaign funds for the group’s 2010 electoral bid. Akbayan representative Walden Bello, for instance, donated ₱1.4 million on top of another ₱2 million that he loaned for Akbayan’s campaign funds. Former Akbayan president Joel Rocamora, appointed by Aquino as head of the National Anti-Poverty Commission (NAPC) also contributed ₱1 million. Kayrami namang pera ng mga taong ito.

In a statement, Akbayan argued that the campaign contributions did not come from “illegal, unscrupulous, or tainted sources.” And as usual, when faced with an issue it could not confront head on, Akbayan resorted to red-baiting and accused its critics of using NPA (New People’s Army) revolutionary taxes from mining and logging companies for their electoral campaign. Presidential spokesperson Edwin Lacierda, who it seems is also moonlighting as Akbayan spokesperson, defended the campaign contributions saying that the Aquino sisters, as private citizens, have a right to contribute to Akbayan for supporting the President.

But again, Akbayan and Malacañang are missing, or more likely, sidetracking the real issue. The point is not whether the sources of Akbayan’s campaign funds are illegal or not. The simple fact that a significant amount of their 2010 electoral spending was directly bankrolled by the Aquino family further bolsters the argument that they do not represent the under-represented and marginalized. How can they claim to represent the farmers when Akbayan is being funded by one of the country’s richest and most powerful landlord families? How can Akbayan claim to fiscalize Aquino on the issue of land reform when the president’s family bankrolled their electoral campaign?

Even their claim that their track record is their best defense will not hold water. Their favorite showcase of supposed legislative triumph, the Carper or the Comprehensive Agrarian Reform Program Extension with Reforms, is not facilitating the massive redistribution of farm lands in the possession of big landlords, but quite the contrary. Case in point is Hacienda Luisita, wherein Carper legitimized the otherwise immoral claim of Akbayan’s biggest patron – the Aquino family – for a “just compensation” worth billions of pesos even after squeezing the farmers dry for decades by owning the land that was never rightfully theirs. Even the Catholic Bishops Conference of the Philippines (CBCP), which supported Carper, is complaining the very slow progress in land acquisition and distribution under the Aquino administration.

Really, the best defense that Akbayan could muster to answer the string of controversies it is facing is cheap, baseless propaganda directly copied from the “Palparan Handbook on Red-baiting.” The primary source of RG Cruz’s report was an official Comelec document. To respond to it by maliciously claiming that NPA revolutionary taxes are being used as campaign funds by their critics is outrageously reckless amid the continuing extra-judicial killings and enforced disappearances of political activists from people’s organizations tagged as communist fronts by the military.

Backed into a corner, Akbayan has become more vicious in its red-baiting. But while further exposing its true colors as a mouthpiece of the status-quo and an advocate of the bloody military campaign against people who are truly working for the under-represented and marginalized, Akbayan has yet to give a convincing answer to the legitimate question that even the Parish Pastoral Council for Responsible Voting (PPCRV) has raisedmarginalized at under-represented ba kayo? ###

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Economy, Fiscal issues, Governance

Junking the Marcosian debt policy for people’s needs

Despite its trappings of reformist language, the Aquino administration’s budget proposals are still reflective of the same anti-people and anti-development policy thinking of the past regimes; and still emasculated by the Marcosian automatic debt servicing

Continued from Part 1

Until today, under post-Martial Law so-called democratic regimes, the Marcosian policy of automatic debt servicing and the heavy debt burden continue to cripple the capacity of government to provide sufficient social services and attend to the basic needs of the people. In an earlier research, think tank Ibon Foundation noted that Filipino taxpayers will continue to shoulder the Marcos debts until 2025, more than half a century since the late strongman imposed Martial Law.

The most controversial and biggest white elephant funded by Marcos debts and paid for by taxpayers was the $2.3-billion Bataan Nuclear Power Plant (BNPP). While we have already completed the payment for the BNPP that has never produced a single kilowatt of electricity, government continues to look for funding sources for the maintenance of the mothballed nuke plant.

These issues take more significance every time Congress prepares the national budget. Since taking over, the Aquino administration has been peddling the deception that unlike in the past, government’s priority now is the provision of social services and empowerment of the people through well-funded programs that directly benefit the poor. But as already noted, automatic payments for principal and interest continue to eat up the largest portion of public resources, including in the so-called 2013 “Empowerment Budget” of the Aquino administration.

Still way short

The Department of Budget and Management (DBM) describes its proposed 2013 national budget as an “Empowerment Budget” because it supposedly heeds the people’s demand to ensure that government resources are used for their benefit. One indicator, said the DBM, is the increase in the budget allocation for social services, which will get the lion’s share of the proposed ₱2.006-trillion budget at 34.8%, up from last year’s 33.8 percent.

Of the proposed budget for social services (₱698.4 billion), the combined allocation for basic education, health and housing is pegged at ₱365.6 billion, which represent the proposed budget for the Education and Health departments, and government’s housing programs excluding those for the soldiers and police. But this amount is just about ¼ of the needed budget to reasonably meet the demands of the people for such services. Based on urgent needs as well as international standards, it is estimated that the budget for basic education, health and housing alone should be about ₱1.4 trillion. Of the said amount, basic education accounts for ₱885 billion (as estimated by the ACT Teachers); health, ₱440 billion (Coalition for Health Budget Increase or CBHI); and housing ₱ 97billion (Ibon).

Resources for social services

There are possible sources of funding for such huge needs of basic social services but it requires a substantial reorientation in government policies and shift in priorities. Based on the 2013 budget, for instance, there are some ₱860 billion that can be tapped, partially or wholly, to fund basic education, health and housing.

Of the said amount, the largest portion is comprised of the national government’s debt service burden, which is pegged at ₱782.2 billion for principal amortization and interest payments. The rest comes from programs and projects whose concept and/or expected benefits are disputed such as the conditional cash transfer (CCT) program, public-private partnership (PPP), counterinsurgency-related initiatives, privatization obligations from past projects, and tourism promotion and development. (See Table 3)

Debt servicing still represents the biggest drain in the country’s already limited resources. Adding principal amortization to interest payments, debt servicing comprises almost 32% of what the Aquino administration is planning to spend in 2013. At ₱782.2 billion, debt servicing is bigger than the budget for all social services in the current budget proposal, pegged at ₱698.4 billion or 28% of the budget including principal amortization.

As pointed out, the culprit is the Martial Law-era automatic debt servicing policy of government. This policy has greatly undermined the constitutional duty of Congress to allocate funds that will meet the pressing needs of the people. Under EO 292, government computes all public debt obligations that have to be settled and automatically sets aside the needed amount to ensure timely payments.

Meanwhile, Congress has to make do with whatever is left of government’s meager resources to budget for the social and development needs of the people. What makes this whole situation more unjust and oppressive is that most of the country’s public debt has been used for projects and/or programs that were tainted with corruption, did not benefit the people or worse, had caused more hardship to the poor. Examples include the power privatization loans from the Asian Development Bank (ADB) which have already reached around $1.3 billion since 2002.

There are many other odious loans that should be reviewed, renegotiated and/or altogether cancelled to reduce the debt burden. But EO 292 deprives Congress and the Filipino people of this policy option.

Debt-funded dole

Even the much ballyhooed CCT program is being partly funded by foreign debt worth $805 million from the ADB and the World Bank, adding to the country’s debilitating debt burden. And while adding to the debt burden, the CCT’s positive impact on alleviating poverty is also suspect. Between 2009 and 2012, the number of CCT beneficiaries ballooned from 594,356 households to more than 3 million (or an enormous 407% increase); the national budget for CCT during the same period also swelled from ₱5 billion to ₱39.4 billion (or a whopping 688% hike). But self-rated poverty, as measured by the Social Weather Stations (SWS) worsened from an average of 48% in 2010 to 51% this year.

Privatization and debt

Funding PPP initiatives, on the other hand, is problematic given the country’s experience with privatization in the past two decades. PPP schemes in the water and power sectors, for instance, have resulted in soaring and exorbitant user fees. Aquino’s plan to tap PPP to construct school buildings and health facilities is fe

ared to further marginalize the poor as fees skyrocket to ensure the profits of participating private contractors while aggravating the indebtedness of government.

In fact, the national budget has long been being undermined by the impact of such onerous PPP contracts. Case in point is the controversial build-lease-transfer (BLT) contract to run the metro rail transit (MRT) where the Aquino administration is pushing to implement a fare hike of as much as 100% to pass on to commuters the government’s debt obligations and guaranteed profits of the private investor. Another is the National Power Corp. (Napocor) which after a decade of privatization and doubling of electricity rates is still mired in deep debts reaching almost P1 trillion, portion of which will be directly shouldered by consumers through the universal charge.

Other reforms

Budget items related to government’s counterinsurgency campaign can also be diverted to basic social services. Poverty alleviation initiatives like the Payapa at Masaganang Pamayanan (Pamana) and CCT being used as part of the Oplan Bayanihan actually undermines the peace and development process by marginalizing efforts to address the root causes of insurgency (i.e. peasant landlessness) based on the fundamental principle of social justice while perpetuating the conflict and rampant human rights violations.

Aside from these items in the proposed 2013 budget, revenue generation can also be significantly increased by improving collection efficiency, reforming the tax system to maximize collections from the rich and reversing the neoliberal policies that deprived government of revenues such as trade liberalization as well as the numerous fiscal incentives to attract investors. Around ₱867 billion in new revenues can be raised from these reforms, based on Ibon estimates.

Fiscal policy for development

A national budget is important because it sets how government will use its resources. For backward countries, the issue of budget takes a more crucial role considering the scant public resources available amid the massive needs of the people and economy. In fact, for the Philippines, government needs to take a bigger responsibility to ensure that the people’s most basic needs such as education, health and housing, among others are met adequately given the chronic poverty and job scarcity.

At the same time, government must sensibly use the budget to invest in programs and policies which create the most favorable conditions for sustainable development and industrialization that will, in turn, create long-term jobs and address poverty. To achieve this, government needs a fiscal policy – tools on raising revenues and ways to spend them – that redistributes wealth and best serves the interests of the people, in particular the poor and marginalized.

Alas, despite its trappings of reformist language and deceptive increases in allocation for social services, the Aquino administration’s budget proposals, including the 2013 budget, are still reflective of the same anti-people and anti-development policy thinking of the past regimes; and still emasculated by the Marcosian automatic debt servicing. (end)

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Economy, Fiscal issues, Governance

Martial Law legacy: debt servicing, top priority from Macoy to Noynoy

Image from gmanetwork.com

Last September 21, the country marked the 40th anniversary of the imposition of Martial Law by the late strongman Ferdinand Marcos. Those dark years were notorious for the numerous cases of human rights atrocities committed by the military; for the unprecedented cronyism; and for the massive and flagrant ransacking of state coffers by Marcos, his relatives and friends.

Seldom pointed out is how the Marcos dictatorship also instituted national policies that further tied our pre-industrial economy to perpetual backwardness and bound a great majority of our people to acute poverty. Seldom pointed out is how the anti-Marcos faction of the ruling elite led by Cory Aquino who supposedly restored democracy, and her successors – including son, incumbent President Benigno Aquino – have upheld and continued these policies to the serious detriment of the country and the people.

One such policy was automatic debt servicing. Guaranteed payments of the national debt, even if they were incurred under questionable circumstances; went to the pockets of corrupt government officials; and/or used to fund programs and projects that harmed the economy and the people is a testament to the still dismal state of governance and democracy in the country 40 years after Martial Law was imposed.

That the Marcosian policy of automatic debt servicing continues to deprive the people of much needed social services contradicts assertions by the Aquino government of a pro-people national budget. It has hyped, for instance, its proposed 2013 ₱2.006-trillion national budget as “Empowerment Budget”, building on its previous packaging of “Reform Budget” (2011) and “Results-Focused Budget” (2012). Underlying all these budget proposals is the theme of “daang matuwid” (straight path) and “kung walang corrupt, walang mahirap” (without corruption, there’s no poverty).

But behind the pro-people packaging is the reality that the priorities and programs of government, as reflected in its national budget, remain unresponsive to the urgent social needs of the poor and development requirements of the country. From the late strongman Macoy to the son of supposed democracy icons Noynoy, keeping the creditors assured has always been the top priority in crafting the national budget.

Current debt data

Marcos’s borrowing spree – from less than $1 billion when he first became President in 1966, the foreign debt ballooned to $28 billion by the time he was kicked out of Malacañang twenty-years later – set off the crippling debt burden that the country has had to endure. To keep the foreign loans coming, which had become the dictatorship’s largest source of corruption (one estimate claimed that Marcos pocketed at least ⅓ of foreign loans), Marcos issued Presidential Decree (PD) 1177 or the Budget Reform Decree of 1977 that automatically appropriates for debt servicing regardless of how much is left of the country’s resources to fund basic social services. The late President Corazon Aquino affirmed this policy through Executive Order (EO) 292 or the Administrative Code of 1987.

As of July 2012, the outstanding debt of the national government, according to the Bureau of the Treasury (BTr) stood at ₱5.16 trillion, of which ₱3.12 trillion (61%) come from domestic creditors and the rest, ₱2.04 trillion (39%) from foreign lenders.  When President Aquino assumed office in June 2010, that debt was pegged at ₱4.58 trillion (₱2.59 trillion, domestic; ₱1.99 trillion, foreign). Since taking over, the Aquino administration has added more than ₱580 billion to the debt burden, or an average of more than ₱23 billion a month (July 2010 to July 2012). During the Arroyo administration, the outstanding debt of the national government was growing by a monthly average of ₱21 billion (January 2001 to June 2010).

Meanwhile, looking at the foreign debt data (which include public and private debt, with the former accounting for 77% of the $62.9-billion total as of March 2012) as monitored by the Bangko Sentral ng Pilipinas (BSP), it appears that the country’s external loans have been accumulating most rapidly under the current Aquino administration with an average of $268.81 million per month. It is the largest monthly growth in foreign debt among all post-Marcos administrations. (See Chart)

A news report on the latest debt data noted that each Filipino now owes the national government’s creditors some ₱53,715 (based on the latest estimated population of 96 million by the National Statistical Coordination Board of NSCB). A minimum wage earner in the National Capital Region (NCR) will need to give his salary for 120 to 131 workdays if he will be forced to pay for his share of this debt; or 232 days if he is from the Autonomous Region in Muslim Mindanao (ARMM).

Meager allocation for social services

But the real impact of such heavy debt burden is felt by the poor in the meager allocation that important social services get from government because limited resources are being siphoned off by automatic debt servicing. And Aquino is proving to be worse than Arroyo in this respect. Under the Aquino administration, government has already shelled out ₱1.45 trillion for debt servicing from July 2010 to July 2012. It’s equivalent to ₱58.05 billion a month, almost ₱10 billion bigger than Arroyo’s ₱48.18 billion a month during her prolonged 9 ½-year term. (See Table 1)

Further, debt servicing relative to total expenditures (including principal repayments) is pegged at almost 59% under Aquino, compared to 42% under Arroyo; and relative to total revenues collected, it’s 76% under Aquino and 66% under Arroyo. These figures mean that that the absolute increase in debt servicing in the past two years is exerting more pressure on public resources which could not cope with the country’s growing expenses, including the need to pay for government’s mounting debts. To finance its expenses, including payments for past debts, the Aquino administration is borrowing more.

Debt servicing continues to eat up a huge portion of the national budget despite claims by the Aquino administration that social services are now being prioritized by government. The expenditure program from 2011 to the proposed 2013 national budget, for instance, shows that the budget for debt servicing (including principal amortization) is equivalent to an average of 2.5 times that of the budget for education; 6.4 times, health; and 11.2 times, housing. (See Table 2)

To be concluded

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