Category: economy

that rating upgrade

… is good news only for the minority rich, not for the majority poor.

check out cielito habito’s An early Easter gift

So what’s in the credit rating upgrade for the ordinary Filipino? It’s actually a mix of good news and bad news. The positive side is that more investments—both of the job creating (FDI) and the “hot money” kind—should be drawn into the country by this new vote of confidence; let’s hope there will be much more of the former. Government and firms could borrow funds more easily and more cheaply. Lower interest rates would mean lower costs for government debt, freeing up more funds for health, education, infrastructure and other public investments to uplift people’s lives.

But the negative side is that a major segment of our population faces the very real prospect of lower incomes. Families relying on remittances from abroad, or from earnings in import-substituting or export-oriented industries (including tourism) will be hurt by a rising peso induced by the surge in foreign inflows. Pensioners, retirees and other savers relying on interest earnings from fixed-income placements will also see their incomes drop further. A retiree recently wrote me complaining that his interest income had dropped 40 percent in the past year alone because of falling interest rates, and laments that he now faces a serious problem with making ends meet.

and ben kritz’s Curb the ratings upgrade euphoria

President Aquino’s statement described the positive outcomes of the ratings upgrade as lower interest costs on government debt, making Philippine securities more attractive to investors, and “fiscal space” from the savings on debt costs, savings that can be used “to sustain and further improve on social protection, defense, and economic stimulus, among others.” The only part of that statement that is completely accurate is the first part. The specific meaning of the rating is a judgment of the country’s ability to pay foreign-denominated debt on time and in full, and because the Philippines is now judged to be at lower risk of default by one agency, the government will not have to pay so much to incur debt; interest on direct loans will be a bit lower, as will yields on government bonds.

As for the “savings” that can be applied to other activities, that presumes the government will incur new foreign debt, which most would consider a rather novel conception of “savings.” Furthermore, in a memo released on March 17, Treasurer Rosalia de Leon informed bond dealers that the Treasury will be increasing its monthly auction of 3-, 5- and seven-year bonds and treasury bills from P120 billion to P150 billion through the second quarter, as part of an effort by the government to source all its debt locally for 2013. In other words, the government has no plans for now to access the foreign credit market where the impact of the ratings upgrade would be felt the most.

and gary olivar’s Early Easter gifts

Perhaps the most important thing to remember about this credit rating upgrade is this: At the end of the day, it really matters only to professional portfolio managers who may be restricted from putting their money in non-investment-grade credits. Even with its shiny new investment grade, the Philippines will still have to compete with its new peer group for portfolio attention. And direct foreign investors—the ones who really bring in the jobs—will be totally unimpressed since they’re concerned with an entirely different set of issues altogether.

The new rating—like any other credit rating—speaks only to the country’s ability to repay its foreign-denominated debt, nothing more. It says less about whether or not equity investors can expect to earn the right returns on bricks and mortar on a level playing field. And it says nothing about whether we are investing properly for future growth, or creating more jobs through the right kind of growth, or improving our productivity as the only way to sustain long-term growth.

Unfortunately, like most early gifts, the packaging may be nice and glitzy—as the Palace will try to hype it up—but what’s inside is not what we really need.

read, too, atty. dodo dulay’s What PNoy isn’t saying about PH’s rating upgrade

An Economic Report from the Republic of Noy’s Brain

 By Ben Kritz

In the country which exists inside the mind of Dear Leader Aquino the economic situation is actually pretty good, as he explained in an interview reported by the Philstar yesterday:

The Philippine economy is now focused on “investment-led growth” and is no longer heavily dependent on the remittances of overseas Filipino workers, President Aquino said yesterday.

Say what? Up until now I’ve been saying Peenoy’s elevator doesn’t go all the way to the top floor mainly in jest, but I had no idea it might actually be true.

Read the rest here

Occupy Wall Street, shades of the sixties

Occupy Wall Street reminds me of the youth unrest in America in the mid 1960s through the ’70s.  except that then (like it was here), the youth were not as focused, i guess because of the drugs, the sex, and the rock’n’roll alongside the make-love-not-(vietnam)war and the civil rights movements.

this time, 40-something years later, the crowds on wall street and elsewhere in america and the world, may not be clear exactly how to achieve the change they want, but they sure are clear what they have had enough of, and the awesome meeting of minds and bodies is simply unprecedented and proving quite contagious.

check out these links i’ve posted on my facebook wall, tracking the movement, and the thinking that’s transpiring, evolving…  i hope the prez and his peeps are paying attention too.

All power to occupy Wall Street
Occupy Wall Street Rages On Around The World
This Time, It Really Is Different
Zizek at Wall Street: “don’t fall in love with yourself”
There’s something happening here
My Advice to the Occupy Wall Street Protesters
What Will Become of Occupy Wall Street: A Protest Historian’s Guide

Rent seeking

By Calixto V. Chikiamco

What’s wrong with Philippine society is that its economic system is primarily characterized by rent seeking. So, what’s rent seeking? It’s the non-market extraction of surplus or profit. It means the profit is generated from licenses, quotas, monopolies, protection, and other government granted privileges.

It differs from true capitalism where the profit or surplus is extracted from the market, usually through innovations in product or marketing and distribution. True capitalism is dynamic because it results in innovations and increases in consumer welfare. Society benefits as a result. In rent seeking, there’s no innovation, nor additional value to the consumer. Instead, there’s unearned extraction from the consumer. Welfare is diminished.

Rent seeking in the Philippines hasn’t stopped. It just takes new forms.

A vivid example of this is the Feed-in-Tariff (FIT) rate to be given to Renewable Energy Developers under the Renewable Energy Act. Under the proposal of the National Renewable Energy Board, all electricity consumers must pay an additional 12 centavos per kilowatt hour, amounting to 8 billion pesos per year, to subsidize Renewable Energy developers.

Why the need for a subsidy? Because the cost to produce energy by RE developers is much higher than conventional sources. The price for conventional sources (coal, natural gas, geothermal, big hydro) averages about P5 per kilowatt hour while the price to be paid for run of the river hydro is P6.15, biomass at P7.0, wind at P10.37 and solar at P17.95.

The difference between the price of conventional sources and the price to be paid for Renewable Energy must be made up by the FIT Rate, which is really a surcharge on consumers.

Some may ask: shouldn’t the Philippines do its share to halt carbon-induced global warming?

No, because the country’s contribution to carbon emissions is only less than 1% (.48%s). Hence, unlike the rich, developed countries, it has no moral or legal obligation to slow down global warming. Furthermore, the share of renewables in its energy mix is already 32%, much more than the 10% in the US and other countries.

But here’s the cake: Not only are we poor consumers being coerced to pay three times as much for solar energy and two times as much for wind, but in addition the developers are guaranteed a generous rate of return for the next 20 years! No risk on their part, even of technological obsolescence, because that risk has been passed on to us poor consumers who must pay the same FIT Rate for the next 20 years even if the cost to produce solar energy drops by 50%.

The guaranteed rate of return is not the only form of rent seeking. Under the proposal of the NREB, there will be no auction, whether among the different technologies (run-of-the-river hydro, biomass, wind, and solar) or among suppliers within a specific technology. Everything will be negotiated (wink, wink). No competition either on price or on time period (i.e., for a time frame less than 20 years) will be allowed.

Aside from that guaranteed rate of return and the no-sweat, no-competition policy, the developers will be enjoying a seven-year income tax holiday, duty-free importation, special realty tax rate, zero VAT on sales and purchases, cash incentives, 10% tax rate after income tax holiday, and so on.

The high-costing wind and solar energy producers are resisting a dispatch policy of cheapest first because they say that the country must have a “portfolio strategy.” It’s a conceit to think that the government can ever place bets on a particular technology. Should the government have subsidized the pager industry? Or the typewriter industry? The only valid criterion is value for money or efficiency. The market, not NREB, must determine the winners.

Besides, solar and wind are unstable and unreliable sources of energy, dependent as they are on weather and other climatic conditions. They would be poor choices for a diversification strategy. They can never be energy sources for industrialization.

Also, why the rush? A policy of waiting when solar prices are expected to come down to grid parity in five years would better serve the power consumers, but the NERB wants to hand out contracts and lock in the profits of developers for the next 20 years now. We can only speculate why.

Rent seekers usually cloak themselves with noble aspirations to mask their predation. Since the 1950s, rent seekers have raised the lofty banner of nationalism in order to keep out competition and to mask their government granted monopolistic privileges.

Today, the new cloak is not nationalism but “environmentalism.” But it’s the same old predation. Different color perhaps (green), but the same old predation.

What’s disturbing is that the manufacturing sector, already suffering from the highest power cost in Asia, will have to bear this burden in addition to the lifeline rate and other impositions. This is the road to perdition because societies collapse when the productive sectors of society are “taxed” to subsidize the inefficient, non-productive sectors.

The scourge of Philippine society is not corruption per se, but rent seeking. What the NREB proposal shows is that the scourge has not been eliminated. It’s just taking new forms. Pity us poor consumers. We can only say, “Please, moderate the greed.”