Category: money

jun lozada corroborates joey de v. story & the madriaga file

missed the brave wee-hours-of-the-morning presscon of rodolfo “jun” lozada on the nbn-zte deal but caught snippets of anc’s replay later and wow! what a testimony to GREED that corroborates joey de venecia’s story (good for him) and also the madriaga file, posted by ellen tordesillas early this week:

The Madriaga file on broadband deal

THE following document landed in my mailbox. It’s supposed to have been written by a certain Dante Madriaga. (A check with UP alumni activities show a Dante Madriaga as earning a BSE from UP in 1966.). For what’s it worth, here it is.

***

I am an electronic/electrical engineer by profession. I attended the University of the Philippines and Texas A&M University. I have been in the communications industry for over 30 years.

I was a part owner of a company in the LISP in Cabuyao, Laguna that exported microwave radio transmitters. I was involved in the original design of the ARESCOM proposal using a concept similar to what Joey de Venecia thought about. I have been involved in the preparation and design of the NBN ZTE proposal since the beginning.

I have been a technical consultant for the project involved not only in the design but as a liaison to NEDA, DOTC/TELOF/CICT. I was involved in all discussions regarding the project including the names of other people involved, margins and actual pricing details.

ZTE International signed an MOU with the government on March 14 on a National Broadband Network project.

The following is my account of the project from the start to the time when the negotiations were turned over to the finance group. With the exception of the China trips I was present in all the meetings. There may be some omissions and oversights, some of it done on purpose.

May 2006: The project was brought to ZTE on May 5 by a person named Stephen Lai, who was originally with Arescom and is a personal friend oft the Arescom president Cris Ching. ZTE approached Chairman Abalos whom they knew to help on the political side.

Chairman Abalos enlisted the help of Ruben Reyes a golfing buddy to come up with a team to expedite matters. Ruben Reyes contacted General Quirino de la Torre and Leo San Miguel. I was approached by Leo San Miguel whom I had known before to work on the project. I provided Leo inputs on the Arescom proposal which ZTE used as a basis to start their design.

June 2006: Ruben Reyes, Leo San Miguel, General De la Torre, Stephen Lai, Yu Yong, Fan Yang met on June 16 at the Makati Shangri-La in a private environment to discuss the NBN project. They were later joined by Chairman Abalos who left first. We start the design work but are hindered by cost constrains. There is no possible way to achieve the $130M Arescom budget with the commissions that were needed. They decide to increase it to $190M and later added some more components to make it $262M.

Same group meets on June 18 with the addition of Secretary Mike Defensor and Abalos chief of staff Paz and without Stephen Lai meet in Wack-Wack to discuss details on the commissions.

July 2006: We make initial presentations to CICT and Telof at the CICT office. Chairman Sales was present together with then Telof Asec Frank Perez, the son of Sec Nani Perez, Commissioner Lorenzo Formoso, ZTE personnel and the DOTC/CICT technical staff.

Chairman Sales initial comment was that the NBN project was best left up to private but promised to review the proposal and make recommendations.

We made similar presentations to the NEDA infrastructure group, present was the ZTE group including Fan Yang and the accounting personnel of ZTE.

NEDA writes a letter to us citing objections to the initial design.

PGMA signs an MOU on July 12 designating Sec Favila to negotiate with ZTE on the government’s behalf. Group meets on July 25 in Wack-Wack to solve the problems.

August 2006: Then DOTC Asec Perez makes a presentation and objects to the cost and the design. I work with the NEDA group to smooth out their objections.

Asec Perez who openly discredits the project is promptly replaced by Commissioner Formoso who vowed to help with the implementation. Asec Formoso is a better choice than Asec Perez because he is an engineer and a lawyer and can defend the project well.

Chairman Sales reviews the project but is still not convinced; through back door channels he changes his tune at a later date.

Group on August 11 goes to China and demands an advance payment upon orders from the boss ostensibly to facilitate the approval and for PR. Chairman Abalos leaves first over the weekend. They get it after mentioning the name of the FG. Ruben Reyes is designated as the recipient.

Group comes back from China on August 15 and meets again with Chairman Abalos to tell of their success. US$1M was doled out, Ruben Reyes was designated as the recipient.

September 2006: Group meets regularly at Wack-Wack every weekend at night to discuss ways to facilitate the approval of the project.

NEDA status is ok but all of a sudden meets a sudden resistance from Director General Neri. Group meets at Wack-Wack on September 22 to address the problem.

We meet Sec Mendoza at his officeand make representations. Secretary does not hear the full presentation but endorses us to the then head of legal Atty. Noel Cruz.

DOTC legal returns the endorsement of the NBN project to the CICT.

Design is changed again trying to fit the commitments. ZTE and group argue on the profit margins, they finally decide on September 28 that the increasing the project amount to $270M will give them a margin of $70M each.

October 2006: The name Joey de Venecia suddenly comes into play and makes the group worried. He wants the same project but on a BOT scheme and is adamant about it, he had the idea long before Arescom and ZTE conceptualized it; in fact the whole idea the Arescom proposalcame from Joey.

Leo San Miguel is tasked to fix the problem since he personally knows Joey. The negotiations do not progress because of Joey’s distrust for the group. Group meets at Wack-Wack on October 11 and decides to ask the FG for help on how to handle Joey.

Ruben Reyes, Chairman Abalos and General De La Torre fly to China on October 14 and discuss the problem with the ZTE officials about Joey. ZTE is alarmed but is reassured that everything will be taken care of with the intervention of the FG.

November 2006: Group is notified on November 12 that the President does not want to borrow and instead wants a BOT scheme similar to the AHI proposal.

Group decides to compete with Joey and brings an alternate solution by bringing out a competing BOT offer.

Joey is unfazed since he holds all the cards at NEDA with his father’s help and stonewalls the group’s effort. Group meets almost daily to discuss ways to resolve the issues. ZTE is furious at group for not controlling the situation.

Group decides that the only way that Secretary Neri would not object is to offer him acommission of US$4M at that time the exchange rate of 50-1. Chairman Abalos is designated to fix the problem.

December 2006: Group submits a proposal to Chairman Sales changing strategy and hoping to revive the NBN proposal to a BOT similar to Joey’s proposal.

In a meeting in Wack-Wack in December 5, FG and Abalos try to convince Joey to just partner with them and quit his objection. In the meeting at Wack Wack FG threatens Joey by telling him to back off and stay out of the project.

ZTE tries to help out in the conflict and even designs the AHI network thereby exposing their pricing to Joey’s group.

Group goes to China on December 27 with Joey to fix the problem, they meet with ZTE officials at ZTE HQ but the negotiation fails. It was during these negotiations that Joey brought up the idea of ZTE partnering with Hwawei, another Chinese supplier. The suggestion is promptly dismissed by ZTE and negotiations break down. Group demands an advance and promptly got it from ZTE before the arrival of Joey De Venecia. Ruben Reyes is again designated as the recipient. US$5M was doled out.

January 2007: Group abandons the BOT proposal and decides to meet Joey De Venecia’s AHI group head-on with their own BOT proposal. Asec Formoso organizes a defense by creating a Technical Working Group (TWG) to evaluate the proposals of ZTE, AHI and Arescom.

It comes as no surprise that the TWG comes up with a report tilted in favor of ZTE because all of the members are either TELOF or DOTC personnel, they do not want the offer of AHI since it will be implemented by the private AHI group.

Group plots strategy and enlists Secretary Mendoza since Chairman Sales is a technocrat and Secretary Mendoza is a long-time ally. Group decides to move Telof back to DOTC citing the reason that CICT is a commission and cannot implement a project of this magnitude. In the end Secretary Sales signs the endorsement of the project anyway.

February 2007: TWG finishes the evaluation and hands it to the Technical Working Committee (TWC) who promptly endorses it to Secretary Mendoza.

ZTE is endorsed to NEDA by both Mendoza and Sales.

Joey is not impressed and files a complaint about the ZTE proposal to whoever would listen citing the disadvantages to the government. The project at NEDA is delayed and the much needed NEDA approval is stalled. Secretary Neri does not seem to be favoring the NBN and appears to be part of the problem because he likes the AHI proposal rather than the NBN which requires a government guarantee.

March 2007: On March 8, approval of GMA is secured in order to meet the deadline for final NEDA approval by the executive.

Group meets on March 12 in Wack Wack with Yu Yong and Fan Yang. They finally expand the proposed coverage to increase the amount to $329M.

Joey is furious when the NBN proposal is approved and threatens to expose all the dealings that stopped his much superior proposal. Group does not appear to be worried and thinks it is just sour graping. Upon approval by the NEDA, group meets on March 28 in Wack Wack with ZTE and demands another cash advance which they got. Ruben Reyes is the designated recipient again. US$10M is again doled out.

April 2006: Group meets again in Makati Shangri-La on April 4 with Yu Yong and Fan Yang of ZTE to discuss ways of getting upfront money to finance partly the elections and some personal needs. Ruben Reyes is again designated as the recipient. US$ 30M is again doled out.

Yu Yong agrees but on the condition that PGMA be present at the signing. PGMA promptly goes to China to witness the signing.

FG cannot participate since he is hospitalized and Abalos is busy with the elections. Ruben Reyes takes over all of the negotiations and transfer of funds.

Upon arrival from China on April 27, Secretary Mendoza and Secretary Favila visit the FG and inform him of the good news.

May 2007: Loan negotiation starts.”

decoupling a dream, IMF hits panic button

there’s a lot of hoping and praying going around that asia has truly decoupled, i.e. weaned itself, from the u.s. economy. ibig sabihin kasi, it would be possible for the rest of the global economy to roll on despite the u.s. recession (ok, slowdown, maybe). china and india, the new big trading partners of the world, could take up the slack, provide what the humungous u.s. consumer market used to provide but can provide no more because its credit has run out (sub-prime pala in more ways than one).

it is true that we have decoupled somewhat from the u.s. economy, but just a little. cielito habito writes:

If we count China and Hong Kong as one country (even though the trade statistics still separate the two), the US has already been dislodged as our largest export market, whose 17-percent share of our exports is now just second to China-Hong Kong’s 23 percent. Contrast this to only 10 years ago, when the US took more than one-third (35 percent), while China-Hong Kong took less than one-twentieth (5 percent). Our vulnerability to a US recession via an export slowdown is therefore far less than what it would have been 10 years ago.

“But let’s look more deeply into the details, particularly the destinations of our top exports. Electronic products, which account for two-thirds of all our export earnings, are now well distributed among our top four buyers for these products, with the US taking only 14 percent. China-Hong Kong takes 23 percent, Japan takes 15 percent, Western Europe takes 14 percent, and even Singapore and Malaysia take sizable shares of about 8 percent each. On the other hand, the US takes up the bulk (79 percent) of our garments exports, our second (but a far second) largest export. Mineral exports to the US hardly matter, with most going to our neighbors. Woodcraft and furniture, another top export earner, mostly go to Japan, with only 20 percent going to the US.”

problem is, all these markets to which we export goods – japan, western europe, china, singapore, malaysia – also have sizeable exports to the u.s. chances are, if they lose that market, they’re going to cut back on our products, too. and really, our exports have been down since the peso started rising (falling), so we have to look elsewhere for salvation.

such as interest rate cuts maybe, like the federal reserve has done to encourage entrepreneurs and consumers to keep on borrowing (don’t stop investing, don’t stop spending). but like the bank of england, our bangko sentral is wary of inflation, even if the IMF mismo advises “monetary easing,” if we are to withstand the global repercussions of the credit crisis.

in fact, the IMF is hitting the panic button:

The intensifying credit crunch is so severe that lower interest rates alone will not be enough “to get out of the turmoil we are in”, Dominique Strauss-Kahn, the managing director of the International Monetary Fund, warned at the weekend.

“In a dramatic volte face for an international body that as recently as the autumn called for “continued fiscal consolidation” in the US, Dominique Strauss-Kahn, the new IMF head, gave a green light for the proposed US fiscal stimulus package and called for other countries to follow suit. “I don’t think we would get rid of the crisis with just monetary tools,” he said, adding “a new fiscal policy is probably today an accurate way to answer the crisis.”

on the ball naman si albay governor joey salceda, top economic adviser ni gma, who brooks no arguments: a storm is coming, thus this Php75 billion stimulus package:

• A P16-billion expansion in income tax deductions (to benefit middle-class working families).

• An P8-billion rebate to households consuming less than 200 kilowatt hours of electricity a month.

• A P51-billion increase in government spending this year (P15 billion for increasing agriculture production, P16 billion for infrastructure, P12 billion for education, P4 billion to increase PhilHealth memberships to 5 million, and P4 billion for mass housing).

“We must implement the economic equivalent of a preemptive evacuation. Domestic growth is our first line of defense against the incoming virus of global credit and corporate earnings recession. Not because it is fashionable, but because there are fundamental arguments for some kind of recession-proofing for the Philippine economy to preserve the gains of 27 uninterrupted quarters of GDP expansion,” Salceda said in an interview.

problem is, salceda’s package is not too stimulating. sana rebates across the board for all taxpayers. and why not suspend VAT? masyadong malaking revenues ang mawawala sa gobyerno? so why not suspend debt payments? this is a good time as any for a moratorium, if the IMF really wants to help.

a global recession?

clearly the world is trying to remain optimistic (don’t panic!) about the state of the u.s. (global) economy, but that’s only because the federal reserve jumped in with that hefty interest rate cut just when it did, in the nick of time sort of, or (i suspect) stock markets everywhere would have crashed. and with another considerable rate cut expected next week, and bush’s promised stimulus package of tax rebates, the consensus seems to be that the optimism will continue for some time, even if markets and the dollar remain volatile.

interesting, what’s going on in the world’s financial capital, the giant economy to which all other economies are hinged – the federal reserve cutting interest rates so people can go on borrowing and buying houses, and bush saying the fundamentals are sound (sounds familiar) sabay give back cash to taxpayers so that they can go on spending, consuming, investing, and of course giving banks and speculators, i.e. the finance industry, time and money to get their act together.

it’s all artificial, of course, quick fixes that don’t address the root of the problem, which is that it’s a faulty economic system, this globalized free market no-regulation kind of capitalism. not sustainable.

writes geoff colvin of fortune magazine:

I remain a huge fan of globalization. It will help more people than it hurts, in America and worldwide. But it will certainly produce new challenges, and today’s economic situation looks like one of them.

The reasons we’re in a major slowdown center on U.S. consumers, who drive the economy. Through the past six years they’ve been the most maniacal spending machines the world has ever seen. Stock market wobbles, rising interest rates, staggering personal debt, war, floods, hurricanes – nothing could slow them down. That was mainly because the value of their largest asset, housing, kept going up, and because they were confident about their jobs. As long as their home equity looked like a piggy bank and their paychecks looked solid, they just kept buying, and America’s economic engine just kept turning.

Of course, home values have been declining for quite a while, and more recently the jobs picture has deteriorated markedly. What really slammed the door for many economists was the December employment report, which showed the unemployment rate jumping to 5% and a tiny number of jobs (18,000) created. With the home-equity ATM closed and paychecks looking iffy, it seems consumers have finally been forced to put the credit cards back in their wallets. Sure enough, after the holiday season a wave of retailers reported year-over-year sales drops for December. Department-store giant Macy’s (M, Fortune 500), for instance, saw a 7.9% drop in same-store sales and noted an overall decline in consumer spending as a contributing factor.

Now what does any of that have to do with globalization? Quite a bit. Consider first the housing bubble. It was fueled by extraordinarily cheap money that lenders were virtually throwing at borrowers. As a result, the prices paid broke free of any connection to plausible values in relation to rents or total housing supply.

That superabundance of cheap money didn’t come from Americans, since we haven’t been saving for years. It came from the rest of the world, from what Fed chairman Ben Bernanke calls the “global saving glut.” While we were spending, nearly everyone else on earth was saving at unprecedented rates, and those hundreds of billions of dollars made their way here. Not that anyone beat us with a stick and made us borrow the money or use it to pay ridiculous prices for homes; we can’t blame anyone but ourselves for that. But the fact remains that without the global saving glut, we couldn’t have had a housing bubble or the resulting housing collapse.

The jobs picture also has an important global dimension. For a majority of Americans, the most significant fact of globalization is the advent of a large-scale global labor market. Millions of people around the world can now compete for millions of U.S. jobs. Never mind that the number of jobs that actually get outsourced is relatively small. What matters is the mere presence of those lower-priced workers. They hold down the pay of high-priced Americans and constantly entice employers everywhere to create new jobs over there rather than here. Thus, the problem isn’t so much jobs being sent abroad but jobs that never show up here at all.

To repeat, globalization remains a net plus for America and the world. But it means that we Americans must rethink our role in the world economy. We used to be the locomotive that pulls the train, and to a large extent we still are; Chinese factory owners will not be happy about a U.S. slowdown. But while we still influence the world economy, the new reality is that the world economy increasingly influences us.”

doomed dollar exchange

i had been trying to get a grip on the problem of the rising peso, trying to understand why it is said to be good for the economy when it’s clear na mas maraming pilipinong nagigipit kaysa naliligayahan. googling didn’t bring up more than the usual reports about negatively affected sectors, such as telecommunications, manufacturing, garments, real estate, and of course about ofws and their nixed appeal for a fixed exchange rate and lower remittance fees.

but now that the exchange is up (down) to 40-something pesos to a dollar from 49-something in january 2007, hindi ba tayo dapat mabahala? so i emailed two economists, cielito habito of inquirer whom i know personally (a sister of his married a brother of mine) and filomeno sta. ana iii of business world whom i “met” through the plaridel e-group, and asked them what the government could do to stop the peso from appreciating so much.

i thank them both for their quick replies via their monday columns. habito’s Dealing with the rising peso (which has a part 2 that he emailed me a capsule of) and sta. ana’s Temper the appreciation, says GMA. Is that enough?

as it turns out habito and sta. ana are on different wavelengths, representing two different schools of thought.

habito, neda director-general in fvr’s time, agrees that there are things government can do but fixing the exchange rate is not one of them.

“Defending a fixed exchange rate (that is, making it stick) under current circumstances requires measures that would raise demand for or reduce supply of foreign exchange. The Bangko Sentral (BSP, the Philippine central bank) itself would inevitably have to provide most of the needed extra demand, by buying up increasingly large amounts of dollars. While this may look good because it wouldbuild up the country’s foreign reserves, it can have at least two harmful effects. One, it pours pesos into the system, thereby stimulating inflation (i.e., accelerating price increases). Wonder why inflation has ticked up lately? Well, oil prices are not the only reason, that’s for sure. Two, it would lead to large financial losses on the part of the BSP, losses that must ultimately be shouldered by someone (there’s no free lunch!).

“The latter has in fact already been happening, even without fixing the exchange rate. In the course of trying to arrest a too-rapid peso appreciation, the BSP has quietly built up foreign reserves over the past year from about $23 billion in January to more than $33 billion by year’s end. This means that it has been accumulating massive amounts of an asset that is rapidly losing value, leading to losses estimated at over P40 billion so far. Remember the old Central Bank and how it ran up massive losses in the late ’80s and early ’90s from exchange rate operations (of the reverse kind)? After it was reorganized by law into the present BSP, we taxpayers ended up quietly paying for all that, in case you didn’t know.”

instead, habito would recommend taxing “hot money” and encouraging capital flight.

“I’ve written before that Thailand and Taiwan, among other countries, have … eased up dramatically on the rules on foreign investments by their citizens, practically abetting it. At the same time, they are restricting entry of portfolio investments (“hot money”) to curb supplies. Some people in our government still think it’s a good thing that we are able to attract a lot of hot money, unfortunately. Not because they are benefiting, but because they don’t know any better, and argue (for pogi points) that it’s a sign of (misplaced) confidence in our economy, etc. Actually it’s not a “pull” factor at play here but a “push” one, as I’ve been pointing out. There’s simply so much dollars out there — nobody wants them — looking for a place to go.

“I personally see very limited leeway for our government to influence the exchange rate in the face of global market forces (i.e. the weak dollar, which will soon be further weakened by the anticipated lowering of US interest rates by the Fed), plus the surging
remittances of OFWs, which is a natural response to the declining peso value of their remittances (i.e. in an effort to maintain the peso incomes of their families at home).

“… In a sense, we are helpless on this, and can only do palliative measures for those affected at best. I think our economy should learn to adjust to a lower peso-dollar exchange rate in the long run. The trend will continue until the US economy turns around, and I don’t see it happening under Bush because of his expensive Iraq adventure.”

sta. ana, who belongs to a reform-oriented activist policy group (Action for Economic Reforms), believes that more can be done.

“Time and again, we, together with many economists like Raul Fabella, have advocated a competitive exchange rate. Even the World Bank and the International Monetary Fund favor a more competitive exchange rate.

“What a competitive exchange rate is is debatable. At the very least, the Philippine peso should not be overvalued. We estimate that the overvaluation of the Philippine peso is about to reach 15 percent. Recall that a factor behind the 1997 financial crisis was an overvalued peso. We have not yet reached that degree of overvaluation in 1997, but the current trend is already a cause for alarm. The Bank of the Philippine Islands (BPI) forecasts that the exchange rate may even settle at PhP37 per US dollar.

“But like Fabella, we are not content with simply avoiding overvaluation. More importantly, we prefer an undervalued currency. For this is the lesson of the successful developing countries; an undervalued currency is a necessary condition to achieve sustained high-growth rates over a long period. Empirical studies have confirmed this. Dani Rodrik, for example, estimates that an undervaluation of 50 percent (which is roughly the undervaluation of the Chinese renminbi) translates into a contemporaneous growth boost of 1.35 percentage points.

“In the past, an advocacy for an undervalued currency was a lonely battle. Devaluation has been associated with economic crises. Thus, those who prescribe depreciation face what Fabella calls a ‘credibility wall.’

“But precisely, devaluation was a corrective measure in light of the significant overvaluation of the peso. We would not have been struck hard by the 1997 financial crisis, if the peso was not overvalued in the first place.

“But this time, the public is learning that an appreciating, overvalued currency hurts the whole economy and many sectors. Now, the media reports attribute the closure of 75 firms in the first half of 1997 and the displacement of 100,000 workers in the seaweed industry, to the appreciating peso.

“There is now an expanding constituency, organized and articulate, for a competitive exchange rate, which is our euphemism for undervaluation. It is composed of the organizations of manufacturing exporters, food processors, business process outsourcing, workers, overseas Filipinos, together with public interest groups and academics. Even the protectionists favor a devalued currency as a substitute for trade protection.”

of course, undervaluing the peso, maybe back to 50? 55? would require a change of policy, which seems unlikely, given GMA’s mindset that an appreciating peso is good because it takes fewer pesos now to pay off our dollar debts, which she has been gleefully doing just so she can borrow some more. masaya siya.