Peter Wallace- Uncertain Times

8/14/2019 Peter Wallace- Uncertain Times

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The Wallace Report January 2010

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THE WALLACE REPORT

UNCERTAIN TIMES

1. POLITICAL

The Commission on Elections (COMELEC) has now accepted 10 nominations for the nextpresident (2 more were added last week, its unclear why as they are essentially nobodies) inthe coming elections, and from one of them will emerge a new president of the Philippines assuming the elections are successful a big and worrying assumption.

To win you have to have popularity/appeal, lots of money, a professionally organisedcampaign, strong party support with grassroots supporters out there where the votes getmade. Counting is now, at least theoretically, out of local hands. An Ampatuan type can nolonger fake the votes (but can still influence/coerce the voters). Only a computer whiz kidmaybe can, or someone in control of the program. But lets put that aside for the moment.What were considering is winnability in a fair election. If you dont have all four factors youcant win because some candidates do, and you do need them all to a meaningful degree.

Take popularity/appeal, I dont just mean box office good looks but it can also be an ability toappeal to the discerning voter through having a sound, believable policy program. The pollstell you who is leading in this category. Sadly the discerning voter is very much in the minorityat this stage, although there are efforts by independent groups to bring more voters into thisdiscerning category. One of such groups is the amalgamation of ABS-CBN with theManagement Association of the Philippines, and Kilos Bayan, among others to conductregular e-town hall televised interviews with presidentiables and experts in various fields.Lets hope we get more voters to vote intelligently. If we do, Dick Gordons chances rise, asdo Gibo Teodoros. Both are sound individuals with solid credentials. Gordon has done well inthe running of Subic and later the Red Cross. Teodoro has handled the defence portfolio well,but this is a relatively brief stint, hes not yet had the long years Gordon has. But neither iseven on the popularity scale yet. Teodoro at a miniscule 5 percent, Gordon off the map at 0.5percent. Gordon doesnt have the funds (in comparable quantities), the party support or thelocal leaders to bring him into the ring. Hed need something exceptional to happen for him tohave a chance. But well leave him in for now because he deserves to be up there.

Estrada has proved his complete incompetence for the job. Forget the plunder issue for amoment, he just couldnt handle the complexity of the presidentiable task when he had it, so

how could he now.

Eddie Villanueva created a born-again Christian movement which gives him great appealamongst his 3 million adherents, but almost nobody else. 3 million votes (even if he got themall) wouldnt win an election. Last election only 60% (1.8 million) of his supporters voted forhim.


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THE WALLACE REPORT

UNCERTAIN TIMES

The fly in the ointment is Arroyo, her machinations almost certainly havent stopped. She justcant be counted on to allow free, honest elections. On top of that the shift to automation ofvoting just has too many uncertainties, too many areas where failure could occur.Deliberately, or not.

That failure will occur to some extent is inevitable, what is less certain is whether it will begross enough to question the election of the president (and VP) everything else fades behindthat. A few senators here and there, a governor or two (or a dozen or two) hardly matters.And mayors, well, theyre really local. The critical issue is will there be sufficient question ofthe legitimacy of the presidential/vice presidential result to bring the result into doubt. Webelieve theres a good chance there will be. There are just too many areas where it can all gowrong, deliberately or not.

Were talking of a sophisticated system for an unsophisticated populace. 400,000 teachershave to be trained just to teach people how to vote. When it gets so complicated you have toteach people how to vote you know theres going to be problems.

I recently watched a fascinating movie called Recount, based on the controversiessurrounding the last presidential elections where Bush won (or did he?) over Gore by a scant1,665 votes. The automated system had weaknesses (in this case the famous chad) thatwerent satisfactorily resolved. If a first world, generally voting sophisticated populace withautomated voting part of the scene for many elections already has a crisis situation over thecounting what more a third (or is it now fourth) world country thats never seen a computerbefore, problems are inevitable. In the U.S. controversy older people had difficulty readingand fully understanding what to do. In the Philippine rural areas older people dont even have,cant afford glasses. Theres no way they can read a miniscule print size on a ballot 28 incheslong with a confusion of over 600 names on it. It is a nightmare waiting to happen. IsCOMELEC going to issue glasses at every polling centre? Will they get them back? Is there abudget for them?

So will there be failure of elections? Ive been in the Philippines long enough to know thatnothing works to plan, or on schedule. Theres always delays and hitches, unexpectedhappenings that derail the original plan. Well this automation is one of the most complicatedin its detail to effect of any project and the time to do it is completely unrealistic. It shouldhave been done years ago and tested in the less important mid-term elections. Already therehave been delays and changes when no allowance can be possible.

Let me give you just a few of the delays that have already happened. The Precinct CountOptical Scan (PCOS) machines themselves were supposed to be fully delivered by the firstweek of February. As of January only 200 have been received, most of which are beingutilized for training. The transmission of results from the polling centres to the canvassingcentres will be done via the cellular networks. Testing of the system was supposed to bedone in November, then December, and now January maybe. While checking that everypolling centre has cellular signal (kind of important) was supposed to be completed byOctober 15, then October 30, then end of November, then first week of December, end ofDecember, now January maybe. That doesnt leave much time to fix the deficiencies. Andhow much else is delayed too that were not even being told about.


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THE WALLACE REPORT

UNCERTAIN TIMES

2. ECONOMIC

The Philippines is listed as a developing country, and the President claims it will be amongstthe First World countries 20 years from now. But, maybe the reverse is happening, is thecountry not, instead, a de-developing country. When you look at the numbers, the facts, notrhetoric everything seems to be going backwards.

This was the shining light of Asia in the 50s and through to the early 70s just read thereports of that time. Its why I invested in a factory here. Today it doesnt even get mentionedin any assessment of Asia, let alone even South East Asia unless derogatorily or withdismissive amusement. What went so horribly wrong?

In the real world popularity is almost totally unrelated to performance; in the Philippines it

wins elections. Mind you someone whose popular can perform (President Magsaysay comesto mind) but it is very rare. Whilst someone who performs can also be popular but often is notuntil history so judges.

But because youre unpopular doesnt mean youre a good performer. In fact youre probablynot because if you performed well it would, over time, turn that initial unpopularity intopopularity.

And this is where GMAs logic falls down. She says shes unpopular because her focus is oneconomic reforms to improve the lot of the people. Well in such a case after 9 years the lot ofthe people should have much improved and the people would start to appreciate you.Instead the reverse has happened, the standard of living of the people has fallen, more are inpoverty, more are without a job, all the indicators of quality of life have worsened in the past 9years.

And where are these reforms she touts? What are they? What improvements have theyeffected? We can find few, shes unpopular for sound, verifiable reason.

So as we start a new year I want to dispel the propaganda myth that the economy has donewell under Arroyo. It hasn't, at least not to the extent she tries to claim. I maintain that whatgrowth and improvement we've seen would have occurred with or without her. And ifanything, growth would have been stronger without her.


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THE WALLACE REPORT

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In fact I'd maintain that her influence has been negative. I base that on the fact that jobcreating, new wealth - creating investment hasn't happened to the extent a successfulpresident would have achieved. More people (over 600,000) were without a job than therewere in 2000. Even more have little or no income from their jobs (fastest growing sources ofemployment are unpaid family workers and self-employed such as sidewalk vendors), yet arecounted as employed - a deliberate deception.

As to call centers and Business Process Outsourcing (BPO) they've been a great success.But they've been so despite GMA, not because of her. I recommended just a few months intoher term we create a Department of ICT to give it the full support and importance it musthave. Nine years later its still sitting in congress. What positive actions, decisions have beentaken to accelerate and encourage this sector? There are none of any consequence. It grewbecause Filipinos have a natural talent for it, government added nothing. If it had it would bedouble the size now.

It's been the same in mining, the enormous promise this sector offers came to near nothingbecause the president was unable to counteract the virulent opposition, bring her (she claimsthey are hers and, hence, are under her control) local government officials into line, or get herbureaucracy to move at an even half - way decent pace. So the miners left, except for a toosmall few. Investment in mining was an insignificant $335 million from 2003 to 2008 and thebulk of it for exploration, not development of mines. Yet when the mining law was interpreted(by the Supreme Court) to allow foreigners to develop mines it was confidently predicted thatinvestment would reach US$ 10 billion by 2010. It got nowhere close.


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THE WALLACE REPORT

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Another indicator of a strong economy is that it attracts investment as it is seen as aprofitable place to go. In the past 8 years the Philippines has attracted the lowest level offoreign investment amongst the ASEAN-6. The Philippines got US$12.1 billion; next lowestwas Indonesia at $29.7 billion; little old Singapore did best at $133 billion 11 times the

Philippine level; while Malaysia and Thailand got about the same at a little over $40 billioneach.

Its the same when comparing to history, particularly the Ramos years which would be thefairest comparison. The 6 year term of Ramos saw $9.5 billion enter the country whileArroyos 9 years attracted $12.1 billion. Pro-rated to 6 years, Arroyos becomes $9.1 billion.Converted to 1992 dollars (inflation must be factored in), FVR attracted $6.7 billion, Arroyo$3.4 billion pro-rated. Half the level, nothing could be more damning than that in anevaluation of the economy.


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THE WALLACE REPORT

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There seems to be a clear correlation between how the international business communityperceives the countrys state of competitiveness and the actual flow of investment. They arenot impressed.

Investment by Filipinos has been equally desultory if you remove malls and other retailoutlets as I think you must. They're just there to pass on the goods someone else producedwith that someone else being far too often these days in a country far away. Now it can befairly argued that this is OK because the Philippines is a services economy, it can pay for thegoods someone else produces with the money earned in services. The trouble is servicesrequires education - and that has definitely deteriorated in the Arroyo years.

Today, out of 100 Filipino kids who enter school, only 65 get to finish primary. Back in 1998,70 got to finish; while only 42 finish high school compared to 54 who did in 1998. Add to thatthe fact that public expenditure per high school student (as a percentage of GDP per capita)fell from 10.7% in 1999 to 9.2% in 2004. While the education department has been getting abigger allocation from the government (from P90 billion in 1999 to P149 billion in 2008),theres been no significant increase in real terms P90 billion vs P92.5 billion for example.The total Education budgets share to NG budget has been declining (19% in 1999 to a littleover 11% in 2008).


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THE WALLACE REPORT

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Other sad notes on RP education:

Education budget is only between 2% to 2.5% of the countrys GDP, lower than the 4%-

5% recommended by UNESCO; Major East Asian economies allot 5% to 6% The country spends the least on educating its kids ($318 per child vs. Thailands $1,048) RP has the largest student-teacher ratio at elementary level in Southeast Asia, next to

Cambodia About P22 billion is reportedly lost due to overpriced materials. The amount couldve

been used to build 4,500 classrooms or procure 11 million desks or 440,000 computers.Or pay teachers a decent wage.

An IMD report noted that together with Indonesia, the Philippines has the worstsecondary school enrollment rate among the Asian countries

The Philippines is astriking example of under performancesaid UN Secretary General BanKi-Moon.

So how can you claim to have had a focus on education?

Another sorry statistic is Gross Capital Domestic Formation (additional investments in fixedcapital assets by businesses in an economy) which as a percent of GDP has been on thedecline. In all other ASEAN countries its been growing since the 1997 Asian financial crisis.In Vietnam it rose from 22.2% to 40.4%, the Philippines declined from 29.1% to 14.7%. Andof course its the lowest in the group.

The most serious weakness is that this has been a consumption led economic growth, notproduction driven as under Ramos. This indicates a weak economy that will be, and alreadyis, unable to provide the jobs for its people.

In agriculture the Philippines is now the world's biggest importer of rice despite that food selfsufficiency was a major plank of her platform. Growth of agriculture has been dismal,averaging 3.7% from 2001 to 2008, compared to over 6% for Services (call centers growingat an average of 25%). The Philippines has an ideal climate, fertile soil, available land, yetagriculture is a gradually declining part of the economy. Its share in GDP at current marketprice has declined from 17.1% in 1999 to 14.2% in 2007. Jobs provided by agriculture in2007 have also fallen from 39% in 1999 to 36%. She also couldn't stop the ill - considered,populist but proven ineffective (in what it was intended to do) agrarian reform law. It wasextended without any modification.

There has been less spending on infrastructure. For the past 8 years the Arroyoadministration has only managed to accomplish one major infrastructure project per year, andthese were all conceived by previous administrations; President Arroyo just took them overand took far too long (on average 7 years) to complete them. Spending on infrastructure as apercentage of GDP is down to about 2 percent from 3.2 percent under Ramos. In monetaryterms, this translates into an annual average of $1.8 billion as against $2.4 billion. And if wetake into account inflation, the $1.8 billion reduces to only (in mid-Ramos pesos) $ 1 billion. Inother words Arroyo is spending less than half of what Ramos did. And that certainly wasntenough for a country 20-plus years behind everyone else.


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THE WALLACE REPORT

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Yet an ad appeared in the newspaper recently claiming great success in infrastructureconstruction (see our separate report FAIRYLAND for detail on this).

The president has said she fully recognizes the importance of building infrastructure yetspending on it has been disappointing as a percentage of GDP (a fair measure) . So how canshe make such a claim. Worse spending as a percentage of GDP has been growing slowerthan GDP about half the rate. A minimum of 5% needs to be spent on infra just to begin tocatch up, let alone get ahead. Infrastructure spending is directly related to economic growth,so its important to do it. But it hasnt been done. She can crow about Ro-Ro, but what else?You can't even get to where some 18 percent of tourists go by direct flight to Boracay. Thatproject is still a gleam in someone's jaded eye.

Infrastructure: Arroyo Administrations priority?

RP has limited access roads. There is need to build more major thoroughfares and focuson big-ticket projects (connecting SLEX, NLEX, SCTEX for example)

There is a need to move from asphalting as maintenance work, to concreting of some

of the roads to prevent the frequency of re-occurrence of potholes. Its been a cycle.

When the rainy season comes, potholes (giant craters) appear, when what is needed is

concreting. (Industry observers have said that asphalting works are one of the greatest

sources of corruption as this is easily cheated).

Farm-to-market roads remain inadequate. More needs to be done, RP tagged as having

the worst distribution infrastructure in Asia

Country is worst amongst ASEAN-6 in terms of paved roads as % of total roads.

Roads are being built but maintenance is being neglected. Try EDSA sometime.

The latest global travel and tourism report released by the World Economic Forum

(WEF) showed the Philippines faring poorly in terms of air transport infrastructure (73 rd

among 133 countries), ground transport infrastructure (90 th)and ICT Infrastructure (92nd)

Tourists agree with the businessmen, theyd rather go somewhere else. The country attracteda little over 3 million tourists in 2008 assuming that figure too isn't falsified by incomingbalikbayans. Thailand gets 14.5 million, Indonesia attracts 6.3 million, Vietnam 4.3 million. In1999, Vietnam had 1.8 million, the Philippines 2.2 million. Which one would you rank as asuccess?

The 5.2 million the government claims just cant be believed. There are no official figures yet,and an extra 2 million just couldnt have happened. A part from anything else theaccommodation doesnt exist to house them.


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THE WALLACE REPORT

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In almost all these statistics, the Philippines is the worst, or if its not Timor Leste is Iwonder where that is. I certainly wouldnt want to be compared to such a minor country.

She claims to be an economist yet goes against sound, proven economic principles to try and

score (unsuccessfully as it turns out) populist points. Every economist of any consequencetoday recognizes and accepts that an open, free market provides the venue for the greatestsuccess. That government intervention deters investment and costs the economy more thanany short term gains that may be obtained.

Yet despite this knowledge the president has imposed artificial controls in key industrysectors: Power, oil, cement, telecoms, and pharmaceuticals (do you think anyone will investwhere the price of their products is halved? No one has 50% margins.). Food too has notbeen spared. Six sectors that are fundamental and essential to the economy. Well no one ofconsequence will now invest in these sectors whilst shes in power.

There is much more but this is more than sufficient to belie any claim of successful

management of the nation. Yet the president has claimed many times that her unpopularity isbecause of her focus on the economy and making things better for her people. Well asthese numbers amply demonstrate the lot of the people has worsened under her reign. Andthe people obviously recognize it as 61% are dissatisfied with her, 73% if you take out theundecided, as you should.

The bottomline is you dont measure an economy by GDP, you measure it by the quality oflife of the people. All the evidence says the people are worse off today. Wheres theimprovement? What is it shes done? Im at a loss to find it, and no one in the Palace seemsable to tell me, despite Ive asked several times. When oh when does it sink in: ThePhilippines is a failing economy under Arroyo. Thats not my assessment, thats factual dataproperly, fairly read.

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Peter Wallace- Uncertain Times

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