In the Philippines, we tax energy not subsidise it

One interesting insight I got from this article of this economist is the reason why power in the Philippines is so expensive is it is not subsidise like other countries. Furthermore, the government has sought to levy taxes as well as impose a very regulated framework on the industry.

From BusinessWorld Philippines

By Bienvenido S. Oplas, Jr.

The Philippine electricity market: Monopoly and competition

ENERGY is development, and that includes electricity. It is not possible for an economy to grow fast and have sustainable development if its power supply and distribution are unstable and costly. Thus, having sufficient, stable, and affordable electricity is a necessary though not sufficient condition for economic development.

The Philippines remains to have among the most expensive electricity prices in Asia. Here are data with some breakdown also shown, including the cost of power generation, cost of grid/transmission, and value added tax (VAT) or gross sales tax (GST). Of the 14 major cities in North and Southeast Asia plus Australia and New Zealand listed below, Manila has the 3rd most expensive electricity prices — 3rd in overall residential tariff, 3rd in generation cost, 3rd in grid charges, and 3rd in tax rates. (See Table 1)

Some reasons why other Asian cities and countries have lower electricity prices than the Philippines are as follows:

One, their government subsidizes electricity while the Philippine government imposes multiple taxes, royalties, and fees on power. The VAT rates are shown above, and royalties alone for Malampaya natural gas are as high as P1.45/kWh, and this is ultimately passed on to the consumers.

Two, Philippines power generation capacity is low, with total primary energy supply (TPES) in 2012 for instance only 0.44 tons of oil equivalent (toe) per person per year. Indonesia has twice, Thailand has four times, Malaysia has six times, and Singapore has 11 times that amount.

So with these two factors — high electricity prices and low power generation — average electricity consumption is also low, only 668 kWh per person per year in 2012. (See Table 2)

The Philippine power and electricity sector is characterized by a mixture of competition and monopolies. Power generation is generally competitive with many generation companies (gencos) slugging at each other. Power transmission is a national monopoly via the National Grid Corporation of the Philippines (NGCP). And electricity distribution is reserved to geographical monopolies, mainly the 120 electric cooperatives (ECs) nationwide, the biggest of which, Manila Electric Company (Meralco), accounts for about 75 percent of total electricity sales in Luzon and about 55 percent nationwide.

The issue of high electricity prices in the country has resurfaced once again but in a different angle. In current practices, the various ECs and distribution utilities (DUs) have bilateral contracts with different gencos, and such bilateral arrangement is sometimes suspected of being “sweetheart deals,” wherein both the gencos and DUs benefit to the disadvantage of the consumers.

To address this concern, the Department of Energy (DoE), on the watch of then secretary Carlos Jericho L. Petilla, issued Circular No. DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).” The order was dated June 11, 2015, or about two weeks before Mr. Petilla’s resignation.

The general principles behind this circular are to (a) increase transparency in the procurement process, (b) promote and instill competition in the procurement and supply of electric power to end-users, (c) ascertain least-cost outcomes, and (d) protect public interest.

Entities that will be covered are ECs, private investment-owned distribution utilities (PIOUs), multipurpose cooperatives, entities within economic zones, and other authorized entities engaged in the distribution of electricity.

Aside from suspicions of “sweetheart deals,” some DUs and ECs have their own gencos. Cross-ownership of DUs and gencos is allowed in the Electric Power Industry Reform Act (EPIRA) of 2001. Two examples here.

One is Meralco, whose wholly owned subsidiary, Meralco PowerGen Corp. (MGen), is targeting a portfolio of 3,000 MW by 2020. MGen is planning or constructing two other big power plants, the 1,200-MW Atimonan, Quezon, coal plant, and the 500-MW San Buenaventura, Quezon, coal plant, both slated for 2018. Another consortium, the Redondo Peninsula Energy, Inc., is slated to open its $1.2-billion, 600-MW coal power plant in Subic in 2018.

Two are the three DUs of Aboitiz Power — Visayan Electric Co., Subic Enerzone Lima Enerzone, and Davao Light.

By forcing the ECs and DUs to undergo competitive bidding for their power supply contracts, the DOE hopes to break or minimize the practice, or at least minimize suspicions, of price-rigging.

This is definitely a welcome move for independent power producers (IPPs) which have little or no cross-ownership and control with ECs and DUs. They will have a fairer level playing field in getting supply contracts. But while the goal is laudable, the circular will be unable to address other problems and contributors to expensive electricity in the country. Among these are the following.

1. High and multiple taxes, royalties, and fees imposed on natural gas and other energy sources and on electricity generation/transmission/distribution businesses.

2. Expensive electricity is also being imposed recently by RA 9513 or the Renewable Energy (RE) Act of 2008, wherein wind, solar and biomass are given guaranteed prices via feed in tariff (FIT) for 20 years.

3. Monopoly characteristic of ECs and DUs because electricity distribution is considered a “public utility” and, hence, protected by the Constitution and franchise laws. Abuse of power is a possibility that is always second nature to any monopolist. This will require amending the Constitution.

A compromise will have to be made, like having a transition period to allow the maturity of existing power supply contracts.

The long-term measures to address structural problems that lead to expensive electricity is to limit government intervention, to step back. Like amending the tax code to reduce or abolish certain taxes on energy, amending the RE law to abolish the FIT provision, and amending the Constitution to remove economic protectionism.

Bienvenido S. Oplas, Jr. heads a free-market think tank, Minimal Government Thinkers, Inc., and is a fellow of the South East Asia Network for Development (SEANET).


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THIS is a continuation of an earlier discussion, “The Philippine electricity market: Monopoly and competition” (Weekender, August 14).

As noted in that article, Carlos Jericho L. Petilla had issued, before he resigned as energy secretary last June, DoE Circular No. DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).” That order aims to address, among other things, the suspicion of “sweetheart deals” between some big electric cooperatives (ECs) and distribution utilities (DUs), on the one hand, and the generating companies (gencos), on the other, resulting in expensive electricity prices in the Philippines.

Here is another data, a bit old, from a 2013 commissioned study by the US Agency for International Development (USAID). The first set shows the actual prices including taxes (in Philippines and Singapore) and subsidies (Thailand, Malaysia, and Indonesia), and the second set, adjusted prices if taxes and subsidies were minimized, next to zero.

The USAID report explained why the adjustment was done: “Several factors may explain these wide differences. One is tax: effectively 9% in the Philippines, as opposed to 6% in Malaysia and 7% in Singapore and Thailand, albeit 10% in Indonesia. But the bigger contributor to the price differences is the implicit subsidies to state-owned utilities. The International Energy Agency (IEA) estimated that the electricity subsidies in 2011 in Indonesia, Malaysia, and Thailand were at least 5.56, 0.94, and 5.67 billion US dollars, respectively….”

Thus, most if not all comparative electricity prices are based on artificial pricing. People blame gencos or the big DUs but not governments which intervene a lot in electricity pricing, resulting in either very high or very low prices.

The DOE Circular was the subject of discussion in a forum organized by the Energy Policy Development Program (EPDP) early this month. There were six speakers, led by OIC-Secretary Zenaida Y. Monsada of the Department of Energy (DoE), Director Mylene Capongcol also of the DoE, UP School of Economics professors Raul Fabella and Ruperto Alonzo, UP College of Engineering professor Rowaldo del Mundo, and Romeo Bernardo of LBT Consulting.

Mr. del Mundo is the lead technical adviser to the Central Luzon Electric Cooperatives Association-First Luzon Aggregation Group (CLECAFLAG) under the USAID COMPETE project. Twelve ECs in Central Luzon aggregated their total power demand of 300 MW, auctioned it off, and contracted for 20 years the winning supplier, won by GN Power (with expanded capacity of 1,200 MW in Bataan). In his presentation, Mr. del Mundo showed this table of comparative electricity prices in the ASEAN.

By pounding on the need for demand aggregation by DUs as shown in the CLECAFLAG experience, Mr. del Mundo concluded, “The mandatory CSP is the only antidote to [the] EPIRA’s [Electric Power Industry Reform Act] cross-ownership that will avoid temptation to parties with conflict of objectives.”

There is a problem in this conclusion of supporting mandatory or obligatory, instead of voluntary, CSP, based on specific circumstances among DUs and gencos. For the following reasons:

One, as shown in Table 1, we have high electricity prices because the government imposes many taxes on energy while other ASEAN countries subsidize their energy consumption.

Two, Mr. Bernardo noted in his presentation that “Growing pains from regulatory uncertainty, and contracting, approval, and construction bottlenecks have delayed new plants. The average time it takes to build a baseload power plant in the Philippines is probably double elsewhere. Just getting approvals, coupled with overcoming NIMBY opponents, is an ordeal.” And he showed this list of some 200 signatures and permits needed to put up one baseload plant.

Three, Mr. Fabella suggested market testing of PSA contracts instead of mandatory CSP. Market testing is easier to enforce because the Energy Regulatory Commission (ERC) only verifies and approves the market test (say, auction) employed, and is easier to defend in public. There are many modalities for market testing like the cases in Chile, Brazil, New England.

Four, there’s the big question of who are the “third parties” that will be recognized by the DoE, the ERC, and the National Electrification Administration (NEA) which will approve or disapprove the PSA between the DUs and gencos. Will they work for free? Very unlikely. Rather, the DOE and ERC will be forced to make extra budgetary requests to pay for these “third parties” including allowances for their meetings and public consultations.

It is also possible that NGOs, the media, and other sectors actively or silently supporting the “Repeal/Abrogate EPIRA” movement may position themselves as “third party” referees. The DoE circular is not about repealing or tinkering with the EPIRA.

In short, the DoE circular is barking at the wrong tree: By making the competitive bidding mandatory rather than voluntary, it will invite or create more problems than what it intends to solve. The circular should therefore be withdrawn. Or amended to make CSP voluntary, not mandatory. The DoE and other government agencies should instead address other problems and contributors to expensive electricity in the country. Like multiple taxes, numerous permits by the Philippine government, from the barangay to city/municipal, provincial, and national government offices and agencies. Requiring a firm to present up to 200 different permits would expose it to 200 different opportunities of corruption and extortion.

Government should simply learn to step back from too much intervention, regulation, and taxation.

Bienvenido S. Oplas, Jr. is president of the free-market think tank Minimal Government Thinkers, Inc., and a fellow of the South East Asia Network for Development (SEANET).


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Improving the track record of good government

Running the Philippine government based on good governance even in the current administration is far from ideal. Let’s hope the next one can improve on its track record instead of going backward.


From BusinessWorld Philippines

August 11, 2015

The Straight Path — bumpy and potholed

As I have written here before a number of times, I voted for Mr. Benigno S. C. Aquino III in 2010 because among the candidates for president, he was the one who promised to put an end to corruption in government and to infuse a culture of change in governance.
I was assured when he declared during his inaugural address that:
“The first step is to have leaders who are ethical, honest, and true public servants.”

“Let those who know of anomalous deals entered into by government officials expose them that they may be shamed and ostracized by society.”

He reaffirmed his campaign promise to put an end to corruption when in his first State of the Nation Address he said:

“Our administration is facing a forked road. On one direction, decisions are made to protect the welfare of our people; to look after the interest of the majority; to have a firm grip on principles; and to be faithful to the public servant’s sworn oath to serve the country honestly. This is the straight path.”

Eighteen months after his inauguration as President, he initiated action that led to the removal from office Ombudsman Merceditas Gutierrez and Chief Justice of the Supreme Court Renato Corona, the biggest roadblocks in the Straight Path. The new Ombudsman, Conchita Carpio-Morales, lost no time in shoving off the Straight Path Senators Juan Ponce Enrile, Jinggoy Estrada, and Bong Revilla.

But the Straight Path turned out to be bumpy and potholed.

The zealousness and earnestness that the President displayed in the cases of Chief Justice Corona and Ombudsman Gutierrez were sorely missing in the case of Commission on Elections (Comelec) Chair Sixto Brillantes.

The Comelec chair was accused by Automated Election System (AES) Watch of “supreme betrayal of public trust” by purchasing 80,000 Precinct Count Optical Scan machines when he knew about the highly-questionable performance of the Smartmatic-supplied AES in the 2010 elections and Smartmatic’s inability to correct the program errors in preparation for the 2013 mid-term elections.

The complaint was formally filed with the Ombudsman by AES Watch convenors led by former Vice President Teofisto Guingona, Jr. Not only did the President take no notice of the complaint against his former election lawyer, his office even released additional intelligence funds in the amount of P30 million to “help Comelec in urgent special operations.”

The President’s appointees to the Social Security System (SSS) board were each given a one million peso bonus in 2013 when the provident fund increased by P100 billion. But only P26.45 billion, or only a quarter of the total increase, was earned from private equities and government securities. Much of the increase came from the increase in the voluntary contributions of employers and employees, self-employed, and voluntary members.

The corporation code says that directors are not to receive any compensation except for reasonable per diems. The SSS per diem is set at P40,000 per board meeting and P20,000 per committee meeting. A maximum of two board meetings and two committee meetings are held in one month. That means a board member could get as much as P120,000 a month or P1,440,000 a year if the board member attends all board and committee meetings.

Other than SSS President Emilio de Quiros, Jr. the directors do not have substantive experience in investment banking nor are they involved in SSS’ operations. The P26.45-billion increase in the SSS provident fund can be attributed to Mr. de Quiros’ investment skills only. Therefore, the P1-million bonus given each of the other directors was not only unjustified but was immoral as well.

The President vacillated on the dismissal of Land Transportation Office Chief Virginia Torres, his province-mate and shooting buddy. Stradcom Corporation filed corrupt practices complaints against Ms. Torres for her refusal to pay P1 billion in overdue payments to Stradcom Corporation. Transportation and Communications Secretary Jose de Jesus thrice ordered Ms. Torres to sign the release order for the payment of Stradcom. She refused to sign the order, triggering the resignation of the DoTC secretary.

Philippine Amusement and Gaming Corporation Chair Cristino Naguiat, Jr. was named in a lawsuit filed in a district court in Las Vegas. The lawsuit said that Mr. Naguiat, his wife, three children, and nanny received free accommodations at a luxury suite in Wynn Macau; that they were assigned the casino’s best butler and that he requested and received a $1,878-Chanel designer bag for his wife.

The suit also claimed that Kazuo Okada, then-Wynn Resorts director, spent $50,000 on Mr. Naguiat’s visit in September 2010, including $20,000 in cash given to the Filipino delegation for shopping and gaming. Mr. Okada was alleged to be developing a business for his own Universal Entertainment Group in the Philippines. President Aquino saw no wrong in his former classmate’s conduct.

He showed no zeal in getting to the bottom of the unbridled smuggling of food commodities when he did not ask Agriculture Secretary Proceso J. Alcala, his party mate to go on leave like he did to Health Secretary Enrique T. Ona. The President asked Sec. Ona to go on leave to explain the alleged irregularities in the procurement of the Pneumococcal Conjugate Vaccine (PCV) 10 instead of the reportedly more cost-effective PCV-13 two years ago. Dr. Ona said purchasing the PCV-10 actually resulted in savings for the government. Dr. Ona, feeling the pressure, eventually resigned.

The President did not suspend or sack Philippine National Police Director General Alan L. M. Purisima, his bosom friend from way back, for accepting donation as much as P11 million from three construction firms for the construction of the official residence of the Police force chief. He has not seen fit either to inquire as to how Purisima was able to develop his sizable estate in Nueva Ecija when he had been a police officer all these years. He even stood by the PNP chief by saying him by saying he does not know Purisima to be “luxurious and greedy.”

Just last Friday, Ombudsman Morales ordered a preliminary investigation and administrative proceedings against Technical Education Skills and Development Authority Director General Joel Villanueva in connection with the alleged misuse of P10 million in lawmakers’ funds.

On the same day Justice Secretary Leila de Lima filed a complaint against Mr. Villanueva, the President’s political ally, for his alleged involvement in the Priority Development Assistance Fund scam. The Office of the President issued yesterday a statement that it is up to Mr. Villanueva to take a leave of absence or not.

The path may be straight but it is bumpy and potholed.

Oscar P. Lagman, Jr. is member of Manindigan!, a cause-oriented group that takes stands on national issues.

Article location : Straight Path bumpy and potholed&id=113225


Where’s the IRR for Renewal Energy Act of 2008?

Seven years after a law was passed giving renewal energy developers fiscal/ tax incentives to support their work, the essential Implementing Rules and Regulation (IRR) have yet to be issued by the Bureau of Internal Revenue (BIR). One wonders what would take the BIR seven years (and still counting) before issuing the IRR. Even more interesting is the apparent lack of priority given by the current administration to fast track this document in the light of the growing demand for power and the need to use more climate friendly energy to protect the environment. I am afraid to say and admit this is one of the things that moved very slowly in the Philippines. Its good despite this, developers continue to do their work with over 1,000 contracts awarded or pending approval. Let’s hope the current administration can redeem itself by getting this done before its term ends next June. Maybe 8 years is sufficient time to complete the task.


From Businessworld Philippines

July 13, 2015

RE Developers: Protecting the Environment with Tax Issues

Sadly, it is typhoon and habagat (monsoon) season again. It is usually at this season that our country suffers the brunt of some of the strongest typhoons to make landfall. Typhoons, according to the experts, are getting stronger as a result of climate change. Thus, in an effort to reduce the effects of climate change, renewable energy (RE) sources are highly encouraged by the government. Currently, RE sources available in the Philippines include hydro power, ocean energy, geothermal, wind, solar, and biomass, such as bagasse and palay husk.

More than six years from the issuance of the Renewable Energy Act of 2008 and its implementing rules and regulations (IRR), the Department of Energy (DoE) has already awarded a total of 664 renewable energy contracts, as of the end of April 2015. Some 240 contracts are still pending approval by the department.

Aside from the business potential of RE sources, most companies are also entering into RE development due to the fiscal/tax incentives available under the RE Law. Under the IRR of the said law, the Bureau of Internal Revenue (BIR) shall, in coordination with DoE, Department of Finance, Bureau of Customs, BOI and other concerned government agencies, promulgate revenue regulations governing the grant of fiscal incentives. Unfortunately, several years from the issuance of the IRR, the BIR has yet to issue the guidelines for the implementation of the tax incentives under said Act. Thus, with the rising number of RE contracts being awarded, the government must look into the long overdue revenue regulations implementing the fiscal incentives.

Among other things, implementation of the following tax incentives available to RE developer must be clarified in the said revenue regulations:

Income Tax Holiday (ITH) incentive on additional investment. Under the law, new investments in RE project shall be entitled to seven years ITH from start of commercial operation. Additional investment shall be entitled to not more than three times the period of initial availment. The ITH for additional investments in an existing RE project shall be applied only to the income attributable to the additional investment, which may or may not result in increased capacity.

Thus, the revenue regulations must provide the formula to compute that income attributable to the additional investment. For increased capacity, how should the base figure be computed? Is it based on the highest sales in the last three years, or just based on the last year’s capacity? For additional investments that do not result in increased capacity, how should the income attributable to that investment be computed? Should it be based on increase in net income?

Corporate Tax Rate of 10%. After the allowed period of availment of the ITH, the registered RE developer shall pay a corporate tax of 10% on its net taxable income, as defined in the National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act No. 9337. However, the said RE developer shall pass on the savings to end users in the form of lower power rates, pursuant to a technical study by the DoE.

Yet no results of any technical study to determine the extent of savings and how the pass-on mechanism would work has been presented by the DoE. Since there may be RE developers whose ITH incentive period has or shall already expire, mechanisms or guidelines on how to implement this incentive should already be in place. Among other things, the mechanism must provide the basis for the lower power rates. Should it be determined based on the current period’s rates? Or should it be based on previous period rates charged to end users?

Tax credit on domestic capital equipment and services related to the installation of equipment and machinery. Subject to certain conditions, a tax credit equivalent to 100% of the value of the value-added tax (VAT) and customs duties that would have been paid on imported RE machinery, equipment, materials, and parts shall be given to a registered RE developer who purchases these from a domestic manufacturer, fabricator or supplier.

As provided in the IRR, the BIR shall promulgate a revenue regulation governing the granting of tax credit on domestic capital equipment. But again, no issuance has been issued yet. Thus, issues on how and where the application shall be made — can this be utilized against any tax due? — among other things are not clear yet.

Zero-percent VAT on sales and purchases; duty free importation. Sale of fuel from RE sources or power generated from RE, as well as local purchases needed for the development, construction, and installation of the plant facilities of RE developers, shall be subject to 0% VAT. However, for imporations, the law provides that importation of machinery and equipment, and materials and parts thereof, including control and communication equipment, shall be exempt only from tariff duties within the first 10 years from the issuance of a Certificate of Registration to an RE developer. The law does not provide VAT exemption for importation.

Thus, input tax from importations of RE machinery or equipment shall be an additional cost to the RE developer. Being attributable to zero-rated sales, such shall be available as tax credit or be applied for refund. However, with the current trend now on the applications for refund, RE developers must still weigh the cost and benefit of such an application.

These are just some of the issues that the issuance of the revenue regulations can very well address. To further tap the unending potential of renewable energy sources available in our country, our government must provide clear implementing revenue regulations on the availment of tax incentives. Having this in place shall mean protecting the environment and assuring our country of additional sources of energy.

Ma. Lourdes Politado-Aclan is a senior manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.

Article location : Developers: Protecting the Environment with Tax Issues&id=111549

Growing the Australian economy through Outsourcing

This article may be 2 years old, but the opportunity continues to be present today. Get ready Australia, Philippine BPO and other companies in general are coming to help you grow the economy.

From the Sydney Morning Herald

Outsourcing to grow

October 11, 2012
By Christopher Niesche

Outsourcing is usually associated with businesses cutting costs as they struggle to stay afloat, such as when Pacific Brands cut 1850 local jobs and outsourced its manufacturing overseas.

But it can also prove a valuable tool for an expanding company to help it manage its growth.

Known as business process outsourcing, the practice involves a company paying another organisation to carry out a function for it. For instance, rather than having its own pay office, a firm might decide to outsource its payroll function to a specialist.

Services that are typically outsourced include IT software and hardware management, network and server management, property maintenance, transport and logistics, recruitment, training, payroll and document management. It’s likely that many small to medium enterprises are already outsourcing some business processes without ever considering it to be outsourcing, such as legal or accounting services.

David Fincher, a partner in Ernst & Young’s advisory practice, says that outsourcing can bring a range of benefits, including access to new talent, a broader skill base, access to new technology, added flexibility and allowing the company to focus on its core business.

“Organisations should focus on what they’re good at and what they need to be good at. Potentially anything else which isn’t core or differentiating for that organisation could be delivered by someone else,” he says.

An outsourcer will have far more ability to scale and to service a bigger organisation than an in-house operation will.

“If you are a growing business you don’t want your support functions, your non-core functions to grow at the same rate,” says Fincher.

“As you grow you want to take advantage of scale to increase the difference between your revenue and your support costs.”

Fincher says there is no “right or wrong answer” on when a company should consider outsourcing. “But you need to think about the benefits of outsourcing more broadly and the applicability of each of the benefits to your organisation,” he says.

Martin Conboy, president of the Australian Business Process Outsourcing Association, says SMEs can help improve their cash flow by outsourcing the chasing up of outstanding payments. “Other areas that are not core to an SME are marketing and online support, including IT, web design and SEO activities,” he says.

It’s best to consider outsourcing when the business is running smoothly and not to leave the decision until it’s really critical, says Conboy. For instance, with IT outsourcing, a company is better not to wait until its current IT systems are struggling with its workload and so have to make a rushed decision on outsourcing.

The first port of call for a business considering outsourcing should be a trusted advisor, such as an accountant, who will be able to steer them in the right direction, says Conboy.

Business process outsourcing has grown rapidly in recent years and is now seen as a normal part of a company’s operations rather than a radical alternative.

The International Data Corporation (IDC) forecasts global revenues for business process outsourcing to rise from $US147 billion in 2010 to $US191 billion in 2015.

While outsourcing has been increasingly adopted over the past 10 to 15 years, Australia lags behind the rest of the world a little. Just 34 per cent of local companies say outsourcing is a standard practice in their organisation, compared with 60 per cent globally, according to a Deloitte survey last year.

Donal Graham, a Sydney-based partner at Deloitte who leads the firm’s shared services practice, says growing businesses can make good use of outsourcing.

“Medium-sized business sometimes have quite a unique opportunity because if they’re a growing business they very often don’t necessarily have the fixed cost investments in infrastructure or people resources that larger businesses have,” says Graham. “We’ve certainly seen organisations that as they grow, rather than spending a lot of money building bigger technology systems, they’ll actually engage with an outsourcer to provide that.”

An outsourcing relationship is usually enshrined in a contract that will set out the service levels required and key performance indicators.

But Ernst & Young’s David Fincher says that rather than rely on the contract, the two parties should enter into their agreement in the spirit of partnership, rather than seeing it merely as a truncation.

“The contract cannot be the basis on which the relationship is established,” he says.

“The contract is just a legal construct. But if you try to manage a relationship through a contract I guarantee you’ll fail. It becomes the letter of the law rather than solving problems or providing opportunity jointly.”

The challenges of attracting foreign investments to the Philippines

Reading this article just gives you the huge challenges in promoting the Philippines as a preferred investment destination. Despite the abundance of talent and college educated labor, a business culture focused on customer service, and a robust domestic economy fueled partly fueled by overseas remittances by 10 million Filipinos working abroad, there are many things the country has change in order to win over a foreign investor. Let’s hope if the current administration cannot make the needed changes to make it happen, we need to work on finding the right candidate we will elect for the next one. Let the games begin!

From Businessworld Philippines

May 05, 2015

Limited FDI inflows show that the Philippines is uncompetitive

It’s crunch time. ASEAN integration is upon us. We have reasons to rejoice for the potentially large markets and higher investor interests that ASEAN economic integration offers. But the harsh reality is that the Philippines is the least attractive investment destination among the ASEAN-6 economies.

The Aquino administration, in its final year, and the next administration, has to move heaven and earth to drastically reform the Philippine economic landscape.

The World Bank defines Foreign Direct Investment (FDI) as “net inflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.” Net FDI inflows are new investment less disinvestment.

In 2013, total FDIs as percentage of global output averaged 2.3% while FDIs in East Asia and the Pacific as percentage of their economic output averaged 3.6%. This much higher FDI-to-GDP ratio for Asia and the Pacific compared to the world average reflects the confidence of direct foreign investors on the region’s present and future growth.

Foreign direct investors have voted with their feet. They are attracted by the region’s high and sustained growth.

The Philippines belongs to this fast-growing region. It is part of the ASEAN region that will be integrated by the end of this year. Shouldn’t that be a cause for celebration? The answer should be yes and no.

Yes, the integration will bring about greater interest from direct foreign investors on ASEAN because of the much larger market and the region’s huge investment possibilities.

But no, since the Philippines suffers in comparison with its ASEAN-6 peers. It is the least attractive investment destination of foreign investors. FDIs would rather go to the other ASEAN-6 countries other than the Philippines in order to take advantage of the bigger market.

Past experiences have revealed the preferences of foreign investors. Among ASEAN-6 peers, Singapore is the top choice. In 2013, Singapore’s FDIs was a whopping 21.4% of its GDP.

But the newest member of the ASEAN-6 club, Vietnam, ranked second in terms of its ability to attract foreign direct investors. The Philippines, on the other hand, is stuck at the bottom, with FDIs as percentage of the island republic’s GDP at 1.3%. Foreign investors would rather invest in the other ASEAN-6 economies than in the Philippines. They must know something that the Philippine economic managers are not telling us.

Philippine authorities take pride in the triennial peak in the country’s economic performance, supported by the midterm and presidential elections. Why can’t the Philippine economy grow on a sustainable basis, even without the disruptive, consumption-based, election spending? Put differently, there has to be a more solid bases for sustained economic growth other than election spending every three years.

The moral of the story is clear: success in a competitive world requires hard work. We cannot leave it to chance. Yes, the Philippines is growing, but so are our competitors. And our competitors are many years, even decades, ahead of us. Yet, they don’t rely on national elections to boost their economies.

Let’s get real and fix our broken system. Let us fix our uncompetitive tax system. Part of Singapore’s success is its low corporate and personal income tax system. An ideal tax system is one that does not penalize corporate success and does not become a disincentive to hard work.

In the Philippines, the government takes away about one-third of the corporation’s net profit and one-third of personal income. The tax bases have been virtually untouched for the last 17 years.

Let’s get real and fix our crumbling public infrastructure. The country’s airports and seaports are the most decrepit in this part of the world. The frequent breakdowns of the MRT system are signs of an inept and uncaring administration.

The power system is not only extremely expensive, it is also unreliable. The regulatory framework ought to be revisited. The appropriate role of the government in noncompetitive industries has to be crafted with an eye both on the long-term profitability of the regulated firms and the welfare of the consuming public.

The general consuming public suffers when government regulators end up in the pockets of the regulated.

The restrictive economic provisions in the Philippine Constitution have become anachronistic in today’s fast-changing world. There are limits to foreign equity in the exploration, development and use of natural resources, public utilities, build-operate-transfer projects, operation of deep-sea commercial vessels, and others.

The Philippine Constitution disallows foreigners from owning land and equity in mass media and the practice of professions.

With ASEAN economic integration, these restrictive provisions in the Constitution magnify the Philippines’ unattractiveness as an investment destination.

We need a government that is effective and globally competitive. We need to streamline rules and procedures, making the task of doing business with the government swift, predictable and open. Most procedures should be rules-based rather than discretionary or at the whim and caprices of corrupt and indecisive bureaucrats and government decision-makers.

Realistically, all these needed reforms cannot be accomplished during the waning days of the current administration. This puts the burden on the next President, who should be forward-looking and more committed, adept and willing to undertake the needed reforms.

Benjamin E. Diokno is a former secretary of Budget and Management.

Article location : FDI inflows show that the Philippines is uncompetitive&id=107391

P2P lending should be also best practice in governance and risk management

This article gives us an idea of what peer-to-peer lending does in the marketplace and its ability to disrupt the lending market. While there is great need for this type of lending in a country like the Philippines, it is important like what is mentioned that good governance as well as risk and compliance practices are observed in the conduct of its business.


What you need to know about peer-to-peer lending

Monday, 30 March 2015 | By Kevin Davis

Peer-to-peer (P2P) lending is a fast developing market for individuals andsmall businesses looking to lend or borrow money. It has the potential to challenge the dominance of traditional financial institutions like banks, but involves new risks for both lenders and borrowers.

In its simplest form, P2P uses a web platform to connect savers and borrowers directly. In this form, the saver lends funds directly to the borrower. Few providers offer such a “plain vanilla” product. A P2P platform matches individuals using proprietary algorithms. It works like a dating website to assess the credit risk of potential borrowers and determine what interest rate should be charged. It also provides the mechanics to transfer the funds from the saver to the borrower. The same mechanics allow the borrower to repay the money with interest according to the agreed contract.

Local players in the P2P market (not all yet operational) include Society One, RateSetter, Direct-Money, ThinCats and MoneyPlace.

There are many ways that the basic framework can differ. This affects the types of risk faced by both lenders and borrowers. Protecting the borrower’s identity from the lender is important. What if the lender is a violent thug who takes umbrage if payments aren’t met? Protecting the borrower brings another risk. The lender must rely on the operator to select suitable borrowers and take appropriate action to maximise recoveries.

The operator can provide a wide range of services. For example, lenders might have a shorter time frame than borrowers, or discover that they need their funds back earlier than they thought. The operator may provide facilities to accommodate that. Or, rather than lenders being exposed to the default risk of a particular borrower, the operator may provide a risk-pooling service, whereby exposure is to the average of all (or some group of) loans outstanding.

The further these services extend, the more the P2P operator starts to look like a traditional bank – but not one reliant on bricks and mortar, nor on the traditional mechanisms of credit analysis relying on customer banking data. The explosion of alternative sources of information (including social media) about an individual’s behaviour, characteristics, and contacts for instance, provide new opportunities for credit assessment analysis based on applying computer algorithms to such sources of data.

While the traditional three C’s of loan assessment (character, collateral, cash flow) remain important, new data and ways of making such assessments are particularly relevant to P2P operators. Indeed P2P operators go beyond the credit scoring models found in banks in their use of technology and data, unencumbered by the legacy of existing bank technology and processes. It is partly this flexibility which explains their growth overseas and forecasts of substantial market penetration in Australia. Much of that growth can be expected to come from acceptance by younger customers of the technology involved – and about whom there is more information available from social media to inform credit assessments.

But also relevant is, of course, the wide margins between bank deposit interest rates and personal loan rates. With – arguably – lower operating costs and ability to match or better bank credit assessment ability, P2P operators are able to offer higher interest rates to lenders and lower rates to borrowers than available from banks.

For lenders, higher interest rates are offset to some degree by the higher risk to their funds. Unlike bank deposits, P2P lenders bear the credit risk of loan defaults – although P2P operators would argue the risk can be relatively low due to good selection of borrowers and mechanisms for enabling lenders to diversify their funds across a range of borrowers.

For borrowers, the main risks arise from the consequences of being unable to meet loan repayments. There is little experience available in the Australian context to understand whether P2P operators will respond to delinquencies by borrowers in a different manner to banks.

It’s important that P2P isn’t confused with payday lending where low income, high credit risk, borrowers unable to meet repayments can quickly find themselves in dire straits by rolling over very short term loans at high interest rates.

The two business models can overlap – with payday lenders offering loan facilities via web based platforms. One challenge for P2P operators is to ensure the community and regulators accept their model as one of being responsible lenders to credit worthy clients. They also need to convince regulators that these unfamiliar business models do not pose unacceptable risks to potential customers.

P2P lending could have major benefits to individuals who want to invest, lend or borrow money. Hopefully regulators will be able to distinguish between good and bad business models. If they can’t, they could prevent a profound challenge to traditional banking.

A waste of government revenue opportunity

Reading this article gives an idea that as much as PHP20 billion is not being collected in real estate taxes in many cities and provinces in the country. When you consider the value of taxes in supporting the proper delivery of public services, one wonders why. Its unfortunate, the national government has no control in compelling local governments to update the values used in collecting these taxes. And to think, various local governments keep on introducing new forms of taxes for its residents to pay (in my case, I now have to pay a garbage tax for my home in Manila), the basic property taxes like these are being ignored. Let’s see how we can improve the situation.

From BusinessWorld Philippines

March 11, 2015

Cities with outdated property valuations targeted by Tax Watch

THE FINANCE department’s weekly Tax Watch advertisement yesterday put local governments in the spotlight again, this time flagging cities with outdated schedules of market values (SMVs) for real property that result in billions of pesos in foregone revenue.

“Cities miss up to P20.3 billion in real property taxes when they use outdated schedules of market values and are not aggressive in tax collection,” the advertisement said.

“About P15.9 billion of which are foregone in 51 metropolitan areas and highly urbanized cities alone,” it added.

The estimates were computed based on the incremental revenues to be generated from local government units with outdated SMVs, the Finance department said.

Despite the boom in the construction, housing and real estate industries, the Finance department said a total of 112 of the 144 cities in the Philippines use outdated SMVs contrary to the Local Government Code.

Malabon and Navotas have the most outdated SMVs, with taxes pegged at 1993 prices or more than 20 years overdue, followed by Gapan, San Fernando, La Union, Tanauan, and Valencia (1994 or 19 years overdue); Tuguegarao (18 years); Baguio, General Santos, Mabalacat, and Quezon City (17 years); and Makati, Oroquieta, Parañaque, Pasig, Pateros, San Juan and Toledo (16 years).

Guihulngan and Tanjay’s SMVs were outdated by 14 years, followed by Calbayog, Danao, Kidapawan, Malolos, Mandaue, Ormoc, Tabaco and Tacloban (13 years); Mandaluyong (12 years); Bogo, Carcar, Lucena, Marikina, Naga City in Cebu, Pasay (11 years); Alaminos, Bais, Cebu City, Las Piñas, Mati, Olongapo, Roxas City, San Carlos in Pangasinan and Tayabas (10 years).

A total of 68 other cities have outdated property valuations below 10 years.

Meanwhile, 30 cities have updated schedules of market values, the ad noted.

The Finance department said P20.3 billion can fund 2,929 low-cost resettlement projects, 298 landfills, 451 transport terminals and 1,015 satellite health centers.

“If fully enforced and properly administered, real property tax is a progressive and stable source of revenues to be shared to municipalities, barangay and local school boards,” the advertisement said.

“Pay your real property tax. Make your local governments accountable. Sustainable local finance begins with correct valuation and efficient tax collection,” it added.

Last week, the Finance Department tagged 52 provinces with outdated property valuations, resulting in foregone revenues of up to P9.4 billion. — Imee Charlee C. Delavin

Article location : with outdated property valuations targeted by Tax Watch&id=104170

Agribusiness opportunities in the Philippines

Looking for an investment opportunity in the Philippines. Read this article for your background reference. There are more opportunities available in the two other regions mentioned but unfortunately not covered in this article. Still, there is enough here to wet your appetite to invest in the country.

From BusinessWorld Philippines

March 09, 2015


THIS IS A follow-up to an article published on Dec. 16, 2014, with the same title that focused on the Visayas and Mindanao. This time, the focus is on Luzon.

Luzon is the country’s largest island. It hosts many agribusiness clusters and account for about 55 million out of 103 million of the Philippine market. Metro Manila, Laguna, Cavite, Rizal and Bulacan (“Expanded Metro Manila”) have some 24 million consumers.

Central Luzon and Calabarzon supply food to over 12 million Metro Manilans. The regional firms are mostly domestic market-oriented in contrast to Mindanao’s agribusinesses. Central Luzon accounted for 13.7% of the total national agriculture production in 2013, followed by Socsksargen 9.3%, and Calabarzon 8.8%. Similar rankings apply for the fisheries subsector. (Note: Data came from the Philippine Statistical Authority.)

Calabarzon has 40% of the country’s total manufacturing output, Metro Manila 21%, and Central Luzon 13%. No breakdown for food manufacturing, but Calabarzon should be leading other regions like the Central Visayas and Davao. The four leading agribusiness provinces are Bulacan, Laguna, Batangas and Pampanga. Outward expansions are in Cavite, Rizal, Tarlac, Pangasinan and Quezon.

The provinces around Metro Manila have benefited from large local markets as well as good logistics. However, prices for land and labor are rising. The rising cost of property and the encroachment of subdivisions could mean that owners of hog and poultry farms in Bulacan, Batangas and Laguna will sell out and look for other locations, or altogether get out of the business. Expansion to other areas faces bureaucratic red tape from the barangay officials who have the major say in approvals. There are already cases of fishpond expansion in the South whose permit takes over one year to secure. Local governments have become stumbling blocks to investments and job creation.

Pampanga has a population of about 2.5 million. Its dominant crop is rice. It is the country’s top producer of chicken (surprisingly!) with 9% of production, and the third-largest egg producer. The province is the leader in aquaculture production with 20% of national farm value. It supplies 40% of total tilapia and 8.5% of bangus. The province is known as a meat-processing center. Some 365,000 hogs were slaughtered there in 2013.

The province is home to leading food firms, such as Pampanga’s Best, Mekeni Food, Roel’s Food, Mother Earth, Minalin Poultry and Livestock Coop, Sweet Crystal Sugar Mill, Grupo Agro, Coca Cola, Invictus Food, RBest Food, Premium Food, Sino Food, Tollhouse Service Inc, Metro Shanghai, Samsuan Delicacies, Aiza’s Sweets, TGA Foods, Nan Foods, Malows Meat Products, and Navarro Food Intl.

Scorecard: Over 20

Bulacan has a population of about 3.4 million and is one of the most populous provinces in the country. It is the major rice-processing center. Intercity Industrial Estate in Bocaue has over 100 rice mills. The top five mills are: TL3MJ, R&E, RKR, JEM, and Car-Jenn.

The palay for milling comes from Ilocos, Cagayan-Isabela and Nueva Ecija. Rice is brought to Metro Manila to feed its 12.2 million people plus about three million day-time transient population.

Bulacan is the largest producer of hogs. In 2013, it produced almost 12% of national production of two million tons, live weight. According to an industry player, there are about 25 farms with sow-level of 1,000 or more (about 10,000 pigs in each farm). Robina Farms is among them.

Bulacan is also the second-largest producer of chicken, after Pampanga. Bulacan is the fourth-largest producer of aquaculture products by value. It is the leading producer of bangus.

In food industries, the province is the largest producer of dressed chicken, 82 million out of 481 million in 2013. It also accounted for 524,000 hogs slaughtered out of the total 10.3 million in 2013, the country’s third largest after the National Capital Region (NCR) and Rizal.

The province is home to major animal-feed firms like Cargill Feeds, Cheil Jedang (Korea), Feedmix Specialist, Santeh Feeds, Sunjin Philippines, and Vitarich. It also hosts farm inputs supply companies such as EastWest Seed, Compania JM, Calata, and Monsanto.

The swine breeders include: Daily Harvest, IMI Farm, Pacific Breeder, and Pig Philippines.

Bulacan also boasts of many processed-food firms: Agrinurture, AFPC, Agrisolutions Inc., Big E Food, Bulacan Dairy Coop, Bounty Fresh Food, Centennial Food, Cereal Food, Fisher Farms, Inc., Flavor Food, Foster Foods, Jockers Food, Ilustrados Premium Cacao, JNRM Int’l, Jasoncu Food, Joyful Heart Food, JSD Food, Kian Sun Corp, LCD Food, Komeya Food, Multi-rich Food, Pollen Food, Profood, Marby Food, MJB Food, KSK Food, Markenburg Foods, Royale Cold Storage, R. Lapid, RL Marine, See’s Int’l, Sevilla Sweets, Sham Na Food, Sucere Food, Vina’s Food, VWA Food, and W.L. Food.

Scorecard: Over 60

Cavite has a population of about 2.3 million. It has the fourth-largest number of slaughtered hogs (513,000) in 2013, after Metro Manila, Rizal and Bulacan.

The major companies are Liwayway/Oishi, Monterey Farms, Nissin-URC, Magnolia Inc., Philippine Dairy Products, Phil-Malay, Purefoods-Hormel Co, Sustamina and W Hydrocolloids. The others include Alfonso Tablea, Annie Candy, Caffmaco Feeds, Candyline Food, Don Roberto’s Winery, Gourmet Farms, Jacobina Biscuits, KLT Fruits, Newborn Food and Yan Hu Food.

Scorecard: Over 25

Laguna has a population of about 2.6 million. Its main crops are rice and coconut but production is declining due to rapid urbanization. It ranks among the top 10 hog and chicken producers and among the top five in tilapia production. Some 409,000 hogs were slaughtered in 2013.

The province hosts the longest list of well-known food processing locators. They include Alaska Milk, Asia Brewery, Cargill, Coca-Cola Bottlers, Doughnut People Inc, Emperador Distillers, Franklin Baker, Gardenia Bakeries, General Milling, Ginebra San Miguel, Mix Plant Inc, Monde Nissin, Nestle, NutriAsia, Pacific Meat, Pepsi-Cola Far East, Philippine Health Food, Ram Food, RC Cola, Rebisco, Ritz Food, San Pablo Manufacturing, Tanduay Distillers, Universal Robina, Yakult, Zenith Foods (Jollibee Commissary), and Zesto Corp.

The small and medium firms are Amcor White Cap Asia, Delicious Food, Escaba Food, Erlybelles Food, First Choice Food, FitgloCorp, F&M Foods, Frescano Food, Fresh-Baked Products, Garanfood, Glomus Gourmet, LG Foods, Leslie Corp, LIIP Food Processing, Lorenzana Food, Portion Fillers, Philfoods, Renaissance Foods, Royal Cargo, SL Agritech, Soriano Dairy Farm, Sugoku Foods, Sun Valley Food, 3J Foods and Tropicana Food.

The swine breeders include: Agoncillo Farm, Creek View Farm, Holiday Hills Farm, Infarmco.

Scorecard: Over 60

Batangas has a population of about 2.6 million. It is the second-largest producer of hogs after Bulacan (6.5% of national production). It is also the fifth-leading supplier of chicken, and the largest producer of chicken eggs. It had the third-largest output of dressed chicken, 28 million out of 481 million in 2013. It also slaughtered some 270,000 hogs during the year.

The province ranks fourth in aquaculture products centered in Taal Lake. It is the second-biggest producer of tilapia after Pampanga.

Batangas hosts leading firms in food processing such as Asia Bestfood, Balayan Sugar Mill, Bounty Agro Venture, Central Azucarera Don Pedro, CDO Foodsphere, General Milling, Minola Refining, Nestle (two plants), San Miguel Mills (flour), and Uni-President Foods.

The swine breeder farms include: Luz Farm, Mikaela Farm and Ramos Farm.

The province is also home to big farms like Family Hog Farms, Robina Farms, Batangas Dairy Coop, Batangas Egg producer Coop, Soro Soro Ibaba Coop (SIDCI), Pilipinas Kaneko Seeds, Milk Joy Corp, and Tarnate Dairy. It also has feed companies which include Banner Development, Blue Diamond Feed Mills, Lincoma Producer Coop, Nutrimeal Agribusiness, Tower Feeds.

Batangas is also the base of logistics provider San Miguel Golden Bay Grain Terminal.

Scorecard: Over 30

Rolando T. Dy is chair of the MAP AgriBusiness and Countryside Development Committee, and the executive director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

Article location : OF AGRIBUSINESS 2: LUZON&id=104025

Let’s do Countryside banking in the Philippines

For most of my life I had been a banker and reading this article shows despite the economic progress the country has gained the past several years, many Filipinos particularly in the rural sector working in the agricultural sector continue to suffer limited access and high cost to credit essential for their needs.

Let’s work together now to address some if not all of the recommended solutions through Startups and Joint Ventures. With Foreign banking institutions now can own 100% of local commercial banks while Rural Banks can be owned by foreigners up to 60% limit, we can do this.

From the Manila Bulletin

Credit to the unbankable and underserved
by Dr. Emil Javier

January 17, 2015

If our agriculture were to hold its own in the coming liberalized market in ASEAN, there are a number of conditions which we need to markedly improve upon. We have to continue investing for the intermediate and long term in key public investments like irrigation; farm-to-market roads; modern grain centers, slaughterhouses and fish ports, and in research, development and extension. Much more immediate in impact is farmers’ access to credit. Technology is available but most small farmers and fishermen are unable to source necessary inputs like improved seeds/stocks, fertilizers, feeds, pesticides and fishing gear and farm equipment with which to attain higher productivity.

In 2013, the agriculture and fisheries sector (AF) contributed 12 percent of our Gross Domestic Product (GDP). During the same period, bank loans to agriculture and fisheries amounted to P729 billion which was only 1.93 percent of total bank loans. And of the loans for AF sector, only 0.63 percent were for actual agricultural production. This gross lack of congruence between contribution to the economy and credit demonstrates dramatically what’s wrong with agriculture.

The Agriculture and Fisheries Modernization Act (AFMA) of 1997 recognizing the role of credit stipulated that the amount of P2 billion be appropriated for the first year of implementation and P1.5 billion every year for the next six years.

Unfortunately, this did not materialize. For the period 2003-2011, the average loanable funds released under the Agro-industry Modernization Credit and Financing Program (AMCFP), the umbrella government credit program under AFMA, was only P369 million per annum. It was only starting 2012 under the Aquino administration when the loan funds were substantially increased to P1.12 billion, still short of the AFMA law appropriation and 15 years late.

The sad reality is that agriculture is inherently risky and the returns usually not commensurate with the risks. If these were not so, commercial banks would have exploited the opportunity and credit should not be a problem. The trading, processing and marketing parts of the agriculture value chain are often bankable but the problem really lies in primary production which is performed for the most part by small farmers and fisherfolk. It is ironic that those most vulnerable and those least able are made to bear all the risks both natural and man-made.

Insisting therefore that credit for the whole of agriculture be at market rates is unrealistic and anti-poor. The commercial banks should be able to take care of the more profitable, less risky segments of the value chain. But primary production by small farmers which is most risky and least profitable ought to remain as a concern of government and must receive special support as they do in our ASEAN neighbors and all over the world.

The magnitude of the challenge is captured in the following statistics in the strategic plan of the Agricultural Credit Policy Council (ACPC), the national agency under the Department of Agriculture (DA) tasked with providing direction and coordination to credit support for the modernization of the agriculture sector.

Of the estimated six million small farmers and fishers households, only 1.68 million (28 percent) had access to credit. Twenty-two percent wanted and attempted to, but were unable to borrow. Moreover, of the 28 percent who had access to credit, only 57 percent obtained loans from formal sources i.e. Land Bank, Development Bank of the Philippines, commercial banks, cooperative, thrift and rural banks, cooperatives, micro-finance institutions and NGOs. The rest got their credit from land owners, traders, rice and corn millers, agriculture input suppliers, local lenders, friends and relatives.

The interest rates and credit terms from informal lenders are often very onerous to farmer-borrowers. Hence in the ACPC strategic plan 2011-2016, the target is to increase the number of formal borrowers from 1,677,000 to 2,501,000.

The problem of credit for small farmers had been with us for so long. Over the years, government had embarked in various schemes with mixed outcomes. Credit support for government-initiated programs like Masagana 99 for rice in the 1970s enabled farmers to have access to good seed, fertilizers and pesticides and dramatically raised productivity. However, repayment was very low and weakened the rural banks through which the credit was coursed. Similar directed commodity-oriented programs were implemented essentially with the same results — low repayments, high unsustainable subsidies and no lasting measureable impacts.

One of the major flaws had been the ineptness of regular government agencies in managing credit programs. The regular agencies really had no competence to administer loans, and worse, farmers viewed the loans as government money and therefore need not be repaid. This has since been rectified under AFMA which provided that henceforth all government credit programs be coursed only through government finance institutions (GFIs), principally Land Bank and the Peoples Credit and Finance Corporation (PCFC), which serve as wholesalers. Commercial banks, cooperative banks, thrift banks, rural banks, farmer cooperatives, micro-finance and other NGOs deal directly with farmers as retailers. Most of the government funds are now coursed through this wholesaler-retailer scheme.

Recently, ACPC introduced an innovation in which special time deposits were placed directly in partner banks thereby eliminating the need for a wholesaler hence reducing interest rates to farmers.

We still have a long way to go to adequately service the needs of small farmers for credit. In fairness to ACPC and our credit and finance specialists, after so much trial and error, we now have more or less a fair idea of what have not worked and why and what we should be doing moving forward.

Three years ago the ACPC, under the auspices of the Congress Coordinating Committee for Agriculture and Fisheries Modernization (COCAFM) then chaired by Senator Francis Pangilinan, in partnership with a broad-based farmers coalition, Alyansa Agrikultura, led by Ernesto Ordonez convened a credit summit. This stakeholders’ consultation among farmers, agribusiness people, bankers, government workers and academe came forward with a comprehensive set of recommendations which have since been incorporated into the strategic plan of the ACPC.

January 24, 2015

Sad to say the Philippine legislature and executive departments are great in enacting laws and articulating national development plans but notoriously wanting in implementation and follow through. We have committed so many errors in the past and we should be much wiser now. We do have a strategic plan for agricultural credit developed by the Agricultural Credit Policy Council (ACPC) and what we need to do now is to scale up, fine-tune, and execute.


Private formal lending institutions i.e. commercial banks, thrift banks, cooperative banks, rural banks, farmer cooperatives, microfinance institutions and some NGOs actually provide the bulk of the credit that flow to the agriculture and fisheries (AF) sector (90 percent in 2013). This is the way it should be and most of government efforts ought to be directed to providing incentives for them to lend more.

However, of the total P729 billion loans to the AF sector in 2013, only P236 billion (32 percent) were for agricultural production in which small farmers and fisherfolks are engaged. Unfortunately this aspect of agriculture is where the risks are highest and the need for operating capital the most acute to enhance productivity and people welfare.

Many small farmers and fisherfolk are unbankable because they have no collateral to offer, their default rates are high, and it is costly to reach them.

The most obvious reasons why farmers default are 1) losses to floods, strong winds and drought (seasonal environment risks), 2) losses from insect pest outbreaks and disease epidemics (biological risks), 3) low farmgate prices at time of harvest and post harvest losses (market and postharvest risks).

Thus to minimize these losses we should continue investing in rural infrastructure and institutions, research and development, farmers education and extension. Among the key rural infrastructures are irrigation and drainage (drainage is as important as irrigation!); farm-to-market roads; rural electrification; modern grain centers, slaughterhouses, dressing plants and fish ports, and bagsakans or farmers markets. Unfortunately, among other things we severely lag behind our ASEAN competitors along these measures.

We have more to say about each of these key public investments in support of the agriculture and fisheries sector in succeeding columns. Suffice to say at this point that these investments significantly reduce/mitigate risks to the farmers and the lenders. But equally important, they enhance productivity. From the credit point of view, manageable risks and high productivity spell bankability.

How else can we encourage banks to lend to small famers and fisherfolk?


One way of moderating lending risks to small farmers is through a credit guarantee scheme. This is a common financial intervention all over the world. We had such a scheme for many years but it did not work because many banks still demanded collateral on top of the credit guarantee.

Since 2008, all credit guarantee schemes of government were pooled together in the Agricultural Guarantee Fund Pool (AGFP) under the administration of the Land Bank. AGFP secures up to 85 percent of loans to small farmers against all kinds of default, except fraud.

AGFP appears to be working now. In 2013, it provided guarantee cover to P4.9 billion worth of unsecured loans to 134,208 beneficiaries. AGFP now has 243 partner lending institutions including 67 banks. Banks naturally want to raise the guarantee to 90–95 percent but I think that’s too much. That will make the banks less vigilant.

The payout rate of AGFP is in the order of 10 percent but the guarantee fee is only 3 percent, a loss of seven percent. In 2013, the variance between payout and generated fees was P400 million. With more climate-resilient production systems, higher yielding technologies and more efficient logistics, farm losses ultimately should moderate. In any case, AGFP needs continuing budgetary support which as of now comes from dividends of large government-owned and controlled corporations (GOCCs) as well as from the fines paid by banks for non-compliance with the Agri-Agra law.

It will be ideal if credit guarantee is bundled together with agricultural insurance.


Taking out insurance and currency hedging are regular features of doing business. All the more so for a business like farming which is subject to floods, very strong winds and drought which are beyond the control of the farmers as well as episodes of disease epidemics and insect outbreaks.

Twenty-five years ago, government established the Philippine Crop Insurance Corporation (PCIC) by virtue of P.D. 1467. The coverage of PCIC was initially confined to rice and corn but its charter was amended in 1995 to include other crops, livestock and fisheries.

Like credit guarantee, the government-initiated agricultural insurance system appears to be working albeit still at a relatively low level. In 2013, PCIC provided coverage to P9.21 billion worth of production loans benefitting 220,233 farmers. Nevertheless, it is worth noting that these performance numbers represented a 35 percent increase in performance from the previous year.

The immediate challenge and opportunity is to increase the capitalization of PCIC, to expand its coverage. In 2014, the Lower House proposed (House Bill 469) to increase the capitalization of PCIC from P2 billion to P10 billion. This should be part of the PNoy legislative agenda for 2015.

Verifying insurance claims cost money and delays frustrate the farmers. Moving forward ACPC and PCIC should study further and refine the weather-index based crop insurance scheme advocated by the World Bank. In the aftermath of a severe weather disturbance which is duly recorded by Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) anyway, the insured farmers automatically get paid without need of field inspections.

The weather index-based scheme, however takes care of weather disturbances but not other risks like pest outbreaks and disease epidemics. An alternative scheme which ACPC conducted a pilot study on was area-based and takes all the risk factors into account. In an area-based insurance scheme, affected insured farmers are automatically compensated when the average yield in the area (not just the insured farmer’s yield) falls below the insurance floor limit. Farmers complain of the delays in processing of claims. ACPC should conduct further research and pilot demonstrations to see whether these new schemes will work better.

January 31, 2015

Most Filipino farmers and fisherfolk are poor because of the low productivity of the livelihoods they engage in. However, the technologies and practices to enhance productivity and reduce risks are available. Their immediate need is for operating capital with which to acquire improved seeds/breeding stock, fertilizers, feeds and crop protection and animal health drugs.

However, of the estimated six million farmers and fisherfolk households, only 28 percent have access to credit. Hence, the need for proactive and innovative government programs to encourage the lending institutions to expand coverage in the countryside.

We can, and do coerce the banks, to lend at least 25 percent of their loan portfolios to the AF sector under the Agri-Agra Law (P.D. 717) as amended by RA 10000. But the more reasonable and lasting way is a combination of: 1) measures to raise productivity and minimize risks to farmers, and 2) schemes to minimize the risks and costs to lending such as credit guarantee, insurance, credit information and quedans.

Credit guarantee and agricultural insurance are globally accepted practices to expand rural credit. We have these two schemes in place — the Agricultural Guarantee Fund Pool (AGFP) under the administration of the Land Bank, and crop, livestock and fishery insurance under the Philippine Crop Insurance Corporation (PCIC). The problem is their current coverage is only in the order of 135,000 to 220,000 farmers out of six million. These are not large enough numbers to make an impact. Their clientele should include at least one million small farmer and fisherfolk borrowers.


A third approach to encourage rural lending is systemizing credit information. Gathering information on individual farmers on their credit history, farm size, location, etc. take time and cost money. Information will help lower payment defaults, reduce risk of lending and encourage banks to lend thereby increasing access to credit for all borrowers. Among our neighbors Singapore, Malaysia and Thailand have fully functioning credit bureaus.

The Credit Information System Act of 2008 legislated the establishment of the Credit Information Corporation (CIC). But up to now it is still not operational.

More advanced is the Registry System for Basic Sectors in Agriculture (RSBSA) initiated by the Department of Budget and Management (DBM) in close coordination with the Department of Agriculture (DA), Department of Agrarian Reform (DAR), Department of the Interior and Local Government (DILG) and the National Anti-Poverty Commission (NAPC). The RSBSA gathers baseline information about farmers, farm laborers and fisherfolk as well as the geographical coordinates of their households. These data are very relevant in the identification and location of target beneficiaries of agriculture-related programs and services. With the Registry, phantom farmers and households should be a thing of the past. The RSBSA partly satisfy the needs of the banks for information but what we need is a real credit bureau.


Another way to encourage banks to lend to farmers is by way of warehouse receipts or quedans. Farmers deposit their products in bonded warehouses and as proof of ownership obtain warehouse receipts which they can in turn use as credit collateral.

Time of planting and/or harvest are usually climate-determined. Thus at harvest time, the local markets are flooded and as a consequence farm gate prices plummet. By temporarily storing their products in warehouses, farmers can wait for better prices. The quedan system therefore has the added benefit of helping farmers manage market price risks.

The original Quedan Guarantee Fund Board was organized in 1978 for rice farmers to deposit their palay in National Grains Authority (NGA)-bonded warehouses. This was consequently expanded to other commodities with its reorganization into Quedan and Rural Credit Guarantee Corporation (QUEDANCOR) in 1992.

The quedan system has worked well with the sugar industry. The hope that QUEDANCOR will work as well with rice, corn and other commodities did not pan out. A call for review of QUEDANCOR and its rehabilitation was one of the topics discussed during the 2011 credit summit.

If politics are kept out of QUEDANCOR operations, if we hire professional managers, and appoint well-vetted and knowledgeable professionals in its Board to provide policy direction and oversight, it should work. This is not as simple as it reads but either we help QUEDANCOR shape up or we close it down and let Congress resurrect it with another acronym. Our sugar industry people who are knowledgeable of quedans should be able to help.


Private lending institutions (commercial banks, thrift banks, cooperative and rural banks, microfinance organizations and some accredited NGOs) provide 90 percent of the lending to the agriculture and fisheries (AF) sector. This is the way it should be and the main thrust of government should be to encourage these Rural Financial Institutions (RFIs) to lend more.

The balance of the 10 percent comes from two government banks, mainly Land Bank of the Philippines and to a less extent the Development Bank of the Philippines (DBP). Land Bank derives a large part of its funds from the Agro-industry Modernization Credit and Financing Program (AMCFP), the umbrella credit program under the Agriculture and Fisheries Modernization Act of 1997 (AFMA). Under AFMA the AMCFP was supposed to receive P2 billion during the first year of implementation and P1.7 billion each year for the succeeding six years for a total capitalization of P12 billion.

Unfortunately, the annual level of funding remained at the historic level of less than P400 million. It was only in 2012 under the PNoy administration when ACMFP started to receive P1.12 billion, still short and 15 years late.

The budget appropriations for the AMCFP should therefore be scaled up to make good on the intent of AFMA. The 22 percent of the six million farm households who wanted and attempted to but unable to borrow is in the order of 1,320,000. However, the 2014 budget of P1.12 billion was programed to reach only 64,000 farmer-beneficiaries. Hence instead of P12 billion cumulative funding to AMCFP, the target ought to be P50 billion, i.e. P5 billion each year for the next ten years.

To rationalize and appreciate the need for continuing government support for rural credit, it will be useful to benchmark ourselves against what our neighbors are doing. The current lending rate to small farmers in the Philippines is in the order of 18-36 percent. Compare this with the interest rates offered by government banks in Thailand (6 percent); Indonesia and Vietnam (12 percent); India, zero interest if loan is repaid in six months, and China, five percent of which government further subsidizes four percent, and the farmer-borrower ends up paying only one percent.

Thus, among our neighbors against whom our small farmers have to compete, two things stand out : 1) dedicated government banks continue to play a key role in rural lending, and 2) the pass on lending rate to small farmers is zero to 12 percent. Thus in order to level the playing field at least as far as cost of money is concerned, farm credit interest to the Filipino farmers should be less than 12 percent per annum.

February 7, 2015

Among our neighbors, dedicated banks for agriculture play key roles in rural lending. And the pass-on lending rate to farmers ranges from zero in India if loan is repaid in six months; one percent interest rate to farmers in China; six percent for Thai farmers; and 12 percent for farmers in Indonesia and Vietnam. Thus, in order to level the playing field as far as credit is concerned with our neighbor-competitors, farm credit interest to Filipino farmers which currently is 18–36 percent should be brought down to less than 12 percent per annum.


To align our effective lending rates to our farmers with the competition, without jeopardizing the health of the lenders, the obvious way is to zero out the cost of money to the rural financing institutions (RFIs).

Effective lending rates are based on cost of money plus cost of lending plus bank margin. With the cost of money zeroed out, the variables left are the cost of lending (in the order of 4–8 percent) and bank margin. The RFIs will still compete for clients based on how efficient they are, the level of bank margin they are willing to accept and of course intangibles like location, organization, convenience, and farmer-friendly bank officers and agents.

However, the zero cost of money to the rural lenders is in conflict with the market rates philosophy of our finance managers and academic economists who argue that interest rates to farmers do not matter as shown by the 43 percent of farmer-borrowers who continue to patronize informal lenders despite onerous rates and exploitative conditions of lending. This reasoning is specious, i.e. plausible but false. As they say in Tagalog “Hawak sa patalim.” If one has no choice, one takes whatever terms are on offer, even how bitter.

The cost of money, of course, matters in business, whether you are a small farmer-entrepreneur or a big corporation. That’s why large corporations pay big money to hotshot chief financial officers (CFOs) whose job is to keep the corporate costs for capex and operating capital to the minimum. Why should it be different for small farmers?

Where will the cheap money for AMCFP come from? One source is official development assistance (ODA). ODA loans from the World Bank, (WB), Asian Development Bank (ADB), Japan International Cooperation Agency (JICA) and other bilateral sources come at very concessional rates, with grace periods and long repayment durations stretching to 40 years. Without the foreign currency hedging fee imposed by Department of Finance (DOF), these ODA loan interests are in the order of 3–4 percent, just matching inflation.

Another source are the funds the Department of Agriculture (DA) spends for free distribution of seeds, breeding stock, fertilizers, chemicals and farm equipment. This practice is wasteful and often the source of graft. These funds are better realigned for subsidized credit.

The interest subsidy to the proposed P50 billion AMCFP pool is P1.5–P2.0 billion per annum. This is much less than the P60 billion per year which we invest in the Conditional Cash Transfer (CCT) program for the poor. Consider also that the returns from the P1.5–P2.0-billion interest subsidy to farmers can be realized in four months while the returns from CCT investment come after a generation!


If zero interest rate to rural lending institutions is contentious, mainstreaming informal lenders is even more controversial. But why not!?

The fact that informal lenders continue to proliferate in the countryside only goes to show they are performing economic and social functions valued by the unbankable and underserved poor. Farmers with dismal credit records, no collateral to offer, farming marginal land without irrigation and located far from civilization will not be entertained by banks, They have no choice but to go to money lenders (5/6 operators), traders, rice/corn millers, fertilizers and seed dealers, and to generous and sympathetic friends and relatives.

However, many of these informal money lenders themselves borrow from banks. If we provide them access to cheap money with which to lend to small farmers, there will be more competition and put downward pressure on interest. At least in theory.

In fairness to these informal money lenders reaching the unbankable and underserved is hard work and could be a very risky business. A report in the Hindustan Times called attention to the physical perils (hold ups, beatings and worse) Filipino Bombay lenders endure.

But how do we provide access to cheap, subsidized funds in the AMCFP to informal lenders for relending to farmers?

Feed mills, grain centers, rice and corn mills, food processors, supermarkets, fertilizer, seed and farm equipment distributors actually advance cash and/or inputs to small farmers. They actually function as informal lenders and can serve as conduits. They are large and safe enough to be accredited as depositories of subsidized AMCFP funds. These cheap funds could be an incentive especially for feed mills, food processors and supermarkets for purposely including small farmers in their raw materials supply chains. They should welcome the privilege of helping small farmers while expanding their business.

Alternatively, large corporations not necessarily engaged in agriculture but with well-established national distribution networks may volunteer as conduits for AMCFP funds for relending to informal lenders. They may shoulder the modest cost of lending as part of their corporate social responsibility (CSR) commitment or they may be partly reimbursed by government for the effort.

The risk of diversion of subsidized AMCFP funds to real estate and other more profitable non-agriculture uses is very real. The conduits and informal lenders must submit clear proof that borrowed funds went to farmers/fisherfolk identified in the Registry System for Basic Sectors in Agriculture (RSBSA). The penalties should be severe, and in exceptional cases, they should be held criminally accountable.

Mainstreaming informal lenders cannot be business-as-usual. We have to think out-of-the-box and experiment with different modalities.

February 14, 2015


Most farmers and fisherfolk are poor because of the low productivity of the livelihoods they are engaged in. The technology and means to enhance productivity and minimize risks are available. What many of them need is operating capital with which to acquire improved seeds and breeding stock, fertilizers, animal and fish feeds, crop protection and animal and fish health medicines.

The agriculture and fisheries sector (AF) contributed 12 percent of our Gross Domestic Product (GDP) in 2013. However, the sector received only 1.93 percent of the total loans provided by the banking system. Worse, primary agriculture production, the part of the agriculture value chain which is most risky and in which small farmers are most involved received only 0.63 percent. This gross mismatch between economic contribution and access to production loans demonstrates dramatically what ails Philippine agriculture and fisheries.

Of the estimated six million small farmers and fisherfolk households, only 28 percent are able to obtain credit. Twenty-two percent want and attempt to but are unable to borrow. And of the 28 percent who are able to receive credit, 43 percent obtain their funds from informal sources, often at onerous interest rates and exploitative lending conditions.

Actually, the bulk (90 percent) of the loans for the AF sector come from private lending institutions like commercial banks, thrift banks, cooperative banks, rural banks, microfinance institutions and some accredited NGOs. Thus the main thrust of government should be to provide incentives to these rural financial institutions (RFIs) to lend more.

Coercing the banks to lend at least 25 percent of their loanable funds legislated under PD714, later amended by RA 10000, is a heavy handed way of redirecting much needed credit to the sector. The more reasonable and lasting way is by a combination of 1) measures to enhance productivity and minimize risks to farmers, and 2) schemes to reduce risks and costs of lending.

For the former, we have to continue investing in rural infrastructure and rural institutions e.g. irrigation and drainage; farm-to-market roads; rural electrification; modern grain centers, slaughterhouses, dressing plants, and fish ports; research, development and higher education in agriculture, forestry and fisheries, and to farmers training and rural extension.

However, for many farmers and fisherfolk, their immediate need is for operating capital with which to purchase productivity enhancing and risk mitigating inputs. These are the immediate low hanging fruits with which to raise productivity, improve income of farmers and competitiveness for the AF sector.

And indeed in fairness to our rural economists and lending specialists after so much trial and error, now we do have a credible strategic plan developed by the Agricultural Credit Policy Council (ACPC), an office in the Department of Agriculture (DA), which is tasked with providing policy direction and oversight to rural lending. What we need to do now is to scale up, fine-tune and execute.


Specifically, the Agricultural Guarantee Loan Fund (AGLF) administered by the Land Bank which secures up to 85 percent of loans extended to small farmers against all kinds of default, except fraud, should be scaled up. In 2013, its beneficiaries numbered 134,000. In order to make a significant impact, the target ought to be a million out of the potential six million small farmers and fisherfolk households borrowers.

The same is true with agricultural insurance which help farmers cope with natural calamities and major pests and diseases outbreaks. The Philippine Crop Insurance Corporation (PCIC) in 2013 provided cover to only 220,000 farmers. PCIC operations are constrained by its narrow capitalization. We need immediate legislation to raise capitalization of PCIC from P2 billion to P10 billion.

In addition, PCIC should adopt new procedures such as weather-indexed and area-based schemes to facilitate processing of insurance claims. Also, agricultural insurance should be bundled up with loan guarantee to be more effective and comprehensive.

Gathering information on individual farmers every time they borrow — on their credit history, family circumstances, farm size, access to other resources and location — take time and money. Among our neighbors, Singapore, Malaysia and Thailand have fully functioning credit bureaus. Let’s put our act together and finally implement the Credit Information System Act of 2008, which legislated the establishment of the Credit Information Corporation (CIC).

In the meantime, the CIC can build upon the Registry System of Basic Sectors in Agriculture (RSBSA) conceived by Secretary Butch Abad and the Department of Budget and Management (DBM) to identify and geographically locate small farmers and fisherfolk households for proper targeting and eliminating phantom households in the process.

Another way to encourage banks to lend to farmers is by way of warehouse receipts or quedans. Farmers deposit their harvests in bonded warehouses and as proof of ownership obtain quedans which they can use as credit collateral.

The quedan system works for sugar. Let’s rehabilitate the Quedan and Rural Credit Guarantee Corporation (QUEDANCOR) and make it work for other commodities. This is easier said than done but by now we should know what went wrong the first time around.

Filipino farmers pay 18–36 percent interest on their loans. Their counterparts/competitors in India pay zero percent if the loan is repaid in six months. Chinese farmers pay only one percent; Thai farmers, four percent and farmers in Indonesia and Vietnam, 12 percent. In order to level the playing field, we should bring down their cost of money to less than 12 percent.

One way to achieve this is to zero out the cost of money to the rural lenders — to Land Bank itself and the commercial, thrift, cooperative and rural banks and the microfinance institutions — by way of special interest-free deposits from the Agro-Industry Modernization Credit and Financing Program (AMCFP). The AMCFP is the subsidized farm credit fund created under the Agriculture and Fisheries Modernization Act of 1997 (AFMA).

The AMCFP should be scaled up from P12 billion to P50 billion over a ten-year period i.e. P5 billion per year in the General Appropriations Act (GAA) passed by Congress. The annual interest subsidy to a P50 billion AMCFP is only P1.5 billion to P2.0 billion. This is much less than the P60 billion Congress allots each year for the Conditional Cash Transfer (CCT) program to eradicate poverty. Moreover, the returns from credit subsidy to poor farmers can be realized in four months while the returns from investments in CCT come after a generation.

Finally, the most contentious and controversial — mainstreaming informal lenders. The fact that informal lenders continue to proliferate in the countryside only goes to show that they are performing economic and social functions valued by the unbankable and underserved poor. Let’s mainstream informal lenders as much as we can. With proper safeguards we should give them access to the subsidized AMCFP to generate more competition and exert downward pressure on interest. Mainstreaming informal lenders cannot be business-as-usual. We have to think out of the box and experiment with different modalities.


Dr. Emil Q. Javier is a Member of the National Academy of Science and Technology (NAST) and also Chair of the Coalition for Agriculture Modernization in the Philippines (CAMP). For any feedback , email

What is really Daang Matuwid

With around year left in its term, one of the best Philippine administration will end its term in office. Despite the all the economic achievements attained in its administration, it will be its political governance that will be its legacy for future administrations to follow. The question being asked now is whether Daang Matuwid was a policy used to promote good governance or simply another political tool to eliminate the opposition.

From BusinessWorld Philippines

February 15, 2015

PNoy Aquino’s biggest failure

WHAT’S PRESIDENT Aquino’s biggest failure?

His handling of the Mamasapano incident? Not really. His biggest failure is his failure to apply Daang Matuwid (Straight Path) to all public officials, whether they are political opponents or friends, party mates, family or allies. The Mamasapano incident would probably have not happened had President Aquino applied Daang Matuwid to his own men, even the closest of friends like former Philippine National Police chief Alan Purisima, when reports first surfaced that Purisima had ill-gotten wealth. Purisima should have been canned, yet Aquino kept defending him.

This one-sided application of Daang Matuwid is typical of President Aquino. The smoke of corruption has hung heavily on the Department of Agriculture, which has been linked to Janet Napoles and other scams like the garlic cartel, but Secretary Prospero Alcala is the Liberal Party treasurer and a good buddy of President Aquino. Not surprisingly, he’s still in his post, making a mess of our rice policy.

Similarly, Daang Matuwid also doesn’t apply to the Department of Transportation and Communications (DoTC), a preserve of the Liberal Party. Philippine Star’s Jarius Bondoc has exposed the various shenanigans in the MRT, including a sweetheart contract for the maintenance of the railway system awarded to a relative of the former general manager.

Aside from the corruption, the DoTC has been notorious for being incompetent, bureaucratic, or cunningly clever. One recent example is the announcement that it was building a fifth terminal to ease the airport congestion, when only another runaway can technically ease the congestion. It’s incredibly stupid or incredibly smart, since they will start awarding contracts before May 2016. Why the DoTC refuses the most practicable solution — building Clark as the second airport in a dual airport strategy to serve Metro Manila — is beyond comprehension.

President Aquino’s term will be ending in 2016, but the MRT operation has gotten worse, not better. The conditions of the trains have deteriorated such that the MRT can’t run all of them to service the public. Those that do run are in danger of breaking down at any time, putting the public at great risk.

Senators Juan Ponce Enrile, Jinggoy Estrada, and Bong Revilla are in jail, but none of Aquino’s party mates, political allies or friends have been investigated or prosecuted, whether over the Napoles pork barrel scams or previous cases of corruption in the Arroyo administration. His Daang Matuwid, therefore, is perceived as less “good governance” but more as a weapon to eliminate the opposition. In other words, it’s still “weather-weather lang,” and Daang Matuwid is the weapon of choice.

I don’t believe that the blowback against President Aquino would have been so hard over the Mamasapano incident if he were not perceived as being very partial and political aside from being arrogant. Compare how he treated former Health Secretary Enrique Ona and his friend Purisima. He publicly humiliated Dr. Ona, a well-off and respected kidney doctor, with insinuations of corruption over the purchase of vaccines. Take note, Ona was accused of buying a cheaper vaccine variant against a more expensive one, for Chrissake. Compare how President Aquino treated Ona with the way he coddled General Purisima who had some explaining to do with his unexplained wealth and the irregular manner the “White House” in the PNP headquarters was funded and built.

However, all that may have been a ploy to ease out Ona and put a politician in the person of Dr. Janet Garin, a former congresswoman and a member of the Petilla family political dynasty in Leyte. The Department of Health (DoH) is going to play an important part in the 2016 elections. Remember the PhilHealth cards that were distributed by former President Gloria Arroyo in the 2004 elections?

But there’s more. The DoH is now awash with money resulting from the passage of the sin tax law. It’s strategic for the 2016 elections, so wonder no more why Ona was humiliated and forced to resign.

Aquino’s asymmetrical application of Daang Matuwid has served to agitate his critics and political opponents. They have jumped on the Mamasapano incident to try to destabilize his government. They have also lumped Aquino with the peace process. If they derail the peace process, they think they can bring down Aquino as well.

It’s not too late, however, for President Aquino to rebound in popularity, regain the high political ground, and save the peace agreement with the Moro Islamic Liberation Front, perhaps what could be his single biggest political achievement.

He must be seen as being less partisan and political. Accepting the resignation of his friend Alan Purisima is a good start, but he must also create an independent truth commission, whose findings are not subject to change by Malacañang, as was done with the Department of Justice (DoJ) report on the Luneta tragedy. That DoJ report was changed to absolve Manila Mayor Lim and his bosom friend Rico Puno. Unfortunately, even now, Malacañang is prematurely clearing Purisima of ordering Special Action Force General Getulio Napenas of breaking the chain of command.

In addition, he probably should not make permanent the appointment of Acting Secretary Janet Garin as Health Secretary but instead appoint a competent secretary with no political affiliation.

He should fill in the three vacancies in the Commission of Elections with men or women of probity and integrity, and not another Sixto Brillantes please. He should appoint an equally fearless, competent head of the Commission on Audit to replace the recently retired Grace Pulido-Tan.

He must make his party mates in the Cabinet perform or else ship them out. The DoTC, the Department of Agriculture, and the Department of Energy are the NPAs or non-performing agencies in his Cabinet.

President Aquino has depleted his political capital over the Mamasapano incident. His political isolation can only get worse if he continues his partisan ways and the one-sided application of Daang Matuwid.

All is not lost. He’s still President until June 2016. He can still save victory from the jaws of defeat. He is his own tagaligtas.

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

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