TCR Volume 1 Issue No 1

Analytic Research by the Center for Strategy, Enterprise & Intelligence

Bond Markets Yawn at S&P Downgrade ~ Wells Fargo Bank update, April 20

If we default on the debt, it would be a major crisis ~ U.S. Federal Reserve Chairman Ben Bernanke, July 13

Vol. 1. No. 1 • July 25-31, 2011

WORLD 02 Debts, Deficits, Dollars, Downgrades and

Defaults

As credit raters fret over a possible American debt

default, the rest of the world ponders financial Armageddon

07 Computer hacking: Who’s next?

The threat of hacking has become a global concern.

• Protecting you and your company from cyber-

attacks • Hacktivists: Heroes or hooligans?

10 Myanmar’s Rocky Road to Democracy

A new game of the generals?

• The intermittent spotlight on Myanmar

BUSINESS

NATION 22 Reproductive Helter-Skelter

13 PLDT-Digitel: A good connection?

Above the sound and beyond the fury of the RH Bill debate

• The major issues in the RH Bill

28 Remittance Retreat: Turning Threat into Opportunity

How to get more out of the dollars being sent home

• Time to bring the OFWs home?

• The man behind the merger • Telecoms squeeze: Slowing growth, falling margins

16 Rural banks want global capital

The state ponders the P74-billion question, but not until it figures out who really owns PLDT

Should countryside lending be opened to foreign investment?

19 Mall Credit Cards: New Ammo for the Store Wars

When a mall makes itself the brand, will that help expand its customer base?

• Hoping two names are better than one

NEWS ON THE NET Apple’s record day

Investors head for havens in debt storm

Aquino endorses money saving measures

Gold breaches $1,600 per ounce over eurozone debt crisis.

The Aquino administration expects to save billions of pesos by implementing new budgetary measures, including bulk purchases of supplies, airline, and hotel fees and other utilities.

Click to read full story

The consumer electronics giant set record after record on Tuesday, hitting all-time highs with its quarterly profit and revenue, its stock price, and with iPhone and iPad sales.

Click to read full story

Click to read full story

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Debts, Deficits, Dollars, Downgrades and Defaults As credit raters fret over America, the world ponders financial Armageddon

By Gary B. Olivar

United States Treasury bills — sovereign debt securities issued by the U.S. Treasury Department and backed by the full faith and credit of the world’s largest economy — have traditionally set the gilt standard for global finance. Generations of finance students learned to measure the cost of risk as a premium over the rates offered by theoretically risk-free Treasuries. Thus it was axiomatic that these T-bills would always be rated triple-A. Then the global finacial crisis happened.

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But this comfortable world was turned topsy-turvy in the last three years by a global financial crisis that hollowed out a wide range of real and financial assets in America, exposed the shaky pyramid of debt on which much of the country’s recent prosperity was built, and brought other countries to the brink of default and even bankruptcy.

And today, as the United States struggles to sustain a still-fragile economic recovery, it appears that what’s been happening elsewhere may happen there too: the spectacle of a default on sovereign debt.

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The downgrade carousel starts up.

Standard & Poor’s got the downgrade carousel going in April when it changed its outlook for U.S. sovereign debt to negative from stable, while keeping the country’s triple-A rating — for now. S&P compared the U.S. with similarly rated economies like Germany, Britain, France, Japan, Singapore, and Hong Kong, and found Washington’s budget deficit large and its debt rising at a worrisome pace.

Still, as of June, the major credit-rating agencies were treading lightly around the prospect of downgrading U.S. sovereign debt. They warned of a rating cut if by August 2, there was no consensus on passing a law to raise the debt ceiling beyond the statutory $14.2-trillion limit so that maturing T-bills — an estimated 40% of U.S. sovereign borrowings — could be refinanced. But the firms also said they expected the debt ceiling to go up by that date.

“Bond Markets Yawn at S&P Downgrade” was the headline at California bank Wells Fargo’s market update website. Analysts at

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Debts, Deficits, Dollars, Downgrades and Defaults

Malaysia’s MIDF Amanah Investment Bank, too, was “Not convinced with S&P” [sic].

Explaining market sentiment, investment analyst Anthony Valeri of LPL Financial Research said ratings are but one factor affecting bond prices and yields. So don’t hold your breath waiting for financial Armageddon just yet.

Then on July 13, as negotiations between President Barack Obama and legislators continued to drag, another major rating agency, Moody’s Investors Service, formally put the U.S. rating under review for a possible downgrade, making good on a threat it issued last month. The company cited “the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations.”

‘There are

seemingly few policy options

available in the current set of

circumstances to

If that wasn’t enough to knock heads together in Washington, U.S. Federal Reserve Chairman Ben Bernanke reiterated his warnings about failing to raise the debt ceiling first thing next month and causing the U.S. to default on maturing Treasuries.

The man who called such an event catastrophic, self-defeating and dire, warned, “If we default on the debt, it would be a major crisis.”

stimulate a more robust growth environment’

The next day, S&P joined in the festivities, warning that there was at least a 50% probability that it would downgrade the U.S. government’s credit rating within the next three months due to the continuing stalemate over raising the government’s debt ceiling.

The dim view from China. The rating agencies’ moves followed an announcement

by China’s Dagong Global Credit Rating Co. that it was downgrading American sovereign debt to AA with a negative outlook, below China’s AA+ with a stable outlook. In its 10-page “Surveillance Report for Sovereign Credit Rating” for the U.S., Dagong cited various bases for its decision, including its assessment that the U.S. credit crisis was deepening, and that the U.S. economy, with its industry hollowed out, faced the prospect

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of long-term recession, possibly leading to national insolvency. The Chinese rater even cited America’s geopolitical dominance, which is consuming massive public financial resources.

Not a few U.S. institutions shared the prognosis on America’s dull recovery. US Bancorp chief economist Keith Hembre noted that quantitative easing generated inflation, which dampened the growth the ‘QE’ was supposed to spur. And don’t look at the government to keep spending its way to recovery. “There are seemingly few policy options available in the current set of circumstances to stimulate a more robust growth environment,” Hembre admits. In fact, Washington must slash outlays to shore up its credit rating and keep interest rates benign and growth-friendly.

Dagong’s announcement might not have carried so much significance were it not for speculation that it might somehow reflect Chinese government sentiment about the US credit crisis and outlook. The country is said to be holding $900 billion in U.S. sovereign debt, with four-fifths of its $2 trillion in foreign reserves denominated in dollars.

Washington’s Congressional Research Service reported as early as 2009 that Beijing had been reducing its holdings of T-bills.

That despite U.S. Secretary of State Hillary Clinton’s plea then for China to continue buying her government’s IOUs. At the very least, Dagong’s rating downgrade might prod Chinese institutions, companies and investors to be more circumspect about investing in U.S. Treasuries.

As world markets fret, who blinks first in Washington? Strangely enough, some senior leaders of the party of business, the Republican Party, embraced the prospect of a U.S. default on sovereign debt. Apparently they want to call what they believe is the bluff of the Obama administration, which is threatening “economic catastrophe” if the legally set debt limit of $14.2 trillion isn’t raised by August 2 to allow the refinancing of maturing T-bills. If neither blinks, all America and a good chunk of the world would be blinded by a financial fireball incinerating trillions of dollars in assets and growth.

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At an investment summit in June, Richard Bernstein, the former chief investment strategist of Merrill Lynch, says that “the notion of flirting with a default on existing debt flirts with irresponsibility,” while some other financial market gurus seem to be cheering the possible collision.

Respected investor Stanley Druckenmiller, a former associate of the legendary George Soros, reportedly told the Wall Street Journal that he wouldn’t mind seeing a default if it forced both sides of the aisle in Congress into agreeing to cut government spending more aggressively.

empires.” In case those words weren’t nightmarish enough to drive home the message, here’s some audiovisual support from the website:

Graphic by thegoldspeculatorllc.com

Bernstein said he has “great respect” for Druckenmiller, but added that consequences of even a brief default might be too severe for the U.S. economy.“A default will place a burden on future generations. The cost of capital throughout the United States will go up.

That hurts mortgages, that hurts corporations, that hurts individuals,” he elaborated.

The doomsday scenario. Others are even more spooked. Gold-watching website thegoldspeculatorllc.com warns: “The effects of a negative outlook report or credit downgrade of US sovereign debt would be devastating. The floor would drop out of the U.S. bond market. U.S. interest rates would spike, sending a shockwave through the stock market. Massive Wall Street sell-offs would spread to equity markets around the world. Retirement accounts would be washed out. Real estate values would plummet. GDP would grind to a halt and unemployment would reach or exceed Great Depression levels.

“The U.S. dollar would collapse and ultimately succumb to a de facto new reserve currency, perhaps the BRIC Bancor, the UN Special Drawing Rights established by Russia, China, India and Brazil. The United States would relinquish its role as the strongest economy on the globe, and join the ranks of fallen

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Concern about the deficit is growing as a fresh round of bad economic news is hitting the market. Because of soft economic data that might portend a double-dip recovery, the S&P 500 index tumbled for several weeks from its three-year high last April 29. Another week of declines would mark the longest stretch of weekly sell-offs since 2001. Such declines are likely as the index is now testing its next support level at 1,250 and the equity option put-call ratio hit an 18-month high on the Chicago options exchange.

The downtrend in equities might reverse whenever Congress takes action on the budget deficit and debt ceiling issues. But until then, with the statutory limit on issuance of new T-bonds, the Fed is effectively constrained from taking monetary policy action to revive the various capital markets. At this point, it’s a case of getting caught between a rock — the deficit — and not just one but two hard places: economic downturn if the deficit is cut too much too fast, and crushing debt payments as interest rates rise as counterrecessionary easy-money fiscal programs wind down.

On the first trade-off, according to Laurence Fink, CEO of BlackRock, the world’s largest money management firm, a reduction of the US deficit by about $4 trillion by

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Congress would reduce US economic growth by about 1% p.a. over the next decade. With analysts now projecting only 2-3% growth per annum, this means an adjusted annual growth of as low as 1% only. Still, Fink believes that the deficit reduction is needed. “I don’t think we have a choice”, he says. “We’ve lived way beyond our means.” Yet as June ended, Fink remained bullish on the stock market, saying he would be 100% in equities if his accountants would let him.

Interest rates are a growing concern, as the second round of the Fed’s so-called quantitative easing ends. Last month the American central bank began its final $50-billion purchase of U.S. Treasuries under the $600-billion program called ‘QE2’, first launched last November to prevent another recession after the one in 2008. From a high of about $100 billion a month, the Fed support is slowing to a trickle of only $12 billion to $16 billion a month through reinvestment of maturing securities, mostly home mortgage-related.

End of the surge in stocks, bonds, gold, and euro. A key aim of QE2 was to hold down interest rates and stimulate capital spending. Its predecessor easymoney program totaling $1.73 trillion from December 2008 to March 2010, was intended to stimulate the housing market. But the homes sector remains in the doldrums. Now that QE2 will terminate as well, most analysts expect drops in stocks, bonds, gold, and the euro, all boosted by the ending dollar flood. Recent evidence also suggests another slowdown in real estate, with single-family home prices again dropping below their March 2009 low.

“We are still at least 2-3 years away from seeing signs of even a baby upturn in home

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prices,” says Anthony Karydakis, senior economist of Commerzbank in NY. This is compounded by job losses expected to be reported for May. So no surprises when the Fed went on with its last spurt of easy money.

Across the Atlantic, the outlook is somewhat more sanguine. For example, award-winning analyst Alain Bokobza of Societe Generale thinks there isn’t likely to be any sovereign default within the Euro zone within the foreseeable future. He’s confident that policy makers would do all they can to avoid a “domino effect” from troubled member economies like Spain and Italy, two of the so-called “PIGS” countries. This includes the possibility of a restructuring, which Bokobza says “is not a default.”

Worldwide, because of disappointing economic results the first half of the year, central banks will continue to refrain from aggressive monetary tightening. This includes the U.S. Fed, which is not likely to follow up the termination of QE2 this month with an increase in the Fed funds rate anytime soon, contrary to the fear in some quarters about rising rates. According to Bokobza, the resulting liquidity in the global system augurs well for equities, where indices may rise by up to 10 percent in developed countries from their current oversold, underpriced levels.

By contrast, developing economies may have to raise rates earlier in order to cope with rising inflation. China in particular may have to allow a 6%-7% revaluation of its currency in order to prevent imported inflation from raising domestic wages and hurting its export industries.

On the other side of the world from Europe, China — now the United States’ biggest creditor and a key source for borrowed money to cover Washington’s deficit shortfall — issued its own warning recently.

An adviser to the Chinese central bank scolded U.S. lawmakers for “playing with fire” in debt talks. China holds about $1 trillion of America’s external debt, and any move by Beijing to dump some of it or even limit buying would potentially trigger a loss of confidence in U.S. economic management.

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To dump or not to dump the dollar. In March, Chinese Prime Minister Wen Jiabao expressed “concern about the safety of our assets.” Since then, other Chinese officials have talked about alternatives to the dollar as a reserve currency, making investors nervous about long-term demand for the greenback at a time when more dollars need to be sold by the U.S. government to finance its deficit.

During his visit to China in 2009, U.S. Treasury Secretary Timothy Geithner sought to ease such concerns. He described China as a partner in the task of managing international financial institutions and leading the world out of recession.

“The world is going through an exceptionally challenging period now, and I think the world has a huge stake in our two countries working closely together to lay a foundation for recovery,” Geithner said during a meeting with Vice Premier Wang Qishan. Later, in a speech at Beijing University, the Treasury Secretary did not bring up traditional U.S. concerns about the Chinese renminbi’s overvaluation, noting only that “greater exchange-rate flexibility will help reinforce the shift in the composition of growth.”

once sustained recovery comes. Importantly, Geithner called for gradual reduction of the U.S. budget deficit to about 3% of GDP, down from a estimated level of nearly 13% this year. Under current projections by the Obama administration, that challenging singledigit target should be attained by 2013.

Just as credit rating is but one factor in bond prices, however, deficit levels are not the only target in achieving fiscal responsibility.

Stanford University scholars point to many other determinants in devising their Sovereign Fiscal Responsibility Index, which assesses public finances (see graphic): “Our definition of fiscal responsibility involves three factors: a government’s current level of debt, the sustainability of government debt levels over time, and the degree to which governments act transparently and are accountable for their fiscal decisions.” So the buzzwords are fiscal space, fiscal path, and fiscal governance.

That all sounds neat and organized, assuming, of course, that the U.S. and the global economies and financial systems are still around to be taught the niceties of SFRI. And that remains to be seen in the next couple of nail-biting weeks.

Instead, he focused on other topics, including steps Washington is taking to stabilize its economy and what it will do

SOVEREIGN FINANCIAL RESPONSIBILITY INDEX FRAMEWORK Overall Fiscal Responsibility Score

Fiscal Space

Fiscal Path

Sovereign debt-todebt ceiling ratio

Projected future levels of debt and implied fiscal space

Total debt-to-debt ceiling ratio Foreign-Held Debt ratio

Fiscal Governance

Fiscal rules

Fiscal transparency

Debt limits

Independent forecasting body

Budget Deficit Targets

Autonomous budget/audit process

Expenditure Rules

Open government policies

Source: Sovereign Fiscal Responsibility Index 2011, Stanford University and Comeback America Initiative (CAI)

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Enforcement Mechanisms Nature of Monitor body Nature of Enforcement body Media Visibility of Rules

Revenue Rules

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Computer hacking: Who’s next?

By Marishka Noelle M. Cabrera

Computer hacking is seen, at least from the perspective of a non-techie, as a nuisance at best. Most of the time, hackers are regarded as having no other motivation than to wreak havoc in cyberspace for their own personal accomplishment.

And yet, with reports on major multinational companies and institutions falling prey to cyber-attacks and security breaches that have exposed confidential financial data and personal account information, the threat of hacking has become a global concern.

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The IMF gets hacked. The most recently reported major victim is the International Monetary Fund, the intergovernmental group that oversees the global financial system. The hack, said to have occurred earlier this year, is believed to have been designed in order to establish what cybersecurity officials interviewed by the BBC call a “digital presence of insiders” in the fund’s network.

CNN’s Business360’s blog entry on the IMF attack reports that the attack may have utilized a method called “spear phishing,” which it described as “tricking the end user to

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click on a link, reveal password information or download a malicious program from a source that appears to be legitimate.”

Though IMF officials are reluctant to comment on who could have launched the attack, The Washington Post reported that FBI investigators believe it may have originated in China.

According to a Reuters commentary published in The China Post, a Chinese embassy spokesperson in Washington didn’t respond to a request for comment, but the commentators expect Beijing to dismiss the charges, as it did when accused of an unsuccessful cyber-attack in May on Lockheed Martin, said to be the top Pentagon supplier in terms of sales.

Sony PlayStation: Game over. In April this year, the Sony PlayStation Network was hacked, forcing the multimedia company to shut down the network, to the dismay of many gamers around the world. In May, hackers were reported to have stolen personal information of 24.6 million users of Sony Online Entertainment, according to Wired. com. Sony has accused Anonymous, a “hacktivist” group, of being behind the attack. In a statement published in The Guardian, the group denied the charge.

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In a December 2010 interview with the RussiaToday global news network, someone representing Anonymous did take responsibility for DDoS (distributed denial of service) attacks on Visa, MasterCard, and PayPal, after those companies suspended services to the whistle-blowing website Wikileaks, over the arrest late last year of its founder, Julian Assange, in connection with the leak of U.S. classified documents. According to Brendan Greeley of The Economist, DDoS works by flooding a website’s server with thousands of bogus requests, which causes the site to crash due to so much traffic.

Citigroup, Inc. and Google have also been victimized, as valuable information, e.g., cardholders’ names, account numbers, user

names, and passwords, were reported by PC World to have been exposed due to breaches in their system.

So could it happen to you? If nothing else, the string of attacks on high-profile organizations should serve as a reminder of how vulnerable computer systems can be, and that threats are always present no matter how big or small the organization is.

And could it happen here? Oops. In the Philippines, the Bureau of Customs website was defaced by a hacker a day after Malacanang announced its security review of government websites, according to GMA News, who also reported that the Philippine Nuclear Research Institute (PNRI) was

In this complex digital age, how can you protect yourself and your company from cyber attacks?

• Securing your organization begins with an awareness of personal security. Naked Security, a blog

by IT security company Sophos, recommends in a video that one should refrain from using dictionary words and, instead, choose a password that is a jumble of letters, numbers, and characters, which is harder for people to decipher. Also, do not use the same password in all your accounts: email, social networking sites, PayPal, eBay, and the like.

• Secure your company’s website. The blog The Hacker Club says that, more often than not, security is considered after a website has been designed, which makes most of the websites hackable. Talk to your web design team about creating a secure website first before focusing on the look you want.

• You can never be too careful. Educate your staff on the dangers of cybercrime and what safety measures can they follow to prevent the network from being infiltrated, such as not opening (and deleting) attachments that come from a dubious source or those with an “.exe” or “.com” extension. Business Insider recommends employees always run virus or malware (malicious ware) checks before downloading files, even if they’re from a recognizable sender.

• Job rotation and segregation of duties. Data theft can be executed from within the organization.

Security blog Lucius on Security suggests job rotation for sensitive functions because it “prevents an employee from covering his tracks as another employee takes on his role or a period of time”. Segregate duties so that no one employee possesses or controls all the data. Make sure to limit the access to privileged information.

• Keep your anti-virus software updated. AllBusiness.com says that it only takes “one malevolent virus to bring your network to its knees,” which is why you should install reliable anti-virus software and keep it updated for all computers in the organization.

• Protect hardware. Laptops, smart phones, tablet computers, and USB flash drives can contain sensitive or valuable information that, should they fall into the wrong hands, could spell disaster for the organization. A Philippines Free Press article on staying alive in the digital age says that these devices and “the blending of at-home and at-work technologies…are among the latest causes of data vulnerability”.

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hacked by a group called Philker, who redirected users to their own site. On that site was a message saying that this intrusion was meant to call attention to vulnerabilities in the country’s cyber-security.

On June 20, ABS-CBN news reported that the website of the Office of the Vice President was also hacked by Philker, leaving a message saying that their group is composed of hackers “that possess skills in the areas of cyber security, visual graphics and human manipulation that work on the progression of Philippine cyber culture.” The password of GMA News’ Twitter account, likewise, was exposed by a hacker claiming, in an interview with the blog TechPinas, that he did it to bring to the fore security flaws.

Hacktivists: Heroes or Hooligans?

A portmanteau of hack and activism, hacktivism is described by thehacktivist.com as hacking for a political or social cause. Hacktivists often employ DDoS (distributed denial of service) to disrupt normal traffic on their target website and make it inaccessible or defacement of the website in order to articulate their message.

One of the better known hacktivists is a group called Anonymous. Citing the infringement of free speech and the right to information, the infamous collective has claimed responsibility for the hacking of the websites of MasterCard, Visa, and PayPal in its pro-WikiLeaks cause last year. Anonymous has since turned its attention to the fight for greater web freedoms by hacking the government websites of Egypt, Yemen, Tunisia, Zimbabwe during their times of unrest, based on reports from Aljazeera, MSNBC, and BBC.

Harmless? While the aforementioned local attacks in the country turned out to be relatively harmless, a CNN analysis reminds us of the hidden costs of cyber-crime. Leaked or stolen policies, blueprints, and plans can lead to catastrophic results—millions in lost sales, consequential market behavior, or even a strain in diplomatic relations among nations. The same article discusses the increase of computer hacking “as a sign of the times in a post-September 11 world of ‘asymmetric attacks’, [or] the ability of a small group of people to do disproportionate damage on governments or large companies”.

Another Reuters commentary, this one in BusinessWorld, talks of a growing concern among cyber-security experts that governments and international institutions may be losing the battle against cyber-intruders, unless public and private entities work together to “combine greater regulation and international action”.

Until then, hackers will “always [be] one step ahead,” as the Anonymous member put it in the RussiaToday interview, because, with the diversity of the Internet, the chances of getting caught are virtually zero. As MSNBC explains, even with digital footprints, it is still difficult to know for certain the source of a hack, since hackers can leave a “fake trail.”

Moreover, findings in a McAfee study show “the rate of security adoption is significantly trailing behind the rate at which (the) threat is growing.”

Hacktivists may liken the ideals of true activism, where the expression of dissent comes on the heels of injustice and oppression and a genuine desire to affect change, to their own. But The Economist is not convinced. Peaceful lawbreaking, the publication says said, hinges on the “Individual’s readiness to take the consequences,” but since hacktivists are untraceable and, well, anonymous, they could be nothing more than “cowardly hooligans, not heroes.”

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Myanmar’s Rocky Road to Democracy A new game of the generals?

By Marishka Noelle M. Cabrera

The long and arduous road to democracy in Myanmar has continuously been mired in skepticism from both the global community as well as Myanmar’s own people.

influence than demands for rapid change that have repeatedly been rebuffed.”

Since 1962, this struggling nation has been ruled by a military junta that suppressed any form of dissent and gave little hope to those who dared to aspire to better things in life.

Additionally, the government’s reclusiveness and repression has invited sanctions primarily from the West, resulting in little foreign aid or assistance trickling in for the country’s citizens.

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Calls for democratic reform from both inside the country and across the world have persisted for decades, but the presentation of the junta’s seven-step Road Map to Democracy in 2003 did little to convince people.

Still, after decades of autocracy, there is a perspective emerging even in the West that the Road Map, no matter how flawed, offers a glimmer of hope worth exploring. Indeed, a 2001 International Crisis Group report about the junta’s longstanding ‘paranoid’ view of the world, argued that “slower incremental steps may defuse the paranoia and win more

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The Association of Southeast Asian Nations (ASEAN), which includes Myanmar, has traditionally taken a softer stance in dealing with the country, preferring a policy of constructive engagement to one of confrontation. In a statement, ASEAN reiterated that it respects Myanmar’s preference to deal with the UN and international community on its own, but “stands ready to play a role whenever Myanmar wants it to do so.”

The Philippines has taken a more assertive line on Myanmar than the rest of ASEAN. Foreign Affairs Secretary Alberto del Rosario told the diplomatic press corps early this month: “We have always been forthright in our position on Myanmar … that it should take all the steps towards the Roadmap to Democracy.” That includes the release of political prisoners, del Rosario added.

A 2010 roundtable forum of experts in the Philippines, reported by the Asia Society, concluded that while Manila’s policy toward Myanmar is unclear, “there is a shared sense within Philippine society that ASEAN has a

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special responsibility in addressing the issue of Burma/Myanmar.” An accompanying Asia Society report pondered U.S. options in dealing with the oppressive regime.

New constitution, sham referendum.

In keeping with the road map, a new constitution was drafted in April 2008, which included the adoption of a “genuine and discipline-flourishing multi-party system,” but with the military still playing “a leading role in the country’s national politics” with 25% of the seats in parliament.

A referendum was held in May, wherein 92.48 percent of voters approved of the new constitution. The party of pro-democracy icon Aung San Suu Kyi, the National League for Democracy (NLD), called the referendum a “sham.”

The NLD might be forgiven its skepticism, given that in the country’s previous elections -- in May 1990 -- it won 82% of the seats in the country’s parliament, only to have the junta refuse to recognize the election results.

A BurmaNet News report out of Yangon, also in February, has Myanmar watchers in the U.S. and Britain saying Thein Sein might be more malleable and less corrupt than his main behind-the-scenes rival for the presidency, Shwe Mann, who was elected speaker of the lower house. Both are regarded as loyal followers of Than Shwe.

Democracy not quite on the horizon yet. With the convening of the country’s parliament on January 31 and the formation of a government shortly after, six of the seven steps on the road map have been done or are underway, but the world remains hardpressed to find any indication that democracy is really on the horizon, let alone around the corner.

Aung San Suu Kyi, who has spent 15 of the last 21 years in detention of one form or another, is barred by the new constitution from holding public office. She is no longer in detention, having been released six days after the election, but has also been instructed by the government to curb political activities.

The NLD, with its refusal to participate in the November 2010 elections, is not recognized as an official political party.

On July 6, CNN reported that Deputy Chief of Mission Kyaw Win of the Myanmar embassy in Washington wrote to US Secretary of State Hillary Clinton seeking asylum for himself and his family. In the letter obtained

by CNN, Win said he had “no choice” but to leave his post to protest human rights abuses and fraudulent elections in Myanmar.

‘Same old wine in new bottles.’

Elections in November 2010 paved the way for the installation of a new president, Thein Sein, a former military general, as reported in The Myanmar Times. However, some doubt the election was anything more than a means to perpetuate military power in the country, since Thein Sein’s loyalty lies with Myanmar’s former leader, Than Shwe. “He’s Than Shwe’s puppet. They have changed the name, but it is the same old wine in new bottles,” a critic, Khin Omar, said in a Financial Times report carried by The Washington Post in February, just after Thein Sein’s election.

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Going in circles? Amnesty International’s “Myanmar’s 2010 elections: A Human Rights Perspective” gathers that “The roadmap has not lived up to its name, thus far essentially leading the country in circles.” It adds that the government “is taking no steps toward accountability for its past human rights violations, and in fact is sending clear signals that it has no intention of doing so.”

The 2010 US Country Reports on Human Rights Practices: Burma, meanwhile, claims that government security forces “were responsible for extrajudicial killings, custodial deaths, disappearances, rape, and torture.”

United Nations Special Rapporteur on the

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Myanmar’s Rocky Road to Democracy

situation of human rights in Myanmar, Tomás Ojea Quintana, emphasized in his progress report that “moving forward requires not only ending current human rights violations, but also ensuring accountability for past violations.”

The intermittent spotlight on Myanmar Myanmar doesn’t typically draw daily international attention, except for major events picked up by international news organizations, e.g., The Washington Post’s dispatch on four separate bomb blasts on June 24 that hit Naypyitaw, the country’s remote capital, Mandalay, its second-largest city, and Pyin Oo Lwin, home of the military’s elite Defense Services Academy. The report associated the blasts with an ongoing conflict between government troops and the Kachin Independence Army, Burma’s second largest ethnic armed group.

On the political front, the United Nations expressed its commitment to help Myanmar attain peace and democracy, despite the fact that the country “continues to face the same challenges it has faced for too long: the country’s human rights, political, social, economic and humanitarian problems are serious, deep-seated and long-standing.”

Prior to all that, what caught the world’s attention was the string of peaceful protests in different cities that escalated into a massive uprising that saw thousands of Buddhist monks alongside lay people in the streets of erstwhile capital, Yangon, in 2007. The government responded with a violent crackdown by military forces, according to the BBC. Protests were triggered by a steep and sudden hike in fuel prices, adding to the economic woes of the people.

Sanctions or no sanctions? Over the years, countries condemned these human rights abuses by means of economic sanctions.

However, a 2009 CNN analysis posits that sanctions imposed by the US and the European Union to denounce the political and human rights situation in Myanmar have done minor damage to the junta itself.

For its part, the NLD issued a four-page report in February to say that sanctions have actually hurt the junta, not ordinary citizens, and should thus continue. The Washington Times, in its story on the report, quotes the NLD as saying: “Targeted sanctions serve as a warning that acts contrary to basic norms

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Nonetheless, in the same report, it calls for discussion with the U.S., the European Union, Canada and Australia “with a view to reaching agreement on when, how and under what circumstances sanctions might be modified in the interests of democracy, human rights and a healthy economic environment.”

Political developments to have no great impact on the economy? The Economic Intelligence Unit Country Report Myanmar 2011 predicts that recent developments in Myanmar’s political landscape will not greatly impact the country’s economy.

Economic growth, however, will “be driven by investment from Asia in the power and petroleum sectors and infrastructure.”

Non-sanctioning nations like China, Thailand, Singapore, and India have been exploring business opportunities in this country, which is rich in natural gas, timber, precious and semi-precious stones.

Apart from natural disasters (Cyclone Nargis in May 2008, just before the referendum on the new constitution), the country also makes the news when clashes between ethnic rebel groups and the military force 10,000 refugees at a time to seek refuge in neighboring countries, e.g., Thailand (November 2010, right after the parliamentary elections) and China (August 2009), according to reports from The New York Times and CNN.

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of justice and human rights cannot be committed with impunity even by authoritarian governments.”

An article from East Asia Forum asserts that “gradual, incremental political changes will be more constructive than continued absolutist positions which insist on vague and unrealistic goals aimed at direct and immediate ‘democracy’ in the Myanmar state.”

It seems that the path to true democracy and national reconciliation is still a long way ahead for Myanmar. But then again, everyone has to start somewhere.

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PLDT-Digitel: A Good Connection?

The state ponders the P74-billion buyout — and PLDT’s ownership

By Bill Huang How do you beat a price-cutting competitor driving down industry profit margins with discounts and freebies? For Philippine Long Distance Telephone Co. (PLDT 2010 revenues: P142 billion), owner of top mobile provider Smart, it must have seemed so simple: just buy it.

according to a Pihilippine Star report. San Miguel chairman Ramon Ang, who is building another mobile network, told the paper that the PLDT-Digitel linkup was “good for us and Globe.” Meanwhile, Globe CEO Ernest Cu said the merger would not change the No. 2 player’s strategy.

So in March, PLDT announced a stock swap — potentially worth P74.1 billion — to acquire 51.55% of Digital Telecommunications (Digitel), owner of discounting leader Sun Cellular, by a target date of June 30.

But Globe still has issues with PLDT-Digitel.

Apart from market dominance concerns, the Ayala-affiliated provider contends that if it has 10 megahertz in frequencies to provide 3G services to 26 million customers, then Smart-Sun, with a combined 45 Mhz, has too much for their combined 60 million customers.

Globe wants the NTC to give it some of the supposedly excess megahertz.

Competition buster? Newsmen and analysts, along with the government’s Philippine Institute of Development Studies, promptly focused on the possible competitionbusting aspects of the mega-merger. PLDTDigitel could control over 70% of the mobile telecoms market, potentially creating a duopoly, with chief rival Globe Telecoms holding most of the remaining 30%.

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For its part, Globe (2010 revenues: P65.5 billion) called for regulatory scrutiny of the deal, which still awaits approval from the National Telecommunications Commission.

This week, PLDT lawyers charged the Ayala Group affiliate of causing undue delay in the merger. They said that Globe was supposed to present witness on the July 12 NTC hearing on the merger, but instead it filed two motions to suspend the proceedings.

PLDT chairman Manuel V. Pangilinan maintained that telecoms competition remained ‘very robust’ and PLDT would keep Sun Cellular a separate brand and operation,

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Thus, the first NTC hearing on the deal on May 23 has stretched to a June 21 hearing, plus at least another four more in July, even as PLDT and Digitel shareholders have already approved the buyout.

The NTC’s apparent deliberate pace might have been inspired by President Aquino’s issuance of Executive Order 45 in early June “designating the Department of Justice as the Competition Authority” for the express purpose of investigating and going after monopolies and cartels.

A new twist: Who controls PLDT? Trouble is, now the deliberate pace could get even more deliberate, as concerns over possible anti-competitive aspects of the merger have now been joined by a concern over who really owns and controls PLDT.

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In a June 28 decision, the Supreme Court ordered the Securities and Exchange Commission (SEC) to investigate whether the extent of PLDT’s foreign ownership violates the Constitution’s limit of 40% foreign ownership of a public utility. The ruling, which may affect other utilities, stipulates that based on the transcript of discussions of the Constitutional Commission, the framers of the fundamental law were referring only to voting common shares in setting the foreign ownership limit, even though the charter provision in Article XII, Section 11 used the word ‘capital’, which technically also includes non-voting preferred shares.

The Man Behind the Merger In this corner, snapshots of Manuel V. Pangilinan, PLDT chairman and the dealmaker du jour. Forbes magazine sums up his considerable titles and achievements.

It also lists ‘MVP’, as many call him, among Asia’s ‘heroes of philanthropy’ for funding sports, schools, and social projects, the latter as head of the country’s largest foundation, Philippine Business for Social Progress.

In his Philippine Star column, Valentino Sy analyzes the PLDTDigitel deal in the context of Pangilinan’s overall acquisition strategy. Even before PLDT, his Hong Kong firm First Pacific took over bigger giants like Indofood of Indonesia and Holland’s Hagemeyer, as ethnic Chinese-backed groups went global. And Dr. Walden Bello (now congressman) provides an interview with Indonesian economist Dr. George Aditjondro, first published in the Inquirer in December 1998, when Pangilinan took over PLDT, and now on the website of erstwhile PLDT bête noire Gerardo Kaimo.

The order decides a 2007 case filed by lawyer Wilson Gamboa challenging the government’s sale of its stake in a part-owner of PLDT to Pangilinan’s First Pacific group,

which gave the Hong Kong company over 30% of common shares. That stake, along with the shares held by Japan’s Nippon Telephone & Telegraph DoCoMo, gave foreign shareholders more than half of PLDT voting stock. Sounds like a prima facie case of violation, right? Not so fast, Sherlock.

MVP cries ‘economic suicide’ but follows the ruling. The SEC promised to tackle the high court order on July 6, but already said that the ruling to limit its study of foreign ownership to common shares constitutes a ‘new definition’ of capital. For his part, Pangilinan told media: “It’s not good from a foreign investor’s perspective to change the rules. I don’t understand why we’re doing this, why we’re committing economic suicide.”

As shown in a capital stock table below of PLDT’s 2009 report to U.S. Securities and Exchange Commission (see graphic), even if foreign shareholders hold over 50% of the company’s common shares, their stake is no more than 13% of the whole shooting match, if one includes both common and preferred shares under capital, as they normally are.

And, Pangilinan hastened to add, that share calculation was already there when his First Pacific/Metro Pacific group took over PLDT in 1998. Moreover, he notes further, other corporations have similar ownership structures.

Still, while disputing the high court’s definition of capital, PLDT moved to comply with the ruling, in case it attains finality. The company announced on July 5 that it would create a new class of stock – preferred shares with voting rights – only for Filipinos or Filipinoowned corporations. In the same breath, it

Capital Stock

The following table summarizes PLDT’S capital issued as at December 31,2010 and 2009: December 31, 2010 2009 Serial Preferred Stock ( in million ) 10 % Cumulative Covertible Preferred Stock A to HH

Php 4,059

Php 4,056

Cumulative Non-convertible Redeemable Preferred Stock Series IV

360 Php 4,419

360 Php 4,416

Php 947

Php 947

Common Stock

Source: PLDT Form 20-F report to the U.S. Securities & Exchange Commission, December 2009

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said that it could sell those shares to its own pension fund, which is controlled by management.

Duopoly need not be bad for competition. Getting back to the merger, PLDT and J.G. Summit, Digitel’s parent, still hope the buyout will eventually be approved, with PLDT giving itself until July 30 to seal the deal, But will the deal work for the Philippine telecommunications industry — not just for the telcos but for consumers as well?

In an abs.cbnnews.com piece, three analysts weighed in with their views on the possible ramifications of the deal for the telecommunications industry. In a nutshell: a duopoly will help PLDT and Globe margins, even if the picture beyond the short term may be murky for Globe, and a duopoly doesn’t have

Telecoms Squeeze: Slowing Growth, Falling Margins Apart from concerns about competition and foreign ownership, a couple of market and financial factors may have spurred PLDT’s bid for Digitel: slowing subscriber growth and declining net profits. Research and Markets, a Dublin-based firm, says the number of subscribers is increasing at a slower rate. The Philippine cellphone market, at about 85 million subscribers by the third quarter of 2010, grew a minuscule 0.6% quarter-on-quarter.

The group adds that average revenue per unit has dropped and is expected to continue declining.

Corporate Financing Week, an online publication that tracks global mergers & acquisitions along with corporate finance activity, notes declining net profits for PLDT and Globe.

Reason: the price war that Digitel started in 2004 with its unlimited calls and text packages, and its capture of 18 percent of the market as last September.

An international consulting firm, Network Dynamics Associates, provides a neat little primer on the Philippine telecommunications industry, circa 2005, rehashing some recent history that the telcos might be pleased to have you forget or just plain not know.

In the Philippines, the phenomenal growth in cellphones has been pegged to a couple of ironies, namely: • a mobile phone was easier to get than a fixed line, and • text messaging put the Philippines on the world map not just because SMS was originally free, but also because voice calls cost too much for most Filipinos.

With that kind of market, who needs a monopoly to squeeze consumers?

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to be anti-competitive — if the duopolists don’t collude.

For his part, ‘Investor Juan’, a self-described “thirtysomething PhD student who dabbles in everything finance,” writes in his eponymously titled blog that he doubts that PLDT aims to kill Sun, maintaining that the deal actually strengthens the latter’s position.

He’s just not so sure about the outlook for Globe.

With control of Sun, he writes, PLDT “will now dominate the high-quality and low-price segments of the market, putting additional pressure on Globe . . . if PLDT imposes a discriminatory pricing scheme by offering lower rates within its network [Smart/TNT/ Red/Sun], that will be the beginning of the end of Globe.”

Why competition is here to stay. For all the talk about duopolists not colluding, it is also possible for one player to simply use its market dominance to wipe out its lone rival. PLDT did it decades ago to Republic Telephone Co. And after Retelco’s demise, PLDT’s experience in maximizing profit while restricting output should not be lost on anyone who can remember having to wait years to get a landline installed at home.

Of course, knocking out giant Globe is much, much harder than crushing tiny Retelco, and that assumes the new Competition Authority would allow it. Moreover, Pangilinan argues that PLDT faces competition not only from rival telcos, but also other modes of communications like Internet calls and social media messaging. Hence, a duopoly or even a monopoly in cellphones cannot abuse consumers with impunity, and not see an exodus of clientele to substitute channels.

So let’s just say that there’s a lot more to ponder about competition than what PLDT and Globe would like us to think. And as for foreign ownership, if the Supreme Court ruling on PLDT gives investors pause, especially those being lured to public-private partnership projects, then that may yet nudge forward another issue that refuses to die: charter change.

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Rural banks want global capital

Should countryside lending be opened to foreign investment?

By Marishka Noelle M. Cabrera

The Rural Bankers Association of the Philippines wants foreign capital in their institutions, up to 60% of equity. RBAP spokesperson Tomas Gomez IV said foreign investment would bolster the sector’s 600 banks through investments in technology and expertise. It would also enhance the banks’ capabilities to serve depositors and borrowers, the group said.

Hence, RBAP wants amendments to the Rural Banking Act of 1992 (RA 7353), which bars foreigners from investing in rural banks, stipulating that “the capital stock of any rural bank shall be fully owned and held directly or indirectly by the citizens of the Philippines”.

The call for amendments is not new. In 2009, rural banks began tapping foreign funds via debt financing and Tier 2 capital, the Star reported. Tier 2 refers to supplementary bank capital, such as undisclosed reserves and subordinated debt.

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Though it may take a while before the law is amended, there is promise since the Bangko Sentral ng Pilipinas is backing the RBAP proposal. BSP Governor Amando Tetangco Jr. has expressed support for the entry of foreign partners because it will enable rural banks to “become more efficient in their operations and service delivery”, according to the Inquirer.

The U.N. agency International Fund for Agricultural Development (IFAD) offers

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an evaluation of rural banking in the country and made key recommendations. IFAD wants equity financing and technical assistance for strong microfinance institutions (MFIs) to expand in the poorest countryside areas — exactly what foreign banks could provide. Another policy suggestion: adjust MFI reporting requirements to those set by the central bank, instead of onerous and cumbersome procedures peculiar to heavily aid-dependent operations.

Looking at rural banks abroad, Finance Professor Vijaya Subrahmanyam of Mercer University in Atlanta wrote in China Currents, published by the China Research Center, that rural banks can benefit not only from increased capital for expansion and improvement of services, but also from the financial and management expertise of their foreign partners, .

In 2008, China allowed foreign banks like HSBC and Citigroup to operate in rural areas in order to make loans more accessible to farmers and close the widening wealth gap between the city and the countryside. The Asia Focus report published by the Federal Reserve Bank of San Francisco listed the major players in China’s rural banking market with 28% of the national banking system’s total assets (see graphic). By contrast, foreign institutions hold just 2% of all banking assets, with rural operations still in infancy.

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Additional Foreign Capital in Rural Banks

MAJOR PLAYERS IN CHINA’S RURAL BANKING MARKET Type of Institution

Name of Institution or Sub-Type

Number of Institutions (end-2008)

Total Assets (RMB billion, end-2008)

Large Commercial Bank

Agricultural Bank of China

1

7,014.4

Policy Bank

Agricultural Development Bank of China

1

1,354.6

Postal Savings Bank

Postal Savings Bank of China

1

2,216.3

Rural credit cooperative institutions Rural credit cooperatives Rural commercial banks Rural cooperative banks

4,965 22 163

5,211.3 929.1 1,003.3

New-type rural finacial institutions Village and township banks Lending companies Rural mutual credit cooperatives

91 6 10

N/A

Small and Medium-sized Rural Financial Institutions

Sources: China Banking Regulatory Commission and banking industry websites, compiled by Asia Focus report of Federal Reserve Bank of San Francisco

Rural banks were created, first and foremost, for farmers, fisherfolk, and peasant microenterprises, to spur countryside development. Such programs as the Rural Bankers Association of the PhilippinesMicroenterprise Access to Banking Services (RBAP-MABS) assist rural banks in enhancing services to micro entrepreneurs, small farmers, and low-income households through development support and training.

Among the program’s initiatives is the The microenterprise sector is a valuable contributor to the nation’s economic growth.

Department of Trade and Industry (DTI) statistics in 2009 show that the micro, small, and medium enterprises (MSME) account for 99.6% of the total business enterprises in the country. Of this figure, 91.4% are micro businesses. The MSME sector also contributed 63.2% of the total jobs generated that year, with 30.4% of the total MSME figure attributed to micro businesses.

The Philippine microfinance industry is world class. It has been cited as the best in terms of regulatory framework and second in overall business environment by the Economist Intelligence Unit’s report Global Microscope on the Microfinance Business Environment.

In the overall microfinance index, the Philippines ranked third in the world behind Peru and Bolivia, and tops in Asia.

At the same time, commercial banks are exploring and expanding in the microfinance sector, attracted by double-digit lending rates of as high as 35%, and near-nil defaults

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in well-managed operations. Commercial Banks in Microfinance: New Actors in the Microfinance World, a study funded by the U.S. Agency for International Development (USAID), cites advantages of established institutions that offer advantages in microcredit: prudent management and control systems under close government regulation, vast branch networks, and ample sources of funding not available to non-government organizations which currently dominate microlending.

At the same time, while the mandate for Philippine commercial banks to go small has expanded, their actual activity has been slow to grow. In 2008 the Magna Carta for Micro, Small, and Medium Enterprises required lending institutions to set aside a percentage of their loan portfolio for MSMEs. However, the Small Business Corporation, a DTI unit assisting the sector, was not satisfied with the law’s implementation, reports the Star.

SB Corp. says a good number of commercial banks would much rather be charged a penalty than comply with the stipulated MSME lending percentage. Institutions with a loan portfolio of, say, P50 billion will not “have second thoughts” about paying the relatively tiny non-compliance fee of P500,000 per quarter or P2 million a year, SB Corp. said.

Still, an Asia Focus report on microfinance in the Philippines observed that commercial banks, pressured by global and domestic competition, are seeking new revenue sources, including microlending. The study cited

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Rizal Commercial Banking Corp., the sixthlargest Philippine bank by capital, having bought J.P. Laurel Rural Bank in February 2009, and Asia United Bank, 16th on the capital list, acquired Rural Bank of Angeles in Pampanga.

In China, the government had to encourage the spread of banks in rural areas by easing regulatory policies, according to the news site Business China, after many commercialized state-owned banks closed their rural branches for more profitable urban locations.

Third-ranked Bank of the Philippine Islands, meanwhile, is setting up a mobile microlending unit via its Pilipinas Savings Bank subsidiary and in cooperation with its affiliates Globe Telecom and Ayala Corp. That could very well inject more direct commercial banking participation in microfinance, which has been dominated by rural banks (see chart), with the big institutions mainly providing wholesale credit for relending to micro borrowers.

Then there is the adverse impact of big competition on small institutions. The Asian Development Bank’s microfinance newsletter says the Rural Banking Act of 1992 paved the way for the liberalization of the industry. Lenders were allowed to set up branches, thus encouraging competition among them. However, if foreign capital and expertise is allowed in, small players may find it hard to go head to head against those beefed up with external financial and technical resources, possibly leading to some closures, mergers, and consolidations.

MICROFINANCE LENDING BY PHILIPPINE BANKS

Foreign capital infusion in rural banks is all well and good, CenSEI’s source said. However, it will only translate to more microfinance and agriculture lending if safeguards are in place and laws are strictly implemented. The arrangement should still create a level playing field, not just for industry players, but most importantly, for people in the countryside whose lives could be significantly changed with simple access to credit.

in millions of pesos, as of June 30 of given year

7,000 6,000 5,000 4,000 3,000 2,000 1,000 2005

2006

2007

2008

Total Rural Banks Microloan Portfolio Total Thrift Banks Microloan Portfolio Total Cooperative Banks Microloan Portfolio All data is as of June 30 Source: Bangko Sentral ng Pilipinas, graph by Asia Focus

It is important to remember that certain institutions are required to be Filipinoowned precisely because they are vested with public interest. A former Land Bank executive told CenSEI that while foreign investors can, indeed, enhance the banking industry, the kind of management philosophy they adopt should still be rural in nature, as opposed to commercial, profit-driven operations.

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Mall Credit Cards: New Ammo for the Store Wars

By Maria Carmina Olivar

Shop till you drop. In the consumptiondriven Philippine economy, that shopaholic mantra accounts for a little less than ₱1 of every ₱7 of gross national product. According to the Philippine Retailers Association, the country’s retail trade sector by itself contributes about 15% of GNP (more than 30% of the services sector’s total contribution).

But this big-bucks sector also bursts with intense competition: just ask the government think tank Philippine Institute for Development Studies (PIDS). Its 2005 study, The State of Competition in the Wholesale and Retail Sectors, notes that in department stores and groceries, no dominant players are able to exercise pricing or sales power, despite a couple of giant chains in the sector.

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Equally bruising is the mall game, with mega-chains mixing it up with single mall operations. Since SM City North EDSA opened in Quezon City back in 1985, malls have become a major part of the retail trade, with about 200 built and bustling all over the country. Nearly half of them are owned by just four developers: SM (41 malls as of 2011), Robinsons Land (27), Ayala Corporation (14), and Walter Mart (13).

In this aggressive retailing environment, the less prominent malls need creative strategies to strengthen and expand their customer base. So in June, Sta. Lucia East Grand Mall in Cainta, Rizal, partnered with Rizal

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Commercial Bankiing Corporation to launch the Sta. Lucia Mall-RCBC Bankard MasterCard to celebrate the mall’s two decades in business.

Cardholders earn rewards points for patronizing shops that agreed to join the card program. There is a half-percent rebate on all purchases, plus 1% off at Sta. Lucia Supermarket and other participating tenants.

Cardholders can also avail themselves of zero-interest installment plans of three, six or twelve months for purchases from participating shops. With benefits like patronage points and rebates, discounts and installment plans, co-branded cards encourage mall shoppers to spend more time and money on a retail chain or a brand – the mall itself.

Pushing the right shopper buttons.

These incentives is one of the foci of a U.S. study published by the Journal of Shopping Center Research, entitled Motivational Factors of Mall Shoppers: Effects of Ethnicity and Age, which also looks at ambience, variety, socializing, convenience, and food. One key finding: depending on client age, gender, and other personal traits, different things appeal to different people. Hence, the need to employ a variety of marketing tools, including card-based come-ons, to lure customers.

According to the credit card site Card Hub, while co-branded cards are often tailor-made for consumers in offering savings and rewards, corporations also gain financial

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rewards, directly or indirectly, from the credit-card company, Plus: they enhance their own brand recognition by appearing on thousands of cards used in many transactions, and not just with the co-branded product or establishment.

For their part, banks benefit from co-branding because, according to an article in the Indian news site Rediff, it makes their brand unique, given that most if not all commercial banks offer basic credit cards nowadays.

When conventional marketing proves unsuccessful, co-partnering or co-branding becomes a viable strategic option. In his paper Strategic Advantage Through Successful Co-Branding, Dr. Tapan K. Panda of the Indian Institute of Management Lucknow defines it quite succinctly as the act of putting together two brand names of different companies on the same product, to

strengthen both brands. The resulting crosspromotion raises the public’s awareness of the product and thereby draws in new customers for both sides of the partnership.

Co-branding isn’t just for big businesses. First off, several programs have been developed by retailers, shipping companies, and even credit card companies specifically to cater to smaller parties.

Furthermore, while a small business may not catch the attention of industry giants, it is certainly viable for lateral partnerships – the key is to think creatively and to shop around and look for products that can be paired effectively.

Product co-branding isn’t the only option, either. For businesses with establishments or stores, co-branding a physical location – banding together small business ventures with similar philosophies in one place –

Hoping Two Names Are Better Than One While the Sta. Lucia Mall-RCBC Bankard MasterCard might be the Philippines’ first ever shopping mall co-branded credit card, the concept of co-branding with malls has been tried and tested in several Asian countries: the Citi Paragon Platinum MasterCard in Singapore, the Hang Seng MegaBox Card in Hong Kong, the Citi-CMP Park Lane credit card in Taiwan, the ICICI Bank Forum Mall credit card in India, and the KISHIWADA CanCan Card in Japan.

And while the Philippines now has a co-branded credit card from a shopping mall, locally co-branded credit cards involving gasoline, airline flyer-miles, and, of late, cars have been around for a while.

Among the most prominent is Philippines Airlines’ Mabuhay Miles program, which has partnered with Philippine National Bank to produce PNB Mabuhay Miles Platinum, with Allied Bank to launch Allied Bank Mabuhay Miles Essentials MasterCard, and with Hongkong Shanghai Banking Corporation for HSBC Mabuhay Miles Visa Credit Card.

Similarly, Northwest Airlines partnered with Bank of the Philippine Islands (BPI) to launch the BPI WorldPerks Express Credit MasterCard in 2006 (touted as the country’s first airline co-branded credit card with smart chip technology). In April 2009, Cathay Pacific partnered with Banco de Oro (BDO) and American Express to come up with the Cathay Pacific Elite Credit Card and the Cathay Pacific American Express Credit Card.

The two major local oil companies each have a co-branded credit card: the Shell Citi Visa Card and the Petron-BPI MasterCard. Petron also recently figured in the co-branded credit card partnership between Toyota Motor Philippines and Metrobank that was announced early this year. The Toyota MasterCard includes among its many perks fuel rebates at more than 400 participating Petron stations nationwide. East-West Bank and Hyundai soon followed suit and launched the Hyundai East-West Bank MasterCard last May. While companies in the transportation industry comprise a significant chunk of co-branded credit card partnerships, the Mango and Forever 21 clothing stores have allied with RCBC and BDO, respectively, to come up with the RCBC-Mango Bankard MasterCard and the Forever 21 MasterCard.

With all the co-branded cards coming out, will we soon see Funeraria Paz or Loyola Memorial plastic?

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Mall Credit Cards: New Ammo for the Store Wars

potentially encourages joint patronage and results in more customers for all parties involved. A Forbes article, “The Case For Co-Branding”, points out: “Take the strongest elements of your products and combine them with the best complementary brands to offer new goods and services. In other words, the potential worth of the whole may be greater than the sum of the individual brands.”

Going back to mall-linked credit cards, the plastic can be a frequently used and effective financial tool, pure and simple. Any business with a core consumer base, even if it is not a large company or an international brand, should theoretically be able to market a co-branded credit card, as long as there are enough cardholder benefits and privileges to make the card worth acquiring.

For malls in particular, it creates a foundation for customer loyalty. It can also increase the number of shoppers and their card usage and spending levels, which results in more profits for the retail chains and a higher level of satisfaction and value for the consumer base.

Now if we could just have wallets with more card slots . . .

A BusinessWeek article further details the pros and cons of co-branding, and stresses that there are co-branding opportunities just about everywhere, not just with big brands and big industries. But there are pitfalls.

While the strategy has so far been widely successful in the credit card industry and to a great extent the food industry, a high-profile partnership doesn’t always work.

Brandchannel describes the very public 1999 co-branding of Amazon.com and NextCard, Inc. Amazon, which owned 8% of NextCard, was to receive origination and renewal fees for each co-branded account, but in 2002, federal regulators seized NextCard’s bank and halted all credit card activities because NextCard had issued too many cards to deadbeat borrowers. Slightly less ugly, but equally unsuccessful was a 2000 tie-up between America Online and American Airlines, which just never took off. The parties ended the tie-up in 2002, equally dissatisfied.

While failures like these may seem devastating because of the size and popularity of the partners, it should also be taken into account that co-branding, even when it involves well-known brands, is usually considered after traditional approaches to increase customer bases have already been tried and judged inadequate.

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Reproductive Helter Skelter Above the sound and beyond the fury of the RH Bill debate

By Zandro G. Rapadas, M.D.C.

Several bills on reproductive health have been filed and re-filed since 1998, providing evidence of, if nothing else, the persistence of some legislators in promoting a government role in safeguarding Filipinos’ reproductive health. Here’s a primer on the convoluted debate.

In the House of Representatives, reproductive health bills filed in the 11th, 12th, and 13th Congress died on first reading. A bill filed in the 14th Congress made it to second reading but never made it to a vote.

In the present 15th Congress, at least six RH bill versions were filed in the House of Representatives, and then consolidated into House Bill 4244 titled, “An Act Providing for a Comprehensive Policy on Responsible Parenthood, Reproductive Health and Population Development and for Other Purposes,” with Representative Edcel Lagman of Albay as principal sponsor.

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At the other end of the legislative arena, Senators Miriam Defensor-Santiago, Pia Cayetano, and Panfilo Lacson Jr. each filed their own reproductive-health bills, which were consolidated into Senate Bill 2865, titled, “An Act Providing for a National Policy on Reproductive Health and Population and Development.”

The consolidated House bill is currently undergoing interpellation prior to endorsement for plenary approval, while the consolidated

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Senate bill has already been endorsed for plenary approval after 20 senators signed up to sponsor it on June 7.

Sustained coverage by traditional and online media of this latest legislative campaign has fueled public awareness, which in turn has provided the impetus for this latest version to go further up the legislative ladder than previous efforts managed in the past 13 years.

According to survey data released in October 2010 by Pulse Asia, seven out of 10 Filipinos support reproductive-health legislation, with respondents from the National Capital Region (79%) and Mindanao (72%) registering the highest support levels. Across socio-economic strata, respondents from the lowest-income group, Class E, registered a support level (72%), second only to Class ABC (74%).

The sustained coverage has focused on exchanges between the bill’s proponents and its critics, but what has passed for discussion thus far has shed far more heat than light.

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Reproductive Helter Skelter

As lawyer-constitutionalist Father Joaquin Bernas has noted, the “debate on the RH bill appears often frustrating and sometimes verging on the chaotic…largely because the participants in the debate frequently communicate on different levels of discourse thereby evading real engagement.”

The provisions of the RH Bill (both Senate and House versions) primarily address issues on maternal health care, family planning, and greater accessibility to information and resources on sexuality and reproductive health.

However, its core provisions and implementing policies have governance, economic, sociological, and moral/religious issues, which inevitably drew varied interpretations and dissenting opinions by different sectors, including the local Catholic Church hierarchy, which has consistently argued that all contraceptives are abortifacients and, as such, violate the sanctity of life.

And yet, if the reproductive-health bill is to be regarded as a religious issue – as the local Catholic Church hierarchy would have it – it would seem that the local Catholic Church find itself alone in its dogmatic opposition to a national reproductive-health policy.

With this version of a reproductive-health bill wending its way through Congress’ legislative process, it might be worthwhile to move past the personal arguments, namecalling, and even threats of excommunication and civil disobedience, and review the main issues and opposing views, and make sense of them through objective assessment.

The following matrix consolidates the main arguments of the opposing camps about major issues of the RH bill, including links to empirical data and authoritative sources.

On the side of RH bill advocates, we present information mostly from principal sponsor Rep. Lagman and the website RH Bill.org (a major information resource portal), but also from Senator Pia Cayetano, chair of the Senate Committee on Health & Demography, and Father Bernas.

On the side of RH bill critics, we include portions of official statements from the Catholic Bishops’ Conference of the Philippines (CBCP), as well as statements from Atty. Jo Imbong, executive secretary of the CBCP’s Legal Office, Father Gregory Gaston of the Pontifical Council for the Family, and former Senator Francisco Tatad III of the International Right to Life Federation, among others.

The Interfaith Partnership for the Promotion of Responsible Parenthood, Inc. (IPPRP) -composed of the Iglesia ni Cristo, the Iglesia Filipina Independiente, and Evangelical, Methodist, Adventist and Episcopal Churches -- have declared their support for this bill.

While some Muslim leaders and organizations have expressed sentiments against the current reproductive-health bill, the leaders of the formidable Autonomous Region in Muslim Mindanao (ARMM), which counts over 4,000,000 constituents, support it.

Lawyer Naguib Sinarimbo, ARMM executive secretary, told reporters that their leadership is “abiding by the position of the National Ulama Council of the Philippines, which says that the provisions of the RH bill do not run counter to the teachings of Islam.”

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Top Issues in the RH Bill (HB 4244) RH Bill Advocates The RH Bill does NOT promote abortion.

Abortion and Contraception

RH Bill Critics

The RH Bill promotes abortion.

Rep. Edcel Lagman: • The RH bill expressly provides that “abortion remains a crime” and “prevention of abortion” is essential to fully RH policy.

• Management of post-abortion complications does not condone abortion but promotes humane treatment of women in life-threatening situations.

• The bill will not promote contraceptive mentality; neither will it prohibit pregnancy.

• Contraceptives are used to prevent unwanted pregnancies but not to stop pregnancies altogether.

RHBill.org: • Unintended pregnancies precede almost all induced abortions. Of all unintended pregnancies, 68% occur in women without any family planning (FP) method, and 24% happen to those using traditional FP like withdrawal or calendar-abstinence.

• If all those who want to space or stop childbearing would use modern FP, abortions would fall by some 500,000—close to 90% of the estimated total. In our country where abortion is strictly criminalized, and where 90,000 women are hospitalized yearly for complications, it would be reckless and heartless not to ensure prevention through FP.

Fr. Gregory Gaston (2008): • The Catholic Church teaches that contraceptives, including condoms, cause abortion.

• Abortion is the termination of life, not simply of pregnancy. Life begins at conception when the sperm and the egg meet.

• Killing the new life at any moment after this, and before it is born, is considered abortion.

• Combined estrogen-progestogen oral contraceptives (the most common type prescribed globally) are carcinogenic, and pose other serious health risks. The increased usage of contraceptives, which implies that some babies are unwanted, will eventually lead to more abortion.

CBCP Pastoral Statement (January 2011): • The RH bill certainly does not promote reproductive health. It does not protect the health of the sacred human life that is being formed or born.

• The very name “contraceptive” already reveals the anti-life nature of the means that the RH bill promotes.

These artificial means are fatal to human life, either preventing it from fruition or actually destroying it.

Overpopulation and Poverty in Philippines Phl’s high population growth accounts for its poverty.

Overpopulation is not the cause of poverty; it is corruption.

Lagman: • UN Human Development Reports show that countries with higher population growth invariably score lower in human development.

• The Asian Development Bank in 2004 also listed a large population as one of the major causes of poverty in the country.

• The National Statistics Office affirms that large families are prone to poverty with 57.3 percent of families with seven children mired in poverty while only 23.8 percent of families with two children.

• Proponents argue that economic studies, especially the experience in Asia show that rapid population growth and high fertility rates, especially among the poor, exacerbate poverty and make it harder for the government to address it.

• Empirical studies show that poverty incidence is higher among big families.

Bishop Bacani: • If corruption is stopped, it would help a lot in solving poverty…the Church is right in saying that overpopulation is not the cause of poverty; it’s corruption.

Smaller families and wider birth intervals could allow families to invest more in each child’s education, health, nutrition, and eventually reduce poverty and hunger at the household level.

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BSP Governor Amando Tetangco, Jr.: • A large population can be a blessing to the Philippines if this is harnessed to drive up domestic demand…raising their purchasing power is crucial. (PDI, Oct. 24, 2010) Former Sen. Francisco Tatad: • Our population growth rate (National Statistics Office) is 2.04 percent, total fertility rate (TFR) is 3.02. The CIA World Factbook has lower figures -- growth rate, 1.728 percent; TFR, 3.00.

• Our median age is 23 years. In 139 other countries it is as high as 45.5 years (Monaco).

• This means a Filipino has more productive years ahead of him than his counterpart in the rich countries where the graying and dying population is no longer being replaced because of negative birth rates.

“The world’s leading scientific experts” have resolved the issues related to the bill and show that the “RH Bill is based on wrong economics” as the 2003 Rand Corporation study shows that “there is little cross-country evidence that population growth impedes or promotes economic growth”.

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Top Issues in the RH Bill (HB 4244) RH Bill Advocates

Sex Education for Filipino Students

RH Bill Critics

Sex education promotes correct values in sexuality.

Sex education will promote a culture of promiscuity.

Lagman: • Sexuality education will neither spawn a “generation of sex maniacs” nor breed a culture of promiscuity.

• Age-appropriate RH education promotes correct sexual values. It will not only instill consciousness of freedom of choice but also responsible exercise of one’s rights.

• The UN and countries which have youth sexuality education document its beneficial results: understanding of proper sexual values is promoted; early initiation into sexual relations is delayed; abstinence before marriage is encouraged; multiple-sex partners is avoided; and spread of sexually transmitted diseases is prevented.

CBCP, January 2011 • We condemn compulsory sex education that would effectively let parents abdicate their primary role of educating their own children, especially in an area of life – sexuality, which is a sacred gift of God.

Author’s Amendment (March 2011): • Parents shall exercise the option of not allowing their minor children to attend classes pertaining to reproductive health and sexuality education.

Atty. Jo Imbong (2008): • Vulnerable and malleable, our children will be taught “adolescent reproductive health” and “the full range of information on family planning methods, services and facilities” for six years. This is child abuse of the highest order.

The New York Civil Liberties Union said: “Every scientific study that has been done shows that sex education is correlated to, nothing else but, systematically increased use of contraception.” (Leiberman, Donna. From the Reproductive Rights Project of the New York Civil Liberties Union. Lisa Evers Show News Talk TV. 1995)

Maternal Care for Filipino Mothers

Phl has an alarming prevalence of maternal deaths due to pregnancy and childbirth complications.

RHBill.org: The WHO (World Health Organization) estimates that complications arise in 15% of pregnancies, serious enough to hospitalize or kill women. From the 2 million plus live births alone, some 300,000 maternal complications occur yearly.

Senate Policy Brief: In Phl, maternal mortality rate (MMR) remains high at 162 per 100,000 live births while infant mortality rate (IMR) and under-5 mortality rate (U5MR) are 24 and 32 per 1,000 live births, respectively (FPS 2006).

• Studies show that 44% of the pregnancies in the poorest quintile are unanticipated, and among the poorest women who would like to avoid pregnancy, at least 41% do not use any contraceptive method because of lack of information or access.

• “Among the poorest families, 22% of married women of reproductive age express a desire to avoid pregnancies but are still not using any family planning method.”

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Pregnancy is not an illness or a disease.

Tatad: • Maternal death could be brought down to zero just by providing adequate basic and emergency obstetrics-care facilities and skilled medical services to women. The local officials of Gattaran, Cagayan and Sorsogon City have shown this.

• At least 80 women die every day from heart diseases, 63 from vascular diseases, 51 from cancer, 45 from pneumonia, 23 from tuberculosis, 22 from diabetes; 16 from lower chronic respiratory diseases.

• Why don’t our lawmakers demand free medicines and services for all those afflicted?

• Why do our lawmakers insist on stuffing our women with contraceptives and abortifacients instead?

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Top Issues in the RH Bill (HB 4244) RH Bill Advocates

Two-child Policy

RH Bill Critics

The State shall encourage two children as the ideal family size.

The “encouragement” to have two children is manipulation both brazen and subtle .

Lagman: • This is neither mandatory nor compulsory and no punitive action may be imposed on couples having more than two children.

• The bill does not impose a two-child policy and no punitive action shall be imposed on parents with more than two children.

• However, the family is a social institution whose protection and development are impressed with public interest. It is not untouchable by legislation. For this reason, the State has enacted the Civil Code on family relations, the Family Code, and the Child and Youth Welfare Code.

Imbong: • Spouses have a basic, original, intrinsic and inviolable right “to found a family in accordance with their religious convictions and the demands of responsible parenthood” (Art. XV, Sec. 3 [1]).

• The State did not create the family, and “the child is not a creature of the State.” (Pierce vs. Society of Sisters, 268, U.S. 510, 535.) That is the law of nature, and no human institution has authority to amend it.

RHBill.org: Couples and women nowadays want smaller families.

When surveyed about their ideal number of children, women in their 40s want slightly more than 3, but those in their teens and early 20s want just slightly more than 2.

Economists from the University of the Philippines “strongly and unequivocally support” the thrust of the bill to enable “couples and individuals to decide freely and responsibly the number and spacing of their children and to have the information and means to carry out their decisions.”

Gaston: • As of now the Philippines’ total fertility rate, or children per woman, is projected to go below replacement (2.29 children per woman) by 2025.

• After that we will experience the population ageing and collapse taking place today in rich countries, and like them, we will also wish to pay parents to have more children--but unlike them, we will have no money to do so.

• Pushing for only two children per family will make all this occur even earlier.

Use of public funds for RH programs and services

We need to increase allocation of public funds for greater access to reproductive health care.

We denounce the use of public funds for contraceptives and sterilization.

RHBill.org: RH will need and therefore support many levels of health facilities. These range from barangay health stations, for basic prenatal, infant and FP care; health centers, for safe birthing, more difficult RH services like IUD insertions, and management of sexually transmitted infections; and hospitals, for emergency obstetric and newborn care, and surgical contraception.

CBCP: • What we call for is the establishment of more hospitals and clinics in the rural areas, the deployment of more health personnel to provide more access to health services, the building of more schools, the provision of more aid to the poor for education, and the building of more and better infrastructures necessary for development.

Father Bernas: I hold that public money may be spent for the promotion of reproductive health in ways that do not violate the Constitution. Public money is neither Catholic, nor Protestant, nor Muslim or what have you and may be appropriated by Congress for the public good without violating the Constitution (PDI, 2011)

Dr. Angelita Aguirre (UST Bioethics Dept): • The bill takes away limited government funds from treating many high-priority medical and food needs and transfers them to fund harmful and deadly devices.

Proponents argue that government-funded access is the key to breaking the inter-generational poverty that many people are trapped in.

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Top Issues in the RH Bill (HB 4244) RH Bill Advocates

RH Bill Critics

Contraceptives to be listed as Essential Drugs

WHO: • Essential medicines are those that satisfy the priority health care needs of the population. They are selected with due regard to public health relevance, evidence on efficacy and safety, and comparative cost-effectiveness.

• Essential medicines are intended to be available in adequate amounts, in the appropriate dosage forms, with assured quality and adequate information, and at a price the individual and the community can afford.

Reproductive health products shall be considered essential medicines and supplies.

They should not be listed as essential drugs, but as dangerous drugs and devices.

Lagman: • Reproductive health products shall form part of the National Drug Formulary considering that family planning reduces the incidence of maternal and infant mortality.

• Contraceptives do not have life-threatening side effects. Medical and scientific evidence shows that all the possible medical risks connected with contraceptives are infinitely lower than the risks of an actual pregnancy and everyday activities.

Gaston: • Pills have been shown to cause abortion of a 5-day old baby, cancer, premature hypertension, heart disease, etc.

• IUDs are abortifacient and may cause intrauterine trauma, pelvic infections and ectopic pregnancy. Condoms have high failure rate even against pregnancy and thus do not guarantee protection against AIDS and other STDs. • Tubal ligation and vasectomy (especially targeting the poor) leave couples without the chance to have more children (for example, in case of improved economic situation, or death of their present children) and little or no support in their old age (2008).

Sen. Pia Cayetano: • The Senate’s RH bill seeks to “provide information and access, without bias, to all methods of family planning which have been proven safe and effective in accordance with scientific and evidence-based medical standards such as those set by the World Health Organization (WHO) and registered and approved by the Food and Drug Administration (FDA).”

• Use of contraception, which the World Health Organization has listed as essential medicines, will lower the rate of abortions as it has done in other parts of the world, according to the Guttmacher Institute.

Imbong: • Contraceptives do not treat any medical condition.

Fertility is not a disease. It attests to health! The bill targets “the poor, needy and marginalized.”

• This is most unkind to them whose real needs are jobs, skills, education, lucrative opportunities, nutrition, and essential medicines for anemia, tuberculosis, infections and childhood diseases.

Obligation of Employers

Lagman: • Employers shall respect the reproductive health rights of all their workers. Women shall not be discriminated against in the matter of hiring, regularization of employment status or selection for retrenchment.

UPDATE: Section 21 on “Employers’ Responsibilities” found on page 15 from lines 10-15 and on page 16 from lines 1-4 was already proposed by Lagman to be deleted entirely.

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Father Bernas: • It has already been pointed out that the obligation of employers with regard to the sexual and reproductive health of employees is already dealt with in the Labor Code.

• If the provision needs improvement or nuancing, let it be done through an examination of the Labor Code provision.

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Remittance Retreat: Turning Threat into Opportunity How to get more out of the dollars being sent

By Bill Huang

With the successful auction of Overseas Filipino Worker (OFW) bonds in April -- $416 million in three-year and five-year bonds with dollar and euro denominations – the government has taken an important first step in mobilizing OFW remittances for investment. And in the nick of time: remittance growth have slowed from doubledigit rates, making it even more imperative that the country put the greenback inflows to better use than just buying clothes, appliances and a place to live for the family back home.

POINT & CLICK You can access online research via your Internet connection by clicking phrases in blue letters

The remittance bonanza is fading.

In April, the Bangko Sentral ng Pilipinas (BSP) reported remittances reaching $6.21 billion for the year to date, putting 2011 on track to do no better than 2010’s full-year total of $18.8 billion. The BSP itself projects 7% growth this year, less than last year’s 8.1%, citing Middle East unrest and Japan’s post-tsunami downturn. Philippine banks, for their part, expect no better than 5%-6%.

Those figures pale against the 15% annual average increase in remittances in the past couple of decades.

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Remittances also face pressure from a stronger peso. Even if they continue to grow, less pesos for OFW dollars cuts their boost for the economy. According to www.exchangerates.org, the peso has appreciated over 6% against the dollar in the last 12 months. If the dollar exchange rate hits P41 by December, as one major international bank predicts, the peso value of remittances could decline even if they match last year’s growth in dollar terms.

That could deal a blow to the economy’s consumption-fueled growth. In data from a February UNCTAD meeting on development and remittances, money flows to the country in 1975-2008 totaled an estimated $130 billion — about 12% or just over oneeighth of gross domestic product (GDP).

For many years now, the World Bank report on remittances has placed the Philippines as the fourth-largest recipient, behind only populous India and China, and U.S. neighbor Mexico. With such reliance on remittances, an OFW cash crunch would significantly dampen the economy.

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Facing the challenge of remittance dependence. Other countries have faced the challenge of heavy dependence on remittances to fuel growth. A February 2010 Swedish study on remittances and investment estimated global remittances in 2005 at $263 billion – double the 2000 level – and contributed 0.62% of world GDP. That’s two and a half times the foreign aid to developing countries, which amounted to 0.24% of global economic output.

The world is realizing that more can be done with overseas remittances than just bumping up household disposable income. Indeed, if Filipinos are to finally find well-paying, quality jobs at home, we need to invest more in infrastructure, enterprises, education, and other growth-boosting, job-creating economic factors. And part of that needed capital should come from Filipinos abroad.

On the heels of the first OFW bond auction, BSP Governor Amando Tetangco was out in the field urging OFW families to save and invest. But if there is a need for financial literacy to be fostered among OFWs and their families, perhaps the government can build up its own capital raising ideas by reviewing what other countries have been doing.

Capitalizing on diaspora dollars. In their March 2009 study Maximizing the Value of Remittances for Economic Development, Michael Comstock, Marco Iannone and Romi Bhatia list several ways to engage remittances on a macro-economic level, including what they call ‘diaspora bonds’ for a country’s nationals living or working abroad, to finance development projects back home. The study cites the government of Israel’s diaspora bonds, which raised over $1.5 billion in 2003 alone, and have funded that country’s development for decades.

The study also discusses the use of future-flow securitization to raise external financing.

In 2001, based on projected yen remittances from Brazilian workers in Japan, Banco do Brasil issued $300 million in bonds at better-than-usual rates and terms for sovereign loans. Turkey, Mexico, Panama, and El Salvador have reportedly adopted this mode of remittance-backed financing.

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In short, bonds can tap immigrant communities, not just overseas contract workers, and they can capitalize not just current remittance flows, but future ones too.

Meanwhile, Beyond Remittances, a July 2004 study from Washington think tank Migration Policy Institute (MPI), discussed official government initiatives to engage diaspora communities from China, India, the Philippines, and Mexico, among others, in the development of their countries of origin.

The basic premise of the study holds that remittances are far from being the only vehicle for diaspora influence on poverty in their home countries. Other ways for expatriate nationals to bring progress include foreign direct investment (FDI), technology transfer, philanthropy, and tourism, among others.

China: Building national identity.

While the government of the People’s Republic of China has always sought to foster a sense of ethnic identity among overseas Chinese communities of emigrants and their descendants, in the last 30 years, with the country’s economic liberalization, it’s also been promoting the economic dimension of their relationship, but with emphasis on foreign direct investment and trade rather than remittances.

The MPI study estimates that about half of the $48 billion in FDIs going to China in 2002 came from its diaspora, adding that overseas Chinese also influence strongly the volume of bilateral trade between China and their adopted countries.

Beyond Remittances does note, however, that many analysts don’t necessarily see a special push based on “Chineseness” during the country’s economic liberalization since 1978 under Deng Xiaoping. The reforms of that period – encouragement of private and local enterprises, flexible labor laws, efficient administrative procedures, investment incentives and zones, and massive spending on physical and social infrastructure – were instituted for non-Chinese as well as Chinese investors. The overseas Chinese were just able to capitalize on their linguistic, cultural, social, and personal ties with their motherland.

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India: From indifference to engagement.

According to MPI, the Indian government’s policy of active engagement of the Indian diaspora is fairly recent, having shifted away from “a position of somewhat disapproving indifference” within the past decade.

The first prominent achievement may have been its successful issue of foreign-currencydenominated “Resurgent India Bonds” in 1998, marketed specifically to non-resident Indians (NRIs) on the heels of the country’s first nuclear tests that year. The government raised the equivalent of £2.3 billion in a couple of weeks. Two years later, it got over £3 billion with its Indian Millennium Deposits bonds.

Considering that India is the world’s largest recipient of remittances, MPI notes that little official attention has been given to the money flow, with direct and portfolio investments, and humanitarian or philanthropic assistance being the focus of official debate about the diaspora’s contribution to development.

The study goes on to theorize that the Indian government might see remittances per se as not “developmental” or self-sustaining, associating it with small-scale investment.

It also observes that remittances are seen as the province of blue-collar migrants, whereas India’s diaspora strategy targets successful professionals, technicians, and entrepreneurs.

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Another paper, “Building Bridges: Positioning Strategies for the Indian Diaspora”, sets out a broad-based, multi-pronged program which encompasses the grant of overseas citizenship cards, the setting up of overseas Indians centers, and the holding of major conferences bringing together the diaspora in New York (2007), SIngapore (2008), the Hague (2009), and Durban (2010).

Mexico: Programs of broad partnership.

The Beyond Remittances study reports that as in India, the Mexican government’s attitude towards citizens who left the country, mostly for the U.S., was “ambivalent at best”.

Formal programs for Mexicans abroad began only in 1990.

The Program for Mexican Communities Living Abroad aimed to channel remittances to development projects, while individual states had their own undertakings with migrant communities. Guanajuato state’s “Adopta Una Comunidad” (adopt a community) was expanded to include the 90 Mexican regions with the highest migration rates. The Padrino program, as it is now also known, invites Mexican-Americans to invest and become personally involved in one or some of more than 1,000 projects identified by the Presidential Office for Mexicans Abroad in consultation with local communities.

The study identifies another state-level program that has expanded nationally: the “Tres por

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Remittance Retreat: Turning Threat into Opportunity

The Philippines: Still in remittancemaximizing mode. The Beyond Remittances study notes that the Philippine government’s development strategy is not diasporaoriented, preferring to focus on placing and protecting contract workers and maximizing their remittances.

Uno” pioneered in Zacatecas, in which the municipal, state and federal governments each matched collective remittances from migrant associations in the United State s dollar for dollar, toward funding local development projects.

Data from the think tank’s Migration Information project since the 2004 study reports that the program, which had expanded to three other states by 1999, harnessed $60 million in federal, state, and local government contributions to match $20 million raised by Mexican hometown associations for development projects around the country.

The study does mention LINKAPIL (Lingkod sa Kapwa Pilipino, or Link for Philippine Development), which channels financial and in-kind donations primarily from overseas Filipinos to projects in education, health care, small-scale infrastructure and livelihood, through a system called PHILNEED, which

Time to bring the OFWs home?

Where would a discussion about OFW remittances be without experts asking whether we should continue to be as dependent on remittances as we have been, or whether we should continue to be in the labor-export business?

Gyorgy Sziraczki, a senior economist of the ILO Regional Economics and Social Analysis Unit, at the International Labor Organization, warns that an over-reliance on remittances may be creating a “safety valve” that actually delays the improvement of institutions.

Overseas remittances clearly contribute to the education and health care of their beneficiaries, Sziraczki acknowledges, but “(w)hat is less clear is to what extent they contribute toward economic progress, for example, investment to start new businesses.”

According to him, the Philippines’ current strong economic growth is creating new jobs, but in the informal, unprotected sector, as opposed to more stable and productive jobs. Historically, the Philippines’ economic and productivity growth have been among the lowest in the region, he maintains, citing poor infrastructure and ineffective institutions as reasons the Philippines can’t reap the full benefit from its relatively good educational system and high-quality labor force.

On that second question, University of the Philippines economics professor Ernesto Pernia concludes, in a 2008 paper, that while international remittances have helped households and communities muddle through the past three decades, that’s about all the country has been able to do with OFW remittances.

The historical problem, according to him, is that the combination of a long-lived import-substitution industrialization policy and a short-lived population policy created a situation where too many workers have been chasing too few jobs. Even if remittances have helped the country balance its external current account and provided some unemployment relief, he argues, they appear to have enabled the government to shirk difficult policy reforms.

By comparison, he continues, other Asian countries that adopted labor export as a temporary measure – e.g., South Korea, Taiwan and Thailand – pursued policy reforms directed at both the labor demand and supply sides, which enabled their economies to achieve rapid and sustained growth paths.

And while OFW remittances have their economic benefits, he argues that migration itself is bound to have longterm effects on social inequality, not to mention economic development, as the best, most skilled workers continue to leave the country. Our human-capital industry, he says, has its limits, and while we may want to consider how to improve it, we might also consider whether we want to keep at it.

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provides information on local development projects that need support. It reports that up to 2003, donations coursed through LINKAPIL comprised nearly $900 million.

On the whole, however, the assessment is that the Philippine government appears to treat both diaspora and OFW remittances as income flows rather than investment stock, and ”does not appear to have a strategy to maximize the developmental potential of established communities of Filipinos overseas, which might have a more lasting impact on poverty reduction” than direct income transfer.

A diaspora strategy framework. The National University of Ireland’s National Institute for Regional and Spatial Analysis has devised a comprehensive framework for harnessing nationals abroad. Though its population is smaller than Metro Manila’s, Ireland has many millions of former nationals and their descendants in the U.S., Australia, Britain, Europe and Africa. The NIRSA Diaspora Strategy Wheel and Ten Principles of Good Practice lists eight key strategies for involving emigrant communities in homeland development.

Maximizing remittances and donations is one of them, but important ingredients in the mix are increasing knowledge about the diaspora and its own awareness of culture and affairs back home. Citizens rights and interests abroad are advanced, even as the way is facilitated for returnees. Business networks between motherland and adopted land are enhanced for economic growth, while long-term bonds are cultivated with those who feel special affinities with the old country.

Back home, the Economic Resource Center for Overseas Filipinos (ERCOF, est. 2003) also espouses strategies to tap the diaspora.

On its website www.ercof.com are papers, conference proceedings, and development initiatives. Its brief concept papers expound on OFW bonds issued by local governments, diaspora support for rural banking and microfinance, overseas Filipinos’ involvement in Philippine politics, and remittance studies. Also instructive are proceedings of a 2002 international conference on economic

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links between overseas Filipinos and rural communities.

One further must-read study on harnessing expatriate Filipinos is the Asian Development Bank study, Promoting Knowledge Transfer Activities Through Diaspora Networks: A Pilot Study on the Philippines. One telling statistic cited in the report: in 1995, nearly half of OFWs had college degrees, compared with just one in every five workers back home. Clearly, the exodus of Filipino minds and hands are draining the pool of knowledge and skills. And with the global economy putting more and more of a premium on expertise, boosting national competitiveness demands that the Philippines finds effective ways to harness Filipinos abroad for transfer of knowhow.

The ADB report evaluates various programs like the Balik Scientist scheme, business exchange councils, and philanthropic initiatives. Among policy recommendations cited were taxes and fees for departing expert nationals, and compulsory domestic service before going abroad. These would obviously be unpopular among those going overseas.

More palatable and probably more productive too are initiatives targeting less developed, jobshort areas for knowledge transfer, providing incentives for migrant groups to support former OFWs, and analyzing and addressing the impact of brain drain on major industries.

So next time one sees a line of OFWs at the airport check-in counters, let’s not see just another herd of cash cows to milk for families back home. With the right strategies, the Filipino diaspora can bring capital, knowhow and development, and become a top competitive advantage for the Philippines in the global economy.

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