TCR Volume 2 Issue No 14

Strategic Analysis and Research by the

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If God and moral values, the difference between good and evil, remain in darkness, then all other ‘lights’, that put such incredible technical feats within our reach, are not only progress but also dangers that put us and the world at risk ~ Pope Benedict XVI’s Holy Saturday homily

Volume 2 - Number 14 • April 9-15, 2012

Easter joy leads us to an examination of our individual and communal lives.

From the tombs of hunger, ignorance, discrimination, insensitivity, selfishness, greed, and pride, let us allow God’s love to rise and be our life ~ Manila Archbishop Jose Antonio Tagle’s Easter message

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4 Another Kim, Another Rocket

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Don’t get too alarmed about North Korea’s missile, or it might think it can push the world around — and spark a real crisis. Instead, its neighbors and the U.S. must read Pyongyang the riot act, led by Beijing • Nuclear blackmail: Nuke and missile negotiations with Pyongyang, 1985-2011

16 Testing the Waters in Myanmar’s Sea Change

With Aung San Suu Kyi’s victory and the opposition landslide in last week’s by-election, Myanmar takes a giant step toward rejoining the world. Let’s hope some of the excitement brings growth and investment to the economy

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24 Manila’s Pitch to Asia: Place Your Bets!

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32 The Seven-Generation Itch at Ayala

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41 It’s Just What Big Brother Ordered

With gaming in the Asia-Pacific region forecast to outstrip current global gambling giant America by next year, the Philippines has opened its waterfront to the world’s leading casino and leisure investors • Only in the Philippines: If you don’t care to travel to Manila, you can play online in the only Asian country where Internet gaming is legal

With balanced management, calculated risks and forward thinking, the 178-year-old Ayala Group is stronger than ever. Here are the big and profitable lessons for family enterprises in emerging economies • Land, air, water and money: How the conglomerate’s property, telecom, water and banking enterprises did last year, and where they aim to go next • Enterprise in the blood: From 1800s Spain to 2012 Philippines, the family's roots and branches bore much fruit • Money isn't everything: For Manila Water, going green is just as important as staying in the black Surveillance equipment and systems are making astounding — and alarming — advances, from unmanned reconnaissance aircraft to patient-monitoring wristbands. One big reason for the snoop-ware explosion: it’s a $5-billion-a-year industry • Spot that face: A facial recognition system from Japan that can search through the faces of all 35 million-plus Filipino voters in one second • Closed-circuit?: In the YouTube and Facebook age, that CCTV camera could well be open for the whole world to watch

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POINT & CLICK You can access online research via the Internet by clicking phrases in blue

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Center for Strategy, Enterprise & Intelligence provides expertise in strategy and management, enterprise development, intelligence, Internet and media.

For subscriptions, research, and advisory services, please e-mail report@censeisolutions.com or call/fax +63-2-5311182. Links to online material on public websites are current as of the week prior to the publication date, but might be removed without warning. Publishers of linked content should e-mail us or contact us by fax if they do not wish their websites to be linked to our material in the future.

When Problems Persist, Principled Persistence Is Key Aung San Suu Kyi personifies persistence. The Nobel Peace laureate spearheading Myanmar’s democracy struggle through two decades of army repression, endured the voiding of her 1990 election victory, a combined 15 years of house arrest, and painful separation from her family in England. But she and her legion of supporters at home and abroad, including leading Western governments, did not give up on democracy and give in the junta.

Last week, one year and score after the election triumph stolen from her, Suu Kyi and her National League for Democracy will finally take 43 parliamentary seats in an election landslide, the subject of a World section report this week. The happy ending in Myanmar (so far) underscores the irresistible power of persistence in the face of seemingly unyielding enormities. From Martin Luther King and Nelson Mandela to Suu Kyi, Kim Dae Jung, and Ninoy and Cory Aquino, standing up for justice and freedom eventually triumphs over the iron fist and the firing squad.

Social and political strife is another stubbornly persistent problem facing many nations, sometimes for decades, if not centuries, with mammoth cost in lives and livelihoods, suffering and separation. One such interminable conflict is the sixdecade-old nuclear-tipped standoff in the Korean Peninsula, which partly fuels the North’s missile and nuke ambitions covered in our other World report on this week’s much hyped rocket test.

For two decades, Washington, Seoul and Tokyo, and later Beijing and Moscow, sought to have Pyongyang scrap or suspend its nuclear and ballistic weapons plans. But after countless arguments, threats and broken promises, plus billions of dollars in aid, North Korea still extracted weapons uranium and plutonium and produced two or more nukes. It will now test a threestage rocket perhaps able to reach the American mainland. If that is where all those aggravations got us, should we keep talking or take a tougher tack?

Decision makers face such questions daily in grappling with intractable challenges. And events and issues in both Myanmar and Korea underscore the imperative to keep one’s eagle eye on the principled goal and stay the course, while exploring alternative routes.

Yes, things may look impossible, with militarists in Yangon and, since 2005, Naypyidaw, and their ruthless counterparts in Pyongyang both dismissing a world’s disdain to keep their hold on power. Yet if what we want is just and compassionate, then risk and cherish even failure as one more testimony to our indomitable commitment to righteousness, win or lose. For virtue lies not in triumph, but in tenacity for the good. So help us God.

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At Nuclear Security Summit in Seoul on March 25, U.S. and South Korean leaders deplore the North’s planned missile test: Was King Kim listening? White House/YouTube video

Another Kim, Another Rocket

Pyongyang levels up its nuclear blackmail game

By Ricardo Saludo

STRATEGY POINTS Don’t worry too much about the missile. Fear just helps North Korea shake down the world for aid If Beijing keeps abetting Pyongyang, it may lead to the very outcome China fears: war and enemies next door

If and when North Korea lets fly its Unha-3 test missile this week, claimed to be a satellite launch to mark the birth centennial of its late founding father Kim Il Sung, the launch would signify one more among many promises broken in over one and a half decades of nukes-for-aid negotiations across the 38th Parallel and the vast Pacific. That’s pretty much what U.S. President Barack Obama implied at his press conference with South Korean President Lee Myung-bak at the Nuclear Security Summit 2012.

“Last month [on February 29] North Korea agreed to a series of steps, including a moratorium on long-range missile launches,” Obama recalled at the March 25 briefing

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in Seoul (nine minutes into White House video on YouTube). “This month North Korea announced its intention to conduct a missile launch. As President Lee mentioned, this would constitute a direct violation of Pyongyang’s own commitments and its international obligations. Moreover, it would only deepen North Korea’s isolation, damage further its relations with its neighbors, and seriously undermine the prospects of future negotiations.”

In conclusion the American leader admonished: “North Korea will achieve nothing by threats or by provocation.”

Nothing? In fact, according to a U.S. Congress study just out three weeks ago, between 1995 and 2008 Pyongyang wangled $1.3 billion in U.S. aid alone, half in food and 40% in energy assistance, by constantly threatening to behave badly, usually in contravention of the Treaty on the Non-Proliferation of Nuclear Weapons, which Pyongyang had ratified in 1985, but withdrew from in 2003.

Moreover, domestic politics are also behind Pyongyang’s blatant flouting of its pledges to Washington, undermining 240,000 tons of U.S. food aid. On April 11, a day or so before the expected launch, the ruling Workers Party of Korea is to proclaim new leader Kim Jong Un its secretary-general, a position previously held by his father and his grandfather, Agence France Presse reported. That would add a second top title to Kim Jon Un’s current post as supreme military commander. Then on April 13, the parliament may give him a third powerful post: chairmanship of the National Defense Commission.

Thus, the rocket launch serves to elevate Kim Jong Un’s standing in the eyes of the

The

armed forces, North Korea’s paramount power. The missile test also boosts the stock of its reported new ruling clique promoted just two weeks ago in high-profile ceremonies at the end of official mourning for the late dictator Kim Jong Il. Citing “confidential foreign government documents and official media reports from Pyongyang” in his April 4 Asia Times article, longtime Asia hand Nate Thayer wrote: “The shadowy group of power brokers who control the covert nuclear weapons and missile development and export program in the world's most secretive nation have been methodically promoted and now dominate the inner circle of Kim Jong-eun's new government. These same senior officials are known to be behind Pyongyang's missile test launch scheduled for the middle of April.”

Here we go again. Such domestic political posturing by thumbing its nose at the world was learned and honed over two decades of tenterhooks nuclear diplomacy, when the nuclear blackmailers north of the Demilitarized Zone (DMZ) constantly got priority attention and perfect attendance at talks from America, South Korea, China, Japan and Russia. And that royal treatment began after U.S. satellites spotted a nuclear facility being built in Yongbyon, north of Pyongyang, in 1990.

The following year Washington decided to remove all its atomic weapons from South Korea, as it did in most countries hosting U.S. forces. And Pyongyang has haggled and tantrum-ed its way to food and other necessities while still developing a rocket now feared to be capable of hitting the American mainland. Sure, the food aid is threatened with this latest brinkmanship with Washington, but a better harvest last

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6 year and the utter subjugation of North Koreans limits the impact of suspending U.S. aid. The North may even test a nuke.

Having weathered many an American admonition, one can imagine how the North and its third-generation “Great Leader” Kim Jong Un would react to the Obama missive.

Judging from years of bait-and-switch, huffand-puff, arms-or-aid horse-trading with the U.S. and South Korea, the Pyongyang Politburo might have snickered and said, “여기 또 간다” (pronounced “yeogi tto ganda”). Translation: Here we go again.

Indeed, the situation in April 2012 isn’t far different from the one described by Asiaweek magazine back in January 1994. Its cover story “The War Kim Wants: Can North Korea Be Stopped?” wrote of then autocrat Kim Il Sung, 81 at the time: “The North’s economy is a wreck. Its former patrons, Moscow and Beijing, are eager to expand trade with Seoul and would not support Kim in another wild adventure.”

“True, he has a million-man army, mediumrange missiles that can reach Japan, and maybe two atomic bombs,” added the nowdefunct top regional journal. “He’s got 3,500 tanks, 9,000 artillery pieces, and a 750-plane air force. But Iraq’s Saddam Hussein has most of those things too, and look what happened to him.” How much different is all that from today’s 38th Parallel faceoff under the third King Kim? Racket over the rocket. Deja vu notwithstanding, the region isn’t taking North Korea’s rocket test lightly. Reuters news agency reports that Washington approved of Tokyo’s plan to shoot down the missile, and both U.S. and Japan armed forces are tracking the launch and flight,

as in past tests (see video simulation by Analytical Graphics). But unlike previous test missiles above Japan into the Northwest Pacific, the latest one, claimed to carry a satellite, may overfly the sea between Eastern China and the Korean Peninsula en route toward Southeast Asia and Australia, as Agence France Presse reported.

The Philippine Star adds that Manila has declared no-fly and no-sail zones along coastal waters near a possible projectile flight path and landing spot about 200 km northeast of the country. From April 12 to 16, even fishermen would be forcibly kept from going out to sea, and would be given food assistance to tide them over the five-day danger period.

The Zamboanga Times cited a Notice to Airmen (Notam) issued on April 3 by the Civil Aviation Authority of the Philippines “temporarily closing airways A582, A590, and R597 for overfly aircraft and flight inbound Manila from April 12 (5AM) to April 16 (1PM).” CAAP told airlines that normally fly through the danger zone to use an alternative route, the MEVIN B462 Airway.

At the Retreat Session of the 20th Association of Southeast Asian Nations Summit in Phnom Penh, Cambodia, President Benigno Aquino III called for concerted international pressure on Pyongyang to scrap its missile test, Radio-TV Malacañang reported. The rocket raises regional tensions, Aquino said,

At ASEAN Summit, Presid pressure to stop the missi RTVM Video

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“particularly in the period of uncertainty leading up to the launch — when no one is sure of the trajectory ofthe missile.”

The anxiety in countries closer to North Korea are predictably even more intense.

The New York Times reported that Japan is deploying two lines of defense against the rocket: three guided-missile ships to shoot it down in the upper atmosphere, then Patriot anti-missile rockets to destroy it as it headed to earth.

But even longtime Pyongyang backer Beijing expressed worry in a March 16 meeting between Chinese Vice Foreign Minister Zhang Zhijun and Ambassador to China Ji Jae Ryong soon after North Korea announced the planned missile launch.

North Korea gets 90% of its oil, 80% of its consumer goods, and nearly half its food from China, Dong Yon Seung, a researcher on North Korean issues at the

ent Aquino called for international le test: Manila also rerouted flights

Samsung Economic Research Institute in Seoul, told Bloomberg News.

“We sincerely hope parties concerned stay calm and exercise restraint and avoid escalation of tension that may lead to a more complicated situation,” Vice Foreign Minister Zhang said in a statement quoted by the state news agency Xinhua and Reuters. To put its muscle where its mouth is, China announced on March 31 the conduct of naval exercises with Russia involving more than 20 combat vessels near the Korean Peninsula around the time of the planned missile launch, The Washington Times said.

Continued on page 10

Unlike past tests over Japan (see lower visualization), the new one may pass east of China going south Videos: Analytic Graphics, Inc.; MediaCorpAsia

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A Quarter-Century of Security Brinkmanship

Condensed from Chronology of U.S.-North Korean Nuclear and Missile Diplomacy by the Arms Control Association

1985-1995

1985: North Korea accedes to nuclear Nonproliferation Treaty (NPT) on Dec. 12, but wants U.S. nukes out of South Korea before concluding a safeguards agreement with the International Atomic Energy Agency (IAEA).

1991: On Sept. 27, U.S. announces withdrawal of all naval and land-based tactical nuclear weapons deployed abroad, including about 100 in South Korea. On Dec. 31, the two Koreas sign the South-North Joint Declaration on the Denuclearization of the Korean Peninsula, agreeing not to “test, manufacture, produce, receive, possess, store, deploy or use nuclear weapons” or to “possess nuclear reprocessing and uranium enrichment facilities.” They also agree to mutual inspections for verification.

1992: After signing a comprehensive safeguards agreement in January, North Korea submits declarations to IAEA on seven sites and some 90 grams of plutonium on May 4. In September, IAEA finds discrepancies and asks for clarifications, including the amount of reprocessed plutonium.

1993: On Feb. 9, Pyongyang refuses IAEA demand to inspect two sites possibly with nuclear waste. In March, North Korea announces it will withdraw from NPT in three months, but on June 11, it decides to stay after talks with the U.S. On July 19 the two declare that Pyongyang will negotiate IAEA inspections, and might consider a U.S. offer to replace its graphite nuclear reactors with proliferation-resistant light-water reactors (LWRs).

1994: On Feb. 15, North Korea finalizes agreement with IAEA for inspections of all seven declared nuclear facilities, averting U.N. sanctions. But on March 21, North Korea bars IAEA inspectors from a plutonium reprocessing plant at Yongbyon. On June 13, North Korea withdraws from IAEA (but not NPT, so IAEA inspections must continue). Two days later, former U.S. President Jimmy Carter forges a deal for North Korea to “freeze” its nuclear weapons program. On July 9, North Korean President Kim Il Sung dies and is succeeded by his son, Kim Jong Il. On Oct. 21, Washington and Pyongyang adopt “Agreed Framework” to eventually eliminate North Korean nuclear facilities, with IAEA verification. North Korea will also let 8,000 spent reactor fuel elements to be moved to a third country. Pyongyang will get two LWRs and annual shipments of heavy fuel oil during reactor construction. On Nov. 28, IAEA confirms halt in construction at Nyongbyon and Taochon nuclear facilities.

1995: On March 9, Korean Peninsula Energy Development Organization (KEDO) to supply LWRs, is formed in New York with the U.S., South Korea, and Japan as original members.

1996-2003

1996: At the first missile talks in Berlin on April 21-22, the U.S. urges North Korea to adopt the Missile Technology Control Regime (MTCR), a voluntary international agreement controlling sales of ballistic missile systems and technology. Pyongyang wants U.S. compensation for lost missile revenue. In late 1996, the medium-range Nodong missile launch is canceled after meetings in New York between the U.S. and North Korea.

1997: In the second missile talks in New York on June 11-13, the U.S. presses North Korea not to deploy Nodong missile and to end sales of Scud missiles and components.

1998: Aug. 31 test of a three-stage Taepo Dong-1 rocket (range: 1,500-2,000 km) over Japan. Over a month later, the third round of missile talks in New York makes little progress.

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1999: Pyongyang accepts moratorium on long-range missile tests during U.S. talks on Sept. 7-12. Washington will partly lift economic sanctions; they are eased in June 2000. More Berlin talks in November on bilateral relations and preparations for a North Korean visit to the U.S. In December, KEDO signs contract for construction of two LWRs. 2000: First South-North Summit between Presidents Kim Dae Jung and Kim Jong Il on June 13-15 leads to joint declaration “to resolve” the reunification question, with promises to reunite families divided by the Korean War and to pursue other economic and cultural exchanges. On June 19, the U.S. eases sanctions; North Korea reaffirms test moratorium.

2001: On June 6, U.S. President George W. Bush states his wish for talks on “improved implementation of the Agreed Framework,” “verifiable constraints” on rocket programs, a missile export ban, and “a less threatening conventional military posture.” On Aug. 4 in Moscow, Kim Jong Il reaffirms his pledge to maintain a missile test moratorium until 2003.

2002: A month after concrete pouring for first LWR, North Korea says on Sept. 17 that it will indefinitely extend its missile-testing moratorium under the Pyongyang Declaration signed with visiting Japanese Prime Minister Junichiro Koizumi. But on Nov. 5, North Korea threatens to resume tests if normalization talks with Japan make no progress. On Nov. 18, oil aid stops after Pyongyang admits on Oct. 4 it has a uranium-enrichment program.

In December, North Korea refuels its reactor and expels IAEA inspectors.

2003: On Jan. 10, North Korea withdraws from the NPT. Two days later, its ambassador to China reportedly says Pyongyang “cannot go along with the self-imposed [long-range] missile moratorium any longer.” On Feb. 27, the U.S. confirms that North Korea has restarted its 5-MW reactor. It conducts short-range missile tests in February and March. In talks with China and the U.S. on April 23-25 in Beijing, North Korea admits for the first time that it has nukes. On May 12, it says the U.S. violated the spirit of the 1992 declaration to denuclearize the Korean Peninsula, calling the pact “dead.”

2004-2011

2004: After two rounds since August 2003, the third six-party talks are held in Beijing on June 23-26 among the Koreas, U.S., China, Japan and Russia. The Americans present a two-phase proposal: North Korea gets fuel oil from China, South Korea, and Russia if it agrees to freeze, then dismantle its nuclear programs. Washington would begin discussions with Pyongyang on lifting sanctions. On June 28, North Korea counter-offers to “refrain from” producing, testing, or transferring nukes and to freeze “all facilities related to nuclear weapons and products churned out by their operation.” How long depends on “whether reward is made or not.”

2005: Begun in July, the fourth six-party talks outline negotiating principles on Sept. 19: North Korea commits “to abandoning all nuclear weapons and existing nuclear programs and returning, at an early date,” to NPT with IAEA safeguards. The Declaration of the Denuclearization, which forbids uraniumenrichment and plutonium-separation facilities, is to be “observed and implemented [for] verifiable denuclearization ... in a peaceful manner.” The U.S. affirms it has no intention to attack North Korea. The statement notes that North Korea “stated that it has the right to peaceful uses of nuclear energy.” But in the fifth six-party talks in Beijing on Nov. 9-11, disagreements between Washington and Pyongyang continue

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to block progress. On Dec. 19, North Korea says it will “pursue” the building of larger “graphite-moderated reactors,” which violate the Agreed Framework.

2006: A month after KEDO formally ended the LWR project, North Korea test fires seven ballistic missiles on July 4-5, including its longest-range, the Taepo Dong-2. Tokyo imposes sanctions; Seoul halts food and fertilizer aid. UNSC condemns the launches and calls on Pyongyang to suspend ballistic activities and resume its test moratorium. On Oct. 9, North Korea conducts an underground nuclear test near the village of P’unggye. A week later UNSC Resolution 1718 demands a stop to further nuclear tests and tells Pyongyang to return to the six-party talks and abandon nukes. It imposes more sanctions. Six-party talks resume on Dec. 18; no progress.

2007: On Feb. 8-13 fifth six-party talks formulate initial steps to implement the September joint statement: North Korea shuts Yongbyon for 60 days and gets 50,000 tons of heavy-fuel oil. For 950,000 tons more it discloses all nuclear programs and disables all facilities, and the U.S. begins the process of lifting sanctions. But the sixth round of talks stalls soon after they begin on March 19. The North Koreans go home, insisting the U.S. release $25 million in long-frozen Pyongyang funds.

On June 25, after confirming funds release, as the U.S. agreed in April, Pyongyang said it would close Yongbyon. On July 16, IAEA confirms it. Two days later, the sixth six-party talks reconvene in Beijing, and a September round sets a Dec. 31 deadline for the second phase of implementation. On Oct. 2-4, Kim Jong Il and President Roh Moo-hyun meet in Pyongyang and issue an eight-point declaration. But in December, President-elect Lee Myung Bak pledged more pressure on Pyongyang to denuclearize.

2008: On June 26, six months late, Pyongyang declares its nuclear programs to China, the six-party talks chair. In return, the U.S. begins legal process to lift sanctions. On July 12, the six-party talks discuss verification

No immediate missile threat. In the short term, Unha-3 poses no serious threat. Its flight path was announced weeks ago, and plotted by major media like Japan’s Asahi Shimbun. As a March 26 U.S. Missile Defense Agency presentation to the 10th Annual U.S. Missile Defense Conference shows, anti-missile systems are advanced enough to stop even multiple warheads. Hence, a single test rocket on a predetermined trajectory with no reported countermeasures against tracking and takeout can be neutralized well before it got close to population centers.

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Even if it veers from its set route, with so many reports and images of its expected launch area, the projectile will be closely monitored from the day it is trucked into the new Sohae Satellite Launching Station (also called Tongchang-dong Space Launch Center) until it falls to earth or drifts into space. Among extensive reports on the rocketry preparations are those of 38North, the North Korea-watching site of the U.S.-Korea Institute at SAIS, part of the Washington-based Paul H. Nitze School of Advanced International Studies at Johns Hopkins University.

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and timeline for disabling facilities and providing energy aid in return. On Oct. 11, the U.S. unveils a preliminary accord on verification, and removes North Korea from its terrorism list. Two days later Pyongyang says it will resume disabling key Yongbyon facilities. But in December, after 550,000 tons of oil aid has been provided, sixparty talks stall on verification. Still, the parties issue a chairman’s statement agreeing “to implement in parallel” the Yongbyon disabling and economic and energy assistance. The U.S. wants aid tied to verification, but China and Russia continue oil shipments.

2009: On April 5, North Korea launches the three-stage Unha-2 rocket, said to be a modified Taepo Dong-2. On April 13, UNSC condemns the launch and calls for stronger penalties. The next day Pyongyang indicates it is exiting six-party talks and “will no longer be bound” by its pacts. On April 16, IAEA and U.S. monitors are told to leave Yongbyon. On May 25, North Korea conducts its second underground nuclear test near its 2006 test site; UNSC condemns it. The next day Seoul says it will join the Proliferation Security Initiative, which Pyongyang brands an act of war. On June 12, UNSC unanimously adopts Resolution 1874, expanding sanctions, intensifying inspections, and banning more missile tests.

2010: After mixed signals from Pyongyang in January and February, the South Korean patrol ship Cheonan is sunk near the South-North sea border on March 26. On May 20, South Korea formally accuses the North of sinking the Cheonan with a torpedo; Pyongyang denies it. On May 24, President Lee Myung Bak says South Korea will sever almost all trade overAnother the incident; the next day, North Korea says it will cut all links over the Kim, another rocket accusation. In July the U.S. imposes new sanctions over the sinking, and holds military exercises with the South.

On Nov. 12, Pyongyang reveals it has built a uranium enrichment facility, then shells a South Korean island on Nov. 23. Beijing calls emergency six-party talks, but the U.S., Japan and South Korea won’t go until North-South relations improve.

2011: There are various attempts to restart talks. On April 18, China proposes three-step plan: North-South, North-U.S., then six-party talks. Jimmy Carter again visits Pyongyang. In July, Seoul and Pyongyang’s envoys to the talks meet at the ASEAN meeting in Bali, and in New York, U.S. Special Representative for North Korea Policy Stephen Bosworth and North Korean First Vice Foreign Minister Kim Gye Gwan talk about resuming talks.

At an August meeting between Russian and North Korean presidents, Pyongyang says it is willing to observe a moratorium on producing and testing nukes and missiles as part of resumed talks, which North Korea’s foreign minister reiterated to China in September. But everything stalls when Kim Jong Il dies in December.

GRANDPA KIM’S BIRTHDAY ROCKET Expected Launch Timeline by 38North

March 29-30 March 31/April 1 April 2-3 April 4 & 5 April 6 or 7 April 8-10 April 11 April 12-16

Transport of the 1st stage from the assembly building by its trailer to the launch pad.

Stacking the 1st stage on the mobile launch stand using the gantry overhead crane.

Transport of the 2nd stage to the launch pad by its trailer. Stacking it on the 1st stage using the gantry crane.

Transport of the 3rd stage and payload to the launch pad. Stacking it on the 2nd stage using gantry crane.

On pad checkout of the complete Unha-3 and its satellite payload.

Conducting a full launch readiness dress rehearsal. Gantry work platforms folded back with vehicles on the pad.

Possible built in hold. Unha-3 inside the gantry work platforms that are canvas covered.

Fueling of the rocket stages and final pad checkouts.

Launch window. Kim Jong Un arrives for the launch . On launch day, VIP pad visits about an hour before launch and the gantry work platforms all folded back.

Source: “Preparing for the April DPRK Rocket Launch,” 38North, USKI, 2012

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12 Based on the 2006 and 2009 tests, 38North drew up a possible timeline for this week’s Unha-3 launch (see table).

In its April 4 article “Is the Rocket on the Sohae Launch Pad?”, the website said the missile’s first stage should have been stacked on the gantry on April 1-2, though clouds prevented commercial satellites from verifying it. 38North added: “April 4 [photos] reveal the gantry’s work platform is now covered and closed around the mobile launch stand, indicating work is being conducted.”

Other indicators include: fueling stopped; fuel equipment and site debris are gone; barricades block the access road; parking areas seem spruced up for dignitaries. It seems the launch is on.

The real danger. While this week’s fireworks will generate headlines, but probably little damage, it advances further Pyongyang’s weapons programs, not to mention the clout of military leaders behind them. And that’s real threat. If the North keeps building its nuclear and ballistic arsenal, that can only feed the well-founded fear that its nukes, rockets, and arms technology may end up in the wrong hands, especially if Pyongyang need hard cash amid harsh economic sanctions.

Already, its missile forces dwarf those of South Korea and Japan. According to “An Overview of North Korea’s Ballistic Missile Program, published last December by the Washington-based National Committee on North Korea, Pyongyang has 600-800 short-range projectiles (300-700 km range) capable of hitting Seoul, plus 150-200 Nodong-1 missiles (1,000-1,500 km) which can reach Japan. Its version of the Scud-C was sold to Iran, from which the latter developed the Shahab-2.

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Besides selling missiles and nuke material on the rogue market, there’s the not unlikely prospect that nuclear and missile advances would spur Pyongyang to aggressive acts, which may provoke wider hostilities. This danger becomes even more real with an inexperienced thirtysomething dictator on the throne with little preparation and clout, unlike his father. Kim Jong Un’s backers may also feel threatened by other Pyongyang power brokers, and could see reason to stir external conflict to rally the army and the people behind King Kim III. In his March 15 paper, “North Korean Security Challenges – Post Kim Jong-il,” Mark Fitzpatrick of London’s International Institute for Strategic Studies (IISS) had a similar prognosis for Pyongyang’s new leadership: “... the designated successor will face severe disadvantages because of his lack of experience, his fragile power base, the political constraints on economic reform and the military’s role in politics.

In almost all respects, the external and internal conditions are less favourable for this second generation succession than for the first dynastic transfer after the death of regime founder Kim Il-sung in 1994. This could make North Korea an even more dangerous nation, more inclined to engage in further military provocations, to cling to its weapons of mass destruction and to offer them for sale to any would-be buyer.”

A third concern is a possible arms buildup in South Korea and Japan. Both may beef up anti-missile and air strike capabilities to take out enemy missiles in the air or on the ground, provoking even more rocket building by North Korea and even China.

Radical rightists in Japan may also agitate more loudly for its own nuclear deterrent, in case the U.S. hesitates in defending it at

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the risk of Pyongyang nuking LA. Sure, it makes no sense for North Korea to use its nukes and provoke a devastating American retaliation. But then, the bosses in Pyongyang may not always think straight.

Hence, for peace’s sake, the North must wind down its nukes and rockets program.

missiles; let North Korea participate in space-related activities; provide incentives and opportunities to stop weapons exports and shift rocket plants to non-military products; and apply missile restrictions to Japan and South Korea as well.

In Phase 3, missiles with ranges of 300 km or more would be banned. In conclusion, the USKI report urged, on the one hand, “realistic expectations” and on the other, “an aggressive [U.S.] negotiating strategy to avert this danger” of North Korea becoming “a small nuclear power with gradually expanding regional and intercontinental reach.”

How do you solve a problem like Korea? But if the past 27 years is any guide, North Korea will keep haggling its way to more aid and less sanctions, while producing more nuclear material and weapons, and more sophisticated missiles.

Both this week’s missile launch and Fitzpatrick also Yongbyon thinks pressing advances Pyongyang to chronicled dump its nukes Patriot anti-missile battery in Tokyo: North Korea’s in 2010 by may not work. nukes may trigger arms buildup in Japan MediaCorp/ YouTube video Siegfried “The IISS dossier Hecker [last December] of Stanford University’s Center for saw no evidence that North Korea might International Security and Cooperation trade away its nuclear arsenal for any and affirmed by a U.S. Congress report diplomatic or economic gain,” he reiterated this year, attest to the limited effectiveness in his March paper. of nuclear and missile diplomacy so far.

Hence, the five other powers in the sixWhile detailing decades of negotiation party talks need to devise new approaches problems, Fitzpatrick ended his report “on to counter Pyongyang’s nuclear and missile a positive note,” as he puts it. The Feb. 29 blackmail game.

Leap Day Pact between the U.S. and North Korea, he said, was “a modest success.

In its October 2011 paper, “Missile It doesn’t eradicate the North Korean Negotiations with North Korea: A Strategy threat, but it augurs well for Kim Jong-un's for the Future,” USKI reviewed past talks foreign-policy smarts.” Under the deal, and offered a three-stage strategy for future Pyongyang will resume its moratorium on bargaining. Among the principles: avoid long-range missile tests, although the IISS demands to destroy existing nukes and expert sees “interpretation trouble” on

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14 whether satellite launches like the 2009 one are covered.

Clearly, interpretation and, even more so, implementation remain the major stumbling blocks as always. On reports last month that Washington and Pyongyang would open point-of-contact offices in each other’s capitals, Fitzpatrick sighs: “I won’t get carried away, because I have seen this movie before. In 1994, the U.S. and [North Korea] were supposed to establish liaison offices in each other’s capital.”

Stanford’s Hecker also thinks positive. In his March 21 paper, “Can the North Korean nuclear crisis be resolved?” he concluded: “I remain optimistic in the long term.

To stay in power Kim Jong-un will have to improve the livelihood of his people.

He will have to open up his country and reform the North’s economy. If his security concerns can be assuaged by China, the United States and South Korea, he may find that the nuclear card gives him significant bargaining leverage. ... The challenge for Washington and Seoul will be to focus on how to improve regional security while dealing with their own contentious domestic politics to encourage the North’s transition.”

China holds the key. While studies on North Korea nuclear and missile diplomacy

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tend to focus on the U.S. as its most active player, the key to prodding Pyongyang is China. The three generations of Kims on the Northern throne would not have been so assertive in the face of far superior American military and economic might were it not for Chinese backing. Says Korea Times China correspondent Sunny Lee in his January 24 paper for the Korea Economic Institute: “Simply put, North Korea is a country whose survival depends on China.” Brookings Institution analyst Bruce Jones holds a similar view: “China is the key to North Korean belligerence.”

In the same vein, Professor Andrei Lankov of Seoul’s Kookmin University sees Beijing ensuring that sanctions on Pyongyang don’t lead to regime collapse. Explains the Leningrad University-educated Lankov in his Asia Times article, “World impotent as North Korea shoots”: “From China's point of view, a nuclear but stable North is better than a denuclearized, but collapsing and unstable North (and, arguably, better than a Korea unified under the auspices of Seoul).”

Indeed, the Chinese see North Korea as a crucial buffer between U.S. allies South Korea and Japan. The North will become even more valuable to China as Myanmar, another longstanding buffer state, mends fences with the West with its democratic reforms (see article, page 16). Bottom line:

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WILL ONE KOREA THREATEN CHINA? Survey of Chinese Experts on Korea Affairs

If the Korean Peninsula is unified under South Korea's inititative, what do you think is the likely relationship between unified Korea and China?

40% 24.44%

26.67%

8.89% Unified Korea will CLEARLY pose a security threat to China

Unified Korea MIGHT posse a security threat to China

Not sure

Unified Korea will NOT pose a security threat to China

Source: “Chinese Perspectives on North Korea and Korean Reunification, KEI, 2012

While Beijing will dissuade Pyongyang from starting a war, China will not want North Korea to implode or get too cosy with America. Indeed, Pyongyang’s nastiness enhances Beijing’s role as mediator and peacemaker. “As China competes with the U.S. for leadership in Asia, it will utilize the ‘North Korean card’ to counter the U.S.’s ‘return to Asia’ strategy,” predicts Lee. In a survey of 46 Chinese experts last November and December, cited by Lee, nearly half said if Korea is unified under the South’s initiative, the new nation will or might pose a security threat to China (see above chart). As for top challenges in the six-party talks, the respondents

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highlighted lack of trust between the U.S. and North Korea (chosen by 33%), too many countries with their own national interests (23%), lack of trust between China and the U.S. (16%), and Pyongyang’s firmness in holding on to its nukes (16%).

Still, the Chinese should think again about continually abetting Pyongyang’s wayward ways. Letting the new Kim on the block keep playing with nukes and rockets may just trigger the very outcome Beijing fears the most: a bloody if not nuclear mess on the Korean Peninsula that brings a hostile conquering force right at China’s doorstep.

After all, the first King Kim did exactly that that three score ago.

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Testing the Waters in Myanmar’s Sea of Change

Pro-democracy leader Aung San Suu Kyi and her party win parliamentary seats, so has the country turned the corner?

By Marishka Noelle M. Cabrera

STRATEGY POINTS Myanmar state television announced that opposition party the National League for Democracy wins 43 of the 44 contested parliamentary seats in the country’s by-elections held on April 1 While the NLD’s performance was auspicious, the true test of political reform will still be in 2015, when 75% of parliamentary seats will be contested Analysts believe economic reforms must match political ones in order to achieve progress in the once-pariah nation

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Myanmar’s political landscape is changing.

But in a country that, until recently, has grappled with violent crackdowns, media and internet censorship, and political repression, mistrust is understandable and the exercise of caution necessary.

After decades of struggle, pro-democracy leader Aung San Suu Kyi and her party, the National League for Democracy (NLD), has claimed a landslide victory in the April 1 byelections in Myanmar. State television has

four in the Upper House and two in regional chambers. In her victory speech outside her party’s headquarters in erstwhile capital Yangon, Suu Kyi proclaims, “The success we are having is the success of the people. It is not so much our triumph as a triumph of the people who have decided that they have to be involved in the political process in this country.”

Then again, the victory is more symbolic than anything, as the seats won by the NLD

Aung San Suu Kyi: We hope this will be the beginning of a new era where there will be more emphasis on the rule of the people in the everyday politics of our country. Video of her victory speech on YouTube

announced that the NLD has won 43 out of the 44 contested parliamentary seats, including one for Suu Kyi. An official statement from the country’s election commission says the NLD is now the main opposition group in the Union Parliament despite securing only around 5% of the total parliamentary seats, according to a report from The Irrawaddy, a Chiang Mai-based newsmagazine by exiled Myanmar journalists.

Of the 43 seats, the report says the NLD got 37 seats in the 440-member Lower House,

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are still only a fraction of the seats occupied by those associated with the former regime.

On the website Election Guide, the electoral system in Myanmar is described as having a bicameral people’s assembly (Pyithu Hluttaw) consisted of the 224-seat House of Nationalities (Amyotha Hluttaw) and the House of Representatives (Pyithu Hluttaw) with 440 seats. In the House of Nationalities, only 168 members are elected by absolute vote because 56 seats are reserved for the military, while in the House of Representatives, 330 members are elected to serve 5-year terms and 110 are appointed by the military to serve 4-year terms.

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18 Elections as the test of reform. By many standards, the recent election in Myanmar seems crude, but for the Myanmar people, it serves as an insignia of their resolute desire to never again turn back to the regime that has gripped the country for many years. Some Myanmar watchers say the elections test the government’s sincerity and commitment to change.

Union of Solidarity and Development Party (USDP). Instead, deputy Asia director Elaine Pearson says, “The real test is whether the new parliament can reform repressive law and civilians can assert authority over the military, which continues to commit abuses in ethnic areas.”

In spite of gradual yet significant changes, the Myanmar people and the world are cautiously waiting to see if these are indeed overtures to lasting reform. Even as Suu Kyi said the elections would not be “free and fair,” she remained hopeful that her

As seen in a video from an NBC news report, store-bought plastic containers serve as ballot boxes and the tallying of votes are done with ballots laid out on a floor mat.

Yet citizens and election observers alike appear satisfied. One independent observer says, “I’ve observed many elections in Southeast Asian A video from NBC Night News shows the citizens of Myanmar casting their countries— votes and the euphoria that follows later outside the NLD headquarters Thailand, Singapore— and this is as good as it could be.” party would be able to get as many seats as possible, as reported by CNN. Still, some In a report from The Guardian, Hla Maung analysts say the true test of reform will Shwe, founder of the research consortium come in 2015, when 75% of the country's Myanmar Egress, says Suu Kyi’s success parliamentary seats will be up for grabs. is “a vote of confidence in Thein Sein’s presidency.” On the other hand, Human An article from The Economist recounts Rights Watch says the elections are a the significance of these by-elections. Apart step forward, but “not a real test of the from being the first elections that the NLD government’s commitment to democratic will participate in since 1990 when the reform” because it still fails to tilt the party was banned from holding office by balance of power from the military-backed the military, its success can bring about

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substantial economic consequences, such as the lifting of sanctions and influx of foreign investment. “The vote would provide the best evidence yet that the country’s transition from military rule, which started in earnest a year ago under the new president, Thein Sein, is irreversible,” the March 31 article surmised.

Asia’s next economic frontier? Early this year, the International Monetary Fund released a report following a mission to Myanmar, also known as Burma, in January.

strategic economic location, exchange rate unification, modernization of its financial system, liberalizing trade and foreign direct investment, exposure to best international practices, allowing for private sector-led growth, and providing the agricultural sector with access to credit. The foundation of macroeconomic stability through an economic reform program must also be in place.

In its World Economic Outlook released in 2011, the Fund expects Myanmar’s GDP to grow by 5.5% in 2012 and 5.7% in 2016.

Unifying exchange rates and a new investment law. Just recently, the government decided to unify and float its exchange rates. In the past, the official exchange rate With Myanmar opening up to the world, tourists are flocking to see the old stood at around 6 world charm of this long-isolated nation. Report from AlJazeera kyat to one U.S. dollar, An IMF statement issued by Meral Karasulu, while the more realistic black market who led the mission, says: “The new rate was at around 800 kyat to a dollar. government is facing a historic opportunity Speaking to Reuters, officials of private to jump-start the development process and banks in Myanmar said the “managed float” lift living standards. Myanmar has a high would have a trading band of plus or growth potential and could become the next minus 2%. The report adds, “The currency economic frontier in Asia.” reform is a major step in ending market distortions caused by the dual system and The IMF report outlined the key areas improving transparency as foreign investors that the government should look into, pour into the Southeast Asian country such as taking advantage of its rich following bold economic and political natural resources, young labor force, and reforms in recent months.”

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20 A Bloomberg editorial defined the move as one with “the potential to immediately reduce corruption, improve economic performance and lift the lives of millions” and found its recent economic decisions “promising.”

In March, Myanmar’s Foreign Investment Commission has drafted a new investment law, which will be approved by parliament and signed into law by the president.

The new legislation, as seen by Reuters, includes allowing 100% foreign ownership of businesses, joint ventures between foreign investors and Burmese citizens

with 35% of the investment coming from foreign capital, a five-year tax holiday for foreign firms upon start-up and the hiring of workers through state-run labor offices or local employment agencies, among others.

Other existing legal framework and administrative practices are discussed in a paper prepared by Myanmar Legal Services Ltd, entitled “Doing Business in Myanmar.”

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Myanmar’s vast potential. With economic developments underway, investors cannot help but marvel at Myanmar’s vast potential. Jim Rogers, chairman of Rogers Holdings, says in a Bloomberg Businessweek report, “If I could put all of my money into Myanmar, I would.” He continues, “It’s right between China and India, 60 million people, massive natural resources, agriculture. You could feed much of Asia, they have metals, they have energy, they have everything.”

The article credits Rogers with predicting a global commodities rally in 1999.

A January 2012 research paper entitled “Appraising Post-Sanction Prospects for Myanmar’s economy: Choosing the Right Path,” prepared for the Myanmar-based non-profit group Proximity Designs by David O. Dapice, Anthony J. Saich, and Thomas J. Vallely of Harvard University's Ash Center for Democratic Governance and Innovation at the John F. Kennedy School of Government, and Michael J. Montesano of Singapore's Institute of Southeast Asian

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Studies, discusses a growth path for the country's economy in the context of existing impediments.

Once an economic powerhouse, Myanmar outperformed its neighbors until the junta took over the government in 1962.

In the Indian Journal of Economics and Business, author Lorelle Yuen of the Josef Korbel School of International Studies at the University of Denver presents “Prospects for Economic Development in Burma Using the Neoclassical Model.”

Sanctions may be modified or lifted.

A March 28 Congressional Research Service report on the April polls reiterates the Obama administration’s stand regarding Myanmar’s sanctions. “The Obama Administration has also signaled

A BBC report shows businesses are starting to boom in Myanmar as local

Yuen's prescriptions and foreign investors take advantage of opportunities brought on by the include, among other reform process things, improving governance by putting an end to the system of cronyism and that it would consider modifying or waiving ending all human rights abuses, eliminating some of the existing sanctions on Burma barriers to trade such as forced price quotas if it determines that the elections were in the agricultural sector, and increased sufficiently free and fair to warrant such a privatization in order to achieve sustainable response.” However, specific changes in the economic development. sanctions that are being considered have not yet been announced.

And then there’s the question of the lifting of sanctions by the West, which were in a February 2012 report, non-profit imposed in response to what it saw as the organization Asia Society suggests action junta’s human rights abuses. A United points where U.S. policy can move forward States Congressional Research Service with regard to its sanctions on Myanmar. report provides a brief history of U.S. “Although trade with the United States was policy toward Myanmar: “Burma-specific not of significant economic importance sanctions began following the Tatmadaw’s to Myanmar before the sanctions, easing [armed forces] violent suppression the trade sanctions gradually could help of popular protests in 1988, and have develop certain sectors of the economy as continued through several subsequent they begin to expand,” authors Priscilla periods in which Congress perceived major Clapp and Suzanne DiMaggio write, adding human rights violations in Burma.” that “Investment sanctions should also be

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Testing the waters in Myanmar’s sea of change

eased gradually as the macroeconomic structures are reformed and anticorruption measures are put in place.”

In the 2012 Association of Southeast Asian Nations (Asean) summit held in Cambodia beginning April 2, Myanmar with its string of democratic reforms was at the center of discussion, along with North Korea’s planned rocket launch. In a report from Agence France-Presse published in The Philippine Daily Inquirer, Asean secretarygeneral Surin Pitsuwan said the success of the polls should be considered in the “reintegration of Myanmar into the global community,” referring to the possible lifting of sanctions.

Many observers believe Suu Kyi is the key. Murray Hiebert and Tracy Quek of the Center of Strategic and International Studies suggest Suu Kyi still plays a pivotal role in U.S. policy toward Myanmar. “Her views on the appropriateness of lifting sanctions carry much weight with the U.S. government,” they say. The NLD’s triumph in the elections, therefore, bodes well for the Thein Sein presidency, giving

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it credibility and political legitimacy in this resource-rich yet underdeveloped nation.

Formidable challenges remain for foreign investors. An assessment by global insurance firm Chartis, however, warns, “Even if western sanctions are lifted, foreign investors face formidable challenges; the army’s economic role is extensive, institutions are weak, and corruption is rife.”

Down the road, economic stability more than political transparency might be the gauge for assessing the Myanmar government’s effectiveness. “Burmese politics, for the most part, remains very opaque despite the changes of the past few months,” an article from Foreign Policy notes, “This is why the substantive steps forward on economic reforms provide such a clear signal of a sustained commitment to reform.”

“If Myanmar wants to join the broadbased Asian boom, it will have to keep reforming for years to come,” The Economist suggests.

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NEWS ON THE NET World

6.3 earthquake hits southern Mexico Mexico was again hit by a powerful earthquake last week.

The U.S. Geological Survey has stated that the preliminary magnitude was 6.3. The quake is one of about 280 aftershocks of the 7.4-magnitude temblor which struck in the same location last March 20, damaging hundreds of homes. No major damage was reported this time.

Last week, the U.S. also hosted what has been called an annual "Three Amigos Summit." The political leaders of Mexico and Canada met with President Barack Obama to tackle issues such as trade barriers and the drug war in Mexico. During the event Mexican President Felipe Calderon also expressed interest in joining the U.S.-led talks on the proposed Trans-Pacific Partnership agreement, along with Canada and Japan.

follow a string of stunning changes for the country; Myanmar's government in the past year has freed hundreds of political prisoners, held talks with ethnic minority rebels, eased censorship, and allowed trade unions.

Tuareg rebels declare independence in North Mali, calling state 'Azawad'

The U.S. hailed the landslide win as a step for democratic change in the Asian nation. In light of the current developments in Myanmar, the world power, along with the EU, has hinted at lifting the economic sanctions that had been imposed on the country formerly known as Burma in response to human rights abuses over the past two decades.

Tuareg rebels have declared their independence, though it holds little meaning without recognition from other African countries.

Though the rebels have called for a ceasefire, the Economic Community of West African States (ECOWAS) is still discussing the possibility of deploying military forces to the country due to the continuing military junta. From the junta’s perspective, leader Captain Amadou Sanogo sees the Tuareg situation as an Al-Qaeda backed revolt, and is even asking for international assistance in order to deal with them.

Syria promises to pull forces from population centers Following Kofi Annan's peace plan, the Syrian government has promised to immediately pull out its forces from population centers and has agreed to a complete withdrawal of troops by April 10.

Suu Kyi's party claims landslide win in Myanmar vote In what retired general and current Myanmar President Thein Sein called a "very successful" byelection, Nobel Peace laureate and party leader Aung San Suu Kyi's National League for Democracy (NLD) claimed 43 of the 45 contested seats in the legislature. The by-election results

U.S. spokeswoman Victoria Nuland has expressed doubt. "We have seen no evidence today that he is implementing any of those commitments," she said.

The government crackdown on opposition members has instead apparently escalated; bodies of tortured people were even found at a hospital in Homs, captured by resistance fighters from government forces.

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The ECOWAS had earlier this week closed borders to trade and frozen Mali's access to bank accounts; and have agreed that the imposed sanctions will not be lifted until the reestablishment of constitutional order in Mali. The African Union has given its support to the ECOWAS decision, and has added additional sanctions in the form of asset freezes and travel bans against the leaders of the military junta and all those contributing to the unstable situation in the African country – including the Tuareg rebel groups that have declared independence in North Mali.

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Manila’s Pitch to Asia: Place Your Bets!

Gaming revenue continues an upward trend and a huge casino project is expected to boost profits further

By Pia Rufino

STRATEGY POINTS The Philippines can become a major gaming hub in Asia with a massive casino project under construction The Philippines is the only Asian country that permits online gaming In 2013, Asia Pacific will likely take the U.S.' place as the world’s largest casino market

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The Philippines is boosting its bet on casino development with four integrated casinoshotels aiming to draw gamblers from across Asia and generate $10 billion in gaming revenues by 2016, according to Cristino Naguiat, chairman of the Philippine Amusement and Gaming Corporation (PAGCOR).

In comments that were reported in both The Manila Times and The Manila Bulletin, Naguiat said the $10-billion target of PAGCOR's Entertainment City project was “easily achievable,” given that Singapore's two integrated casino-resort projects, which opened in 2010, combined for $5.5

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billion in gaming revenue in 2011 and are projected to hit $7.0 billion this year.

As reported in the Manila Times story, PAGCOR's Entertainment City project consists of four casino-hotels to be put up by Belle Corporation; Travellers Hotel International Group Inc. (a joint venture between Alliance Global Group Inc. and Genting Hong Kong); Universal Entertainment, and; Bloomberry Resorts and Hotels Inc. The project will also include a toll road from the three terminals of Ninoy Aquino International Airport to the Entertainment City site.

A major Asia-Pacific gaming hub? The Philippines could become a major gaming

area in the Asia-Pacific region, according to London-based global professional services firm PricewaterhouseCoopers (PwC) in its 2011 report Global Gaming Outlook.

The report, which assesses the outlook for growth of gambling across the world to 2015, said that the Philippines has a vibrant casino gaming market and that new casinos will drive a 16.9% compound annual growth rate, resulting in a US$1.2billion casino market by 2015 (See table below).

The Philippines is also one among the frontier markets that is set to take advantage of the “burgeoning opportunities” presented by the

CASINO GAMING MARKET IN ASIA PACIFIC Asia 2006 Pacific Australia 2,801 Hong Kong N/A

India Indonesia Japan Macau

2008

2009

2010

2011

2012

2013

2014 2015

3,125 N/A

3,316 N/A

3,388 N/A

3,429 N/A

3,429 N/A

3,439 N/A

3,478 N/A

3,576 N/A

2011-15 CAGR 3,698 1.5 N/A —

885 364

933 373

980 373

948 365

040 350

942 353

964 369

1,012 388

1,056 408

— 565 — 2,388

— 602 — 2,555

— 593 — 2,639

— 558 2,827 2,637

— 618 4,396 2,628

— 719 5,090 2,641

— 941 5,784 2,770

— 1,102 6,516 2,706

— 1,217 7,172 2,620

— 16.9 20.5 -0.1

— — 52

— — 59

— — 65

— — 69

— — 73

— — 78

— — 102

— — 122

— — 141

— — 15.4

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A — — — — — — — — 327 784 7,049 10,335 13,541 14,860 23,447 34,608 44,862 52,553 57,680 62,167

Malaysia 847 New 383 Zealand Pakistan — Philippines 515 Singapore — South 2,044 Korea Taiwan — Thailand — Vietnam 48 Total

2007

13,687 17,714 21,379 22,898 34,280 47,042 58,124 66,961 73,429 79,266

— — — 21.5 2.2 2.3

18.3

Source: “Global Gaming Outlook” by PricewaterhouseCoopers, p.17

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“underserviced” gaming business in Asia, based on a market study by Citibank’s Citigroup Global Markets Inc. cited in a Philippine Daily Inquirer column.

The study cited in the column of Den Somera, licensed stockbroker of Eagle Equities Inc. says that the gaming demand in South and Central Asia is under-served by just 200 licensed venues, as compared to 1,600 and 1,200 in North America and Europe, respectively.

A lot of near-term growth potential.

Tom Arasi, chief executive of Californiabased financial investment advisory firm Harbinger Advisers and former chief executive of Las Vegas Sands' Singapore casino is convinced that the Philippine gaming industry has a lot of growth potential in the near term, as reported in a Reuters article.

"There is an existing proven gaming market and there is a lot of new construction going on there. When you juxtapose that with PAGCOR's relatively aging assets, that market is about to change drastically," Arasi said at the Global Gaming Conference in Macau in June.

According to Gustino De Marco, vicepresident at the Hong Kong-based brokerage BTIG and a gaming specialist, the Philippines has strong domestic demand, and Filipinos are keen on high risk-high reward games such as slot machines, giving better returns to the casino operator than card tables.

He also cited geography as a plus for the Philippines, since the country is only a few hours flight from China, Japan and South Korea, where most high-rolling Asian gamers come from. In addition, while the Philippines is close to these places, it doesn't have the restrictions that Chinese authorities impose on Macau, such as increasing the gambling tax and imposing visa restrictions on Chinese gamblers.

The strategic location of the Philippines is also mentioned in the local brokerage DA Market Securities’ 2011 Outlook on Gaming Industry, saying that over two billion are within a four-hour radius from the Philippines.

According to the Reuters report, Naguiat expects the new gaming complex, scheduled for launch in 2013, to boost gross revenues from casinos by 40%, as opposed to the 15% growth rate expected from PAGCOR's existing casinos.

However, despite the potential, risks were also identified in the aforementioned Reuters report. Transparency issues may deter investment in the country, where PAGCOR is both the main gaming operator and gambling regulator. Naguiat told Reuters that while there are no immediate plans to privatize PAGCOR, but he has established a separate department to focus on regulation.

A March 2 BBC report on the Philippines' efforts to cash in on gambling says the Philippine gaming market has advantages over more established ones, including strong domestic demand and geography.

PAGCOR continues to break gaming income records. In February, PAGCOR registered ₧3.56 billion in gross revenues— well above the ₧2.63 billion generated in the same period last year, according to a March

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12 press release. The firm also exceeded its February 2012 income target by ₧274 million.

Meanwhile, PAGCOR scoring recordsetting performance isn’t something new.

Naguiat said it is the ninth time since July 2010, when the new management took place, that PAGCOR posted the highest monthly gross earnings in corporation’s 25year history (see chart below).

With significant earnings in February, the agency’s contributions to nationbuilding projects increased by P763 million compared to last year, the report said.

Naguiat said PAGCOR allocated 54% or P1.94 billion from the February income to the following mandated beneficiaries and nation-building projects (see table below).

Naguiat is optimistic that PAGCOR, which currently operates 13 casinos in Metro

PAGCOR’S RECORD-SETTING INCOME PERFORMANCES

₧3.03B May 2011

₧2.93B July 2010

₧3.56B ₧3.50B Feb 2012 ₧3.34B Dec 2011 Sept 2011 ₧3.11B ₧3.10B Aug 2011 ₧3.05B July 2011 June 2011

₧2.98B March 2011

Source: “PAGCOR breaks monthly record anew,” March 12, 2012, as posted on PAGCOR website.

PAGCOR'S BENEFICIARIES AMONG GOVERNMENT AGENCIES, PROGRAMS Institutions/projects National Treasury

PAGCOR's contributions

Bureau of Intenal Revenue Philippine Sports Commission President's Social Fund Board of Claims Socio-civic projects Cities hosting Casino Filipino branches

₧1.22 billion

₧129 million (as franchise tax) ₧61 million ₧201 million ₧1.67 million ₧288 million ₧40 million

Source: staff compilation of data from “PAGCOR breaks monthly record anew,” March 12, 2012, as posted on PAGCOR website.

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Manila and key cities around the country, will reach its gross income target of ₧45 billion for this year, according to the press release.

aming revenues in the U.S. increased by only 0.2% in 2010, the first increase since 2007.

While PwC expects Asia’s casino spending growth to slow to a mere 7.9% by 2015, PwC said the growth will still be higher than in the U.S. and Europe, Middle East and Africa. By 2015, the Asia-Pacific region will account for 43.4% of global spending on casino gaming, with the U.S. accounting for 40.1 %, it projected.

Casino Filipino, operated by PAGCOR, is one of the top earning corporations in the Philippines and the second biggest income-generating arm of the Philippine government, next only to the Bureau of Internal Revenue, PAGCOR said in its entertainment portal.

Asia can become world’s largest casino market. Optimism over the gaming market is seen not only in the Philippines but around Asia as well.

According to PwC in the afore-mentioned study, the Asia-Pacific region is projected to overtake the U.S. as the world’s largest casino market. It noted that

The global casino market, on the other hand, will reach US$113 billion by 2017, with significant portion of revenue growth from the Asia-Pacific region, based on a summary of a global report on casino markets by Global Industry Analysts, Inc. posted in an online press

Casino Lisboa, Macau TCR photo One of the casinos that light up the avenues of the Asia’s Las Vegas, Macau, is Casino Lisboa—a 54-story building and one of the tallest buildings in the special administrative region, according to professional, technical, and management

support services firm AECOM

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release distribution site PRWeb in March.

(The report, "Casinos: A Global Strategic Business Report,” can be purchased from the GIA website.)

casinos in attractive markets such as Singapore and Macau.

According to the abstract, the key growth factors in casino gaming in the region include growing economies and the deep attachment of people to various gambling formats, including casino gaming. The report also said that the revenue growth in the Asia-Pacific region will be driven by resurgence in consumer spending, lifting of imposed restrictions, and opening of new

Meanwhile, professional service firm Ernst & Young, in its “Market overview: The 2011 global gaming bulletin,” projects that it is only a matter of time before Macau displaces the U.S. as the world’s largest gaming market.

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Online gambling: Only in the Philippines Looking across Asia, the Philippines is the only country where online and mobile gaming is permitted, Pricewaterhouse Coopers said in its previously mentioned report. In other countries, i.e., Australia and India, there are regulations against online gambling, it noted.

The two largest prospective markets in Asia—China and South Korea—also remain closed to online gaming, based on the report “Online Gaming A Gamble or a Sure Bet?” by a network of audit, tax and advisory firms KPMG International. In the report, Gary Matuszak, Global Chair Information, Communications and Entertainment of KPMG International said that online gaming market represents one of the fastest growing segments of the gambling industry.

In the Philippines, the government granted online technology firm Philweb Corporation the control of online casino in 2002, wherein Philweb works with PAGCOR to regulate and tax online gaming sites based in the country, according to an independent directory and information service Casino City.

Currently, PhilWeb serves over 40,000 customers a day at our nationwide network of online cafés, sports betting kiosks and mobile games in the Philippines, the firm said on its website.

Philweb said in a statement in February that its 2011 net income grew 45% from 2010, boosted by its strong local gaming business as well as new businesses in Asia-Pacific. PhilWeb president Dennis Valdes noted that the company's profit grew over six consecutive years to P914 million in 2011. He said PhilWeb's e-Games Cafes, which it operates for PAGCOR, as well as its lottery-scratch card businesses in Guam, Cambodia and Timor Leste have contributed to the growth.

PhilWeb remitted P1.7 billion to PAGCOR last year, making it "one of the most significant contributors of revenue" to the agency.

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Manila's pitch to Asia: Place your bets

“Macau is just one-sixth the size of Washington, D.C., with only about half a million residents, but it takes in more gaming revenue than Las Vegas and Atlantic City combined,” the report noted. It further said the Chinese territory showed sustained year-over-year market

The report also mentioned that according to recent estimates, there are more than 100 million people within a three-hour drive to the former Portuguese colony, more than 1 billion people within a threehour flight, and three billion people within a five-hour flight.

Marina Bay Sands, Singapore

TCR photo Singapore’s casino resorts--Marina Bay Sands and Resorts World Sentosa-are expected to take in a combined $7.0 billion in gaming revenue this year

growth of US$13.5 billion, US$14.9 billion, US$23.4 billion in 2008, 2009 and 2010, respectively.

According to the study, Macau’s increase in gaming revenues can be attributed to affluent mainland Chinese living in major coastal cities, along with being an hour away from Hong Kong by ferry.

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Meanwhile, Singapore jumped onto the global gaming scene with two multibilliondollar projects – Resorts World Sentosa and Marina Bay Sands – which generated combined revenue of US$3.5 billion during their first partial year of operation in 2010, the report said. The properties yielded a combined US$1.3 billion for the quarter ended March 2011, the study noted.

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Aquino's Easter message: Follow ways of Christ, keep the faith President Benigno S. Aquino III joined the Filipino nation in the celebration of Easter, urging the people to follow the ways of Jesus Christ. In his Easter message he reminded the people to renew their faith and keep believing in God's love.

Also in his message, he boasted that his administration has registered three million familybeneficiaries of the Conditional Cash Transfer Program as of early 2012. He also mentioned that since assuming office, many overseas Filipino workers have returned and investors are coming to do business in the country. He further called on the people to work towards a better life for Filipinos.

Palace to public: Follow precautions on NoKor rocket launch The Philippine government advised the Filipino people to follow the precautions set by the National Disaster Risk Reduction and Management Council with regard to the upcoming rocket launch by North Korea. The government announced that while

it has no capability to shoot down the missile, what it can do is to enforce a a no-fly, no-sail and no-fishing zone policy during the said period over Northern Luzon, where the rocket may pass.

North Korea announced last month it would launch a rocket between April 12 and 16 to place a satellite in orbit and has already moved the first stage of the rocket to a launch stand. North Korea announced that the launch is likely to occur on April 15, the 100th birth anniversary of former Korean leader Kim Il-sung. The United States, ASEAN and other countries have expressed their concern over the launch, which they claim to be a disguised ballistic missile test that could spark future global tensions.

Think tank PIDS blames lower spending on poor quality of higher ed In a paper published by the Philippine Institute of Development Studies, it was revealed that lower spending on state-run colleges and universities is a major factor in the deterioration in the quality of higher education in the Philippines. According to the paper, the Philippines spent less than 10% of its gross domestic product (GDP) on higher education in 2007, compared to

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20% in Indonesia and 50% in Malaysia.

The think-tank urged the government to increase funding and strengthen the incentives for selected institutions to address the problem. The paper also warned about the rush of the present administration to implement the K-12 program, which might produce unintended effects on social equity if publicly funded.

Mindanao braces for longer blackouts Longer blackouts will be experienced in Mindanao due to the shutdown of three power plants in Agus-Pulangi for one month beginning April 17. The power plants will undergo rehabilitation and repairs while the nearby Pulangi River is set for dredging operations. The shutdown will take away 255 megawatts from the Mindanao grid, as each plant has a capacity of 85MW. To address the power situation in Mindanao, the Department of Energy released Department Circular 2012-03-0004 on March 19,, directing electric cooperatives in Mindanao to nominate needed power to supply their demands, in order to reduce dependence on the Agus-Pulangi power plants. The power supply deficit in Mindanao is down to 100 to 160 MW from 360 MW in the previous months.

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The Ayala Corporation: How to Build an Enduring Family Business

By Tanya L. Mariano

STRATEGY POINTS Secret to Ayala’s long-term success is having family unity, crafting a family constitution and council, and instilling in younger generations the value of stewardship, hard-work, and a sense of pride in family history and its role in the nation’s economy – CEO Jaime Augusto Zobel de Ayala Through a mix of balanced management, calculated risk taking, and forward thinking, the 178-year old Ayala Corporation, now led by the family’s seventh generation, has evolved from a family-run real-estate business to the professionally managed and highly diversified conglomerate that it is today.

From the family-run company called Casa Roxas that Antonio de Ayala and Domingo Roxas established in 1834, what is now known as the Ayala Corporation has grown

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into a professionally managed, highly diversified behemoth in Philippine business, with investments in banking, real estate, electronics, telecommunications, water infrastructure, information technology, and business process outsourcing.

With a net consolidated income of P9.4 billion in 2011 and trusted brands such as Ayala Land, Bank of the Philippine Islands, Globe Telecom, and Manila Water under its wing, the holding company ranks among the biggest conglomerates in the country.

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The Ayala Corporation: How to build an enduring family business

Conglomerate model works for emerging economies. Historically, the family has always invested in a diverse mix of businesses. Casa Roxas, Ayala’s precursor, was involved in farming, manufacturing, and several mining and trading concessions. In the 1800s to the early 1900s, the family went into banking, the operation of streetcars, real estate, and insurance. And while conglomerates are now regarded as inefficient in more developed economies such as the U.S., they thrive in emerging markets.

According to a 1997 paper entitled, “Why focused strategies may be wrong for emerging markets” (available for free upon registration at the Harvard Business Review website), by Harvard professors Tarun Khanna and Krishna Palepu, when access to advanced technology, sophisticated managerial talent pool, and cheap financing are limited, such as in a developing country, “diversification may be the best way to match up against the competition.”

Conglomerates are able to channel cash from one business to another, pick the talents with the most potential and train them in one subsidiary before transferring them to another, and negotiate better by leveraging the corporation’s reputation in a country where laws are sometimes insufficient and the justice system inefficient.

(The professors also released a book in 2010 called, “Winning in emerging markets: A road map for strategy and execution,” an indepth guidebook for companies seeking to do business in developing economies).

In a 2002 interview for McKinsey Quarterly (registration required to view entire article), Ayala Corporation Chairman and CEO Jaime Augusto Zobel de Ayala himself says, “In emerging markets, you find yourself

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owning businesses for a whole host of reasons,” such as a limited market size that demands diversification once the law of diminishing returns sets in, and the lack of government resources to provide basic infrastructure needs, for instance, which means companies must act as catalysts to fill in the gaps in the country’s infrastructure system. This was how the company got involved in the light-railway system business, says Zobel de Ayala.

Balancing family interest and business imperatives. Family-run companies face the unique challenge of balancing the needs of the business and the family. Speaking at the recently concluded Family Business Leadership Summit: Secrets of Successful Family Businesses organized by the Ateneo de Manila University, Jaime Augusto Zobel de Ayala says he believes family relationships and dynamics “have to be handled with the same sophistication, sensitivity and insight with which you handle business problems,” reports U.S. based Fil-Am newspaper Philippine News.

Reporting on the same event, The Philippine Star outlines the reasons the corporation has endured, as relayed by Zobel de Ayala.

To guide the actions of current and future leaders and ensure that their actions as owners and stewards are in line with the clan’s values, the Zobels, says the report, have a Family Council and a Family Constitution. Reveals Zobel de Ayala, “We have in place policies and guidelines on family involvement, ownership, as well as duties and responsibilities of family members… One of the reasons we have endured is that family members have effectively regulated their roles as shareholders, board members, and managers.”

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Fingers in all sorts of pies Ayala’s net income for 2011 represents a 16% rise from 2010 figures if only core earnings are considered, but a 16% drop if non-recurring income is taken into consideration, according to a press release on the company’s website.

CONSOLIDATED NET INCOME (in million pesos) -16%

Non recurring Recurring

+16%

The chart below shows Ayala’s subsidiaries and affiliates, with the corresponding percentage of Ayala’s stake in each of these companies.

Source: Presentation of yearend 2011 results during March 9, 2012 analysts briefing, page 3

AYALA GROUP OWNERSHIP STRUCTURE

52.2%

100.0% 33.6%

100.0% 30.5% 43.3%

100.0%

100.0%

67.9%

Source: Ayala Corporation website

Ayala Land, BPI, Globe Telecoms, and Manila Water drove most of last year’s growth while earnings of Ayala Auto (distributors of Honda and Isuzu vehicles), Integrated Microelectronics Inc. (electronics manufacturing), and LiveIt (business process outsourcing) slipped. AG Holdings, which handles the conglomerate's international property interests, rebounded from the previous year's performance with positive earnings in 2011.

Aside from this, the family also teaches the younger generation about the superiority of stewardship over ownership and the importance of a values-driven work ethic, and instills upon them a sense of patriotism and family pride by educating them about the family’s history and its role in the nation’s economic history.

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The family also believes that family unity is essential for business stability, hence the importance of regular gettogethers to build and maintain trust and friendships among members, and to open the lines of communication and increase members’ sense of participation in the business.

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The following chart, taken from Ayala’s presentation at their March 9 analysts briefing, illustrates the net earnings of its companies.

EQUITY IN NET EARNINGS (in million pesos)

3,704 3,837 2,848

2010 2011

4,302 2,975 2,976 1,537 1,721 295 94

ALI

BPI

Globe

MWC

Auto

76

-57 IMI

273

202

Liveit AG -700 Holdings -2,292

Source: Presentation of yearend 2011 results during March 9, 2012 analysts briefing, page 4

Recently, the company announced that it would boost capital expenditure for 2012 by 38% to P91 billion, reports The Manila Bulletin, with 75% of this amount earmarked for Ayala Land and Globe Telecom. The corporation also plans to expand into railways and airports this year.

Last year, it won the Aquino administration’s first Public-Private Partnership project, the P1.956-billion Daang Hari-SLEX Link Road, according to online news source Interaksyon.com, and also entered the power industry with its purchase of 50% of NorthWind Power Development Corporation, owner and operator of the Bangui Bay wind farm in Ilocos Norte, reports ABS-CBN News.

Says analyst Richard Laneda of CitisecOnline, as quoted in the Bulletin report, “They have been criticized before for being conservative even on the property side… The group has turned more aggressive with investments in its core interests while trying to move fast in other ventures like energy and infrastructure… With interest rates low and a system awash with cash, it’s a good time for Ayala to be aggressive with expansion.”

Ayala has also announced plans to invest P60 billion to revitalize the central business and financial district of Makati to make it as “walkable” and livable as other modern cities of the world, as reported in the Philippine Daily Inquirer.

The 2010 annual report can be downloaded from their official website.

Successors should be competent, qualified, and passionate. Succession planning must be well thought out. Many family-run companies have fallen after being entrusted to unqualified family members. A 2002 study by Francisco Perez-Gonzalez, Assistant Professor of Finance at Stanford University and faculty

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research fellow at the National Bureau of Economic Research, that analyzed U.S. firms to determine the effect of inherited control on a firm’s performance found that companies that appointed as CEOs relatives who did not attend “selective” undergraduate institutions registered lower performance compared to those who hired

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non-family members. The overall findings suggest that nepotism affects performance in a negative way by limiting the scope of the labor market.

Ayala may have started out as a family venture, with sons, daughters, sons-inlaw, and other family members assuming

leadership roles as the need arose, but today’s management team is led by two Harvard-educated executives backed by a group of experienced professionals with excellent credentials.

Says President and COO Fernando Zobel de Ayala, son of chairman emeritus Jaime

A line of enterprising entrepreneurs Heirs of the Ayala empire come from a long line of entrepreneurs, according to “Ayala at 175.” From Antonio de Ayala (1805-1876) and Domingo Roxas (1782-1843), who formed Casa Roxas on March 10, 1834, down to brothers Jaime Augusto, current chairman and CEO, and Fernando Zobel de Ayala, president and COO, business savvy seems to run in their blood.

So is an appreciation of the arts. Enrique Zobel de Ayala (1877-1943), son of Jacobo and Trinidad Zobel, and grandson of Antonio and Margarita Roxas de Ayala, was the one who discovered and sponsored a young man, with a penchant for painting idyllic rural scenes, who was to be one of the country’s most influential artists – Fernando Amorsolo. It was also during his time as managing partner of Ayala y Cia that the company forayed into the insurance business.

Instrumental in the development of Makati after the war was Joseph McMicking (1908-1990), son-in-law of Enrique and son of Jose McMicking, the first general manager of the family’s insurance business. McMicking had a vision of a sophisticated enclave inspired by the urban planning of wealthy U.S. cities. The joint leadership between the younger McMicking and Alfonso, Enrique’s son, succeeded in molding Makati into an appealing property.

Taking the family’s artistic streak further was Fernando Zobel (1924-1984), who actively participated in the family business for almost 10 years but eventually went on to become a fulltime artist. Fernando worked to increase awareness and appreciation of modernist Filipino art, even donating a portion of his personal collection to the Ateneo de Manila University in 1959. The donation formed the core collection of the Ateneo Art Gallery.

When Alfonso Zobel died in 1967 and Joseph McMicking retired the following year, Jacobo Zobel’s son Enrique Olgado Zobel (1927-2004) and Alfonso’s son Jaime took up the reins. Enrique became president upon McMicking’s retirement, and Ayala was incorporated that same year. It was under his leadership that the company started hiring competent professional managers.

Jaime, who served as chairman and president from 1984 to 1994 and chairman until 2006, oversaw the transformation of Ayala y Compañia into Ayala Corporation while he was managing partner in 1967. He is also a noted art photographer, with several local and international awards to his name. He is currently chairman emeritus at Ayala.

Recently, president and COO Fernando Zobel de Ayala received a Rotary Club of Manila tourism award for tourism investment, as reported by the Philippine Daily Inquirer.

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The Ayala Corporation: How to build an enduring family business

Making water and sustainability mix The company is committed to social development and nation-building through the Ayala Foundation, and is one of the leaders in terms of sustainable business practices. Manila Water in 2010 was recognized by the Boston Consulting Group and the World Economic Fund as one of the new champions of sustainability for its use of an innovative mix of efficient infrastructure, natural resources conservation, and community engagement through micro-businesses. That same year, Ayala Land and Manila Water were also listed as the country’s leaders in sustainability reporting by the Asian Sustainability Rating, an analysis of the biggest companies across 10 Asian countries.

Zobel de Ayala, “My father wanted to make sure that we were interested, qualified, and would be passionate about the business,” according to “Ayala at 175,” a special feature on the company’s history published in 2009 in time for their 175th anniversary.

Adds his brother Jaime Augusto, “When we came in, we were trained as managers and professionals, not as owners.”

The chairman emeritus himself, after graduating from Harvard University, joined the company in 1958 as an executive assistant, and it took 25 years before he became chairman of the board.

Outside work experience helps keep family conflict at bay. Prior to joining the company, the brothers gained professional experience that prepared them for leadership roles in Ayala. Jaime Augusto worked at the Department of Trade and Industry then at a London merchant bank, while Fernando was employed by Shell in Brazil.

This practice is precisely the recommendation of a paper published by family governance consultants Family Legacy Asia entitled, “The value of differentiation: Why Asian family businesses should allow their next gen

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to get outside work experience.” Writes founder and family business consultant Christian Stewart, while not a concept that most Asian families are comfortable with, outside work experience gives successors the chance to mature and differentiate from the business and from their siblings, and, when they join the family firm, “they are going to be much better business partners with their siblings and it will give the family business greater immunity against family conflicts.”

McKinsey's five attributes of enduring family businesses. According to recent research (registration required to view entire article) by McKinsey & Company, “less than 30% of family businesses survive into the third generation of family ownership. Those that do, however, tend to perform well over time compared with their corporate peers.”

Their research has identified five dimensions of activity that must work well together in order for a family business to endure: • Harmonious relationships and agreement on the family’s extent of involvement in the business • An ownership structure that generates adequate capital to support growth while

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The Ayala Corporation: How to build an enduring family business

allowing for family control of key business components • A dynamic business portfolio and strong corporate governance • Professional wealth management • The promotion of long-held family values across generations through charitable foundations Given that the Ayala Corporation seems to be doing well across the chart's five dimensions – a reflection of its systematic

evolution over 178 years – it is likely that the family can look forward to more generations continuing their legacy.

With its tried-and-tested method of balancing family and business interests, professional managers on board, and family members that are qualified and committed to strengthening its core businesses while steering the company into new directions, we’ll probably be seeing more of the country’s oldest conglomerate for years to come.

FIVE KEYS TO LONG-TERM FAMILY BUSINESS SUCCESS

Business and portfolio governance • Corporate governance • Dynamic portfolio evolution - Business portfolio - Capital composition, structure Family • Family forums • Family policies • Family services

Ownership • Shareholder agreements • Holiding structures • Legal documents

Wealth management • Investment office • Legacy assets and new oppurtunities • Legal documents

Foundation • Management and governance of family's own foundation • Third-party foundations

Keeping it all in the family by keeping family at a healthy distance, while still being guided by the family's core values Source: “The five attributes of enduring family businesses,” 2010, McKinsey Quarterly, McKinsey & Company

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San Miguel acquires 49% of PAL Holdings San Miguel Corp. has finalized a $500-million deal that will allow them to acquire 49% of tycoon Lucio Tan's PAL Holdings Inc., thereby expanding their reach and gaining a foothold in the national carrier Philippine Airlines. San Miguel Corp. will effectively control 40% of the airline and will handle management. This is in line with San Miguel's diversification into infrastructure-building.

Other San Miguel units are performing well despite the shift in focus. San Miguel Pure Foods reported a profit increase in 2011, though it was dragged down by an input cost surge. San Miguel Brewery has recently listed P17 billion worth of long-term retail bonds on the Philippine Dealing and Exchange Corp; in addition, its profits rose 17% last year.

However, San Miguel as a whole suffered from a dip of 13% in net income in 2011.

BDO planning to raise up to $1B via sale of shares Banco de Oro Unibank is planning on raising its core capital by as much as $1 billion through selling additonal shares to

existing investors. Local banks are required by the Bangko Sentral ng Pilipinas to meet the capital-adequacy standards under Basel III by Jan. 1, 2014. This is the impetus for BDO; analysts say that around $200 million is needed for BDO to institute reforms that will put it at the same competitive level with peers like Bank of the Philippine Islands and Metropolitan Bank and Trust Co. in terms of Tier 1 capital.

BDO says that its capital-raising reflects optimism regarding the Philippine economy. Faster economic growth is widely expected this year, given the government's infrastructure spending. As banking performance usually reflects economic cycles, 2012 is looking to be another banner year for Philippine banks.

Megaworld sets aside P25B for capex in 2012 Megaworld Corp., headed by real estate tycoon Andrew Tan, has allocated P25 billion for capital expenditures this 2012. It aims to secure its leading position in the highly competitive residential sector of the Philippine real estate market. Last year Megaworld began eight new projects in locations from Quezon City to Mactan. It has also started reaching out to a wider range of

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customers through the projects of Empire East Land Holdings Inc. and Suntrust Properties Inc., both Megaworld subsidiaries.

Aside from residential projects, the real estate giant also heads many prominent business and mixed-use developments, such as the Eastwood City Cyberpark, the Mckinley Hill Cyberpark, and a P7-billion mixed-use complex to be constructed on 550 hectares of the Clark Special Economic Zone.

Credit Suisse hikes Phl growth forecast from 4.3% to 4.8% Due to the Philippines' improved political stability and the government's major infrastructure program, Zurich-based Credit Suisse has raised its economic growth forecast for the nation. The gross domestic product (GDP) growth estimate was revised from 4.3% to 4.8%, as discussed in a report by Credit Suisse research analyst Santitarn Sathirath.

Other forecasts have placed the Philippines' economic growth similarly, with the World Bank estimating it at 4.2% in 2012 and 5% in 2013; Moody's estimating it at 5%; and Standard & Poor's estimating 4.2% in GDP growth.

The Asian Development Bank has also forecast that Southeast Asian economies, as a group, will grow by 5.12% percent in 2012.

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Panopticon World As surveillance technologies get cheaper and more accessible, look for the tug of war between security and privacy to intensify

By Tanya L. Mariano

STRATEGY POINTS Surveillance technologies are becoming more widespread due drop in costs and removal of legal barriers The retail market for surveillance tools is a $5-billion industry The use of unmanned aerial vehicles or “drones” and RFID technology brings both safety benefits and privacy concerns

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Unmanned aerial vehicles (UAVs), or “drones,” are no longer restricted to the military, radio frequency identification (RFID) technology is being touted as a possible solution for crowd control at the Muslim pilgrimage, the Hajj, and it was recently reported that facial-recognition software from Japanese company Hitachi Kokusai Electric can scan 36 million faces in a second.

With these new technologies increasingly becoming cheaper, more advanced, and more accessible, along with the growing ubiquity of closed-circuit television, are we headed towards a surveillance society, where everyone will be tagged and on candid camera 24/7?

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Panopticon, which literally means “allseeing,” refers to a prison-building design proposed by 18th century philosopher Jeremy Bentham, featuring round-theclock surveillance from a central location, with prisoners never knowing when they are being monitored.

With these developments, and the many other surveillance equipment presented at one of the most secretive security conferences around, it looks like the tug of war between security and privacy could wind up being one of the hallmarks of the information age.

Drones approved for commercial use.

Drones remain a “cornerstone of modern military operations,” according to an April 4 BBC report. However, they're no longer the exclusive province of armed forces.

In the U.S., over 30,000 UAVs could be patrolling the skies in the next 10 years, reports Infowars.com, after President Barack Obama signed the FAA Modernization and Reform Act of 2012 on February 15. The law opens up U.S. airspace to commercial and privately owned drones.

As prices fall and operating them becomes simpler, drones are

replacing costly equipment and doing a multitude of tasks previously done by men.

According to an article published in The Economist, “Police around the world are keen to use small pilotless aircraft to help them nab fleeing criminals and monitor crime scenes from above. With price tags of a little more (and, in some cases, a good deal less) than the $40,000 of a patrol car, a new generation of micro-UAVs is being recruited to replace police helicopters costing $1.7m and up.”

A New Scientist piece cites the use in Brazil of small helicopter UAVs equipped with 12-megapixel cameras to survey soybean and sugar cane fields, climate-change researchers from the Australian universities of Tasmania and Wollongong using UAV helicopters to create 3D maps of moss beds, archeologists using a fixed-wing UAV manufactured by Gatewing of Belgium to take aerial photos of Easter Island, small UAVs like those made by Microdrones being used to inspect Germany’s almost 22,000 wind turbines up close, and helicopter drones equipped with 3D stereoscopic cameras to monitor the health of France’s TGV train tracks.

Watch a promotional video for Microdrones' md4-1000 Source: Video upload to YouTube by Microdrones GmbH

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The article also mentions the case of Columbia

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42 Packing Company in Texas, which could face criminal charges after a hobbyist, who was flying his small UAV to test the on-board camera, witnessed a “stream of animal blood flowing away from the facility” and into a nearby creek.

While drones are no doubt making a lot of people’s lives easier, they also raise privacy concerns. According to a Reuters report in January, civil rights groups are raising the alarm over plans by police departments in Houston and Miami to enlist the use of drones.

us a large step closer to a ‘surveillance society’ in which our every move is monitored, tracked, recorded and scrutinized by the authorities.” The report provides an overview of drone use today, as well as privacy policy recommendations covering usage and image retention restrictions, public notice, democratic control, and auditing and effectiveness tracking.

Recently, the issue of ground safety has also become prominent after a small police UAV crashed into an armored SWAT vehicle

The X-100 UAV by Gatewing Source: Gatewing official website

The civil rights group American Civil Liberties Union in December 2011 also released a report entitled, “Protecting Privacy From Aerial Surveillance,” that found a need to boost civilian privacy protection in the face of cheaper, more accessible drones.

The report warns that, “We need a system of rules to ensure that we can enjoy the benefits of this technology without bringing

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after a test flight in Montgomery County, Texas, reports online news site Mashable.

The county police was the first police department in the U.S. to get their own UAV. There is a lively discussion up on the New York Times regarding the privacy implications of opening the skies to drones, with M. Ryan Calo of Stanford Law School, Jameel Jaffer of the American

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Civil Liberties Union, Jonathan Zittrain of Harvard Law School, journalist Tim Pool, and Jim Harper of public policy research organization Cato Institute contributing as debaters.

RFID tags for crowd control. More than three million pilgrims will go to Mecca, Saudi Arabia, in October this year as part of the Hajj, one of the five pillars of Islam and a religious duty that must be undertaken by every able-bodied Muslim who can afford to do so. It is a crowdcontrol nightmare, and thousands of pilgrims have lost their lives to stampedes and other incidents of violence over the years, according to a timeline spanning three decades prepared by Al Jazeera, but a group of researchers from the Universiti Sains Malaysia are proposing the use of RFID technology to help maintain order and save lives.

According to authors of the paper, “RFID Adoption Intention in Hajj Organizations,”

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each pilgrim could be given an RFID wristband that can be used to find missing people, access medical records of ill or injured pilgrims, and, in the unfortunate event of a disaster, identify the deceased.

An automated head-counting system could also help detect overcrowding in specific areas.

RFID is “a system that transmits the identity (in the form of a unique serial number) of an object or person wirelessly, using radio waves,” according to a primer prepared by the RFiD Journal. It is being used by businesses in asset tracking, during the manufacturing process, in supply chain management, retailing, payment systems, and security and access control, and it also has several consumer applications.

It is also being used to track surgical sponges, which is useful as one out of every one thousand intra-abdominal surgery patients suffer from sponges left inside their bodies post-operation, and to transmit

36 million faces a second Japanese company Hitachi Kokusai Electric has developed a face-recognition system that can scan 36 million faces in one second based on a photo or surveillance footage of a person, reports Tokyo-based online news site, DigInfo TV. The search results are presented as thumbnail images, which, when selected, will play associated recorded surveillance footage so users can see what the person was doing before and after the image was taken.

The system assumes that the faces are turning within 30 degrees vertically or horizontally away from the camera and requires that the faces are at least 40 by 40 pixels in size.

The company plans to put it on the market by 2013.

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Japanese-made face-recognition system scans through 36 million faces in one second DigInfo TV

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to the car’s computer, according to Wired Magazine’s 10 Best Uses for RFID Tags.

In 2010, information technology news source Network World called RFIDs the 'next big privacy concern'

those who exhibited abnormal walking patterns.

But while the author of the Technology Review blog entry that featured the Hajj proposal believes that “the security to be gained from tracking every visitor could outweigh potential exploits of the technology,” others are not so welcoming.

The technology has even been used for early detection of Alzheimer’s disease, according to the Massachusetts Institute of Technology publication Technology Review.

Traditional tests for 'The next big privacy Alzheimer’s and other concern.' In 2010, dementing diseases entail information technology mental test that indicate news source Network cognitive decline, but by the time the World called RFIDs the “next big privacy affliction is diagnosed, the patient may have concern.” The article cites the many already suffered severe memory loss. In companies and organizations that employ 2009, by fitting RFID bracelets to senior RFID tags, including WalMart, and warns citizens living in two assisted-living homes that, while there are uses for the technology in Florida and placing sensors throughout that are not intended to violate people’s the facilities, researchers at the University privacy, “RFID is on the verge of tracking of South Florida us all, cradle to were able to the grave,” which monitor and it says should analyze the be a cause for residents’ walking concern. patterns for signs of cognitive In the decline, such as Philippines, an repeated pauses, RFID system a tendency to for identifying wander, and motor vehicles sudden turns. was slated to be The study of 20 implemented residents found by the Land

a significant Transportation Researchers tracked the walking patterns relationship Office but of residents at two assisted-living homes in between those in 2010, the Florida using RFID transponders worn on the whose mental test Supreme Court residents’ wrists scores implied barred the David Chiriboga, Technology Review dementia and agency from

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Panopticon world

Smile, you're on candid closed-circuit TV Closed-circuit televisions, or CCTVs, have played key roles in a number of well-publicized incidents in recent history.

A January 2012 footage from CCTV cameras of the Bangko Sentral ng Pilipinas complex in Roxas Boulevard caught 25-year-old Chinese national Gong Zhu Yan getting into his car and running over his girlfriend, Zhao Chun Lan, who was standing by the side of the road, according to a GMA News report.

He then got out of the car and repeatedly stabbed Zhao before running her over again. Zhao died at the Ospital ng Maynila. Gong committed suicide while under police custody.

In October 2011, CCTVs afforded the world a glimpse into the usually closed-off China, when footage of a little girl being run over twice and ignored by passersby went viral. In the video, two-year-old Yue Yue is seen crossing the street just outside her family’s shop in the Chinese city of Foshan when a van accidentally hits her, reports U.K. news publication The Telegraph. Moments later, another vehicle runs over the already critically injured toddler. She lies helpless on the street, ignored by shopkeepers and pedestrians, until a rubbish collector finally comes to her aid. Yue Yue died of systemic organ failure a few days later, according to an Agence France Presse report.

In 2010, surveillance footage from CCTVs around Times Square in New York helped police officers identify Faisal Shahzad, a naturalized U.S. citizen of Pakistani descent, for a car-bombing attempt in May, which was foiled when a street vendor grew suspicious of the SUV the suspect left by the side of the road, which was emitting smoke, reports The Guardian.

pushing through with the project and collecting fees from motorists, reports the Philippine Daily Inquirer. According to the report, civil rights and transport groups filed a petition for a temporary restraining order and prohibition on the implementation of the RFID system, alleging that the project did not go through public bidding, surpassed the legislative power of the Congress, and is an intrusion of motorists' right to privacy.

More surveillance gadgets presented at security conference. In 2011, The Wall Street Journal obtained over 200 marketing documents from attendees of a surveillance conference held in Washington, DC in October. The conference is one of several ISS World conferences

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that bring together security experts, suppliers, and customers, and is organized

by U.S.-based company TeleStrategies, a leading producer of telecommunications conferences.

The documents shed light on the huge global market for surveillance technology, whose growth was spurred by the 2001 twin towers attacks. The WSJ report quotes TeleStrategies president Jerry Lucas as saying the retail market for surveillance equipment grew from “nearly zero” in 2001 to approximately $5 billion a year.

The WSJ’s catalog of surveillance documents includes hacking, intercept, data analysis, web scraping, and anonymity tools, such as technology to intercept

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The dawn of a surveillance society?

With surveillance technologies becoming more accessible and more advanced, it becomes increasingly urgent to question and discuss where we draw the line between safety and privacy.

How much of our privacy are we willing to sacrifice in exchange for safety? How weighty should the pros be to justify the cons?

Are we willing to be watched 24/7

in order to save The Wall Street Journal obtained marketing lives? As technology documents from a secretive security conference that reveal the big business in prepares to leapfrog surveillance technology over old laws, these are questions that Source: “Document Trove Exposes Surveillance Methods,”

by Jennifer Valentino-Devries, Julia Angwin, and must be asked now.

thousands of conversations on fixed or cellular networks, software to monitor mobile Internet content in real-time, and another that poses as a legitimate downloadable update for BlackBerry, Apple, Google, and Microsoft devices but is actually a spyware that can monitor all communication made via the device.

The following video by the WSJ provides further information into what the documents reveal.

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Steve Stecklow, The Wall Street Journal, Nov. 19, 2011

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Technology

Credit card data breach involves major brands Global Payments, a card transaction company, has reported that there has been unauthorized access into part of its processing system. The breach is said to be massive, involving millions of peoples' personal details. One of the major card brands affected was Visa, who promptly cut ties with Global Payments after the issue came to light. In a statement released by Visa, it said that all the big card companies were involved. Ars Technica provides an FAQ for the incident.

This is not the first time a payment processor has been hacked. The record holder for the largest data breach is a 2008 attack on Heartland Payment Systems. An estimated 130 million accounts were compromised, and Heartland ended up paying more than $110 million to card companies in order to settle claims related to the data theft.

U.S. IPO volume at highest first-quarter level since 2007 Interest in the technology sector helped to pump the volume of U.S. initial public offerings this quarter, resulting in its highest

first-quarter level since 2007.

Technology companies accounted for 24% of the IPO volume of 2012 so far. Overall, there were 41 IPOs this first quarter; twelve of which were technology-based.

Last week, technology-related outfits CafePress and Millenial Media gained in their initial public offerings. Millenial Media, which sells advertising space on mobile devices, almost doubled during its first day of trading. There were 48 IPO registrations made in the same quarter, including the controversial filings of Facebook, Inc. and Empire State Realty Trust.

Oracle and Google will go to trial Oracle and Google will go to trial at the U.S. District Court in San Francisco this month because attempts to come to a settlement have failed. Oracle is suing Google because the Android mobile operation system appears to include Java-related patents and technology.

This is not the only patent war in the news; aside from Oracle and Google, and Yahoo and Facebook, there is also the tussle between Microsoft and Motorola Mobility. Another high-profile patent infringement issue is the Wi-Fi case of the Commonwealth Scientific and Industrial Research Organization (CSIRO), which is

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run by the Australian government.

CSIRO patented wireless LAN technology in the 1990s, and now has won more than $200 million in settlements paid by over 20 companies including Acer, AT&T, Dell, D-Link, HP, Microsoft, Nintendo, Sony, and more.

U.S. ISPs now involved in antipiracy fight Along with major film and music companies, the top Internet service providers of the U.S. have announced that they will launch a joint anti-piracy effort in the form of the Center for Copyright Information (CCI), which will implement a "six strikes" copyright alert system. The CCI's advisory board will also include many privacy and technology advocates.

Under this program, companies will notify the ISP that a customer has been pirating movies or TV shows. The ISP will then send a notice to the customer informing him of the incident. Each time a customer is caught pirating something the ISP is supposed to gradually increase pressure on him and can even suspend service.

Reports of impending implementation may be new, but the plan is not; it was proposed last year and is mentioned in the 2011 U.S. annual report on intellectual property enforcement.

• April 9-15, 2012