When Newfangled Ideas Fail, Wisdom Returns to Basics

 

By Adolfo Quizon Paglinawan

 

This column was provoked by the Manila Times headline “Economic managers back Maharlika fund” saying it will help usher in the country’s inclusive and sustainable growth.

Alleluias came from Finance Secretary Benjamin Diokno, Budget Secretary Amenah Pangandaman, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan, and Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla.

The new choir, of course, with the President’s removal as chair of the controversial sovereign wealth fund, becomes even more suspicious as these people will serve as the gang that will manage what seems to be an unwanted brainchild as their “petty” cash.

I was in the loss for analogies.

Sounds like a Labrador Retriever bowowing its owner.

Or it could be a legitimate father (the President) owning the unwanted pregnancy of his concubine (Congress).

But my instinctive reaction in an earlier column, seems to be more appropriate: We don’t want the fox to guard the chicken coop!

Which fox will benefit from the 2% bank-transaction commission this fund will generate?

They choir added a sovereign wealth fund is a “tried-and-tested investment vehicle” that has been used by governments in both first world and developing countries to achieve their economic objectives.

Reuters, however, seems to be telling a different story in a recent headline blaring: “The world’s largest sovereign wealth fund loses in the first half, cites inflation and war in Europe”.

Norway’s sovereign wealth fund, the largest in the world, had a loss of 1.68 trillion Norwegian kroner ($174 billion) in the first half of 2022, as stock markets more broadly saw a tumultuous six months.

The $1.3 trillion fund returned a negative 14.4% during the period, as stocks and bonds reacted violently to global recession fears and skyrocketing inflation. But the fund’s return was 1.14 percentage points better than the return of the benchmark index, Norges Bank, the country’s central bank, said Wednesday, equivalent to 156 billion kroner.

Reuters continue, ““The market has been characterised by rising interest rates, high inflation, and war in Europe. Equity investments are down with as much as 17 percent. Technology stocks have done particularly poorly with a return of -28 percent,” the CEO of Norges Bank Investment Management, Nicolai Tangen, said in a release. The fund’s return on equity investments slipped 17%, while fixed income investments and unlisted renewable energy infrastructure were down 9.3% and 13.3%, respectively.”

The present Philippine economic team, however, insisted going north by pointed to the Indonesia Investment Authority as a successful model of a sovereign wealth fund that was used to finance Indonesia’s big-ticket infrastructure projects even during the height of the Covid-19 pandemic.

But they slipped on the wet floor when they cited that the Government of Singapore Investment Corp. and the central bank and state investor Temasek Holdings Pte have also been the biggest contributors to Singapore’s national budget since 2018.

Just two weeks ago, the South China Morning Post reported that Singapore’s Temasek Holdings has suffered “reputational damage” due to its investment in the now-collapsed FTX cryptocurrency business. The statement came from Deputy Prime Minister Lawrence Wong in a rare criticism of one of the world’s most influential state-owned investors.

Temasek, the majority-owner of Singapore’s biggest corporate brands including Singapore Airlines and Singtel, said on November 17 that it had written down its entire US$275 million investment, describing its faith in FTX founder Sam Bankman-Fried as “misplaced”.

Cosmetics instead of solutions

The new law is a collage of sorts.

Because the sister of the president, Senator Imee Marcos, expressed disagreement especially in tapping two government pension fund systems, the Government Service and Insurance System (GSIS) and Social Security System (SSS), the sovereign fund took a major facelift, as an updated version excluded them as direct contributors.

But Finance Minister Diokno offered a dangerous caveat – the two agencies could still help in raising the Maharlika fund if their boards approve the measure.

Which leads me to conclude that the sovereign fund idea actually originated with Diokno.

I would like to say the same thing about the queue of financial ministers that have played a round-robin on destroying our productive capacities since 1986, upon the assumption of President Corazon Aquino, and turning it into a service economy.

As amended, the new incoming chairman of this sovereign wealth fund that ius the finance minister, Benjamin Diokno has been in these saddles since time immemorial.

This will explain why the World Bank was first in choir of monetarists that provided second voice to the tune.

The World Bank said it would be “more than happy” to offer advice to the Philippine government on the best practices of sovereign wealth funds (SWFs), should the Marcos administration seek it, even if it accepted not yet knowing how the law would like.

World Bank senior economist Ralph van Doorn said “We haven’t seen the shape of the law, so it would be very difficult for us to comment on it, but at the moment, if the government is asking for advice on the best practices and the design of sovereign wealth funds, we would be more than happy to give such advice.”

A quick Wikipedia verification will show that most of Diokno’s career have something to do with the World Bank.

Where else could the rigmarole start but with Ben Diokno himself, whispering to his old boss Gloria Macapagal Arroyo (the president that moved the Electric Power Industry Reform Act) and her Lakas party leader Speaker Martin Romualdez (who has blood relations with the sitting President).

Serving as icing is the involvement of the presidential son, Sandro, who still has milk in his upper lip when it comes to this game.

This must have been precipitated when the general balked at Diokno’s proposed new round of government offices and corporations being thrown into privatization in the likes of the Philippine Gaming and Amusement Corporation and the Philippine Charity Sweepstakes, a list that also foolishly included the “carousel” Bus Rail Transit System operating at the Epifanio de los Santos Avenue.

Enough of GMA’s voodoo economics. She presently serves as senior deputy speaker of the lower house of Congress. “Lower” is not intended here as euphemism because it is precisely what it is. It is lower to the upper house, which is the Senate. The “upper” is also not to be meant literally, as there could be more idiots per capita there than the lower house.

Privatization and deregulation killed our factories

The EPIRA is a pro-market legislation in 2001, that was proposed to achieve reliable and competitively priced electricity in the country.

Particularly, it mandated an Energy Regulatory Commission, again to promote competition, encourage market development. Ensure consumer choice and penalize the abuse of market power in the restructured electricity industry.

Where are we now?

The Philippines has the highest electric rates not just in the Asean Region but in entirely of Asia, and perhaps one of the highest in the world. This is not perceived ineffectiveness but is documented in the monthly electric bill that consumers received monthly.

Worse, the same law eliminates the government not just in engaging in power generation but also in the distribution of electricity.

With agriculture in the intensive care unit, manufacturing virtually frozen in the morgue and our own investors leaving the country to invest in China, Vietnam and Indonesia, the economic managers have missed the point in solving what ails Philippine economy.

Inversely, with electricity cheaper in Indonesia, that country made the tenth slot among the largest manufacturing in the world.

This is why even Lifebuoy which was our common bath soap when I was a kid, we now import from Indonesia. 

In my new book, The Poverty of Power, I meticulously narrated how President Corazon Aquino and the Americans, in cahoots with the oligarchies destroyed the manufacturing backbone of the Philippines.

The turning point was the mothballing of the Bataan Nuclear Power Plant on the very eve of its ignition, having been ready to supply 16% of the needs of the Luzon grid, reducing further our dependence on imported fuel down to only 34% (from 96%).

Two more coal-fired power plants, one in Calaca, Batangas and another in Masinloc Zambales, could have contributed 300Mw each, but they too were not allowed to operate.

Pray tell me when you don’t light a candle at night, what would be the commonsensical effect? You wallow in darkness. As a result of Aquino’s incompetence, debilitating power outages nationwide lasted up to 10 hours average daily.

In 1987, Executive Order 215 signed by President Corazon Aquino effectively deregulated the power generation sector. This was in response to the blackmail of the International Monetary Fund to privatize power, otherwise it will not bother sending in funds to rebuild our economy that failed in 1984 which was also their own doing.

The first build-operate-transfer (BOT) contract allowed by the EO was signed in 1988 with Hopewell, a Hong Kong-based firm, to construct and operate a 210-MW power plant (Navotas I).

Up until President Fidel Ramos we were blaming Cory alone, only to realize that the outages were intended sabotage by the Americans and the oligarchies, so that from nationalization of the country energy resources, it will revert back to privatization. This is why this president was nicknamed “Boy Benta” because he issued power sales agreements left and right to independent power producers, guaranteeing revenues to them on the basis of generating capacity and not actual consumption, which up to now has served as most disadvantageous to the people.

This is why when President Marcos Jr. appointed his best friend’s Sabin Aboitiz subalterns to be the secretary of energy, the chairman of the Energy Regulatory Board and the president of Power Sector Assets and Liabilities Management Corporation, I said this boy fell far from his father’s tree.

The Aboitizes were first to profit through the importation and sales of diesel power generators in the late 80s, and in the long run, recipient of many power sales agreements (after 1992).

My objection to the sovereign is on the very idea of a largesse of standby fund at the time when the engines of our economic growth are stymied and not on whose disposal it rests. The shift from the President to the Ben Diokno, a creature of world liberal banking, has made it even worse.

(To be continued on Part 3: The Original Marcos’ Revolution from The Center)

 
<strong>Adolfo Quizon Paglinawan</strong>
Adolfo Quizon Paglinawan

is the anchor of Ang Maestro – the Unfinished Revolution at Radyo Pilipinas1, co-host of Opinyon Ngayon at Golden Nation Network Television, a political analyst, and author of books.

His third book, The Poverty of Power will soon be off-the-press. It is a historiography of controversial issues of spanning 36 years leading to the Demise of the Edsa Revolution and the Rise of the Philippine Phoenix. Paglinawan’s past best sellers have been A Problem for Every Solution (2015), a characterization of factors affecting Philippine-China relations, and No Vaccine for a Virus called Racism (2020) a survey of international news attempting to tracing its origins. These important achievements earned for him to be named one of the 2021 international laureates for the Awards for the Promotion of Philippine-China Understanding. Ado, as he called for short, was a former press attaché and spokesman of the Philippine Embassy in Washington DC and the Philippines’ Permanent Mission to the United Nations in New York. Facebook
 

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