What we need is a debt cap

What’s with Mar Roxas? Even after President Arroyo herself indicated that she is not inclined to sell Petron at this time, Mar still wants to sell Petron together with all the other government crown jewels now. Like his fellow investment banker Lito Camacho, Mar is simply focused on raising funds by whatever means to sustain government’s free spending ways.

Okay, so the administration has been able to curtail expenditures somewhat. But there is still that yawning budget deficit and, it seems, neither Mar nor Lito are confident that more efficient tax collection will do it. I guess Mar knows better than anyone else that business conditions are bad, contrary to his press releases, and they can’t collect taxes from a business sector that is not earning enough profits.

Still, selling the crown jewels now is hardly the answer. For one thing, the market is down. You can’t get a decent price for anything these days. Just look at the prices of blue chip stocks in the market. Selling the crown jewels now is shortchanging the Filipino people. Only desperate companies sell crown jewels in a down market. Maybe Mar and Lito are telling us that our situation is desperate but can’t very well say that clearly without breaking the administration’s propaganda line.

Granted that they may be able to alleviate the budget deficit now by selling the crown jewels, what happens after Ate Glo leaves office? She would turn over a Treasury still nursing a budget deficit and no valuable assets that could produce cash flows from earnings. Neither would the new administration have the option of designing financial packages from these assets that would generate some cash somehow for the cash-strapped government.

What we need is a strict debt cap law to restrain our officials from squandering the hard-earned money of taxpayers. The absence of a debt cap makes our officials think that they can always fund a budget deficit through reckless borrowing. A debt cap will force any administration to be more efficient in running the affairs of government and in collecting taxes. It will also stop members of Congress from passing numerous funding measures for pet projects that cannot be supported by the Treasury.

We need a debt cap law passed by Congress now before we get into a really serious financial crisis like the ones that are endemic in Latin America. Once that happens, the IMF will step in again and impose debt and spending caps on us anyway. If Congress fails to pass a debt cap law, they forfeit the right to denounce the IMF from interfering in our affairs when push comes to shove.

Mar Roxas’s New Generation of Ideas speech sounds good BUT theoretical. I worry that the political environment is not ready for large asset sales to fund infrastructure investment. Money raised would just be mysteriously dissipated. Look what happened to the billions raised when Fort Bonifacio was sold. Our armed forces haven’t been modernized and the funds for it are nowhere to be found.

The Economist

Economic Planning Secretary Romulo Neri has apparently transformed from the administration’s top economic manager to the administration’s top propagandist (maybe because the Press Secretary is supposed to be sick). His reaction to an assessment of The Economist on the impact of the Iraq war on the Philippines is pathetic. Unfortunately, press reports on his disputing The Economist did not include what The Economist actually published.

So, here is what The Economist actually said and you be the judge.

But the biggest loser will be the Philippines. Electronics make up almost 70 percent of its exports, and it sends 30 percent of them to America. It consumes more imported oil per dollar of GDP than any other country in Southeast Asia. It suffers from terrorism, insurgencies and crime. Its ballooning public debt is already weighing on the economy. And it is the only country in the region with a direct stake in any war against Iraq. More than one million of its citizens work in the Gulf countries, and help keep the economy afloat by sending much of their wages home. If a war sends them fleeing, the Philippines will have to cope with both a refugee crisis and a current account crisis. No wonder the peso and the stock market are under pressure.

I think it is wrong for this government to try and give our people a false sense of security. We have to tell them what the situation really is and tell them we must unite if we hope to surmount the difficulties ahead of us. I believe in preparing for the worse case scenario. When things turn out better than expected, we get the feeling of satisfaction that we were ready for much more.

BW scam

Jose Tomas Syquia, director for the Compliance and Enforcement Department of the Securities and Exchange Commission, reacted to our column on the BW scam last Monday with a long e-mail. For starters, he lamented the media focus on the "dismissal" of the SEC Third Complaint against Dante Tan and others.

Atty. Syquia points out that there were two previous SEC complaints filed against Dante Tan and others that are now pending in court. Eight persons are already accused before the Pasig Regional Trial Court (Branches 153 and 160). The Third Complaint was also not a total "dismissal" of charges since the DOJ found cause to charge four of the respondents. There are now 12 accused in connection with that landmark scandal.

"Dante Tan is charged with no less than seven criminal charges (Criminal Case nos. 119830, 119831, 119832, 122796, 122797, 122798, and 122799). As you can see, there is no truth to the allegations that the major principals in the BW case will get away. As noted by Undersecretary Teehankee ‘[c]ontrary to reports . . . (Mr. Tan) has not been absolved from criminal liability and is in fact considered the mastermind in the largest stock price manipulation in Philippine history’."

It is unfortunate, Atty. Syquia laments, "that the PSE Chairperson, as you reported, blames the SEC for the ‘dismissal of the case’ specially considering that the SEC and PSE have the same interest and should be working and supporting each other." He also said that "SEC lawyers and DOJ prosecutors have, for the first time in Philippine history, succeeded in bringing a securities fraud case before the courts, and have administratively sanctioned 77 broker firms and around 80 individuals." This, he pointed out, "is more than what the PSE has done against its own members."

The SEC official ended with a reassurance that they are trying their best "to ensure that the capital market shall be fair and transparent, and that legitimate investments flourish. We try to do this by investigating to the best of our abilities stock manipulations and insider trading. We file cases and sometimes we win, sometimes we lose despite all appeals. We willingly expose ourselves to risks every time we investigate and raid investment scams with the hope that money shall flow only to legitimate businesses and not line the pockets of a few."

Actually, Atty. Syquia has reason to be peeved with the criticisms thrown SEC’s way about the BW case. There is this fresh outlook and determination to make a difference at SEC since Chairman Lilia Bautista took over. Atty. Syquia is one of the young idealistic lawyers she asked to join her team. They are currently overwhelmed with the pyramid cases and you have to have a sense of mission to take the daily abuse they get from the public.

Well, here’s hoping the BW cases get fully examined and resolved by our courts. It is important for us to show that our judicial system works and investors will feel properly protected by our laws.

Confucius says

Dr. Ernie E sent me a whole bunch of ‘Confucius says’ one liners. Some are quite old, many are too X-rated for this column but here is one that seems appropriate, maybe even ominous, specially after watching all those breaking news from CNN.

Even the greatest of whales is helpless in the desert.

Boo Chanco’s e-mail address is bchanco@bayantel.com.ph