We can’t trust government with a windfall

I was trying to explain to Finance Secretary Lito Camacho the stiff opposition to his plan to sell Philippine properties abroad. Among these include the Philippine Center on 5th Avenue in New York, which had been a source of national pride with the national flag flying over what is really the world’s main street. Well, that’s one of the reasons why we should rehabilitate rather than sell that property.

The other, and perhaps the more important, reason is that we can’t trust government with a windfall from selling big-ticket assets such as those in Lito’s list. Lito explained that it would be better to liquify assets rather than borrow some more.

And that’s the point an investment banker’s mind sorely misses. How long would it take to spend the few billion pesos they can raise by selling that New York and other properties? They can sell or privatize every government asset, but unless some form of sanity in government expenditures takes hold, the budget deficit problem is still likely to get worse.

Look what happened with Fort Bonifacio. Metro Pacific paid something in the vicinity of P39 billion for it and according to law, the proceeds are supposed to be used to modernize our armed forces. According to Lito, some five or six billion pesos remain in the Treasury and this administration has not touched a centavo of it.

Well, that only means some P34 billion has been spent, possibly by the Ramos administration and yet, not a single modern bullet has been bought for the armed forces. Some P12 billion went to the housing of squatters in the area and for enlisted men. There’s still over P20 billion to be accounted for. What can P5 billion buy? A few outdated MIGs for our Air Farce, perhaps?

Soon, all the proceeds of the Bonifacio sale would be spent and we will be left with nothing to show for all the billions. That’s precisely what we fear would happen if this administration tried a midnight sale of all our valuable properties abroad to try and bridge the budget gap. They sold a prime property in San Francisco during Tita Cory’s time only to find out later that Cory officials sold it for a song and we don’t know how the money was used.

Towards the end of our conversation, Lito was saying that perhaps we don’t have to sell anything. He proposed a BOT deal where a private investor would rebuild the Philippine Center in New York and give our consulate and even our UN mission enough space to use for free. This way, the Philippine flag can still proudly fly on 5th Avenue. We have to do something, he said, because the structure is so dilapidated and the government has no resources to fix it up.

Maybe a BOT is viable but we have to make sure the investor does not put up a whorehouse in one of the floors. Better yet, a consortium of Philippine developers led by Ayala and/or San Miguel’s property unit could undertake the project. That way, the Philippine character is not lost. I am sure Donald Trump, if he ends up as the developer, isn’t going to think twice if commercial interests clash with Philippine values.

One more thing… Lito explained that the only reason he wanted to sell Petron is because the Treasury does not even get the full benefit of the dividends it declares. He said the retired generals in Petron’s holding company, PNOC, use up most of the profits paid by Petron as dividends.

Well, the solution is not to sell Petron but to lay down the law on those retired generals. Require them to remit a substantial percentage of Petron profits to the Treasury. And make them trim their size in much the same way that private sector holding companies are trimming their staff.

Maybe we don’t even need a holding company like PNOC anymore. In our time, the only employee of PNOC was Ronnie Velasco, its chairman. In addition to our regular assignment in Petron, we were given additional functions to help out in PNOC.

The Department of Energy can very well supervise PNOC’s subsidiaries like the geothermal and exploration companies. The shipping company should be sold to the private sector. PNOC was created to perform the role of the Department of Energy, which was created much later.

But keep the government shares in Petron. That’s the only way the government and the people can have an insider’s view of the oil industry. Also, as was shown recently, Petron can be used to moderate prices in our deregulated environment. I hope Lito sees that now.

Recovery now?

Much of the malaise in the world economic situation has been blamed on the tension and later, the shooting war in Iraq. But, The Economist warns, it does not follow that "military victory will be followed quickly by an economic upturn." For one thing, The Economist observes, the threat of terrorist reprisals in coalition countries could make people afraid; actual attacks would severely damage both business investment and consumer spending.

Nowhere is that truer than right here in the Philippines. We have been tagged as a terrorist hot spot and the recent bombings in Davao have painted a pretty dangerous picture of the country. Our seeming inability to put in place what Ate Glo likes to call "a Strong Republic" contributes to our largely negative investment environment.

In any case, The Economist rightly points out that "ending political uncertainty might merely highlight the extent of fundamental economic problems which many countries face. Germany, along with much of the rest of the euro area, is grappling with problems that long predate the conflict in Iraq. So is Japan, in its fourth year of deflation after a decade of near-stagnant growth and recession."

Economist Stephen Roach of Morgan Stanley says about the same thing. He says that it is still a US-centric world, making the outlook for the US economy important. In that regard, he thinks "the US economy still has considerable distance to travel in purging the excesses that built up in the latter half of the 1990s."

More specifically, Roach is worried about three basic excesses: "low national saving, high private sector indebtedness, and a massive balance of payments deficit. On all three counts, the excesses now stand at all-time records for the post-World War II US economy. Given these excesses, as well as a lack of pent-up demand for items such as cars, homes, and new capacity, I remain convinced that policy traction will remain disappointing – that the US economy will fail to respond to monetary and fiscal ease as it normally does."

Roach is worried about the American consumer’s ability to hold the line. He sees "the aging American consumer as saving-short, overly indebted, and just about tapped out of the wealth effects from equities and property. Moreover… the pendulum of corporate cost-cutting is about to swing toward the slashing of excess labor costs – especially the long-overdue pruning of managerial bloat. That would hit the income stream just when households have extracted the final drops of purchasing power from their overvalued assets."

So it seems, The Economist is right when it says that even in America, where the economy is most likely to respond quickly to the end of Saddam Hussein’s regime, you simply cannot count on it yet.

Hard of hearing

This one’s from Dr. Ernie E.

A young man was having some money problems, and so, he calls his parents via the operator, and reverses the charge. He says to his father. "I need to borrow two hundred dollars," he says.

At the other end, his father says, "Sorry, I can’t hear you, son, I think we have a bad connection."

The boy shouts, "Two hundred. I need two hundred dollars!"

"Sorry, I still can’t hear you clearly," says his father.

The operator cuts in, "Sorry to butt in, but I can hear him perfectly."

The father says, "Good. Then YOU send him the money!"

Boo Chanco’s e-mail address is [email protected]