Enjoying the stability dividend

Last week I heard a Filipino economist working for a European bank say that investors are starting to get used to our usual political noise. This explains why the stock market is booming despite the inflammatory language being used in our political arena. Not even coup rumors can panic the investors, who are now able to see beyond the superficial veneer of our political discourses.

That should be good news for the country. If this economist is correct, the country should start to benefit from what we can call a stability dividend. In the past, the nature of Philippine political debates scared investors or at least, provided enough reason for them to look for opportunities elsewhere. But fund managers are now savvier about emerging markets. They are able to evaluate risks better than they had ever been able to.

As far as the Philippines is concerned, they seem happy enough that we have been able to take care of the fiscal deficit problem. This economist feels there is minimal risk of excessive government political spending next year to ensure victory for administration candidates. If government puts its money in vitally needed infrastructure projects, there would even be benefits for the economy moving forward.

It would seem that given the limited options available in the US and other Western economies next year, the risks for investing in emerging markets like the Philippines are manageable. It doesn’t take too much to satisfy investors looking for options with better yields than what are available in their home markets. Even lackluster macroeconomic performance doesn’t bother them that much. Oh, this particular economist is even expecting a multiple upgrade from the credit ratings agencies for the Philippines.

This reminds me of how the Financial Times reported last week, the last working day of Mexican President Vicente Fox. Economic growth in Mexico has been acutely disappointing under his six-year tenure, the FT reports, but the markets are going to miss him.

Fox, according to the FT, made no progress on his agenda of structural reform for the economy, which included widening the tax base, privatizing electricity, opening the oil industry to foreign investment, and loosening labor laws. "GDP per capita fell in the first three years of his tenure. This year, economic growth is on course for 4.7 per-cent, the best year of his sexenio, but still nothing exciting."

BUT, the FT observes, "Mexican stocks have prospered. In dollar terms, the benchmark IPC index has returned 310 percent since he took office (26.6 percent per year). In peso terms it is up 380 percent (30 percent per year), according to Bloomberg data. For comparison, the S&P 500 has gained 2.8 percent a year over the same period; and the Nikkei 225, 1.2 percent. The MSCI emerging markets index has gained 17.5 percent per year… This goes beyond stocks. Mexico has the world’s fastest-growing derivatives market, while corporate bond issuance has risen at more than 60 percent per year under Fox."

How could this happen? According to the FT, "Mexico achieved this because of a stability dividend. At the macroeconomic level, the authorities have been orthodox, driving down the budget deficit and squeezing out inflation. At the level of microeconomics, a series of reforms to bankruptcy, corporate governance, housing finance, and pensions, have lowered the cost of capital. The pool of patient capital represented by the Afores private pension funds has quadrupled under Fox and now stands at almost $100 billion."

The lesson for emerging markets, the FT says, is that stability pays . "Fox leaves office amid social unrest in Mexico’s poor south. If governments adopt such policies, the key question for investors is political: can politicians persuade the populace to remain patient while waiting for that stability to pay dividends?"

I can see the Philippines in Mexico’s shoes. We have to give credit to Ate Glue’s ability to rein in the fiscal deficit. And even if other structural reforms are taking long to realize, many of them are now in place. We also have the added advantage of having OFWs and their remittances. Believe it or not, we may actually be starting to enjoy the stability dividend FT is talking about.

Hopefully, as FT wrote about Mexico, our politicians can persuade our masa who have so far been eluded by any dividend from our economy’s upside to remain a little more patient and wait for that stability to pay a large enough dividend to benefit them too. The large number of people who are going hungry in our country is a very real threat to stability.

Also, with our penchant for shooting ourselves in the foot, I cannot help being skeptical that a happy ending is in store for us between now and 2010. I see our politicians breaking the stability story next year as they desperately try to force constitutional changes down the throats of a population that are not too eager to allow them to do just that. It is time for de Venecia, Nograles, Pichay and company to think nation first before personal political ambitions. But that’s asking too much.

Drug cartel

I received this e-mail from Dave Martinez of Tacloban City.

As a frequent reader of your article, I would like to extend my appreciation of your columns. I will have to specifically react to the Nov. 29, 2006 article you wrote about the prices of medicines in our country. It’s a sad reality that the prices of medicines here in the Philippines rank one of the highest in Asia, which is something we shouldn’t be proud of.

This sad scenario is worsened by being coupled with unfair discounting schemes of some multinational pharmaceutical companies almost exclusively to the biggest retail drugstore chain in the country. How about the patients who don’t have that particular major drugstore chain in their area? Do they get to enjoy the same discount as much as 50 percent?

This slowly kills the small and medium drugstores who, not only have lost sales but have already lost goodwill and loyalty to their customers because simply the inability to extend the discount. More importantly, the discount scheme deprives the basic right of the consumer to affordable and quality medicines since this discounting scheme is almost exclusively available only at the biggest retail drugstore chain in the country.

Not only the multinational company you mentioned on your Nov. 29, 2006 article, there are other multinational companies following the same discounting scheme. This is predatory and unfair to the drugstore industry, in my humble opionion. And might just spell doom in the next few years for the small and medium enterprise "botika". I thought we were on the campaign on promoting SMEs in the country.

Norvasc 5mg tablet sells here in the Philippines at estimated retail price of P45 per tablet. The same drug can be bought in other countries as low as P5-P6 per tablet. A poor patient who has a mere P50 left for his healthcare needs could have bought around eight tablets in other countries to help him alleviate his health condition, compared to just 1 tablet bought here in the Philippines.

Our government must act on this matter in urgency if we want to save Juan dela Cruz. There is a House Resolution No. 1423 submitted in Congress last Nov. 14, 2006 by Congressman Rey Aquino, entitled: "Resolution Directing the Appropriate Committees of the House of Representatives to Inquire into the Possibility of Multinational Pharmaceutical Companies to offer Low-priced Medicines to the Greater Majority of Filipinos". There is also a Senate Bill No. 2263 submitted by Senator Mar Roxas which he delivered a sponsorship speech last August 16, 2006 entitled: "A Just Cause: Quality Affordable Medicines for All". These two bills can be a good starting point.

Affordable & quality medicines should be a right of every consumer, not only a privilege.

Thank you. God bless our country.

Women are smarter

Reader Lal Chatlani sent this one.

When single, unattached Dan found out he was going to inherit a fortune when his sickly father was about to die, he decided he needed a woman to enjoy it with.

So one evening he went to a singles bar where he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away. "I may look like just an ordinary man," he said as he walked up to her "but in just a week or two, my father will die, and I’ll inherit $20 million."

Impressed, the woman went home with him that evening and, three days later, she became his stepmother.

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