INCREASED BUDGET FOR THE POOR URGED AMID GLOBAL CRISIS

With the worsening crisis of the US and global economy expected to further aggravate poverty in the country, independent think-tank IBON Foundation today said that it has become more crucial for government to ensure enough resources are spent for the poor.

IBON said that the Arroyo administration must start by increasing the allocation for social services in the 2009 national budget. The group criticized the allocation of 2.5% of the total budget for health; 13% for education; and 0.4% for housing as atrociously low especially in today’s environment of rapidly rising prices and greater economic uncertainty.

IBON said that the perennially low budget allocation for social services will have a deeper repercussion on the poor and vulnerable sectors as the deteriorating global economic crisis destroys more jobs and livelihood and inflates the cost of living.

Experts count slowdown in export demand, tighter flows in foreign investments and increased speculation in food and fuel prices as among the consequences of the US financial crisis and overall slump in the world economy.

With increased poverty, it becomes more urgent for government to provide sufficient social services such as health, education and housing. But the proposed budget levels obviously could not cover the expected increased demand for public schools and hospitals among others.

For the past ten years, government has been spending an amount equivalent to 2.1% of the gross domestic product (GDP) for education, way below the international standards of 5% to 6%. For health, it has been spending only 3.2% of the GDP, lower than the norm set by the World Health Organization (WHO).

IBON said that the government should at least meet these levels to alleviate the present condition in the country seen to worsen with the global crisis. To increase spending for social services, government should put a stop to burdensome payments and cut back on military spending. The proposed budget for 2008 allocates P683 billion for debt principal and interest payment, while it allocates P5 billion for AFP modernization. In contrast, government allots only P30 million for health care asssitance.

The group added the removal of regressive taxes such as the reformed value-added tax (RVAT) on oil is equally urgent to lessen the inflationary impact of the financial crisis.

The Arroyo government should also abandon its proposal for new taxes because these will further burden the Filipinos already suffering from low incomes and spiraling cost of living. IBON also urged the administration not to use the global crisis as an excuse to impose more taxes in its effort to achieve a balanced budget.



Advertisements

RP EXPOSURE TO U.S. FINANCIAL CRISIS TO RESULT IN BUSINESS SLOWDOWN

The exposure of Philippine banks to the global financial crisis will result in the contraction of local businesses and job losses because economic liberalization has made the local banking system vulnerable to external factors. 

According to research group IBON Foundation, Philippine banks are merely a conduit of foreign capital, and being in a liberalized and deregulated environment, are vulnerable to the current volatility of global finance.

Even as the Bangko Sentral ng Pilipinas has assured the public that only a few local banks have exposure to cash-strapped US investment banks, the impact on local businesses will be felt since majority of investments in the country are dominated by foreign capital, accounting to around 54% of total flows in the country. Thus though not exposed to the Lehman Brothers, investments in the country are affected by the jitters of foreign capital.

The local banking system, dominated by foreign banks, will likely be prudent in lending to small local businesses and would instead opt to protect large businesses with foreign capital. Unavailable access to lending would result in business slowdown and possibly lead to more establishment closures. As it is, financial losses have led to a significant number of closures among establishments in the past years.

Business slowdown will worsen the country’s unemployment, which is already at its record high, as business owners will be forced to cut down on their labor force or close shop. Job losses will be first felt in all trade and investment enclaves in the country, both manufacturing and business process outsourcing (BPOs), and then by the few Filipino firms exporting to the US and related markets. 

The global crisis will further worsen the Philippines’ own economic crisis as neoliberal reforms have further deepened its links to the US and the global economy. However, the economy would have been less vulnerable if the domestic economy were not overly dependent on trade, foreign loans and capital, and if nationalist economic policies were in place

30th Anniversary Lecture Series: In celebration of 30 years of providing the Filipino people

In celebration of 30 years of providing the Filipino people
with relevant research, information and pro-people education

IBON Foundation, Inc.

invites you to its
30th Anniversary Lecture Series

 

Failure of Oil Deregulation and                               October 7, Tuesday
the Struggle Against Oil Monopoly                        

 
Economic, Social and Cultural Rights                     November 7, Friday
and Deepening Philippine Poverty                         

Social Research: Methods, Practice                        December 5, Friday
and Insights                                                          

 
The lectures will be held at 1-5 pm at the IBON Center, 114 Timog AvenueQuezon City. For inquiries, please call 927-7060 to 62 (Look for Gina, Tes or Joseph).

Gov’t to sell remaining Petron stake

MANILA, Philippines — The government has decided to sell its 40-percent stake in Petron Corp., the country’s biggest oil refiner, and is looking to get about P25 billion ($530 million), the finance secretary said.

London-based Ashmore Group, which owns slightly over 50 percent of the company, has right of first refusal, Margarito Teves told reporters late Tuesday.

“The Privatization Council approved the sale on Tuesday,” he said. “Hopefully, we can book the proceeds by December. Hopefully we can get P25 billion.”

SEA Refinery Holdings BV, owned by Ashmore Investment Management Limited, agreed to buy a 40-percent stake in Petron from Saudi Aramco for $550 million earlier this year.

In June, it offered to buy the remaining 60-percent stake, or 5.63 billion shares, in Petron at P6.531 per share.

Under Philippine corporate laws, an entity buying a 30-percent stake in any company must make a tender offer for the rest of the company.

At the end of the tender offer in July, SEA Refinery received tenders for a total of 990.98 million common shares, or a total of P6.5 billion, from minority shareholders, the company said in a statement to the stock exchange.

At the time, the government did not participate in the tender, saying it was hoping for a better price. Ashmore’s holding in Petron is now at 50.57 percent.

($1 = P47.26)MANILA, Philippines — The government has decided to sell its 40-percent stake in Petron Corp., the country’s biggest oil refiner, and is looking to get about P25 billion ($530 million), the finance secretary said.

London-based Ashmore Group, which owns slightly over 50 percent of the company, has right of first refusal, Margarito Teves told reporters late Tuesday.

“The Privatization Council approved the sale on Tuesday,” he said. “Hopefully, we can book the proceeds by December. Hopefully we can get P25 billion.”

SEA Refinery Holdings BV, owned by Ashmore Investment Management Limited, agreed to buy a 40-percent stake in Petron from Saudi Aramco for $550 million earlier this year.

In June, it offered to buy the remaining 60-percent stake, or 5.63 billion shares, in Petron at P6.531 per share.

Under Philippine corporate laws, an entity buying a 30-percent stake in any company must make a tender offer for the rest of the company.

At the end of the tender offer in July, SEA Refinery received tenders for a total of 990.98 million common shares, or a total of P6.5 billion, from minority shareholders, the company said in a statement to the stock exchange.

At the time, the government did not participate in the tender, saying it was hoping for a better price. Ashmore’s holding in Petron is now at 50.57 percent.

($1 = P47.26)

Catholic laities back Panlilio

philippinesBy Nestor P. Burgos Jr.
Visayas Bureau
First Posted 18:47:00 10/01/2008

 

ILOILO CITY, Philippines—The national organization of the Catholic laity has thrown its support behind beleaguered Pampanga Governor Eddie “Ed” Panlilio, who is facing a recall campaign to oust him from office.

In a statement issued Wednesday at the culmination of a three-day national convention of the Council of the Laity of the Philippines held here, the national organization of Catholic lay people declared their support for Panlilio’s campaign to “promote integrity and honesty in government.”

The statement was issued as Catholic Church leaders called on the laity to be at the forefront of the fight against graft and corruption and for good governance barely two years before the next national elections in 2010.

“We are backing (Panlilio) in his fight for good governance and his battle against the proposed recall, which will bring to naught his noble and difficult work against graft and corruption,” the group said in a statement.

The resolution was approved by around 500 delegates representing the dioceses of the country.

Panlilio, who is on leave from his duties as priest, was one of the speakers during the opening of the convention last Monday. He was no longer around when the resolution was passed on Wednesday, according to convention secretariat member Joseph Jesalva.

He won the gubernatorial race in a landmark victory against powerful political figures, defeating former provincial board member Lilia Pineda and then incumbent Governor Mark Lapid in the 2007 elections. He rode on a platform calling for reforms, good governance and an end to traditional politics of money, patronage, influence-peddling.

But he is facing a recall bid initiated by a non-government organization led by a former election campaigner of Pineda.

Citing loss of confidence in the governor’s leadership, the group aims to gather the signature of at least 100,000 registered voters in the province. The number is more than 10 percent of the 977,000 registered voters of Pampanga, a requirement in a recall election.

Church leaders have called on lay people to be more active in fighting graft and corruption.

Jaro Archbishop Angel Lagdameo, president of the Catholic Bishops’ Conference of the Philippines (CBCP), who spoke during the convention, said graft and corruption has been among the most pressing problems of the country.

“The convention is very practical because this is a good preparation for the forthcoming national elections,” Lagdameo told the Philippine Daily Inquirer, parent company of INQUIRER.net.

“The Church encourages the vigorous participation of the laity in governance not only in the Church but also of society. The laity must be at the forefront in solving our social problems,” the prelate said.

Bishop Gabriel V. Reyes, chair of the CBCP’s Episcopal Commission on the Laity, said lay people could help minimize if not eradicate corruption.

“Bishops and priests can only exhort them to do it and to provide spiritual formation, but they should be at the forefront,” Reyes said in a separate interview.

He said that based on reports and accounts of lay people, graft and corruption in government has been worsening.

“The challenge to all government officials in all levels of governance is to live the faith,” said Reyes.

In his homily during a Mass, Reyes acknowledged that corruption in government has been institutionalized in the country.

“It must be hard to be good, to be a Christian politician in the Philippines,” he said.

Reyes said he could see corruption even in the Church.

“There is corruption in the Church because we are human. But not as much as in government,” he said, drawing laughter and applause from the audience.

When interviewed later, Reyes said the practice of giving the “SOP,” or kickbacks to government officials as “standard operating procedure” in state-funded projects, purchases or transactions, should be stopped.

Reyes lamented the accepting attitude of most people to corruption.

“There must be a change in mindset. It is not acceptable. It is wrong,” said Reyes.

SPECULATION: A CLOSER LOOK AT OIL PRICE HIKES

(First of a series)

Skyrocketing oil prices have become a global concern and a source of much debate as to what really lies behind them

IBON Features– The market price of crude oil has more than doubled over the past year to reach record-high levels of over US$147 per barrel last July. And oil prices continue to fluctuate, with industry players blaming a number of factors, including jitters caused by the current financial crisis in the US. Skyrocketing oil prices have thus become a global concern and a source of much debate as to what really lies behind them.

Executives from the major oil companies who were recently grilled before the US Senate Judiciary Committee once again attributed record-high oil prices to “the fundamental laws of supply and demand.” But while such market factors are responsible to a certain extent for high prices, they do not take into account other factors, such as speculation. Crude oil, also known as petroleum, is the most actively traded commodity in the world, with the largest markets in New York, London and Singapore Exchanges. Prices commonly quoted are those in spot markets (Dubai for crude and MOPS forrefined petroleum products).

In an article that appeared in BusinessWeek in May, Larry Chom, chief economist for Platts (the world’s leading provider of energy information), said that the actual costs in producing the most expensive barrel of oil is only around $70 or $80 a barrel, with the remainder the “market’s risk premium plus speculation”. This implies that the current price of US$147 a barrel is inflated by some $67 to $77 a barrel due to speculation.

Speculation artificially increases oil prices because most oil is not traded in spot or futures markets but through long-term supply contracts. Because ofvertical integration, most oil traded is between TNCs divisions (intra-TNC transactions) and do not need a spot market, yet the amount or the volume of trading in the commodity markets has substantially influenced pricing.

It should be noted, however, that oil transnational corporations, while they may not be directly engaged in speculation, do benefit from it. At the Senate hearing, John Hofmeister, president of Shell Oil, the US arm of Royal Dutch Shell, admitted that his company could be successful with oil prices at $35 to $65 a barrel. A mid-2006 report released by the Bank of Kuwait said that in Saudi Arabia, the break-even point on a barrel of crude is US$33, while in Kuwait it is only US$17. 

Thus, the current US crude-oil futures price represents record windfall profits for the oil companies. Exxon Mobil, the largest oil company, reported record 2007 profit of US$40.6 billion while Royal Dutch Shell reported the largest earnings of any company in Britain of some US$31 billion.

But speculation itself is not enough to explain high oil prices. For that, the structure of the global oil industry itself must be scrutinized. Historically, the global oil market has never enjoyed genuine free competition since it has constantly been dominated by a handful of American and European oil giants. The current term for these oil giants is
“supermajors,”  meaning vertically-integrated private-sector oil and gas companies engaged in all stages of the oil industry– exploration, production, refining, trading, marketing, and, sometimes, transportation.

The six “supermajors” are: ExxonMobil (US), Royal Dutch Shell (UK-Netherlands), British Petroleum (UK), Total (France), Chevron Texaco (US) and Conoco Philips (US). These six firms jointly account for US$1,482 billion in revenues and US$134 billion in profits as of 2006 according to Fortune magazine. They can also produce more than 80 million barrels per day of crude and refine more than 112 million barrels per day of various petroleum products.

The monopoly control the oil firms exert over the market allows them to manipulate prices. In 2006, for example, the US Commodity Futures Trading Commission filed a civil lawsuit against British Petroleum (BP) North America, alleging that BP traders– with the consent of senior management– “purchased enormous quantities of propane” to establish a dominant position in the market and then withhold fuel in order to drive prices higher.

It is also a myth that the Organization of Petroleum Exporting Countries (OPEC) dictates world oil prices. Although the OPEC member-countries account for two-thirds of the world’s oil reserves, and, as of March 2008, 35.6% of global oil production, the supermajors still control the infrastructure needed to transport and refine crude oil, and market and retail refined oil products. The supermajors in fact currently account for one-third of global refining capacity.

Meanwhile, Big Oil has also been blaming state-owned oil firms such as Gazprom (Russia) and the National Iranian Oil Company (Iran) for high prices by claiming these firms deliberately maintain low production in the same way OPEC does. In fact, the largest state owned oil firms have been lumped together by analysts as the “New Seven Sisters,” a reference to the seven largest oil firms that controlled the industry in the mid-20th Century. State-owned oil monopolies reportedly account for more than 90% of the world’s oil reserves.

But these claims may only be a ploy to pressure these oil monopolies to allow more investments by the supermajors. Mexico’s constitution since the 1930s has prohibited any foreign investment in the local oil sector. Venezuela, Russia and Ecuador closely collaborated with Western firms in the 1990s but recently started seizing their assets through a series of privatizations. Peter Robertson, vice chairman of Chevron Corp., has said if major oil companies had access to the vast resources of these countries, they would be using their ample profits to pump more oil at cheaper prices.

Locally, the Big Oil TNCs use their monopoly position to manipulate prices. Since oil firms’ purchases are actually under contract arrangements, this provides room for the local subsidiaries of Big Oil to generate more profits by jacking up pump prices whenever the spot market prices goes up, even if their oil prices have been negotiated long before with lower prices. This explains the weekly oil price hikes that have followed in the wake of upward movements in the oil spot market. 

Locally under a deregulated environment, consumers are left with no choice but to bear the brunt of the increases in domestic pump prices caused by speculation and wild price hikes in the global oil market. Meanwhile, speculators and the giant oil companies rake in billion of dollars in profits. 

While it is true that the Philippine government cannot control the activities of the speculators and the giant oil corporations, it can intervene at least in the local oil industry to protect the Filipino consumers. Unfortunately, amid the hardship that Filipinos face because of high oil prices, government continues to waive its authority to regulate the local oil industry.

RP VULNERABLE TO U.S., GLOBAL FINANCIAL CRISIS: ECONOMIC RELIEF TO PEOPLE URGENT

Contrary to Pres. Arroyo’s statement that her administration’s economic measures will withstand the current global financial crisis, research group IBON Foundation says it is precisely government’s economic strategies that have made the Philippine economy overly vulnerable to external factors.

The chronic dependence on exports, foreign investment and debt– including official development aid that ends up as foreign debt– is at the heart of the economy’s vulnerability. Economic relief measures are thus urgent as the people will bear the brunt of the effects of the global crisis on the Philippine economy.

The government overplays the so-called “decoupling” effect where the Philippines is supposedly much less dependent on the US market. On the contrary, developments in the US will still have a severe impact on the local economy as the US remains one of the country’s top exports and investments partners. Third-party partners such as South and East Asian markets are also finally linked to the US ambit.

Drops in US consumption and investments will be deeply felt as the largest part of Philippine exports directly or indirectly goes to the US . Around 20% of foreign investment in the country comes from the US . Further, some 20% of exports already directly go to the US but a large part of exports to Japan, China , Hong Kong , South Korea , Taiwan and Malaysia which take up another 50% of exports, are actually components for assembly into products whose final destination is still the US . Slower growth in third party countries that depend on the US and which the Philippines deals with will also have adverse effects on Philippine exports manufacturing.

Even the vaunted local information technology (IT)-enabled industry will be likely hit hard because of its considerable dependence on the US market, further aggravated by the continued peso appreciation. The US is an overwhelming presence in the business process outsourcing (BPO) sector and accounted for nearly 90% of total BPO exports revenue and over two-thirds of foreign equity in 2005. The impact will be most felt in the National Capital Region (NCR) where an estimated 80% of BPO employees are located.

Slow global growth could restrain OFW deployments and slow down remittances which will reduce domestic consumption. The global financial crunch could also result in further cuts in the salary and benefits of OFWs as employers react to the crisis. All this highlights the folly of government economic strategies which unduly rely on external factors instead of creating jobs and producing goods by building domestic agriculture and industry.

Immediate economic relief measures have to be taken to arrest the inflationary impact of the financial crisis starting with the removal of the regressive RVAT on oil. Other urgent measures include implementing a nationwide across-the-board wage hike, increasing the budget for social services, and suspending debt payments because of the people’s urgent need for resources and support.

It is becoming all the more urgent for the government to put a stop to failed policies of globalization. Beyond the immediate economic relief, much more meaningful over the longer term is to focus all efforts to build a genuinely self-reliant domestic economy.