Why I’m for Mitt Romney

Posted in Manuel Buencamino by uniffors on the September 27th, 2012

Now I’m not an American so I can’t vote in November’s presidential election. But if I were and I could, them I would vote for Mitt Romney. I know, why would a working class stiff like me endorse a plutocrat, right? Well because I think there are issues that are more immediate than class war.

Like a lot of ordinary working class people I enjoy taking in a little bit of fresh air while flying 570 mph at 40 thousand feet and Romney is the candidate who said he would ask aircraft companies to manufacture planes with windows that can be rolled down during flight. Now if that does not convince you that the man is in touch I don’t know what will.

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Harry Roque’s way

Posted in Manuel Buencamino by uniffors on the September 23rd, 2012

Atorni, bakit ka nandadamay?

“There comes a point where making a point is pointless. And reckless.” – Philip Gilmore 

UP banned the screening of the “Innocence of Muslims” to ensure the safety and security of everyone on its campus. But a human rights lawyer and constitutional law lecturer at the UP, would have none of it. He defied the ban and screened the movie for his class, as a teaching tool on the freedom of expression. Damn the torpedoes!

Or as he put it, “As an academic, as a lawyer, I cannot allow rights to be infringed upon. I am in perfect discharge of my duties as a law professor and I’m willing to take whatever consequence.” Eh damn the torpedoes nga!

Alright, so he wanted to make a point about the freedom of expression. But there’s a point where making a point is pointless. And reckless.

So what if he had no intention of adding to the Muslims’ rage, that he was only standing up for the freedom of expression. The purity of his intentions does not matter because there is an equally important issue that cannot be ignored.

There is an offended party involved and he is very angry. He cannot be put aside, asked to hold his anger in check, while the lawyer-professor, to make a point about freedom of expression under our Constitution, screens a movie that slanders Muhammad.

He knew that Muslims in over 20 countries reacted violently to the movie why did he have to risk riling local Muslims who have displayed admirable restraint so far? Why test the limits of their tolerance? 

The thing is he won’t even concede that the movie is offensive to Muslims. The first sentence of his Inquirer column last Friday – Free Expression and mob rule – was, “An allegedly anti-Islam trailer has reopened the debate on where the limits to freedom of expression should be.”  Allegedly anti-Islam? In the next sentence he wrote that the movie depicts Mohammad as “a fraud, a womanizer, and a pedophile”. What further proof does he need to say unequivocally that the movie is anti-Islam?

He then warned that banning ‘expression that prods members of a religious group to violent reaction is a “slippery slope” as far as freedom of expression is concerned.’ And he went on to prescribe, “the remedy in a democratic society is not to ban such a film, but for Muslims to prove in both word and deed that the affront is apparent and real. Certainly, the resort to mob rule is not the means to prevail in the free marketplace of ideas.” 

Wait a minute. Let’s analyze the prescription.

The Muslims have to prove in both word and deed that the affront is apparent and real? They torched an embassy and killed an ambassador, is that proof enough that the affront was apparent and real to them? Or was the lawyer saying Muslims must first prove that Muhammad was not a fraud, a womanizer, and a pedophile before they can rampage? Or was he in fact saying if I call your mother a whore the proper response is to show me I’m wrong and not to kick my teeth in?

Certainly, the resort to mob rule is not the means to prevail in the free marketplace of ideas. But certainly as well there are people who believe that mob rule is the only way they can liberate themselves from the free marketplace of ideas dominated by what some American conservatives proudly refer to as “the Judeo-Christian moral code”. 

They have their moral codes, we have ours. What many fail to understand is that the world became interconnected faster than people’s capacity for mutual adjustment. In such a situation, the first instinct is to impose one’s self on the other in order to maintain one’s comfort zone. It takes a while to learn that the only way to have peace is to co-exist and not to impose one’s peace on the other. 

We are still in the culture clash stage. And so when one does something that offends the other, intentionally or not, one cannot expect the other will respond in a like manner, as if only a reversal of roles were involved.

More importantly, one cannot, like the lawyer thinks he can, dictate to the other how he should respond. He will respond in the way he responds. That’s it. You better be prepared to live with that state of affairs because that will be it until such time as we all get to know each other well enough to agree on a code of conduct.

For Muslims freedom of expression does not extend to criticizing their faith. In Islam you cannot blaspheme and expect to get away with a slap on the wrist. That’s their way. It was also the way of Catholics and christians for many centuries. So if it was okay for us then why is it not okay for them now?

There is no right or wrong involved here, we have secularized, they have not. Who has the moral authority to say our way of professing our faith is right and their way is wrong?

The secularized go to war over politics, the religious go to war over faith. Saying one is better than the other is like saying that the cannibal who eats with a knife and fork is superior to the cannibal who eats with his hands. Both are still cannibals, right?

The lawyer could have screened the movie in a rented auditorium or at home and it would have been only him and his invited guests to face “whatever consequences” they were willing to face. They will still be making a point about freedom of expression but they would be doing it without involving those who really don’t give a rat’s ass about defending a bigot’s right to lie about another religion. 

Some people believe that freedom of speech is better served by condemning bigotry and lies than by standing up for the right of bigots and liars to mouth off. They will defend the right to free speech in their own way just as the lawyer will in his own way. Unfortunately, his way put everyone in the UP campus at risk. Nang damay pa.

The thing is until we can all agree on the extent and limits on freedom of expression across cultures and religions, we must settle our differences in places where there is minimal risk of collateral damage. That’s what the lawyer failed to grasp, believing as he did that his idea of freedom of expression is the one size that fits all. He took his fight to the UP campus, a “civilian” zone, instead of a battlefield where only combatants would face-off.

Come to think of it why didn’t he screen the movie at the Quiapo mosque? That’s where he will find people to persuade. That’s where he can prove he has the courage to defend freedom of expression regardless of consequences. His students already share his belief so he does not have to preach to them, right?

Anyway, after the screening, the lawyer-professor proclaimed, “Now that we have seen it, we can confidently say it is trash.”

Christ Almighty  or Alahu Akbar, does one have to taste-test every foul-smelling mound on the sidewalk before he can confidently say “It is dog shit!”? 

Pain beyond forgetting

Posted in Manuel Buencamino by uniffors on the September 20th, 2012

There was, last week, a revived discussion on the jewelry of Imelda Marcos. Sell them? Put them on exhibit? The debate comes up every year around the time of the anniversary of martial law. It distracts from the real sin of martial law, that throughout its 14 year span torture, disappearances, and summary executions became a part of life for thousands of our people, for both perpetrators and victims.

Sure unbridled corruption during the martial law years caused serious economic hardship to our people but, at the end of the day, to use that overused cliché, it involved only money. Loss of money and economic opportunity can be regained, the scars healed. We are a strong people who have not allowed economic setbacks to destroy our spirit. Martial law and several corrupt administrations after that may have slowed us down but look at where we are now. Proof that when it comes to material losses, we can move on and make up for them through hard work, intelligence, and, of course, a little bit of luck.

What we cannot move away from without any soul searching is the loss of our humanity. “Pain beyond forgetting”, as Interaksyon calls those years of dehumanization, must be dealt with squarely. I recommend that you visit the Interaksyon site and listen to the testimony of victims. Unfortunately it does not have any testimony from the perpetrators. Their side of the story is vital because we have to understand how and why the guardians of peace and security, the enforcers of law and order, idealistic graduates of the Philippine Military Academy and their superiors, turned into monsters who inflicted unimaginable acts of cruelty on their fellow human beings. We have to hear from them why and how they allowed themselves to become what they became. We have to know and, more importantly, they have to know because not knowing is a sure guarantee that it will happen again.

It’s been twenty six years since the rule of law was reestablished in this country and we still have not heard an explanation for what happened, never mind that no one was held accountable. That’s why after all these years since democracy and the rule of law was restored torture, disappearances, and summary executions still take place. Closure, I hate that word but it’s the only word I can think of, has not been reached. We all know how they reached it in South Africa. Through a truth commission where the perpetrators and their victims faced each other and came to an understanding of what they went through. The damage to the perpetrator is just as great if not more so than to the victim. The victim suffered indescribable physical and emotional horrors but the perpetrator lost his humanity and his soul. Can he ever regain it without admitting fault and expressing remorse?

In addition to understanding the dehumanization we went through, we need a museum that will serve as a reminder that man can turn into a monster with the stroke of a pen. The horrors of those years live on in the memories of both victims and perpetrators. Those horrors should die with them, never to see the light of day ever again.

The Viking way

Posted in Brownman's Posts by uniffors on the September 19th, 2012

This is how victims strike back (from Bloomberg news)

    Icelandic Anger Brings Debt Forgiveness in Best Recovery Story
    By Omar R. Valdimarsson – Feb 20, 2012 8:01 AM GMT+0800

    Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.

    Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

    “You could safely say that Iceland holds the world record in household debt relief,” said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. “Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”

    The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.

    The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses.

    Crisis Lessons

    “The lesson to be learned from Iceland’s crisis is that if other countries think it’s necessary to write down debts, they should look at how successful the 110 percent agreement was here,” said Thorolfur Matthiasson, an economics professor at the University of Iceland in Reykjavik, in an interview. “It’s the broadest agreement that’s been undertaken.”

    Without the relief, homeowners would have buckled under the weight of their loans after the ratio of debt to incomes surged to 240 percent in 2008, Matthiasson said.

    Iceland’s $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.

    Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s “unorthodox crisis policy response has succeeded.”

    People Vs Markets

    Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.

    Once it became clear back in October 2008 that the island’s banks were beyond saving, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed.

    Activists say the banks should go even further in their debt relief. Andrea J. Olafsdottir, chairman of the Icelandic Homes Coalition, said she doubts the numbers provided by the banks are reliable.

    “There are indications that some of the financial institutions in question haven’t lost a penny with the measures that they’ve undertaken,” she said.

    Fresh Demands

    According to Kristjan Kristjansson, a spokesman for Landsbankinn hf, the amount written off by the banks is probably larger than the 196.4 billion kronur ($1.6 billion) that the Financial Services Association estimates, since that figure only includes debt relief required by the courts or the government.

    “There are still a lot of people facing difficulties; at the same time there are a lot of people doing fine,” Kristjansson said. “It’s nearly impossible to say when enough is enough; alongside every measure that is taken, there are fresh demands for further action.”

    As a precursor to the global Occupy Wall Street movement and austerity protests across Europe, Icelanders took to the streets after the economic collapse in 2008. Protests escalated in early 2009, forcing police to use teargas to disperse crowds throwing rocks at parliament and the offices of then Prime Minister Geir Haarde. Parliament is still deciding whether to press ahead with an indictment that was brought against him in September 2009 for his role in the crisis.

    A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009. The authorities are now investigating most of the main protagonists of the banking meltdown.

    Legal Aftermath

    Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.

    Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.

    That compares with the U.S., where no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.

    The U.S. subprime crisis sent home prices plunging 33 percent from a 2006 peak. While households there don’t face the same degree of debt relief as that pushed through in Iceland, President Barack Obama this month proposed plans to expand loan modifications, including some principal reductions.

    According to Christensen at Danske Bank, “the bottom line is that if households are insolvent, then the banks just have to go along with it, regardless of the interests of the banks.”

    To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net.

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Just give it to the Ombudsman

Posted in Manuel Buencamino by uniffors on the September 14th, 2012

My unsolicited advice to a couple of friends – one who works in the Palace and another who writes a popular column – was for them to recommend to the President to turn over the whole Puno event to the Ombudsman. That way the President will not be accused of a whitewash if an internal investigation finds groundless the allegations against former DILG undersecretary Rico Puno. Anyway, they think I’m nuts to begin with so they dismissed my suggestion outright. Hopefully, you won’t.

In the US, a Special Prosecutor is named whenever there is an issue that requires independent investigation. That was done in Nixon’s Watergate and several other gates. Neat, right? Except that in the US, the appointment of a special prosecutor is a highly politicized weapon used by both political parties against each other. Normally, it is the party out of the White House that calls for special prosecutors to investigate allegations against members of the Executive. It is rare when there is a bi-partisan call for one.

We don’t have that problem in this country. The framers of our constitution were wise enough to create an independent constitutional office, the Office of the Ombudsman, with the following powers, functions, and duties:

Article XI Sec. 13 of the Constitution:

The Office of the Ombudsman shall have the following powers, functions, and duties:

    1. Investigate on its own, or on complaint by any person, any act or omission of any public official, employee, office or agency, when such act or omission appears to be illegal, unjust, improper, or inefficient.

    2. Direct, upon complaint or at its own instance, any public official or employee of the Government, or any subdivision, agency or instrumentality thereof, as well as of any government-owned or controlled corporation with original charter, to perform and expedite any act or duty required by law, or to stop, prevent, and correct any abuse or impropriety in the performance of duties.

    3. Direct the officer concerned to take appropriate action against a public official or employee at fault, and recommend his removal, suspension, demotion, fine, censure, or prosecution, and ensure compliance therewith.

    4. Direct the officer concerned, in any appropriate case, and subject to such limitations as may be provided by law, to furnish it with copies of documents relating to contracts or transactions entered into by his office involving the disbursement or use of public funds or properties, and report any irregularity to the Commission on Audit for appropriate action.

    5. Request any government agency for assistance and information necessary in the discharge of its responsibilities, and to examine, if necessary, pertinent records and documents.

    6. Publicize matters covered by its investigation when circumstances so warrant and with due prudence.

    7. Determine the causes of inefficiency, red tape, mismanagement, fraud, and corruption in the Government and make recommendations for their elimination and the observance of high standards of ethics and efficiency.

    8. Promulgate its rules of procedure and exercise such other powers or perform such functions or duties as may be provided by law.

If we have a credible Ombudsman, like the one we have now, then the sort of congressional probe that Sen. Miriam Santiago held last Friday will be seen for what it is: nothing more than epal, the slang for self-promotion by politicians at taxpayer’s expense.

Here’s Miriam doing some self-promotion in a Tweet several days before her hearing:

“There will be a lot of sound and fury. There will be a lot of sound from Mr. Puno and maybe a lot of fury from me.” (http://t.co/HDgSSQFe) Was she promoting the Bourne Legacy? Dispensing viagra to our sensationalist media?

Here is more of her teasing in a press interview: “Maybe the president is not defending Mr. Puno, but is just trying to assuage or protect the backers of Usec. Puno.” Asked to name the backers, she replied, “Now, I can’t because I may be accused of unfair allegations without any evidence.” More viagra for reporters and politicians who are always looking for someone to screw.

Previous presidents, Fidel Ramos and Gloria Arroyo, appointed controversial ombudsmen. Their appointees were seen as their personal bodyguards against prosecution. Consequently, the public did not give any credibility to their work.

But that’s not the case with Ombudsman Conchita Carpio-Morales. She proved her independence as an associate justice of the Supreme Court. Her legal acumen plus her independence are beyond reproach. She is nobody’s protector. She ain’t nobody’s fool. That’s why on July 11, 2011 the Daan Matuwid president appointed her to serve as Ombudsman. She will serve until 2018, two years after he steps down from office, enough time for her to go after him if he commits any crime during his incumbency. That proves the president had no self-interest in mind when he appointed her.

Consequently, Ombudsman Carpio-Morales is the right person to look into the allegations against Puno, any member of the Cabinet, and anyone else perceived to have close personal ties to the president, not only because that’s her constitutional mandate but more importantly because she has the credibility to do it.

The President could have saved himself a lot of flak from politicians and media if he had simply announced, “I’ve turned the papers over to the Ombudsman. I await her findings and will respect whatever action she may decide to take. If you have any questions, go see her. Now let me get back to work.”

Trust me on this one, Mr. President.

The tax on tobacco

Posted in Brownman's Posts by uniffors on the September 14th, 2012

Excising a killer
by Dean de la Paz/Through the Looking Glass

THE term “excise” has come to mean to expunge or expurgate. Under taxation, it actually means a levy on an activity government seeks to control. This is achieved by making the activity more expensive by appending prohibitive taxes thus penalizing usage. The colloquial term “sin tax” is often interchangeably applied on excises slapped on goods deemed undesirable such as tobacco.

Under the technical definition, the levy on consumption is incorporated in a product’s price. Similarly, the technical definition of a “sin” tax is a state-imposed levy to discourage consumption without outlawing the product.

The similarities are profound. The etymology of “excise” is from the Latin accensare which means “to tax.” The expurgating aspect is, however, now part of current usage. The convolution is welcome and ironically helps us understand the objective of controlling undesirable activities.

While technically the tax should be paid by the producer or seller, in an excise system, the burden transfers to the consumer as producers and sellers recover the tax by raising prices. This is why the tax is a control mechanism and not simply a revenue-generating device.

Control is important where the activity sought to be controlled is deemed detrimental yet tolerated.

Note the economic costs of death and disability by smoking. According to Dr. Antonio Dans of the University of the Philippines College of Medicine, “To treat lung cancer alone, the leading cancer type in the Philippines, health-care costs are already at P1.97 billion.”

He adds “the loss of productivity—the days those afflicted must take a sick leave—costs P0.04 billion while the loss of revenue caused by premature death is a staggering P4.94 billion.” All told, these total P6.95 billion for lung cancer alone.

For the good doctor, “with the costs of chronic lung disease, coronary disease and strokes factored in, the total spent on these non-communicable diseases caused or worsened by smoking amounts to a whopping P188.80 billion per year.” That’s over 1.96 percent of our 2011 gross domestic product.

A presentation by Dr. Hana Ross of the University of Illinois at Chicago shows that the World Bank estimates a $100-billion net loss from tobacco use in developing countries.

That’s a hefty price to pay for the sybaritic pleasures of simulated farting through the mouth.

Critics and some government idiots claim cigarettes are price inelastic. Price elasticity is a function of purchasing power. Dr. Ross’s presentation shows demand in low-income economies can fall by 8 percent against a 10-percent increase in prices. The poverty demographics of tobacco use ensures prohibitive taxes will work if applied single-tiered and exorbitant enough to be painful, while government does its part to jail smugglers of criminally dumped alternatives.

Besides, whether as an excise or a levy on sins, both provide substantial government revenues.

Such was the impetus in August 2004. Confronted with a fiscal crisis, Gloria Arroyo resorted to fiscal measures ranging from adjusting sin taxes by December, to the Attrition Act in January 2005, and then, the expanded value-added tax (E-VAT) law passed in May 2005.

The Attrition Act is a punitive mechanism to compel collections. Given the record so far, it doesn’t seem to have worked. This brings us to the 2004 excise-tax adjustments and the E-Vat.

Note the dates and the sequencing. Politics had so infected the 2004 measure that it necessitated a harsher E-VAT despite widespread public opposition.

What came out in 2004 was a watered-down statute caused by the removal of classifications. Brands prior to 1996 were protected, its taxes frozen while newer brands were slapped higher taxes. After a meeting among congressional leaders, Arroyo and lobbyists, the resulting excise tax structure virtually killed competition, institutionalized a duopoly, and effectively subsidized, if not encouraged, smoking cheaper cigarettes.

So much for curbing an undesirable activity.

Unfortunately, the political infection is endemic. A 2004 paper by K. Alechnowicz and Prof. Simon Chapman of the University of Sydney in Australia says the Philippines “has the strongest tobacco lobby in the region.”

Its findings are worth rekindling. Its abstract states “The Philippines has long suffered a reputation for political corruption where collusion between state and business was based on the exchange of political donations for favorable economic policies. The tobacco industry was able to limit the effectiveness of proposed anti-tobacco legislation.”

Its conclusion says “The politically laissez-faire Philippines presented tobacco companies with an environment ripe for exploitation. Against international standards of progress, the Philippines is among the world’s slowest nations to take tobacco control seriously.”

Exponentially indexing excise taxes to an inflation multiple corrects 2004’s aberration. Hopefully politicians see through the smoke they blow and legislate to snuff this obnoxious killer out. If not for the promise of increased revenues, then for the prospect of a higher quality of life and diminished socioeconomic costs.

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Eating and other disorders

Posted in Brownman's Posts by uniffors on the September 12th, 2012

“My former girlfriend was bulemic and dyslexic. She stuck her finger up her ass after every meal.” – Howie Mandel

An undervaluation strategy

Posted in Brownman's Posts,Economic Affairs by uniffors on the September 10th, 2012

And now for some stuff that’s a bit over my head but which you might find worth thinking about. Here for your edification is a two-part article from Jon Frost, an economist at De Nederlandsche Bank (DNB), the central bank of the Netherlands.

Undervaluation: a second-best solution for growth? – part I by Jon Frost

In a chapter of Philippine Institutions: Growth and Prosperity for All (2010), Filomeno S. Sta. Ana III of Action for Economic Reforms makes the case for an undervaluation strategy for the Philippines. By this, he means not a specific nominal value for the exchange rate (a fixed regime) but rather a policy – led by the government, with central bank support – aiming at real depreciation of the peso, as measured by the real effective exchange rate.

He argues that this strategy would support export-led growth and help prevent costly balance of payments crises resulting from bouts of overvaluation. He notes that this is a “second-best” means of promoting growth, given that reform of institutions and markets – the “first-best solution” – will take a long time to be effective.

In this, he cites work by Harvard’s Dani Rodrik, which shows that real exchange rate undervaluation can have a positive and significant effect on growth for developing countries in general. Rodrik’s point that focusing only on institutions is like “telling developing countries that the way to get rich is to get rich” is well-taken.

Yet aside from Rodrik, there are other well-known economists who have made arguments along these lines. John Williamson, who coined the term “Washington Consensus”, also supports some undervaluation for developing countries, and also “intermediate exchange rate regimes” in between fixed and fully floating. Former Fed chairman Frederic Mishkin, who is cited several times in the paper for his 1997 paper with Bernanke, has pushed for a more flexible approach to inflation targeting – which could allow central banks to pursue an exchange rate goal alongside low inflation.

The experience of China and some others shows that undervaluation may be helpful for domestic growth and exchange rate stability – even during the crisis, when financial contagion and the impact on growth were relatively limited. Of course, this also relates to China’s closed capital account, and says nothing of spillover effects of the fixed exchange rate regime on other countries.

I appreciate Mr. Sta. Ana’s point that the government should adopt the strategy first to ensure consistency with the central bank. Policies like fiscal responsibility – through strengthened taxation and avoiding populist spending – and limiting foreign borrowing would be important. These would support the exchange rate policy and ensure the central bank and government are not pursuing incompatible goals. I have a couple of further thoughts on this line of argument, some critical, some supportive.

First, not every country can have an undervalued exchange rate. As the experience at both the global level and in Europe shows, there are two sides to every coin. Exchange rate regimes have been one factor in the massive global imbalances between China and the oil producers on the one hand, and the US and some others on the other. Persistently higher inflation rates in Greece, Spain and Ireland, combined with wage moderation in Germany, have led to huge imbalances within the euro area. The problem is generally larger on the side of deficit than of surplus countries.

Yet, if the Philippines has an undervalued exchange rate, and with it current account surpluses, and export growth, someone else must have an overvalued exchange rate, and hence current account deficits, and import growth. The exchange rate is a relative price between two currencies, and by definition not all countries can pursue undervaluation. There could be an argument that developing countries should be the beneficiaries of undervaluation, as growth is a clear policy priority – also for the developed world, which spends significant sums on development aid each year. After all, the relative impact (cost) for the global economy is likely much smaller and more broadly borne than the impact (benefit) for the Philippines. Yet someone else would have to bear the burden of overvaluation.

Second, this is precisely the sort of question that should be discussed multilaterally. Specifically the IMF would be the forum to bring this up. It is true that it is difficult for countries like the Philippines to get strong backing for a change in IMF policy (and policy advice) on their own. But it is the job of the IMF to serve as “the machinery for consultation and collaboration on international monetary problems” (Article I.i of the Articles of Agreement) and to “promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation” (Article I.iii).

The last point is very sensitive in practice, especially given the criticism of China’s exchange rate regime, and the considerable pressure from the US. The IMF has recently done new work and created a methodology to assess exchange rate misalignments as part of the External Balance Assessment. This allows policymakers to better understand external imbalances. But this applies only to imbalances in the big systemic economies, i.e. China, the US, UK, Euro area, Japan, and a number of larger advanced and emerging economies. A little bit of undervaluation in a developing country could probably be tolerated, if this is seen as support for a development strategy. Yet it should be presented and discussed multilaterally.

Third, there is an important link with other policy areas like capital account openness, due to the so-called impossible trinity. In the next column, we will look at implementation of an undervaluation strategy, and specifically the relationship with inflation targeting and capital account liberalization.

Undervaluation: a second-best solution for growth? – part II by Jon Frost

If an undervaluation strategy can indeed help support growth, how can it be implemented? Indeed, how does such a strategy relate to inflation targeting and to capital account liberalization?

Mr. Sta Ana is proposing a real exchange rate target, i.e. real undervaluation. As we know from the “impossible trinity”, a central bank cannot pursue a (nominal) fixed exchange rate, open capital accounts and an independent monetary policy simultaneously. One solution could be to (partially) diverge from one or both of the latter.

In the discussion on inflation targeting, I agree that a less doctrinaire approach could look at longer-term inflation prospects, which are also dependent on exchange rate stability. A mature monetary policy could also seek to prevent overvaluation, which could lead to sudden depreciations and hence risks to inflation over the longer term. Yet a change of approach should be well thought out, also for the impact on financial stability. In Europe and the US, there is a discussion on taking financial bubbles into account in monetary policy, which may require raising rates or “leaning against the wind” to prevent growing imbalances. But note that this latter strategy would go in the opposite, more “hawkish” direction. If monetary policy seeks to keep down the exchange rate – i.e. lowering interest rates more than justified by inflation expectation, a “dovish” policy – this can lead to negative real interest rates and the emergence of financial bubbles. This lends credence to the so-called “Tinbergen Rule”, that for each policy target there must be one tool, and that conversely, one tool cannot achieve two goals consistently. Look at what is happening in Turkey right now, where the central bank (CBRT) is clinging to a low policy rate to discourage capital inflows, even as inflation rises. Reserve requirements are being used in parallel, but are so far only partially effective in slowing credit growth. This is also clearly political; Turkish Prime Minister Erdoğan has attacked what he calls the [foreign] “interest rate lobby” and CBRT Governor Başçi has said that Turkey has “the most creative monetary policy in the world”. It is yet to be seen how effective this policy will be. In any case, this underlines that the central bank cannot achieve undervaluation alone, and again that consistency with government (especially fiscal) policy is needed. Run-away inflation would undermine real undervaluation.

One could also consider restrictions on the capital account. The case for a market-based control on inflows (i.e. a Brazilian tax on portfolio flows, or Chilean Unremunerated Reserve Requirement) is well-presented, but not uncontroversial. The IMF has also recently worked on a framework for capital flows, including capital flow management policies, and there has been significant debate on the issue. In the 1990’s, the IMF argued that, like trade restrictions, capital controls are an unnecessary distortion. This point of view has changed. There is some acceptance that – while the first-best strategy is more financial deepening and the development of a strong macroprudential framework – there could be a case for developing countries to liberalize capital accounts slowly, and even reinstate capital controls when other policy options have been exhausted. The point is that, while open capital accounts may be optimal in an idealized world of efficient financial markets, bringing risk diversification and savings to the most productive places, these conditions are not given in practice due to both national and global factors. In the volatile post-crisis environment, with financial de-leveraging and spillovers from unconventional monetary policy, we are even further from the idealized neo-classical world (if we were ever there in the first place). Kose, Prasad and Taylor (2009) argue that there are thresholds in financial development, below which it is not optimal to open the capital account. I am partial to this view, which seems to have informed the IMF’s recent work. Meanwhile, Rodrik (2008) ever the pragmatist, thinks that capital controls should simply be a permanent part of the international monetary system. This loses sight of the fact that capital controls tend to lose their effectiveness and be circumvented over time. Moreover, there are macro-prudential policies, such as limits on foreign exchange-denominated borrowing or open foreign exchange positions, which work similarly without explicitly targeting foreign investors. As Romeo L. Bernardo has written in this paper, such tools are also used in the Philippines. In the longer run, a sound macro-prudential framework, of the kind being developed in many developed and developing countries, could support financial stability, de-burden other areas of macro-economic policy and address the specific risks of cross-border flows. Yet for an intermediate phase toward development, it may be wise to be cautious with international investment flows, and to work on building the pre-conditions for open capital accounts (sound supervision, deepening, open equity markets) before the first-best solution can be pursued.

The author is an economist at De Nederlandsche Bank (DNB), the central bank of the Netherlands. The views expressed here are his own and do not necessarily reflect those of DNB.

**The articles were first published in BusinessWorld’s Yellow Pad.

Korina Sanchez vs. Jojo Binay

Posted in Manuel Buencamino by uniffors on the September 9th, 2012

Vice President Jejomar Binay was deeply offended when Korina Sanchez, ABS CBN news personality and wife of Mar Roxas, warned on-air against “maliliit at maiitim na maligno” who wanted Jesse Robredo’s DILG post.

Korina and Mar’s denials, that she was not referring to Binay, were dismissed not only by Binay but by the public as well because everyone knows that the other “maliit at maitim na maligno” did not express her desire to head the DILG.

“Why will I want the added burden of running DILG when I can hardly keep my head upright with a neck brace?” she reportedly said in an interview with Philip Gilmore over La Vista radio, dZTE.

Childish and inutile

Posted in Manuel Buencamino by uniffors on the September 7th, 2012

Nine associate justices snubbed the oath-taking of Chief Justice Sereno. Seven were not around for her first flag ceremony. Presumably, those justices wanted to demonstrate their disappointment and disapproval over the president’s disregard for the principle of seniority and Sereno’s willingness to abide by it. But, as demonstrations go, it was childish and inutile.

Sereno will remain chief justice for the next 18 years unless she resigns or is impeached, becomes incapacitated or dies. So unless the protesting justices can force her to quit or convince Congress to impeach her or if somehow they can incapacitate or kill her without getting caught, they will just have to live with the fact that she will remain their chief and none of them will ever head the Court.

For those associate justices who can’t live with Sereno and the “trashing” of the principle of seniority, former senator Rene Saguisag offered a suggestion, “To dramatize a passion for the principle of seniority, resign! As was done by Supreme Court Justice Florentino Torres in 1920 and my Evidence teacher, Court of Appeals Justice Pompeyo Diaz in 1954.” That’s the way mature and principled people behave.

Justices claim they hold dearly the practice of appointing the most senior justice to succeed an outgoing chief but evidence proves that they do not hold it as dearly as Justices Torres and Diaz.

Justice Reynato Puno did not resign when Gloria Arroyo skipped him for Justice Artemio Panganiban. He thought about it, he said, but he didn’t do it. Maybe the promise that he would succeed Panganiban after a year’s wait was good enough for him. Justice Antonio Carpio did not resign when Gloria Arroyo appointed Justice Renato Corona who was his junior. Now if Carpio could live with Corona then surely he can live with Sereno. Or is it a case of “Not once but twice!”

So what are these infantile associate justices going to do other than undermine their chief? Are they going to show their true colors and confirm once and for all the reason why out of all the thousands of lawyers qualified to serve as justices of the Supreme Court Gloria Arroyo handpicked them? Think about it. all things being equal, why were they chosen by Gloria? Read their decisions for the definitive answer.

Those justices should resign if only to demonstrate their respect for tradition. And the institution. They are not irreplacable. They are not the last bulwark against undemocratic tendencies if in fact there are any. They are not the finest examples of justice. In fact, as Arroyo appointees, they proved themselves champions of executive orders that not only gagged witnesses from testifying about anomalies but also as facilitators of Gloria Arroyo’s attempt to escape justice.

If those brats in robes are unhappy and unwilling to work then they should leave and make way for those who are willing to work their asses off to reform the judiciary and undo all the damage they have wrought. That’s the honorable thing to do, Your Honors. Rest assured none of you will be missed.

Goodbye and don’t let the door hit your asses on the way out.

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