A Partnership for Progress

8/9/2019 A Partnership for Progress

1/23

1.1 2010 by Prentice Hall

A Partnership for ProgressA Partnership for ProgressBy Gil R. Ramos Ph.d.By Gil R. Ramos Ph.d.

TheThe OverseasOverseasFilipino NationFilipino Nation andand

President NoynoyPresident NoynoyAquinoAquino

TheThe OverseasOverseasFilipino NationFilipino Nation andand

President NoynoyPresident NoynoyAquinoAquino


2/23


Years of Financial MisYears of Financial Mis--ManagementManagement

Foreign and Domestic Portions of Phil Debt StockForeign and Domestic Portions of Phil Debt Stock

Source: Bureau of the Treasury Philippines


3/23


Result: Filipinas is now in deep Sh!!

As of 2010: 96 Billion US Dollars -- 5 Trillion Phil Pesos

$46 Billion US external debt (estimate)


4/23


This External Debt is a Big Problem

Forty Five percent of our debt is externally held. China only has 8 percent of its debtheld by external creditors; Singapore only 2 percent. Their minimal external debtexposure allows these two countries to pursue relatively more efficient developmentpolicies also with minimal interference from external sources.

We on the other hand are constrained to follow suggested economic policies from

external sources. We are not able to pursue independent economic and financialpolicies like activist output/monetary targeting because of this huge external debtrelative to our total debt exposure.

We have to automatically allocate more than 30 percent of our Budget to the service ofthis huge debt. And our expenditure for basic social services like education and healthcare suffers. The historical record shows that our expenditure on these items has beenless than 2 percent of GDP in recent years.

Aside from the forced scrimping on social services on his mind, President Noynoy mustbe wondering aloud where the funds would come from for the massive financialoutlays required to jump start the economy as he moves towards the first SONA of hispresidency.


5/23


How we compare with selected countries !

Country GDP POP GDPshare POPshare GRR -------------------------------------------------------------------------------------------------------- 1 United_States 15000 315 0.24590 0.04500 5.464 2 Japan 5320 129 0.08721 0.01843 4.732 3 Singapore 190 5 0.00311 0.00071 4.361 4 Korea 842 54 0.01380 0.00771 1.789 5 Taiwan 360 30 0.00590 0.00429 1.377 6 Malaysia 215 26 0.00352 0.00371 0.949 7 Thailand 300 66 0.00492 0.00943 0.522 8 China 4758 1500 0.07800 0.21429 0.364 9 Indonesia 530 238 0.00869 0.03400 0.256 10 Philippines 180 94 0.00295 0.01343 0.220 11 India 1243 1150 0.02038 0.16429 0.124 __________________________________________________________ Based on 2009 and 2008 data projected to 2010 values. World Population 2010 (my estimates) 7 Billion. World Product US 61 Trillion. All GDP figures are in current US billion dollars.


6/23


Our leaders and economic managers havebrought us down so low;it hurts!

In the 50swewere ranked at the top 2 in Asia nowwe are cellar dwellerswithIndia.

What the GRRindex tells us is that given a nation's share of theworld'spopulation, a score that is close to one like that of Malaysia in the table meansthat Malaysia is getting a proportion ofworld income flows that is almost equal

to its percentage share of theworld's population. Hence Malaysia is close toUnitaryBalancewhile Thailand, China, Indonesia, the Philippines and India arein a development deficit status. These latter countries mentioned are getting amuch lesser share ofworld income flowswhen compared to their share of theworld's population. Singapore meanwhile is now a firstworld country at thelevel of the US and Japan. Countries in the firstworld category enjoy aproportion ofworld income that is much higher than their share ofworldpopulation.

Comparing the GRRindex results to that given by the HDI - Humandevelopment index of the UN, the rankingswere almost identical. However inthe HDI using 2008 data the UN ranked Japan higher than the US and thePhilippines ranked a bit higher than Indonesiawith India remaining at thebottom.


7/23


June 30, 2010

We will make our countryattractive to investors. We willcut red tape dramatically andimplement stable economic

policies. We will level theplaying field for investors andmake government an enabler,not a hindrance to business.This is the only means by which

we can provide jobs for ourpeople. P-Noy Inaugural Speech


8/23


What Investments ?

46 Billion US to shift the external debt todomestic peso bonds.

38 Billion US to fund the 3.8 million unitshousing gap at 10,000 dollars a unit.

10 Billion US for teacher debt relief Bonds.

10 Billion US for Palengke microfinance

bonds. 10 Billion US for LGU Hospital

development Bonds.


9/23


Too Ambitious:who can afford that?

The Overseas Filipino Nation can!

What is this OFN who are they?

There are about 11 million Filipinos overseas. Conservative estimates put theaggregate income of all these Overseas Filipinos at close to 500Billion US

dollars a year and this is approximately 3 times the expected 2010 GDP of thePhilippines projected at 180 billion US dollars.

The current annual 20 billion US dollar OF remittances to the Philippines aremostly consumption driven remittances and is less than 4 percent of the totalyearlyincome of all Overseas Filipinos.

Assuming an average 20 percent savings rate for Filipinos abroad there is anuntapped potential of 90 Billion a year that can be coaxed and enticed toenter the Philippines as OF investment flows yearly on top of the current 20Billion US dollars in consumption driven remittances.


10/23


How does the OFN comparewith the Philippines & other Nations.

And how does our virtual country of OFN compare with the rest of the world. Let ussee!

In terms of the GDP levels of the world using 2008 data (World Bank and IMF figures),the OFN would be niched between 19th ranked Switzerland with a US $ 494.62 BillionGDP and 20th ranked Belgium with US $ 470.4 billion GDP.

In per capita terms OFN residents have an income of US $44,795.45 each in 2004prices. Compared with the per capita income of the Philippines in 2010 prices which weestimated to be about US $1,915 dollars OFN per capita income is 23 times greater.Compared to OFN residents in the US Philippine per capita income would have to bemultiplied 34 times to achieve parity.

Compared with the rest of the world in per capita terms the OFN fared better than

comparisons with just GDP levels. The OFN per capita ranks higher than Finland witha US $ 44,492 per capita and follows 11th ranked Australia which has a US $ 45,989 percapita income. The OFN figures could actually fare much better if we reflate them from2004 prices to the 2008 priced data that we used for the other countries.


11/23


The OFN and P-Noycanwork together!

In simple language let us re-phrase it thisway - Prez Noynoy needsfunds to fulfill the promises of his mandate. The OFN believes in thecredibility of Prez Noynoys promises and it has the funds to supportthe plans of Noynoys presidency.

The OFNwould be willing to put in additional investment remittancesinflows on top of the consumer remittances of about 20 billion a yeargiven the new found confidence that they have in P-Noys presidency.

The OFN has the potential to double this remittance inflowwhen andif they decide to infuse investment inflows into the country.

Prez Noynoy must create a container for the OFN investmentremittances thatwould enjoy their(OFN) trust and confidence. It islike the phrase build it and theywill come. Put up a container Mr.President onewithout corruption leakages andwe theOFN residentswill put our moneyinto it.


12/23


Overseas Development Fund

The ODF is the container that must be created underthe Office of the President.

The ODFwould have features of a Quango or qangowhich is an acronym (variously spelt out as quasinon-governmental organization, quasi-autonomousnon-governmental organisation, and quasi-autonomous national government organisation)used notablyin the United Kingdom, Australia, andIreland. It is an organisation towhich governmenthas devolved power. In the United Kingdom theofficial term is non-departmental-public-body" orNDPB.


13/23


Organization, Structure, and Leadership

Therewill initially be 7 Directors of the Fund. Two directorswill come from government. Five directorswill come from Overseas Filipino Organizations.

Initially these five directors will also be appointed by the President of thePhilippines.

Subsequently the next set of five directors will be nominated by OF organizations

participating in the ODF. Participating OFOs are associations from overseas who subscribed and holds aminimum of 100 thousand dollar exposure in outstanding Bonds issued throughthe ODF.

The top 5 OFs with the highest nomination votes will automatically sit asdirectors unless the nomination is vetoed by the President of the Philippines. Incase of a presidential veto the next ranking nominee occupies the director vacancy.

As volume of participants/subscribers to the Overseas Development Fund

issuances and direct investment initiatives expand, the number of directors forOF's may expand to 7 and then 9 as required. The total directors of ODF will notexpand beyond 11 inclusive of the two directors from government.


14/23


ODF Executive Officers

The board of directors shall organize the executive officesof the ODF to include the following sections: Research and Communications

Cash and Asset Escrow management (channel for individual

investors also) Marketing

Personnel

Employees of the ODF will be considered private

employees and not part of the government civil service.The ODF will be manned with experienced private sectorhands, organized in the caliber of the ADB, WB, IMF , andleading Banks with the corresponding pay scale


15/23


Clarifying the ODF Entity

The OFN is not an actual nation - it is a virtual one. Assuch it needs a mortar handle to be able to actfunctionally as a nation. that mortar handle is to besupplied by the ODF.

Since the concept of actualizing the remittance fundinflows into the Philippines depends on the credibiltyof Noynoy's presidency and the corollaryconfidence that the OFN would have in hisleadership the control of the mortar handle is shared

with him by the OFN. Still with the veto power that PrezNoynoy have over OFN recommendations effectivecontrol of the ODF remains with the Office of thePresident.


16/23


Why The ODF and not Banks?

The crucial element here is the use of the ODF as the main instrumentin mobilizing these investment remittances instead of the usualchannels. The analogyis one of building a highway by administrationrather than using a contractor. The Bureau of the treasury remains asthe bond issuing fiscal agent but this time instead of dealingwith thebanking system, the government deals directlywith the OFN residents

through the Quango.

The reasonwhy the banking systemwould not significantly figure hereis because they do not have the dollars. It is the OFN residents thathave the hard currencies. Andwith the exception of their consumerremittances they are not putting the majority of their savings inPhilippine banks. OFN saving deposits are in the banks of their

respective host countries. The creation of the ODF provides PrezNoynoy's administration and the OFN organizationswith amechanism to save on the intermediation cost in 'basis ponts'commissions thatwould be incurred if the Philippine banks areunnecessarilyinserted into the picture.


17/23


Characteristics of the Bond

It will be issued mostly as zero coupon bonds with various maturities , 10, 20, and 30 year Bonds.They will be sovereign Bonds guaranteed by the credit of the Philippine Government. It will havesticky features (lottery and debenture elements).

A ten year zero for instance with an 8 percent required annual return will be sold to OFN residentsat less than 500 pesos in 2010 and will be redeemed at its par value of 1000 pesos by 2020.

The bonds will be peso denominated but it has to be bought with dollars or other hard currencyand not pesos.

Since the bonds are bearer instruments and can be sold in the secondary bonds market the stickyfeatures are designed so that the Bonds would tend to stick with the first buyer up to maturity.However these sticky features would be carried over to the current bond holder when such bondsare indeed released into the secondary market. However an OFO or individual must have 100,000dollars worth of bonds in par value at the current exchange rate when executing a nomination voteof a particular prospective director in the ODF.

The first issuances will focus on external debt relief bonds. later other 'silver bullet' bonds liketeacher debt relief bonds and palengke micro finance bonds, housing bonds, oil_exploration bonds,industrial_estate bonds can also be issued. The ODF is really a pass through institution thatfacilitates the direct subscription of peso bonds that is to be paid in hard currencies by the OFNwithout the participation of the Philippine Banking system.


18/23


Implementation Notes

The program must be launched within the next 100 days to take advantage ofthe political momentum of President Noynoy.

It could be announced in the state of the nation address onJuly 26. A process of renegotiating and restructuring service payments on our

external debt stock should also be launched hand in hand with thismobilization of OF Investment inflows.

A process of synchronizing the accumulation effort of commitments andcollection in escrow of payments and investment remittances from OverseasOrganizations should be launched and timed with the expected maturationand repayments of segments of our external debt.

The schedule of privatization efforts of government should also beinventoried so that debenture aspects can be tailored into OF retail bondissuances which holders can use to participate in acquiring government

owned shares in GOCCs targeted to be sold. A one year assessment of the program effort should be done to fine tune it

and make it more effective in accomplishing its stated objectives.


19/23


Initial Outlay

Initial Release of 100 Million Pesos This will come from funds of the office of the President and will

be like a mobilization outlay to seed the Overseas DevelopmentFund

Underwriting margins are expected to be generatedwithin six months

As hard currency external debts mature equivalent peso bonds areissued and retailed to OFW organizations

Seamen organizations are included

Participating OF organizations must subscribe a minimumequivalent of $100,000 US in bonds.

Margins are added into the capitalization to expandthe underwriting scope and reach of the ODF.


20/23


Email Notes 1

The idea is being discussed vigorously inthe Internet among the OFN residents. Weare providing a sample here of the

exchanges.From: Greg Macabenta [mailto:[email protected]] Sent: Sunday, July 18, 2010 6:12 PM To: Ramos, Gil PH/US/EXT Subject: Re: greg - e u referring to this first philippine fund - that is totally

different from the ODF concept

GREG WRITES:

I know it's different. But FilAms were also intended to be tapped. Thequestion is: Did they succeed?


21/23


Email Notes 2

REPLY TO GREG: Lilia Clemente had some limited success.

Hers was a private business which rode on the Cory euphoria of the time. Butparticipation was private and profits made was private. A similar parallel effort to raise

a dollar each from every OFW to finance a car manufacturing plant in the Philippinesfailed because the warning pointed out that the cost of raising a dollar from each OFWcould easily exceed a dollar was disregarded - it was really hairbrained and crazy. Ihave no idea what the involvement of Lilia Clemente was in this car scheme referred tohere.

The ODF on the other hand is not a private business. The process of getting people tosubscribe to the bonds will result in a private decision but the campaign will not be

private but awhole social movement. There will be compensation for effortsmade but there will be no private entity making a private profit.

So tapping the OFW's is the only similar part of the program - a small part and therelies the big difference.


22/23


Email Notes 3

Hence the ODF is like a multilateral organization like the IMF or theWB or the ADB - only it is funded by OFN residents and is specializedin helping the Philippines . The escrow process will be specificallydefined such that there will be almost a kaliwaan process from

source to target creditor or target funds -- not allowing for diversionsto general budget funds like what happened to the French loan forclimate change. The bond is a sovereign peso bond and not a privatestock as what the Philippine Fund was selling. That is a world of adifference. And the response of the OFW's will also be a world of adifference. Bonds or Cd's are within the grasp of the inverstment IQ'sof most Ofw's.

The Philippine Government implementing this alone will notsucceed. It should be a joint initiative of Philippine Leaders andLeaders of the OFW Communities all throughout the world.


23/23


Email Notes 4

Same with a pure private implementation - the scale of success targeted - will also not be achieved.

The business as usual way of doing things even with the envisioned peso bonds for theinternational market will not solve our problems. Given the scale of our external debt at present.

Only the joint effort of NOYNOY inspired government leaders and the OFW leaders similarly

inspired will get this to an acceptable level of success. Government trying to develop their own setof OFW leaders to do this will not succeed. This has been shown to be true in the past. It is likedeveloping a company union to cooperate with management - no real industrial peace will ensue.The appointment of community consuls to assist the ODF effort is a totally different matter. In this- we are putting up facilitators for the ODF program and not imposing them as OFW leaders intheir respective communities.

The idea of OFW's wanting to help Noynoyat their own volition and Prez Noynoy providing thewerewithals in terms ofan institutional container to make it happen must not be bastardized or

else it will be a failure. And the nation and OFN residents will have lost a historic opportunitywhichwill never come again in our lifetimes. And it would become very difficult for OFN residentsto trust the government again.

Documents

A Partnership for Progress