Ed’s Online Journal

     With global food prices escalating by 43% this year, a recent report by
the Asian Development Bank (ADB) warns that rising food price inflation could
increase the ranks of 1.5 billion Asians subsisting in less than $2 a day.

      To illustrate the effects of food inflation, the ADB calculated that
with every 10per cent increase in food prices, 2.72 million Filipinos will
become poor. In 2006, 27.6 million Filipinos made ends meet with less than a
dollar a day. Given the 12per cent increase in food prices this year, it is
very likely that the number of poor has already risen to more than 30 million
or a third of our population.

      Estimates
by agricultural experts show that global food prices would remain high for the
next four or five years, while John Bruton, Ambassador of the European Union to
the United States,
predicts this trend will continue for the next ten to fifteen years.

      This
warrants heightened regional efforts at ensuring food security. Home to the
largest rice exporters and importers, Southeast Asia
should begin cooperating towards regional food self-sufficiency.

   There
are various vehicles to this end. The Association of Southeast Asian Nations,
for instance, can serve as a base to build a framework for multilateral
dialogue and collaboration in managing food supplies and prices. Through
dialogue facilitated by the ASEAN, importing and exporting countries can share
information on cross-country stocks and prospects to enable rational and more
moderate, long-term assessments of supplies and prices.

      The
ASEAN Emergency Rice Reserve, which was set up back in 1979, should be strengthened
and updated to meet the increasing demands of population growth and the changes
in the world trade regime. Currently,
the Rice Reserve’s initial stock, amounting to 50,000 metric tons, does not
even reach half a day’s combined consumption of ASEAN countries.

      Under
this set up, Southeast Asian countries facing shortages could tap into a
regional rice reserve, which sources its stocks from what ASEAN member
countries have set aside to prepare for sudden shortages in global supply. But
because it leaves negotiations at the bilateral level — thus placing the
country in need under the mercy of the supplier-country — not one ASEAN member
has used it for the 25 years it existed. Indonesia, for instance, opted to
borrow from the International Monetary Fund and World Bank instead of applying
for rice stocks from the Rice Reserve during its food crisis in 1997.

          On May 6, I was one of five international panelists during the 16th annual meeting of the UN Commission on Sustainable Development, together with Ambassador Piragibe Dos Santos Tarrago of Brazil, Dr. Christ Leaver of Oxford University, Professor He Mauchun of Tsinghua University, and Dr. John Pender of the International Food Policy Research Institute (IFPRI). We discussed the role of technology, international trade, and market access in promoting and sustaining agriculture and rural development.

            In the same meeting, a representative of the Australian government said they maintain a "robust science-based biosecurity system" to protect their country from pests and diseases, and that they acknowledge that the strict quarantine measures they impose present serious challenges for developing countries to enter their markets.

             I find that statement downright hypocritical. Technical barriers are often abused as disguised obstacles to trade, and Australia is not a novice to such practices.

           The current trade between the Philippines and Australia highlights this point clearly.  For decades, Australia has effectively prevented Philippine exports, particularly mango, bananas, and pineapples from entering the country by applying unreasonably stringent sanitary and phytosanitary standards.

           For instance, Australia allows the entry only of decrowned pineapples, rendering them uncompetitive, because without its crown, pineapples last for only a day. And while our mangoes meet the high standards of Japan, Australia allows only mangoes from Guimaras to enter its market.

          Until now, Australia has successfully banned Philippine banana imports by postponing the issuance of an Import Risk Analysis year after year. It is also no coincidence that Australia has an influential group of banana lobbyists, which created a ‘banana fighting fund’ in 2000.

          There is a need to expedite the process of identifying whether or not technical barriers are used to bar trade. The current system where each country sets its own standards and does its own assessment — thus effectively acting as prosecutor-judge-and-jury — is unacceptable. An international tribunal that can objectively ascertain whether or not such technical measures are indeed legitimate should be set up.

           Professor He Mauchun, an agriculture trade expert, said that the current level of aid is ‘far from the commitments, far from the needs and far from the donors’ capacity."

           I support that notion. For the last two decades, global aid to agriculture has fallen by 66%, dropping from US$11.5 billion in 1987 to US$3.9 billion in 2005. Had the Monterrey Consensus of 2002 been honored, Official Development Assistance would have grown from US$ 55 billion in the 1990s to US$ 75 billion in 2006 – a large chunk of which should be allotted to agriculture, where most of the world’s poor resides.

          Many developing countries would have less need for aid if they were allowed to strengthen their agriculture sectors and compete fairly in the international market. The Philippines, for instance, was a net exporter of agriculture products before its accession to the World Trade Organization, with trade surpluses amounting to US$157 million a year. This is a simplistic comparison of trade surplus before and after WTO accession, without taking into account other factors that affected the Philippines’s trade balance. But the point is, several developing countries, when allowed to globalize on their own terms, can generate its own funds necessary to boost its agriculture production, and there would have been less need for aid.

          While assistance is very much welcome, its benefits could only go as far as the level of fairness the international trade regime facilitates. Agriculture productivity may increase because of aid, but its gains would not be as potent without fair trade. Domestic and export subsidies would still make agriculture products from developed countries cheaper. And we would not be able to fully benefit from increasing agriculture production if the markets of the developed world remain close to our exports. (30)

       Asia is home to 600 million rural poor subsisting on less than one dollar a day. Three of every four poor people live in rural areas, dependent on agriculture for a livelihood.

       In the Philippines, two out of five people live off the land. Agriculture produces a fifth of national income and almost 40% of total employment. A vast majority of the poor belong to the rural sector – very much mimicking the rest of Asia.

       The Philippines hosts the command center of two prominent international organizations, the International Rice Research Institute (IRRI) and the Asian Development Bank (ADB).

       The Senate last week strengthened the international status of IRRI, formally conferring upon it the privileges and immunities usually accorded to diplomatic stations. IRRI was founded through partnership and collaboration among the Philippine government, the USAid and the Rockefeller and Ford Foundations. It is the flagship of 14 international agricultural research institutes located throughout the world under the umbrella of the Consultative Group of International Rice Research (CGIAR).

       IRRI’s groundbreaking research on rice during the ’60s produced the miracle rice – a high yield, short gestating, and drought-tolerant rice variety. This brought about bountiful rice harvests worldwide for over three decades and filled the rice bowls full of almost half of the world’s population. Its collection of rice germplasm is the largest in the world, with more than 100,000 rice varieties, some near extinct and many endangered.

       To help the Philippines absorb the research breakthroughs in IRRI, Dr. MS Swaminathan, one of India’s top plant breeders and IRRI’s then director general, together with Dr. Ricardo Lantican of UP Los Baňos, helped me set up the Philippine Rice Research Institute in the mid ’80s. Philrice is now one of the better rice research centers in Southeast Asia.

       The other international institution based in Manila is the ADB. From where I sit, ADB’s contribution to agriculture has been marginal.

        Although ADB’s loan portfolio to the Philippines has been increasing, these are unduly biased towards urbanization and fiscal consolidation. In 2006, ADB approved US$650 million loans – its highest lending since 1998 — geared towards the energy and fiscal sectors. These are, of course, important to economic development. But its lending and technical assistance to agriculture has slipped since its peak in the 1980s, sliding from US$666.5 million in the ’80s to US$371.7 million in the ’90s, and US$405.1 million from 2000 to 2007. Accounting for inflation, lending from 2000 to 2007 actually decreased by a quarter from the 1990s lending level.

        For a development bank whose mandate includes helping eliminate poverty in Asia, it has virtually turned a blind eye to Asian poverty’s rural face. This neglect is a towering failure of ADB, comfortably ensconced in its plush offices and high-end residences, a luxury partly subsidized by Filipino taxpayers.

        During this first decade of the 21st century, we are witnessing the tragic result of this unforgivable underinvestment in agriculture. According to the International Rice Commission, productivity of farm lands in Asia has been declining. With rice consumption and population growth continuing to outpace food production, and climate change threatening to reduce our capability to produce food, the first global food crisis since World War II is all upon us.

        IRRI’s presence in the Philippines is providential to the Asian agriculture sector, but so can the ADB’s. It is high time ADB start recognizing what its global counterpart, the World Bank, has recently realized – that growth in agriculture is the most effective means to combat poverty and attain true economic development, one that will lift everybody’s boats. Through IRRI at the helm of rice research and ADB in financing, Asia in general and the Philippines in particular can make the most out of the two international institutes it houses.  (30)

           Responding to the global food crisis, World Bank President Robert Zoellick called for a “New Deal” in agriculture and food for developing countries. He harks back to President Franklin Roosevelt’s New Deal Program, whose gargantuan agriculture program helped the US farmers during the Great Depression.

            Zoellick hopes to resurrect global agriculture by enlisting the aid of rising economies like China and India through pleas for sovereign wealth fund investments. Through the equity investment platforms and benchmarks it will create, the World Banks hopes to attract sovereign wealth and inject it in Africa. The World Bank is eyeing the US$ 3 trillion sovereign wealth fund currently available, arguing that even one percent of it – or US$30 billion - would boost agricultural growth and development in the developing world.

          Indeed, turning the spotlight to increasing agricultural production in developing countries is a belated, but welcome turnaround in the World Bank’s development strategy. In its recent 2008 report Agriculture for Development, the Bank has finally realized what the Cassandras of our generation have long been preaching to deaf ears – that strengthening agriculture is the most effective and cost-efficient means to alleviating poverty and promoting development, four times more compared to growth in other sectors.

            The ideal scenario would be to raise agricultural production of small farmers in developing countries like the Philippines, as it not only contributes to food security and uplifts the livelihood of the rural poor, but it is also the most efficient means in terms of returns on investment. Because the law of diminishing returns has not yet come to play, it would be easier to increase production of our farms from three MT per hectare to six, rather than boost the already productive lands of developed countries.

            However, a gap exists between theory and praxis, and in world food production, the gap is quite wide. Whereas agricultural productivity in developing countries has been diminishing as agricultural lands are crowded out by urbanization, developed countries push forward with their productivity, with European Union’s wheat yields up by 14% and the US’s by 4%. 

             If this trend is not addressed, then the global food crisis we are now experiencing is but a whip of breeze of an even bigger storm to come – one where a small number of rich countries dominate the supply of food, with disastrous consequences of food dumping and more trade distortions detrimental to the developing world.

           For developing countries to make the most of the New Deal, it must be fair and transparent. To be effective, the World Bank’s New Deal should not only provide vehicles of investment in agriculture for developing countries, it must at the same time secure fair trade, one that is sustainable and equitable to all parties involved. 

           At the same time, an international standard in the management of sovereign wealth funds should be established, to ensure that this wealth will be guided by well-defined policy and parameters rather than deployed for geopolitical or other non-economic purposes.

Email:edgardo_angara@hotmail.com    Website: www.edangara.com (30)

     Innovation does not occur in a vacuum but in a dynamic economic environment, an integral part of which is a country’s financial system.

     A sound and stable financial system is a crucial ingredient to any innovation formula. Adding together a culture of innovation and a strong capital market triggers an upward cycle of growth, where the two work hand in hand in spurring sustainable economic expansion. A strong capital market provides the capital to jumpstart innovation, which in turn would leak out profits and resources for more investments.

     Such is the case in the United States, where internet startups have risen from mere garages to multibillion-dollar companies thanks to ready financing. To quote Berkeley Economics Professor Hal Varian, "One of the great strengths of American-style capitalism is its ability to finance crazy ideas — because every now and then, those ideas have a very, very big payoff."

     But this garage-to-riches phenomenon is not limited to the US. In Europe, the possibility of huge stock returns encourages investments in venture capitals. In fact, its high technology sectors perform better in financial systems with competitive banks, large stock markets, and quality accounting standards, as quantified by Thorsten Block of the University of Maastricht in his econometric study of 17 OECD countries and 20 manufacturing industries. 

     Our Southeast Asian neighbors are beginning to realize this, especially since the Asian Financial Crisis revealed that overregulated and chaebol-dominated financial systems constrain, among other things, its innovation systems. Since 2001, Singapore has been restructuring its financial system to create a regulatory environment conducive to fostering dynamism and innovation in its markets. Taiwan is also treading a similar path.

     While we are often tagged as a laggard in adopting positive trends, we hope to prove otherwise, especially when it comes to restructuring our financial system to accommodate innovation. In the Senate, our Committee on Banks and Financial Institutions and our Committee in Science, Technology and Engineering (COMSTE), which I both chair, have been coordinating its agenda, so that financial reform and efforts at strengthening science and technology both hit the same target – and that is to enhance Philippine competitiveness. Through legislating policies that strengthen both science and innovation on the one hand, and banks and financing on the other, we hope to be able to spark off a sustainable, upward cycle of economic growth. (30)

     Corruption is at the core of all developmental constraints in the Philippines, spinning a web of problems that entangle government efforts and cocoon our growth.

     A recent paper titled “Philippines: Critical Development Constraints” published by the Asian Development Bank (ADB) painted in detail this dark picture of corruption in the country. In gist, the paper argued that corruption lowers investment confidence and lessens tax revenues, which in turn means fewer resources for infrastructure, social services and economic services. 

      When contrasted with other countries with similar economic performance, the Philippines is among the most corrupt. Unfortunately, we have been slow at combating corruption – our country has remained at the bottom spot in terms of controlling corruption since 1996.

      This incompetence at containing corruption has deterred our economic growth in terms of investments and market sustainability. We have among the lowest foreign direct investments in Southeast Asia, and our industrial base is narrow and small compared with other economies in the region. 

      This, coupled with poor tax administration, robs the government’s coffers of badly needed revenue, resulting to fewer resources for infrastructure investments and social and economic services. Social services as a percentage of GDP dipped from 6.5% in 1997 to 4.7% in 2005, while economic services were halved during the same period. 

      It’s no wonder why we are lagging behind in poverty alleviation. In the region, inequality is most prevalent in the Philippines.  At 0.45, we belong to countries with the highest gini coefficient. 

      To address corruption, ADB has proposed two key measures, including the computerization of election returns to restore credibility in the electoral process. 

      In a country where corruption is rampant, syndicated, and structural, computerizing elections is a significant step towards restoring peoples’ faith in elections. But more than that is needed.

     Structural problems demand surgical solutions. A political party system that tolerates corruption and turncoatism needs not only computers, it demands a major overhaul. 

      In the Senate, I have filed the Political Party Development Act, which aims to develop, support and strengthen political parties in the country and hinder turncoatism. The bill seeks to help fund political parties in their platform-based activities all year-round, and bars politicians from changing parties for the sake of political expediency. It also introduces more transparency in campaign finance.  Through this bill, we hope to initiate a series of systemic changes that will lead to a more mature and democratic political party system in the country. (30)

      In his book, Asian Godfathers, Joe Studwell argues that the few tycoons that dominate the Southeast Asian economy have actually hindered growth in the region, asserting instead that the true drivers of Southeast Asia’s heady economic growth are its globally-competitive exporters and its industrious labor force.

       The banking system in the region is a sector prone to what Studwell calls “godfather abuse.” This sector is dominated by tycoons who bank not for the sake of earning banking profits, but to run cash geysers for their other enterprises. To illustrate, a top-tier tycoon has around 300 to 400 companies listed under his belt, all financed by a bank that he owns and controls. These tycoons are like parasites feeding on the inherent thriftiness of people in the region, where high savings rates mostly flow into banks.

       This set up hinders the growth of the capital market and the competitiveness of enterprises, most of which are godfather-owned and controlled. Given that they have access to financing with virtually zero real interest rates through their banks, these companies have little incentive to increase its competitiveness and access the capital market rather than raid their own banks or insurance companies.

         Despite our notable economic performance for the last decade, we have yet to achieve a strong capital market. The region has weak stock markets, evidenced by poor long-term stock market returns despite economic growth. In Thailand and the Philippines, total returns have remained negative from 1993 to 2006.

         Relying on exports and labor as sole drivers of growth does not make a sustainable and equitable kind of economic development. No country has ever developed by depending on outside investments without first strengthening its basics – at the core of which is the financial system.

         Here enters the government’s role in implementing policies that strengthen the tripartite pillars of our economy – the fiscal, monetary and financial systems.

          In the Senate, the Committee on Banks and Financial Institutions which I chair has embarked on legislating bills that will strengthen our capital market and encourage Filipinos to grow their savings. We have created vehicles to mobilize savings so that enterprises and ordinary citizens alike can profit from it. These include bills such as the Personal Equity Retirement Act (PERA), the Real Estate Investment Trust (REIT), Pre-need Code, and Credit Information System.
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Email: edgardo_angara@hotmail.com   Website: www.edangara.com

      Corporate Social Responsibility (CSR) began to penetrate the world of corporate governance in the 1980s, introducing a new role for corporations as socially responsible citizens.

      This trend belatedly reached the country’s shores in the late 1990s, but until now, it all appears to be smoke and mirrors.

       According to the League of Corporate Foundations, the business sector has poured in Php19 billion (US$463 million) to social development programs for the past ten years. Compared to countries like the United States, Singapore, and South Korea, this amount is measly. Charities Aid Foundation estimates spending for charities in the US in 2006 amounted to US$295 billion and in Singapore, US$338.4 million. In one year, South Korea gave almost four times more (US$1.4 billion) that what it took Philippine business to donate in a decade. Heiwa founder Kenkichi Nakajima gave the same amount in just one project to fund a Japanese scholarship program.

       Philanthropy, Pinoy-style, is a haphazard catch-as-catch can proposition. That’s why it cannot point to any tangible achievement. And it’s so paltry.

       But stinginess is not the only characteristic that runs in the veins of the country’s rich families. They also seem to lack imagination and vision. Often, a company’s community outreach program serves more as a public relations project. Eighty percent of the companies surveyed by Newsbreak seek media coverage for its CSR accomplishments, while 53% use media mileage as a measure of a CSR activity’s success.

       But philanthropy does not end with the publicity that comes with it. It can be a creative investment that could lead to bigger profits in the long run. More creative companies, such as Toyota, went as far as integrating corporate social responsibility in its plans and functions, embedding CSR in its marketing strategies, products and services. Toyota has taken up the cause of the environment to build its reputation as an eco-friendly company, and to carve a niche in the clean technology market. Clean technologies industry is estimated to be at least a quarter of a trillion US dollar industry by 2016.

     The rewards of giving, in the case of CSR, can extend to more than just contributing to a society that has been the base of an enterprise’s profits. Like Toyota’s projects, it can be a creative investment—if only our stingy taipans would exercise the same foresight and humanity.

      During her inauguration in 2006, Chilean President Michelle Bachelet declared that innovation shall be at the core of her administration. Five years back, the United States made a similar declaration to make research and development a national priority.

      The race is on for developed and developing countries alike to introduce innovative products and services, and adopt strategies that will gear them for an increasingly competitive world. 

      For developing countries, the new economic order presents an opportunity to leapfrog towards economic development; for developed countries, it’s a battle to maintain the lead against rapidly developing economies.

      Developed countries of course use their most obvious advantage—money.

      To stimulate business investment in R&D, Australia has set aside an innovation investment fund worth US$ 930 million. This is aside from the US $73.1 million Pre-Seed fund, which provides venture capital to commercialize university and government research.

       The Australian government also runs the US$ 65 million-funded Commercialising Emerging Technologies (COMET) Programme, which assists small and medium firms in introducing new products and services to the market — from improving its management, drafting a business plan, conducting market research, planning intellectual property strategies, to developing a working prototype. COMET also provides a similar support to inventors in translating their ideas to the market.

      Developing countries, on the other hand, do not have as much money – and foresight – to bankroll its innovation capabilities. To make up for financial limitations, their innovation policies should be more imaginative to make sure that the meager resources allotted for S&T goes a long way.

      Chile, for instance, is rechaneling income from a special surtax on mining revenues to companies and researchers that will develop new technologies for its export industries.

      In 2006, Brazil introduced the first innovation law in Latin America, which provides tax credits to companies investing in R&D, and allows private and public sector to share research staff, funding and facilities such as scientific laboratories.

      Brazil’s innovation law is a product of public consultation and public meetings, similar to what we are doing in the Commission on Science Technology and Engineering (COMSTE). We hope that through COMSTE, we will be able to formulate and put in place sound policies to channel our resources into strengthening our S&T for competitiveness.

***

Email: edgardo_angara@hotmail.com   Website: www.edangrara.com

            While other countries in Asia are producing world-class companies, Southeast Asian countries are slow to match feats such as China’s Huawei and Lenovo, Korea’s Samsung and LG, and Taiwan’s AU Optronics and Taiwan Semiconductor.

            Of 2008’s 100 new global challengers from emerging economies ranked by global management consultancy Boston Consulting Group (BCG), only five came from Southeast Asia, three of which are from the food and drink industry. This is in stark contrast to China’s 41 new global players and India’s 20, many of which are involved in high-end industries manufacturing industrial goods and consumer durables.

            Lack of innovation in Southeast Asia’s conglomerates keeps the region from growing reputable global companies. According to business and economics writer Joe Studwell, instead of cultivating indigenous products and services, companies in Southeast Asia merely rely on importing foreign technology.

            But spurring innovation is crucial to economic growth, as innovation drives the emerging world economic order. Of BCG’s top 100 global challengers, 20 companies used strong R&D investment, especially in engineering, as their main strategy.

            In its 2007 report on the top 1,000 largest corporate R&D spenders, global management consultancy Booz Allen Hamilton noted that in two years’ time, companies in China have doubled their R&D spending. In 2006, R&D spending in China amounted to US$ $1.96 billion.

            Companies in India are also increasing their R&D investments. Pharmaceuticals company Ranbaxy chunked out about 7% of its US$1 billion sales in 2004 on R&D, while Dr. Reddy’s Laboratories spent 14% of its US$446 million sales. Six auto companies increased their R&D spending from 1.47% of net sales in 2004 to 2.34% in 2007. For the past five years, India has been increasing its R&D spending by 25% every year, amounting to US$208 million in 2006.

             Unfortunately, companies in the Philippines invest little in research and development, relying instead on imported technology. Most of the R&D efforts in the country are government-funded, which fortunately has been raised to 0.43% of the national budget, or from Php2.7 billion to Php3.6 billion (or US$ 90 million). Still, that is a paltry sum.

             We can still turn our situation around. By providing the appropriate policy and an encouraging environment, government could first, encourage business to invest more in R&D, and second, facilitate commercialization of new products.

              These are among the tasks that the Commission on Science, Technology and Engineering (COMSTE) now face. Established to improve the country’s competitiveness through S&T, COMSTE is now reviewing the state of S&T in various fields, and will come up with recommendations and appropriate legislation to strengthen S&T. We hope that through COMSTE, the Philippines will soon be able to boast of its own world-class, but indigenous products and services. (30)