we tell it like it is

we tell it like it is 3RD Quarterly Roundtable Peter WallaceChairman August 2, 2012 Rigodon Ballroom A & B, Peninsula Manila Hotel

sona2012 the “lost decade” under the previous administration • REPEATED WHAT HE SAID 2 YEARS AGO―HE WAS BEQUEATHED: • NORTHRAIL CONTRACT ANOMALIES • UNWARRANTED GOVERNMENT CORPORATION BONUSES DESPITE LOSSES • P1 BILLION COFFEE BUDGET OF PAGCOR • NFA’S P177 B DEBT • HUGE BACKLOG IN CLASSROOMS, CHAIRS & BOOKS

The straight path To Inclusive growth?

Proclaimed that “what was once the sick man of Asia now • brims with vitality.” • Credit rating upgrade(s) BY 1 OR 2 NOTCHES by 4 agencies THEY FELL UNDER GMA • The PSE now exceeds 5,000 from around 3,300 in mid 2010 = + 52% • 1Q GDP growth of 6.4%, the 2nd highest in Asia after China • Reduction in Unemployment to 6.9% in April vs. 7.2% a year ago and 8% in 2010 • 5,000 BPO workers in 2000, 638,000 NOW, $11b in revenues in 2011 (if anyone, gma deserves credit for this); employment projected at 1.3m generating $25b by 2016 • touristS projected at 4.6M in 2012, a 1.5M gain in just a year compared to the 9 years it took the previous leadership to register a gain of 1.3M.

Emphasis on his admin’s goal to build a culture of accountable and transparent governance (but didn’t mention freedom of information act – why?) • Graft, Plunder & POLL SABOTAGE caseShaVEbeen filed vs GMA (but weak preparation) • CJ Corona’s conviction and removal from office • Reforms in public works processes(DPWH Savings so far: P10.6B) • The primary aspect of the Aquino administration’s job generation strategy is building sufficient infrastructure • But PPP is progressing at a snail’s pace; Only recently has the gov’t intensified disbursement of funds for other projects , after tremendous pressure from the private sector

Issuance of eo on mining: SUPPOSEDLY to BETTER utilize natural resources to uplift the living conditions of generations of filipinos • but • ESSENTIALLY put mining on hold • EXPECTED TO slow the dev’t of mines • WILL Deprive local people of livelihood • Loss of taxes = fewer schools & HEALTH CLINICS built • Reduction in exportS= fewer dollar earnings FOR THE GOV’T COUNTRY IS DEPRIVED OF THE MULTIPLIER EFFECTS So mining firms will start to look elsewhere, SEARCH FOR countries with more attractive policies The loss isn’t just the short term whilst revenue sharing billis pending in Congress, it’s long term

OTHER KEY POINTS of sona 2012: • The speech Highlighted the ADMINISTRATION’S push for enhanced citizens’ Participation in governance • More illnesses covered by PhilHealthType‘Z’ or catastrophic illnesses are now covered • but the network of hospitals authorized to provide services for Z illnesses should be expanded (only 19 gov’t hospitals so far) • There’s great emphasis on education and healthsothe Philippines could catch up with its MDG targets • 66,800 shortage in classrooms will be eliminated by end-2013; the 2.6 million backlog in chairs addressed by end-2012; and a 1:1 textbook-student ratio will soon be achieved • All Based on a 1:45 classroom-student ratio, the ideal 1:25 IS YET TO BE CONSIDERED

…KEY POINTS of sona2012 • He said we will find a resolution to the Scarborough standoff that is acceptable to all. • China INSISTS ON its Nine-Dash Line, the Philippines on international law, particularly UNCLOS –the standoff will not be resolved soon. • There was no mention of the significant difference of opinion on the proper forum within which the standoff should be discussed. • China insists on bilateral negotiations, the Philippines wants multilateral discussion, insisting on bringing the matter before the international court.

…KEY POINTS of sona2012 • NO ALTERNATIVES PROPOSED – HOW ABOUT JOINT EXPLORATION/EXPLOITATION OF RESOURCES? SHARE THE WEALTH • ONE RECOURSE FOR THE PHILIPPINES ― • CONVINCE ITS WESTERN ALLIES AND ASEAN MEMBER-STATES WITH INTEREST OVER THE SOUTH CHINA SEA THAT CHINESE CONTROL OVER THE AREA COULD MEAN A CURTAILING OF FREEDOM OF NAVIGATION • CHINA COULD LIMIT PASSAGE THROUGH STRATEGIC SHIPPING ROUTES IN THE AREA WHERE HALF OF THE WORLD’S TONNAGE IN SHIPPING PASS THROUGH.

China’s nine-dash line

some missing pieces - • Commitment to resolve extra-judicial killings • The PH’s unimpressive record may result in the suspension or termination of foreign aid • No update on the cases filed by the BIR and BOC vs suspected smugglers and tax evaders – & how they’ll go after other big-time tax evaders & smugglers • Mentioned the Maguindanao massacre but no instruction for the Justice Department and the judiciary to expedite the case • Schedule of next LEDAC meeting (IF THERE IS ONE) • An exit strategy for CCT; Otherwise it will become a very expensive subsidy program • There was a noticeable absence of discussion on industrial reforms given that the country needs to refocus on manufacturing.

…some missing pieces - • Mentioned TESDA training and beneficiaries under DIRECTOR Villanueva, but no concrete measures on how the admin will solve labor mismatch • Broadly stated that the admin promotes a level playing field and consistent rules - • but failed to enumerate how far he‘d really gone in fulfilling these commitments; Fair Competition/Anti-Trust bill has yet to be approved • Huge increase in the budget of SUC’s – P26B 2012, P37b 2013; Part of IT could be used for K+12; extra funding for the tertiary system must be DONE BY THE COLLEGES

PNOY’S LEGISLATIVE AGENDA

…PNOY’S LEGISLATIVE AGENDA

A better list compared to LAST YEAR’S • But some glaring omissions: • 1) Freedom of Information Act • 2) Anti-Smuggling • 3) BSP Charter Amendments • 4) Public Utilities Act Amendments • 5) Customs Modernization Act • 6) Intellectual Property Rights Act Amendments • 7) Rationalization of fiscal incentives • And • Charter change • ― congress, yes • ― Pnoy, no

PNoy’s Key Thrusts: • Distribute all land covered by the CARP by the end of his term • Upgrade AFP’s equipment • Implement a performance-based incentives program for government employees • NAIA 3’s structural defects will have been fully repaired before next year’s SONA • Further improvement of governance in ARMM and better delivery of social services • Increase MONTHLY PENSION FOR ELDERLY POOR • ATTRACT 10 M INT’L TOURISTS BY 2016

Other accomplishments mentioned: • Electrification of 1,520 sub-villages (Initial target was 1,300) • Coconut water exports up by 830% in 2011 to 16.7 M liters from 1.8 M liters in 2010 • Reforms in TESDA (trained more than 400,000 individuals despite the P2.4 B debt left by the previous administration) • Decrease in crime volume (250,000 so far vs. over 500,000 in 2009) • Development of anti-dengue mosquito traps by the DOH and DOST (but project still in its initial stage) • Construction of 22,000 houses for AFP-PNP personnel • Improvement OF PAGASA’S WEATHER MONITORING EQUIPMENT • (MISSED IT THIS WEEK)

He cited gains in his fight vs corruption, but the scourge isn’t going away overnight, or even within the remainder of his term The best he can aim for is to put in place measures that will help make reforms irreversible, regardless of who succeeds him in 2016

Despite the missing pieces in his 3rd SONA, President Aquino came Out looking effective as he kept his rapport with his "bosses" by Focusing on the "inclusive" implications of infrastructure, health, and education. He was short, though, on what he planned a for the future. It was a State of the Nation.

ASSESSMENT OF SONA 2010 AND 2011 PROMISES WITH NO PROGRESS • SOLVE EXTRA-JUDICIAL KILLINGS • THE FAILURE TO BRING TO ACCOUNT THE PERPETRATORS OF EXTRA JUDICIAL KILLINGS IS HIGHLIGHTED BY THE SLOW PROGRESS OF THE AMPATUAN MASSACRE CASE • THE NEW YORK-BASED HUMAN RIGHTS WATCH (HRW) CONSIDERS AS “LACKLUSTER” THE CURRENT ADMINISTRATION’S EFFORTS IN SOLVING EXTRA JUDICIAL KILLINGS – no one has gone to jail yet • PH’S UNIMPRESSIVE RECORD MAY RESULT IN THE SUSPENSION OR TERMINATION OF FOREIGN AID ⓪ WBF’S 0 – 10 RATING

WITH LITTLE PROGRESS • ATTRACT INFRA INVESTMENTS UNDER THE PUBLIC-PRIVATE PARTNERSHIP (PPP) SCHEME • 22 PROJECTS HAVE BEEN IDENTIFIED FOR PPP FINANCING SO FAR; • ONLY 1 PROJECT (DAANG HARI-SLEX) BID OUT 22 MONTHS AFTER LAUNCH OF THE PPP PROGRAM; • OF THE 21 REMAINING, ONLY LRT-1 SOUTH EXTENSION, naia expressway phase 2 AND PPP FOR SCHOOLs ARE CURRENTLY oNTHE AUCTION BLOCK • ECONOMIC AND SOCIAL BENEFITS OF THE PROJECTS Won’t START till NEXT year ②

…WITH LITTLE PROGRESS • DIALOGUE WITH THE MILF • THE PEACE PROCESS IS MOVING FORWARD, slowly, no SIGNIFICANT PROGRESS. • BOTH THE GPH AND MILF ARE STILL REFINING THEIR POSITIONS ON key issues THAT INCLUDE WEALTH-SHARING, POWER-SHARING, GOVERNANCE, TRANSITION ROADMAP, AND NORMALIZATION. • NO ARMED CONFLICT RECORDED SINCE JANUARY THIS YEAR • IT IS UNLIKELY THAT A PEACE DEAL WILL BE REACHED IN PNOY’S TERM ②

…WITH LITTLE PROGRESS • CREATE MORE JOBS • A LITTLE OVER 1M JOBS GENERATED BETWEEN APRIL 2011 AND APRIL 2012 • THE NUMBER OF UNEMPLOYED DOWN SLIGHTLY FROM 2.87 MIN APRIL 2011 TO 2.80 M IN APRIL 2012 • BUT THE NUMBER OF UNDEREMPLOYED GREW FROM 7.127 M TO 7.312 M. • PRESIDENT AQUINO REJECTED THE PROPOSED P125 WAGE HIKE • TO GENERATE MORE JOBS, THE PH NEEDS TO ATTRACT MORE FOREIGN INVESTMENTS; BUT THE PH IS AMONG THE LEAST ATTRACTIVE FDI DESTINATIONS IN THE WORLD (according to unctad’s world investment report) ④

…WITH LITTLE PROGRESS • WEEKLY CASES VS. SUSPECTED SMUGGLERS AND TAX EVADERS • TOTAL NUMBER OF CASES FILED (JULY 2010-JULY 5, 2012): 201 • TOTAL TAXES & DUTIES P66.1B • CTA ORDERED THE ARREST OF THE COUNTRY’S 1ST CONVICTED TAX EVADER(GLORIA KINTANAR) – STILL AT LARGE • Many OTHER BIG-TIME TAX EVADERS/SMUGGLERS HAVE YET TO BE CONVICTED • STREAMLINING OF BUSINESS REGISTRATION • PROCESSING OF BUSINESS PERMITS DOWN FROM 38 DAYS TO 35 DAYS (LATEST IFC-WB DOING BUSINESS SURVEY) • NUMBER OF STEPS NEEDED TO PROCESS PERMITS REMAINS AT 15 • PH REMAINS in THE BOTTOM QUARTILE (158TH OUT OF 183 COUNTRIES) IN TERMS OF STARTING A BUSINESS • STREAMLINED PROCESSES HAVE IMPROVED LGU REVENUES ⑤ ½ ③

…WITH LITTLE PROGRESS • CONVENING OF LEDAC • ONLY 2 MEETINGS SO FAR under pnoy • SOME PRIORITY BILLS HAVE BEEN SIGNED INTO LAW (AMLA AMENDMENTS & ANTI-TERRORIST FINANCING) OR AT ADVANCED STAGE (SIN TAX REFORM & data privacy) • Only 2 business bills have been passed: • lifting of nightwork prohibition for women employees. • amla amendments • Other bills passed simply convert municipalities into COMPONENT cities • MORE ECO AND BUSINESS BILLS NEED TO BE CERTIFIED AS URGENT ③

WITH SUBSTANTIAL PROGRESS • EXPAND BASIC EDUCATION CYCLE TO 12 YEARS • DEPED HAS TRAINED MORE THAN 3,000 K+12 “TRAINERS” AND AROUND 140,000 GRADE 1 AND GRADE 7 TEACHERS • A BILL THAT WILL INSTITUTIONALIZE K+12 HAS YET TO BE approved • MANDATORY KINDERGARTEN ACT HAS BEEN SIGNED INTO LAW • SUSTAINABILITY IN PERIL DUE TO HUGE FUNDING REQUIREMENTS (CAPITAL COST OF ADD’L 2 YEARS OF HIGH SCHOOL = P43.7B) • DEPED PROPOSING A P56 B INCREASE IN ITS BUDGET FOR NEXT YEAR – STILL INSUFFICIENT TO BRIDGE ALL EDUCATION RESOURCE GAPS • PRIVATE EDUCATION SECTOR TO SUFFER HUGE LOSSES (NO FRESHMAN or college INTAKE FOR 2 YEARS) • Ph no longer among countries that still implement a 10-year basic education cycle ⑥

…WITH SUBSTANTIAL PROGRESS • IMPROVE PHILHEALTH COVERAGE • PART OF THE PROPOSED P57 B HEALTH BUDGET FOR NEXT YEAR WILL BE USED TO ENROLL 5.2 M POOR HOUSEHOLDS • PHILHEALTH HAS ENTERED INTO TIE-UPS WITH PRIVATE FIRMS TO PROVIDE MORE BENEFITS/DISCOUNTS TO MEMBERS • IMPLEMENTED NO BALANCE BILLING POLICY & COVERED CATASTROPHIC DISEASES SUCH AS LEUKEMIA & BREAST CANCER • THE NETWORK OF HOSPITALS AUTHORIZED TO PROVIDE SERVICES FOR Z ILLNESSES SHOULD BE EXPANDED • LACK OF HEALTH FACILITIES WILL RENDER PHILHEALTH COVERAGE INADEQUATE • Filipinos still shoulder heavy out of pocket health expenses ⑥

…WITH SUBSTANTIAL PROGRESS • REFORM GOCC GOVERNANCE • GOCC GOVERNANCE ACT HAS BEEN SIGnEDINTO LAW (RA 10149) • PRIOR TO THE BILL’S PASSAGE, PRESIDENT AQUINO ISSUED DIRECTIVES THAT EFFECTIVELY RATIONALIZED THE BONUSES OF GOCC OFFICIALS • SOME COA FINDINGS: MWSS OFFICIALS STILL RECEIVE UNJUSTIFIABLE BONUSES AND UNAUTHORIZED DISBURSEMENT OF PAYROLL FUNDS AT QUEDANCOR. ⑧

…WITH SUBSTANTIAL PROGRESS • REAL CASES TO BE FILED BY THE NEW OMBUDSMAN • GRAFT, PLUNDER & ELECTORAL SABOTAGE CASES HAVE BEEN FILED VS EX-PRESIDENT ARROYO • Failed to build up nbn case vsgma(from plunder downgraded to graft) • ADMINISTRATIVE, CRIMINAL & GRAFT CHARGES HAVE BEEN FILED AGAINST LGU OFFICIALS • DROPPED WERE ADMINISTRATIVE AND CRIMINAL CHARGES AGAINST CALOOCAN MAYOR ECHIVERRI AND FORMER DEPED SEC. JESLI LAPUS • Secured conviction of a couple of high-ranking lgu officials (ex-mayor, ex- congressman) ? ⑥

…WITH SUBSTANTIAL PROGRESS • REFORM THE AUTONOMOUS REGION IN MUSLIM MINDANAO (ARMM) • POSTPONED ARMM ELECTIONS ORIGINALLY SCHEDULED ON AUGUST 8, 2011 • ACT SYNCHRONIZING ELECTIONS WITH 2013 POLLS HAS BEEN SIGNED INTO LAW; • CLEANSED ARMM’S LIST OF REGISTERED VOTERS • STRICT AUDIT MEASURES IMPLEMENTED BY COA ENABLED THE REGIONAL DEPED AND DPWH OFFICES TO SAVE CLOSE TO P200 MILLION • ALLOTTED P440 M FOR VARIOUS ENVIRONMENTAL/AGRI/FISHERY PROJECTS IN THE REGION ⑧

…WITH SUBSTANTIAL PROGRESS • END OVER-IMPORTATION OF RICE AND ACHIEVE RICE SELF-SUFFICIENCY • PALAY (UNMILLED RICE) PRODUCTION FROM JANUARY TO JUNE 2012 UP 4%TO 7.9 MILLION MT FROM 7.6 MILLION MT IN THE SAME PERIOD LAST YEAR • RICE IMPORTS THIS YEAR 500,000 MT FROM A HIGH OF 2.4 MILLION MT IN 2010 • PRODUCTION TARGET OF 18.5 MILLION MT FOR THE YEAR STILL ATTAINABLE • PH could ACHIEVE RICE SUFFICIENCY GOAL NEXT YEAR. PROJECTED RICE IMPORTS FOR 2013: ZERO TO 100,000 MT. TARGET PRODUCTION FOR 2013: 20 MILLION MT • THE GOVERNMENT EXPECTS TO LAY THE GROUNDWORK FOR RICE EXPORTATION NEXT YEAR ⑨

…WITH SUBSTANTIAL PROGRESS • INCREASE BUDGET FOR CONDITIONAL CASH TRANSFERS • DSWD PROPOSES TO RAISE CCT BUDGET TO P44.3 B NEXT YEAR TO COVER 3.8 M TARGET HOUSEHOLD BENEFICIARIES • BENEFITTED 3 M HOUSEHOLDS SO FAR (BUT AS OF END-JUNE, CLOSE TO 30,000 BENEFICIARIES WERE REMOVED FROM THE LIST OF BENEFICIARIES); • TARGET FOR THIS YEAR: 3.1 M FAMILIES; BY END-2016: 4.2 M TO 4.6 M FAMILIES • IN 2011 AROUND 60,000 HOUSEHOLD BENEFICIARIES WERE GIVEN LIVELIHOOD (A MERE 3% OF TOTAL BENEFICIARIES IN 2011) • SHOULD HAVE A CLEAR EXIT STRATEGY OTHERWISE IT WILL BECOME A VERY EXPENSIVE SUBSIDY PROGRAM. • DSWD URGED TO TRIM DOWN ADMIN COST TO 7% OF TOTAL CCT BUDGET FROM 10% AT PRESENT ⑦

…WITH SUBSTANTIAL PROGRESS • SUBMIT A BUDGET THAT ACCURATELY IDENTIFIES THE PROBLEM AND GIVES MUCH ATTENTION tOTHE RIGHT SOLUTION • EMPLOYED ZERO-BASED BUDGETING SCHEME IN DRAFTING 2011 AND 2012 BUDGETS (TERMINATED INEFFICIENT PROGRAMS AND INCREASED FUNDING FOR KEY INITIATIVES) • PROPOSED BUDGET FOR ECONOMIC SERVICES UP FROM P439 B THIS YEAR TO P511 B IN 2013 TO SUPPORT THE following: • CONSTRUCTION & UPGRADING OF ROADS & BRIDGES • PRODUCTION OF MORE PALAY (UNMILLED RICE) • ATTAINMENT OF MORE TOURISTS BY IMPROVING ACCESS ROADS TO TOURIST SPOTS & UPGRADING AIRPORTS & seaports ⑧

OUT OF 15 PROMISES 1- W/ NO PROGRESS 7 – W/ LITTLE PROGRESS 7 – W/ SUBSTANTIAL PROGRESS We rate it just over 5 What’s a passing mark?

12 infrastructure projects were mentioned in the SONA • This included projects financed by PPP, ODA, and the national government. • Among the 12 projects mentioned in the SONA • 2 are currently being implemented(Caticlan and Laguindingan airports) • 2 are on the auction block (LRT-1 South Extension and Puerto Princesa airport-construction contract) • 5 have yet to hurdle NEDA approval (3 airports, 2 NLEX-SLEX links) • 1 is still under feasibility studY(Integrated Terminal) • 1 is not likely to be implemented pending resolution of legal issues (full operationalization of naia 3) • ONLY 1 is likely to be implemented this year. This is a small-ticket project that involves the upgrading of 7 provincial airports each with a cost ranging from P40-P60 million. This is also the only small-ticket infrastructure project mentioned by PNoy.

PNoyalso committed to complete 4 other projects to ease Metro Manila traffic. 1 railway project, 2 road projects, and a bus terminal.

NLEX-SLEX Link Roads *Map from SMC-Citra group

Ex-president Arroyo out on bail… • The poll sabotage case against the ex-president was weak, accdgto the Court (the result of a rushed case?) • But Mrs. Arroyo could be arrested anew soon • The Office of the Ombudsman has asked the anti-graft court to order GMA’s arrest for the plunder case re the misuse of P366 M PCSO intel funds • The PCSO intel fund scam is a stronger case: • GMA allegedly connived with then PCSO Gen. Manager Uriarteto divert funds from the PCSO’s charity operations to its intelligence funds, w/c is exempted from auditing • Mrs. Arroyo never denied her participation in the approval of the release of THE huge sum of money • Marginal notes of approval are on record, affirmed and testified to by Uriarte(THERE’S a PAPER TRAIL) • … but not for long?

the granting of bail is a setback for aquino Particularly in making the previous admin accountable for its alleged transgressions in office (a critical part of PNoy’s anti-corruption agenda) the gov’t needs to make sure allegations vs GMA are backed by sufficient evidence, as these cases will be fought in a court of law , not in a court of public opinion Also, The Office of the Ombudsman must improve its preparation of cases The NBN-ZTE case was originally filed as plunder, but it was later downgraded to graft

Other cases that could progress THIS YEAR (i.e. filing of formal charges before the courts) • Owwa funds misuse • Alleged diversion and misuse of OWWA funds to bankroll questionable acquisitions and to boost GMA’s 2004 presidential bid; includes transfer of OFW Medicare funds to PhilHealth in order to enhance electoral campaign (distribution of PhilHealth cards) • Midnight pork barrel (pagcor “pabaon” or send-off to gma) • Transfer of AN “inordinately large” sum to the Presidential Social Fund (aka president’s pork) by PAGCOR in just one day, a month before GMA stepped down

Farm-to-pocket roads • Questionable release of funds by the Department of Agriculture for farm-to-market roads without work programs JUst before gma stepped down from office (jan-june 2010) • Armm kickbacks • Accusation by ZaldyAmpatuan that GMA received payoff for ARMM farm-to-market road projects in 2008 and 2009

Will the cases against arroyo ever lead to conviction? The cases against the marcoses are now 25 years old. More than 900 criminal & civil charges had been filed only 7% of total cases remain Many were dismissed as prosecutors failed to build up the lawsuits They failed to present available important evidence WILL THIS HAPPEN TOO WITH GMA? Arroyo & her allies must be held accountable IF TRUE REFORM IS TO HAPPEN AQUINO HAS WON SO FAR – BUT THIS IS AN ULTIMATE TEST IF HE WINS THIS IT’S REVOLUTIONARY

we tell it like it is