This is why the budding economic recovery in the United States is in danger and why our equities market is going nowhere. A crisis of confidence in the financial markets has come about in the last few weeks and if this gathers momentum (as it seems to have), there could be real serious economic repercussions. What if people decided at about the same time that banks, investment houses, stock markets, etc. are all managed by crooks and will henceforth keep their money under their mattress?
That explains why President Bush took time out to deliver a speech aimed to reassure people about the financial system. That the speech was more intended for damage control than substantive reform is on the other hand, reason why it didn’t do much to bring back much needed confidence from investors.
What should worry us in these backwaters of the capitalist system is the impact of a continuing meltdown of investor confidence on Wall Street. Our savings rate in this country is worse than zero and that makes us dependent on foreign investors to get the economy moving.
Well, if this meltdown continues, we should resign ourselves to more of the same kind of economy in the medium term. Things will likely get worse before they get better and that covers the period all the way to the next presidential election. My astrologer friend who recently briefed investors puts it graphically: "we are just at the edge of a precipice. We haven’t even fallen yet."
The lesson emerging from Enron, Global Crossing, World Com, Adelphia, Vivendi, etc. is the reality that stockholders cannot depend on the accounting profession to do a professional job of delivering honest numbers. Remember Victorias? This means, stockholders must defend their own interests in the boardroom and in regulatory agencies as well as in the courts. If those shenanigans can happen in the highly regulated and litigious U.S. of A, imagine what is happening in these islands where more magical acts are par for the course.
Do we need more laws along the lines being proposed in the US Congress? SEC Chairman Lilia Bautista does not think so. She thinks the new Securities Code should be enough for now. But she says, the SEC cannot guarantee a risk-free environment. Stockholders, she says, must be vigilant in protecting their rights guaranteed by our laws.
Take for instance, the concept of independent directors in the boards of corporations. That is embodied in our laws but I doubt if people really give it a second thought. The Securities Regulation Code (src) requires certain corporations to have at least two independent directors or 20 percent of the members of such board. It took effect in August of 2000.
Among those required to have independent directors are listed companies and registered companies (those which were issued permits to sell securities to the public but did not cause the listing of said securities with the PSE). Public companies – those corporations with total assets of more than P50 million and having 200 or more shareholders are also covered by the rule.
The law also has a strict definition of who is an independent director. Section 38 of the src bars an officer or employee of the corporation, its parent or subsidiaries, from taking the independent director’s board seat. Neither can any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgment. The independent director is the first line of defense for shareholders. If a shareholder doubts the independence of an independent director, he should challenge his qualification.
Then again, Chairman Bautista assures that it is her goal to institutionalize the best practices of corporate governance by requiring listed corporations to submit their Code of Governance to the SEC and the deadline for doing that is just about now. From then on, investors ought to help the SEC implement the law by using its provisions. Unless investors stand up as a group and make executives know who is boss, they are bound to suffer the fate of countless investors in Enron, Global Crossing, World Com, etc.
Right now, investors everywhere are learning an expensive lesson in corporate citizenship. Hopefully, the backlash won’t cause too severe an economic pain for all of us.
The President said a government takeover of PAL is a needed investment for the country’s tourism program. In government hands, it will be no problem to declare open skies, she argued. She cited again Malaysia’s example, which makes me think she is misinformed on the key components of Malaysia’s tourism program. Then again, she is likely just under extreme pressure from the American ambassador to adopt open skies as a quid for the US military support in Basilan.
Somehow, the President is not thinking like an economist on the issue of open skies. Adopting it today is not expected to bring tourism numbers up until we clear up the basics like peace and order and adequate tourism infrastructure, for starters. Also, airlines are not even using up their rights today, making it absurd to even think of it as a panacea for our tourism blues.
Look at the numbers. There are 12 million air seats now available annually and only about half of that or 6.2 million seats are being used by the airlines, not necessarily filled (mostly, airlines fly to Manila nearly empty and fly out with Pinoy workers).
In more specific terms, Japanese airlines are not using 154,000 seats they are entitled to each year. American airlines are not using 388,000 seats. Hong Kong airlines are not using 251,000 seats. Middle Eastern airlines are not using 299,000 seats. Singaporean airlines are not using 49,000 seats. Australian airlines are not using 103,000 seats. Canadian airlines are not using 83,000 seats. There is obviously a lot of slack yet.
Maybe, if the American Ambassador continues to put pressure on Malacañang to give foreign airlines unlimited rights, we should insist on being given the same thing in the US. Philippine Airlines and Cebu Pacific should be able to take on passengers in the West Coast and bring them to American cities in the MidWest and the East Coast.
The US Ambassador’s remark that there should be nothing unusual if our airline went belly up since that happens all the time in the US, betrays the intention. Actually, we should reply that we have the right to protect our flag carrier the same way that Washington gave the $15-billion aid to American airlines after 9/11. Specially because we have millions of Filipinos all over the world, many in known hotspots, we need the national flag carrier for such things as emergency evacuations. Remember, we don’t really have an air force now with facilities to do that job.
Open skies? Sure, if America opens its skies too.
"You seem like an intelligent, honest man who wouldn’t lie to the court," the lawyer said sarcastically to the witness.
"If I wasn’t under oath I’d return the compliment," said the witness.
(Boo Chanco’s e-mail address is bchanco@bayantel.com.ph)