Undeniable realities rankle

The thought of failure three times in a row would surely infuriate any highly motivated achiever. In the case of our central bank governor, Rafael Buenaventura, this is more painful because failing marks were supposedly based on "biases and inaccuracies."

Case in point is the country’s repeated failure to make the grade in the recent country assessment submitted by consultant Wilshire Associates to its client, the California Public Employees’ Retirement System or CalPERS. The Philippines scored 1.87 in the 2004 report card, from 1.46 last year. The grading system is a simple 1.00 to 3.00, the latter being the highest.

Since 2002, the country had scored below the CalPERS hurdle rate of 2.00 but had managed to stay on its probationary "cure" list. This year, the country may truly be locked out of the listing, and Paeng’s boys were all psyched up when they presented their arguments recently as to why the Philippines should be given "special case" treatment.

Should we have failed to convince them, CalPERS will pull out its funds – estimated at $30 million – from local stocks after 30 days or so. The $30 million is still a paltry sum compared to the pension fund’s total asset value of $164 billion, but nonetheless substantial for a starved market like ours.

"The Philippines, which had been on the list, was extended the one-year cure period last year because its score had dropped below 2.00. In the 2004 report, the Philippines’ score rose significantly above Wilshire’s past threshold of 1.50 but not enough to meet the 2.00 threshold," said the Wilshire report to CalPERS.

Aside from the Philippines, the 26 other economies classified as emerging are Argentina, Brazil, Chile, China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, South Korea, Mexico, Malaysia, Morocco, Pakistan, Peru, Poland, Russia, South Africa, Sri Lanka, Taiwan, Thailand, Turkey, and Venezuela.

Wilshire Downgrades Judicial System

Wilshire is the sole consulting firm tasked by CalPERS to rank 27 emerging economies on the basis of seven items, three of which are country factors and four being market factors.

The country factors – political stability, transparency, and productive labor practices – account for half of the weighting of the total score, while market factors – market liquidity and volatility, market regulation/legal system/investor protection, capital market openness and settlement proficiency/transaction costs – pull in the other half.

In February 2003, Wilshire downgraded the country’s judicial system’s rating from 2.00 to 1.00, similarly giving the lowest grade of 1.00 for political stability, market liquidity and volatility, market regulation and investor protection, and capital market openness.

Given the latest performance of the courts – the well-known fact of clogged court dockets and what many consider as indiscriminate issuance of TROs – are we surprised about this rating of the judicial system?

Also, those observing the Philippines from the outside will not quibble about the rating for political stability, market regulation and investor protection. In fact, a higher rating would have raised eyebrows.

Foul Cries

In a comprehensive reply sent to Wilshire and CalPERS last year, the Philippines argued that the consulting firm’s scoring contained at least nine instances of inaccuracies and seven cases of inconsistencies.

If the reforms were considered, officials said the country’s score in 2003 would have improved to 2.22, and if the grading system was evenly distributed, the rating could go up to as much as 2.63. Had Wilshire corrected the inaccuracies last year, add our exasperated government bureaucrats, the Philippines would have scored at least 2.05 this year.

Why Beg For CalPERS’ Crumbs

While Malaysia, Thailand and India are in a celebratory mood for their inclusion in the CalPERS list, China, which does not enjoy any of the CalPERS funds allotted for emerging markets, does not care a whit. Of course the country enjoys the support of other US fund managers that are reaping in phenomenal earnings from their investments.

Even laggard Argentina, which failed to make it to the Cal PERS list this year together with Turkey and Peru, is attracting hordes of professional investors who are quick to spot opportunities in markets where stock levels are diving way below values.

So why are we begging so hard to be included in a list that apparently is not even regarded as the authority in the global investment business? Is it because if CalPERS was to pull out, it could drag along several million dollars of funds from a stock market that could hardly survive as it is?

Or, is it because if CalPERS pulls out, it will be another black eye to the Arroyo administration, bad timing coming at the heels of a credit rating downgrade, and in the middle of the election campaign.

We really don’t need another foreign body to tell us that we do have a tenuous political situation, that our financial markets are too small to qualify as liquid yet big enough to be volatile, and that our market regulation is a mockery of transparency and investor protection.

Even if we are included in the CalPERS list, these realities cannot be denied.

OUR GROWING DEPENDENCE ON OFWs On TV

‘Isyung Kalakalan at Iba Pa’ on IBC News (4:30 p.m. and 10:30 p.m., Monday to Friday) continues today a discussion of our overseas Filipino workers, regarded as the country’s modern day heroes. The Philippine economy has grown to be so dependent on the constant and increasing inflow of foreign exchange from them. In fact, a future without the regular remittances of our workers has become unimaginable. And yet the specter of eight million Filipino workers returning home because overseas work opportunities have dried up is a reality. If not this year, it could be next year, or the following year. Are we preparing for this eventuality? Watch it.

‘Breaking Barriers’ With DTI Sec. Purisima

‘Breaking Barriers’ on IBC (11 p.m. every Wednesday) will feature Secretary Cesar V. Purisima of the Department of Trade and Industry on Wednesday, 25th February 2004.

Local commercial and industrial activities have been in the doldrums for quite a while. New investments have come in, but only in trickles compared with our neighboring countries. Prices of basic commodities are about to hit the ceiling with the continuing rise of oil product prices and the imminent Meralco electricity rate hike. Amidst all of these, a neophyte in government service was appointed as Secretary of Trade and Industry.

Join us break barriers and gain insights into the views of Secretary Cesar V. Purisima of the Department of Trade and Industries (DTI) on current issues affecting the various sectors of Philippine business.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.