Business on long summer break?

The country has proven to be too hot for business lately and it is not just the El Niño weather. The election season has heated up considerably and it is no secret that because of the uncertainty of our immediate future, the more prudent entrepreneurs have taken a long summer break until things are more certain. Taking a long vacation abroad also protects them from political fund raisers.

The sideways movement in the local stock exchange is one indicator of investors watching and waiting on the sidelines. But most analysts agree that provided the first computerized election delivers a winner in a credible contest, the economy has no way to go but up. There is so much pent up desire from investors to participate in the country’s growth. With the industrial economies still trying to find their way, the focus is on emerging economies like ours.

CLSA Asia Pacific Markets expressed investor sentiments on our May elections in these words: “A new president with a clear mandate and a proactive agenda will boost confidence and create a sustained market re-rating. But ultimate success lies in his/her ability to implement game-changing initiatives and steer policy direction in four key areas: knowledge-based services, infrastructure, tax collection and compliance and security.”

Our problem today, CLSA observed in a 54-paged report, lies “with the incumbent government rocked by allegations of corruption and rising dissatisfaction.” Thus, it points out, “any leadership change is likely to have a cathartic effect on the country.” They expect “a two-man joust for the presidency between Senator Benigno “Noynoy” Aquino, son of former President Corazon Aquino, and Senator Manuel “Manny” Villar.” They think Gilberto Teodoro’s ties with the current administration weaken his appeal.

CLSA observed a win by either Aquino or Villar – both pro-business – would be received positively by the electorate and the investment community at large. It should also be “neutral to positive for the market.” But “execution is key and the incoming president’s first 100 days in office will be watched closely.” CLSA is “confident that there will be a smooth transition of power and envisage 12 percent upside for the index over 12 months.”

CLSA sees Noynoy symbolizing “the protest vote, or put it more bluntly, the anti-Arroyo vote.” On Noynoy himself, CLSA sees him as representing “reform and a return to good governance.” They see him striking a chord with middle-class voters, the poor (who are tired of being marginalized) and the business community.

CLSA expressed worries that “an Aquino presidency would run the risk of becoming mired in an Arroyo witch hunt (reminiscent of Corazon Aquino’s first few years in office, after the Marcos years). This would be divisive and sour relations with Congress.”

CLSA sees Villar, on the other hand, as someone who “may well be the best prepared of all the candidates for the top job.” CLSA continues: “Villar is politically adept, which is both a strength and a weakness. He has shown that he can build strong alliances (including with the leftists in Congress). He is opportunistic, but also has political will…

“Villar’s political record suggests he has the ability to forge coalitions and rally Congress behind him. He also has managerial experience of running a bureaucracy (House and the Senate)… is the founder of publicly listed company, Vista land and Landscapes (VLL). However this is the source of claims of conflict of interest.”

The downside risk to Villar, CLSA observed, is “he comes across as a traditional politician… Questions have been raised about whether, if elected, he would pursue Arroyo’s prosecution. He’s widely seen as more likely to maintain the status quo.”

CLSA sees the election as a growth stimulus. It cites an estimate of the International Foundation for Electoral System that the amount spent on each vote in the Philippines since the 1960s is 14 times that spent in the United States.

Also cited is the estimate of the Institute for Political and Electoral Reform that one needs at least P2.5 billion to run a viable campaign. “Its more recent estimates suggest the figure may be as high as P5 billion. The cost of a congressional candidate’s campaign is estimated at P25 million and that for a mayor at up to P100 million.”

CLSA cites Department of Finance estimates “that electoral spending adds 0.35-0.5 percent to GDP growth. Private consumption expenditure (PCE) and some government spending are the key beneficiaries of the multiplier effects… we estimate that candidates will spend about P137 billion during the 2010 election campaign; this is to more than one-third of the Philippines’ budget deficit of P298 billion for 2009. The bulk of this will be spent on: traditional campaigning with a strong focus on advertising, telecommunications, handouts and giveaways.”

These estimates on political spending may be too optimistic. While the top two broadcast networks are raking it in, there are doubts enough is trickling down to the grassroots.

Even administration candidates are grumbling that the Lakas party coffers seem to have been dried up by a political El Nino. Lakas Vice Presidential candidate Edu Manzano is complaining that he is not getting any of the promised financial support to his campaign.

Still, it is good to know that CLSA is hopeful about the outcome of our election and about the health of our economy thereafter. The big caveat however is our ability to pull off that computerized process credibly. The candidates, Ate Glue and her family and the armed services including the national police should all be patriotic enough to put the nation’s interests ahead of everything else including their own.

Remember the time when Al Gore scored a popular election victory over George Bush but Bush had the lead in the Electoral College votes thanks to a questionable Florida count? If that happened here, a long drawn out protest would have ensued and not even a Supreme Court ruling could have settled the contest. But as soon as the US Supreme Court ruled, no matter how questionable the legal basis, Gore conceded for the sake of the Union.

Such patriotism is what all our candidates should emulate so that we can go on with the business of living happy lives in our beloved country.

Sugar

It is just as well that Art Yap didn’t push through with a retail price control on sugar. He would have looked silly or worse. The world price of sugar has gone down significantly, thanks to better prognosis of India’s sugar production this year.

According to the Financial Times, raw sugar prices have fallen 34.3 percent since reaching a 29-year high of 30.40 cents a pound at the start of February. White sugar prices, on the other hand, have sunk 29.4 per cent since hitting a record $767 a ton in late January.

India is the world’s second largest sugar producer and the largest global consumer. A commodity strategist at JP Morgan Chase was quoted by FT saying that Indian output added two million tons to available world supplies when market expectations were for a production of less than 15 million tons. “A key element for a bull case for sugar prices in the first half of 2010 is diminished,” the strategist was quoted by FT.

Art Yap is now looking only half silly because he caved in to a fellow cabinet member’s demand to import sugar in an attempt to bring down domestic prices. As it turned out, domestic prices were indeed lower than what could be obtained in the world market. Some of those who won the right to import tax free had to go back to government to try to get out of it or have their commitment modified.

But a strange thing happened. The cabinet member who had the bright idea to import sugar to bring down local prices was rewarded with a six year tenured position at the Monetary Board. The economy will have to live with him beyond Ate Glue’s term.

Luckily the MB is a collegial body and hopefully any similar ideas from him will never see the light of day. Hopefully too, the next President will have more respect for the MB and will only appoint competent economists (as in the US Federal Reserve) and respected bankers. Ate Glue saddled it with too many political appointments (like the Hello Garci Press Secretary and now this Ate Glue favorite).

Lies

Sonny Mendoza, CEO of the LTA Condominium Corp sent in this classic.

Q. What`s the difference among Philippine Presidents Cory, Gloria and Erap?

A. Cory can`t tell a lie

B. Gloria can`t tell the truth

C. Erap can`t tell the difference

Boo Chanco’s e-mail address is [email protected] <mailto:[email protected]> . This and some past columns can also be viewed at www.boochanco.com <http://www.boochanco.com/