A Partnership for Progress

By Gil R. Ramos Ph.d.

The Overseas Filipino Nation and President Noynoy Aquino
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© 2010 by Prentice Hall

Years of Financial Mis-Management MisForeign and Domestic Portions of Phil Debt Stock

Source: Bureau of the Treasury ± Philippines

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© 2010 by Prentice Hall

Result: Filipinas is now in deep Sh!!

As of 2010: 96 Billion US Dollars -- 5 Trillion Phil Pesos

$46 Billion US external debt (estimate)
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© 2010 by Prentice Hall

This External Debt is a Big Problem
Forty Five percent of our debt is externally held. China only has 8 percent of its debt held by external creditors; Singapore only 2 percent. Their minimal external debt exposure allows these two countries to pursue relatively more efficient development policies also with minimal interference from external sources. We on the other hand are constrained to follow suggested economic policies from external sources. We are not able to pursue independent economic and financial policies like activist output/monetary targeting because of this huge external debt relative to our total debt exposure. We have to automatically allocate more than 30 percent of our Budget to the service of this huge debt. And our expenditure for basic social services like education and health care suffers. The historical record shows that our expenditure on these items has been less than 2 percent of GDP in recent years. Aside from the forced scrimping on social services on his mind, President Noynoy must be wondering aloud where the funds would come from for the massive financial outlays required to jump start the economy as he moves towards the first SONA of his presidency.

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© 2010 by Prentice Hall

How we compare with selected countries !

Country GDP POP GDPshare POPshare GRR -------------------------------------------------------------------------------------------------------1 United_States 15000 315 0.24590 0.04500 5.464 2 Japan 5320 129 0.08721 0.01843 4.732 3 Singapore 190 5 0.00311 0.00071 4.361 4 Korea 842 54 0.01380 0.00771 1.789 5 Taiwan 360 30 0.00590 0.00429 1.377 6 Malaysia 215 26 0.00352 0.00371 0.949 7 Thailand 300 66 0.00492 0.00943 0.522 8 China 4758 1500 0.07800 0.21429 0.364 9 Indonesia 530 238 0.00869 0.03400 0.256 10 Philippines 180 94 0.00295 0.01343 0.220 11 India 1243 1150 0.02038 0.16429 0.124 __________________________________________________________ Based on 2009 and 2008 data projected to 2010 values. World Population 2010 (my estimates) 7 Billion. World Product US 61 Trillion. All GDP figures are in current US billion dollars.

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© 2010 by Prentice Hall

Our leaders and economic managers have brought us down so low; it hurts!
In the 50 s we were ranked at the top 2 in Asia now we are cellar dwellers with India. What the GRR index tells us is that given a nation's share of the world's population, a score that is close to one like that of Malaysia in the table means that Malaysia is getting a proportion of world income flows that is almost equal to its percentage share of the world's population. Hence Malaysia is close to Unitary Balance while Thailand, China, Indonesia, the Philippines and India are in a development deficit status. These latter countries mentioned are getting a much lesser share of world income flows when compared to their share of the world's population. Singapore meanwhile is now a first world country at the level of the US and Japan. Countries in the first world category enjoy a proportion of world income that is much higher than their share of world population. Comparing the GRR index results to that given by the HDI - Human development index of the UN, the rankings were almost identical. However in the HDI using 2008 data the UN ranked Japan higher than the US and the Philippines ranked a bit higher than Indonesia with India remaining at the bottom.

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© 2010 by Prentice Hall

June 30, 2010
We will make our country attractive to investors. We will cut red tape dramatically and implement stable economic policies. We will level the playing field for investors and make government an enabler, not a hindrance to business. This is the only means by which we can provide jobs for our people. P-Noy Inaugural Speech

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© 2010 by Prentice Hall

What Investments ?
46 Billion US to shift the external debt to domestic peso bonds. 38 Billion US to fund the 3.8 million units housing gap at 10,000 dollars a unit. 10 Billion US for teacher debt relief Bonds. 10 Billion US for Palengke microfinance bonds. 10 Billion US for LGU Hospital development Bonds.
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© 2010 by Prentice Hall

Too Ambitious: who can afford that?
The Overseas Filipino Nation can! What is this OFN who are they? There are about 11 million Filipinos overseas. Conservative estimates put the aggregate income of all these Overseas Filipinos at close to 500 Billion US dollars a year and this is approximately 3 times the expected 2010 GDP of the Philippines projected at 180 billion US dollars. The current annual 20 billion US dollar OF remittances to the Philippines are mostly consumption driven remittances and is less than 4 percent of the total yearly income of all Overseas Filipinos. Assuming an average 20 percent savings rate for Filipinos abroad there is an untapped potential of 90 Billion a year that can be coaxed and enticed to enter the Philippines as OF investment flows yearly on top of the current 20 Billion US dollars in consumption driven remittances.

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© 2010 by Prentice Hall

How does the OFN compare with the Philippines & other Nations.
And how does our virtual country of OFN compare with the rest of the world. Let us see! In terms of the GDP levels of the world using 2008 data (World Bank and IMF figures), the OFN would be niched between 19th ranked Switzerland with a US $ 494.62 Billion GDP and 20th ranked Belgium with US $ 470.4 billion GDP. In per capita terms OFN residents have an income of US $44,795.45 each in 2004 prices. Compared with the per capita income of the Philippines in 2010 prices which we estimated to be about US $1,915 dollars OFN per capita income is 23 times greater. Compared to OFN residents in the US Philippine per capita income would have to be multiplied 34 times to achieve parity. Compared with the rest of the world in per capita terms the OFN fared better than comparisons with just GDP levels. The OFN per capita ranks higher than Finland with a US $ 44,492 per capita and follows 11th ranked Australia which has a US $ 45,989 per capita income. The OFN figures could actually fare much better if we reflate them from 2004 prices to the 2008 priced data that we used for the other countries.

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© 2010 by Prentice Hall

The OFN and P-Noy can work together!

In simple language let us re-phrase it this way - Prez Noynoy needs funds to fulfill the promises of his mandate. The OFN believes in the credibility of Prez Noynoy s promises and it has the funds to support the plans of Noynoy s presidency. The OFN would be willing to put in additional investment remittances inflows on top of the consumer remittances of about 20 billion a year given the new found confidence that they have in P-Noy s presidency. The OFN has the potential to double this remittance inflow when and if they decide to infuse investment inflows into the country. Prez Noynoy must create a container for the OFN investment remittances that would enjoy their(OFN) trust and confidence. It is like the phrase build it and they will come . Put up a container Mr. President one without corruption leakages and we the OFN residents will put our money into it.

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© 2010 by Prentice Hall

Overseas Development Fund
The ODF is the container that must be created under the Office of the President. The ODF would have features of a Quango or qango which is an acronym (variously spelt out as quasi non-governmental organization, quasi-autonomous non-governmental organisation, and quasiautonomous national government organisation) used notably in the United Kingdom, Australia, and Ireland. It is an organisation to which government has devolved power. In the United Kingdom the official term is non-departmental-public-body" or NDPB.
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© 2010 by Prentice Hall

Organization, Structure, and Leadership
There will initially be 7 Directors of the Fund. Two directors will come from government. Five directors will come from Overseas Filipino Organizations.

Initially these five directors will also be appointed by the President of the Philippines. Subsequently the next set of five directors will be nominated by OF organizations participating in the ODF. Participating OFO s are associations from overseas who subscribed and holds a minimum of 100 thousand dollar exposure in outstanding Bonds issued through the ODF. The top 5 OF s with the highest nomination votes will automatically sit as directors unless the nomination is vetoed by the President of the Philippines. In case of a presidential veto the next ranking nominee occupies the director vacancy. As volume of participants/subscribers to the Overseas Development Fund issuances and direct investment initiatives expand, the number of directors for OF's may expand to 7 and then 9 as required. The total directors of ODF will not expand beyond 11 inclusive of the two directors from government.

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© 2010 by Prentice Hall

ODF Executive Officers
The board of directors shall organize the executive offices of the ODF to include the following sections:
Research and Communications Cash and Asset Escrow management (channel for individual investors also) Marketing Personnel

Employees of the ODF will be considered private employees and not part of the government civil service. The ODF will be manned with experienced private sector hands, organized in the caliber of the ADB, WB, IMF , and leading Banks with the corresponding pay scale
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© 2010 by Prentice Hall

Clarifying the ODF Entity
The OFN is not an actual nation - it is a virtual one. As such it needs a mortar handle to be able to act functionally as a nation. that mortar handle is to be supplied by the ODF. Since the concept of actualizing the remittance fund inflows into the Philippines depends on the credibilty

of Noynoy's presidency and the corollary confidence that the OFN would have in his leadership the control of the mortar handle is shared

with him by the OFN. Still with the veto power that Prez Noynoy have over OFN recommendations effective control of the ODF remains with the Office of the President.

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© 2010 by Prentice Hall

Why The ODF and not Banks?
The crucial element here is the use of the ODF as the main instrument in mobilizing these investment remittances instead of the usual channels. The analogy is one of building a highway by administration rather than using a contractor. The Bureau of the treasury remains as the bond issuing fiscal agent but this time instead of dealing with the banking system, the government deals directly with the OFN residents through the Quango. The reason why the banking system would not significantly figure here is because they do not have the dollars. It is the OFN residents that have the hard currencies. And with the exception of their consumer remittances they are not putting the majority of their savings in Philippine banks. OFN saving deposits are in the banks of their respective host countries. The creation of the ODF provides Prez Noynoy's administration and the OFN organizations with a mechanism to save on the intermediation cost in 'basis ponts' commissions that would be incurred if the Philippine banks are unnecessarily inserted into the picture.

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© 2010 by Prentice Hall

Characteristics of the Bond
It will be issued mostly as zero coupon bonds with various maturities , 10, 20, and 30 year Bonds. They will be sovereign Bonds guaranteed by the credit of the Philippine Government. It will have sticky features (lottery and debenture elements). A ten year zero for instance with an 8 percent required annual return will be sold to OFN residents at less than 500 pesos in 2010 and will be redeemed at its par value of 1000 pesos by 2020. The bonds will be peso denominated but it has to be bought with dollars or other hard currency and not pesos. Since the bonds are bearer instruments and can be sold in the secondary bonds market the sticky features are designed so that the Bonds would tend to stick with the first buyer up to maturity. However these sticky features would be carried over to the current bond holder when such bonds are indeed released into the secondary market. However an OFO or individual must have 100,000 dollars worth of bonds in par value at the current exchange rate when executing a nomination vote of a particular prospective director in the ODF. The first issuances will focus on external debt relief bonds. later other 'silver bullet' bonds like teacher debt relief bonds and palengke micro finance bonds, housing bonds, oil_exploration bonds, industrial_estate bonds can also be issued. The ODF is really a pass through institution that facilitates the direct subscription of peso bonds that is to be paid in hard currencies by the OFN without the participation of the Philippine Banking system.

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© 2010 by Prentice Hall

Implementation Notes
The program must be launched within the next 100 days to take advantage of the political momentum of President Noynoy. It could be announced in the state of the nation address on July 26. A process of renegotiating and restructuring service payments on our external debt stock should also be launched hand in hand with this mobilization of OF Investment inflows. A process of synchronizing the accumulation effort of commitments and collection in escrow of payments and investment remittances from Overseas Organizations should be launched and timed with the expected maturation and repayments of segments of our external debt. The schedule of privatization efforts of government should also be inventoried so that debenture aspects can be tailored into OF retail bond issuances which holders can use to participate in acquiring government owned shares in GOCC s targeted to be sold. A one year assessment of the program effort should be done to fine tune it and make it more effective in accomplishing its stated objectives.

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© 2010 by Prentice Hall

Initial Outlay
Initial Release of 100 Million Pesos
í This will come from funds of the office of the President and will be like a mobilization outlay to seed the Overseas Development Fund

Underwriting margins are expected to be generated within six months
As hard currency external debts mature equivalent peso bonds are issued and retailed to OFW organizations Seamen organizations are included Participating OF organizations must subscribe a minimum equivalent of $100,000 US in bonds.

Margins are added into the capitalization to expand the underwriting scope and reach of the ODF.
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© 2010 by Prentice Hall

Email Notes 1
The idea is being discussed vigorously in the Internet among the OFN residents. We are providing a sample here of the exchanges.
From: Greg Macabenta [mailto:gregmacabenta@hotmail.com] Sent: Sunday, July 18, 2010 6:12 PM To: Ramos, Gil PH/US/EXT Subject: Re: greg - e u referring to this first philippine fund - that is totally different from the ODF concept GREG WRITES: I know it's different. But FilAms were also intended to be tapped. The question is: Did they succeed?

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© 2010 by Prentice Hall

Email Notes 2
REPLY TO GREG: Lilia Clemente had some limited success. Hers was a private business which rode on the Cory euphoria of the time. But participation was private and profits made was private. A similar parallel effort to raise a dollar each from every OFW to finance a car manufacturing plant in the Philippines failed because the warning pointed out that the cost of raising a dollar from each OFW could easily exceed a dollar was disregarded - it was really hairbrained and crazy. I have no idea what the involvement of Lilia Clemente was in this car scheme referred to here. The ODF on the other hand is not a private business. The process of getting people to subscribe to the bonds will result in a private decision but the campaign will not be private but a whole social movement. There will be compensation for efforts made but there will be no private entity making a private profit. So tapping the OFW's is the only similar part of the program - a small part and there lies the big difference.

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© 2010 by Prentice Hall

Email Notes 3
Hence the ODF is like a multilateral organization like the IMF or the WB or the ADB - only it is funded by OFN residents and is specialized in helping the Philippines . The escrow process will be specifically defined such that there will be almost a kaliwaan process from source to target creditor or target funds -- not allowing for diversions to general budget funds like what happened to the French loan for climate change. The bond is a sovereign peso bond and not a private stock as what the Philippine Fund was selling. That is a world of a difference. And the response of the OFW's will also be a world of a difference. Bonds or Cd's are within the grasp of the inverstment IQ's of most Ofw's. The Philippine Government implementing this alone will not succeed. It should be a joint initiative of Philippine Leaders and Leaders of the OFW Communities all throughout the world.

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© 2010 by Prentice Hall

Email Notes 4
Same with a pure private implementation - the scale of success targeted - will also not be achieved. The business as usual way of doing things even with the envisioned peso bonds for the international market will not solve our problems. Given the scale of our external debt at present. Only the joint effort of NOYNOY inspired government leaders and the OFW leaders similarly inspired will get this to an acceptable level of success. Government trying to develop their own set of OFW leaders to do this will not succeed. This has been shown to be true in the past. It is like developing a company union to cooperate with management - no real industrial peace will ensue. The appointment of community consuls to assist the ODF effort is a totally different matter. In this - we are putting up facilitators for the ODF program and not imposing them as OFW leaders in their respective communities. The idea of OFW's wanting to help Noynoy at their own volition and Prez Noynoy providing the werewithals in terms of an institutional container to make it happen must not be bastardized or else it will be a failure. And the nation and OFN residents will have lost a historic opportunity which will never come again in our lifetimes. And it would become very difficult for OFN residents to trust the government again.

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© 2010 by Prentice Hall

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