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Strategic Analysis and Research by the

CENTER FOR STRATEGY, ENTERPRISE & INTELLIGENCE

Chinese students, emigrants and business people around the world, and the individuals foreigners meet in China, are the countrys soft power. They have many friends and admirers who through them have great affection for the Chinese, their incredible work ethic and accomplishments ~ Veteran China watcher James McGregor This is a very clear sign to netizens that they must be responsible for their posts online. If it is not true, if it is fake, if it comes from your imagination, we [the government] will take actions to punish you ~ Journalism professor Zhang Zhi An on Beijings crackdown against online coup rumors

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Volume 2 - Number 15 April 16-22, 2012

4 The Taxman Gets Tough and Brings in the Money

Without new tax measures, Internal Revenue Commissioner Kim Henares raised collections by double-digits. Her winning formula: more than 100 tax evasion cases. Next: more tax reforms Upping revenues downtown: How local governments can raise local property tax collections

12 After 40 Years, Will Coconut Farmers Finally Get Justice?

The Supreme Court decision awarding some P85 billion in coconut levy funds is the latest turn in a four-decade struggle to bring millions of poor coconut farmers muchneeded benefits from Marcos-era levies gouged from them. Heres the long legal saga An ailing industry: The coconut sector needs new trees and investment Using our coconuts: New products from the old fruit

WORLD

24 Red Sky and Yellow Stars over Asia

Over a year since China stopped a seismic survey in the Philippines exclusive economic zone near Palawan, its red-flagged ships are back in the EEZ at Scarborough Shoal, blocking the arrest of its fishermen caught with endangered sea life. Will there be more tensions ahead between Beijing and Manila? First of a two-part analysis

BUSINESS

30 No Stopping the Condo Boom For Now

Fueled by OFW buyers, BPO renters, and government incentives, Metro Manilas condominium boom continues unabated, despite pockets of oversupply Mortgages by the millions: The pluses and minuses of easy lending schemes

POINT & CLICK

TECHNOLOGY

40 The Battle for Cyber-Freedom Intensifies

Reporters Without Borders has drawn up the order of battle to protect online freedom: its Enemies of the Internet list. But its not just the usual repressive regimes cracking down online, but even democracies fighting terrorists and copyright pirates There ought to be no law: A cyber data sharing law sparks Internet fears Repression vs. responsibility: Toward a free but accountable Internet

You can access online research via the Internet by clicking phrases in blue

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Center for Strategy, Enterprise & Intelligence provides expertise in strategy and management, enterprise development, intelligence, Internet and media. For subscriptions, research, and advisory services, please e-mail [email protected] or call/fax +63-2-5311182. Links to online material on public websites are current as of the week prior to the publication date, but might be removed without warning. Publishers of linked content should e-mail us or contact us by fax if they do not wish their websites to be linked to our material in the future.

Seeing the Many Sides of Life and Telling It Like It Is

Gary Olivar has seen and done far more than many mortals. UP activist, Marcos detainee, Harvard MBA, New York investment banker, Hong Kong and Jakarta executive, Makati entrepreneur, AIM professor, presidential spokesperson, and now consultant and columnist thats quite a resume after nearly three score. Among the big names he has worked for: Sumitomo Bank, American Express, Smart Communications, and Bayantel. But Olivar isnt one to say no to lifes challenges, especially if principles are at stake. So even when some friends and frat-mates disdained it, the man who braved martial-law troops did not countenance critics taking issue with his well-argued defense of the past administration or his well-founded criticisms of the present one. Or vice versa, whether privately citing governance errors in Palace meetings years ago or publicly praising good policies and performance today.

Hence, the Harvard mans analysis of tax policies and collections under President Benigno Aquino III in the Nation section, applauds the Bureau of Internal Revenues double-digit revenue gains without imposing new taxes. I just tell it like it is, he says, as many of his past colleagues and students have known him to do. The revenue effort is definitely commendable, though the government should still rationalize incentives and excise taxes. No political blinders here: just straight talk and sharp insights.
TCR photo

Prof. Gary Olivar: Man of many facets

Thats no surprise coming from someone who saw up close the vapid, virulent vacuity of leftist ideologues, and honed his analytic faculties to illusion-proof incisiveness in business school and corporate finance. No room there for self-deceiving conceit, which can quickly reap a professors excoriation or the markets costly dumping of ones product or stock. So when Olivar picked apart and held up pieces of the tax system for close scrutiny, the resulting analysis was anything but a whitewash or a hatchet job. Openness to different perspectives and honestly arguing ones views are no guarantee, however, that others see it as fairness. Those who take sides see partiality in those who speak the truth about all sides even if it hurts. But they are just one more challenge among so many that make Olivars day everyday.

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The Taxman Cometh A

By Gary B. Olivar

fter missing its collection target last year by just 3%, the Bureau of Internal Revenue (BIR) seems doubly determined to show that it can do even better this year. As reported in The Manila Times in March, the tax bureau collected 68.7 billion in February, 29% better than a year ago. This has brought year-to-date collections up to 153.8 billion, which was 20.2% better than the previous year, and 2.3% over its target. So far so good for the new BIR commissioner, accountant-attorney Kim Henares, who's showing she means business by launching an investigation into perceived irregularities in the tax payments of world boxing champion and Saranggani Congressman Manny Pacquiao, even as some might accuse her of political partisanship in pursuing cases against relatives of former President Gloria Macapagal Arroyo and the family of Chief Justice Renato Corona, whos now under impeachment. Latest feats run up against the perennial challenge. Nonetheless, seasoned observers might be forgiven for taking Commissioner Henares latest feats with more than a grain of salt. As the Senate Economic Planning Office put it in its Dec. 2010 report Paving the Road to Inclusive Growth and Development, revenue collection has been a perennial challenge, for which a complicated and unresponsive tax system, and a weak institutional capacity that cultivates corruption and results in large tax leakages are held to blame. Whereas the tax reform program right after the 1986 EDSA Revolution managed

STRATEGY POINTS
Tax collections are improving so far in 2012 but will they be enough to overcome a 'complicated and unresponsive' system and 'weak institutional capacity'? Can the Philippines improve its tax effort enough to meet its budget-deficit target not just with lower spending, but with enhanced revenues as well? What the Bureau of Internal Revenue collects with one hand, Congress gives away with the other, hence the need for rationalization of fiscal incentives

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to significantly improve revenues, its follow-up program a decade later the Comprehensive Tax Reform Program (CTRP) of 1997 did not. According to former Budget Secretary Benjamin Diokno in The Philippines: Fiscal Behavior in Recent History, a discussion paper and lecture delivered at a July 2008 forum sponsored by the Ayala Corporation and the University of the Philippines School of Economics, this was because the 1997 program failed to include such important reforms as rationalization of fiscal incentives and inflation indexation of specific excise taxes. At the same time, trade liberalization reduced average import tariff rates by half. As a result, the overall tax effort declined by nearly five percentage points from 1997's 17.0% of Gross Domestic Product to 2004's 12.3%. (See table below). In 2004, at the start of then-President Arroyos full elective term, the 13th Congress passed several key measures intended to arrest the slide in tax effort. These reforms increased the tax rate on alcohol and tobacco products, put

employees of the revenue agencies (BIR and Customs) under a performance-based reward and punishment system, and, most importantly, increased the coverage and rate of the value-added tax (RA 9337). The tax effort improved somewhat after these policy reforms, but fell back again in succeeding years, as the perennial problem with collection efficiency resurfaced. The revenue agencies have missed their collection targets much more often than meeting them over the last 10 years, with the shortfalls being covered up by non-tax revenues like privatization proceeds and income from the Treasury. By 2009, the tax effort was back down to about 13% of GDP, no better than before the mid-decade fiscal reforms. Better tax administration. As Hongkong and Shanghai Banking Corp put it in Step by Step, its October 2011 Flashnote on Philippine macroeconomic fundamentals, the administration of Benigno S. Aquino III took office with a pledge to improve collections simply

THE PHILIPPINES' TAX EFFORT, 1981-2004

Time Period (Administration) 1981-1985 (Marcos) 1986-1992 (C. Aquino) 1993-1998 (Ramos) 1999-2000 (Estrada) 2001-2007 (Arroyo) Taxes as a Percentage of Gross Domestic Product (%) 11.7 15.9 18.7 15.7 15.3

Source: TCR compilation of data from The Philippines: Fiscal Behavior in Recent History, Dr. Benjamin E. Diokno, discussion paper and lecture delivered on July 11, 2008, at the 2nd Ayala Corp.-UP School of Economics Economic Forum

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through better tax administration, with no need (yet) to levy new taxes or revise existing ones. The tax leakages that need to be plugged can come in many forms, and unleashing the fear factor against income tax evaders is just one scenario among many. authorities to arbitrage on rate differentials, while consumers for their part can unwittingly reduce overall collections by shifting from higher-taxed goods to lowertaxed (and thus cheaper) substitutes. A local initiative is already pending to reduce the existing four-tier excise tax regime into a single rate one that is moreover indexed to inflation, which can reduce the take from these specific (as opposed to ad valorem) excise taxes.

Among the other alternatives, per a 2006 U.S. Agency for International Development-funded study on Philippine Tax Leakages:

Simplifying compliance and reducing its costs can be effective in coaxing more income-tax collections out of professionals and independent businessmen

Simplifying compliance and reducing its costs can be effective in coaxing more income-tax collections out of professionals and independent businessmen, who by definition do not benefit from the structured withholding-tax system that employers maintain for employees. When the Simplified Net Income Tax (SNIT) system for professionals was first introduced twenty years ago in 1992, it led to a dramatic drop in leakages in the following couple of years. More active intervention by the BIR in the value-added tax (VAT) system, which is supposed to be self-policing by its very nature, but in practice can still be gamed by tax evaders as persistent and ingenious as Filipinos can be when pushing the legal envelope. Simplifying the excise taxes being collected on alcohol and tobacco products. The payers of this tax are large companies who can easily collude with the tax

Of course, better tax administration may just be a euphemism for more heavy-handed treatment by the taxman, something that nobody relishes. As Filipinos troop to BIR offices all over the country this month for their annual encounter with the taxman, we invariably wonder if the civic benefits from paying more taxes something that we might accept on an intellectual level are actually worth giving up what we might otherwise spend on personal consumption. This is the libertarian view of taxation: taxes are confiscatory by nature, and therefore are a necessary evil at best. This thinking has a long and honored tradition in countries like the United States, but enjoys little traction in developing parts of the world like ours, where the State is viewed much more benignly and submission to authority comes much easier to the citizenry. There may be an occasional libertarian gadfly, but not too many of them. Instead, what continues to be generally accepted among policy-makers and

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academics in countries like the Philippines is that taxes are necessary in order to finance a government with its own essential role to play in national development, and so the payment of taxes is not only a civic duty, but in fact a noble enterprise. Financing government operations and redistributing income. A March 2011 International Monetary Fund paper on Revenue Mobilization in Developing Countries reminds us that the need for taxes goes beyond the simple requirement of financing government operations. It is widely accepted that progressive taxes are better than regressive ones because they serve to redistribute income. And in a developing country like ours, tax collections are deemed essential in fulfilling the most urgent obligations of building out primary infrastructure and improving poverty as part of a state commitment to sustainable development. The developmental need can even be quantified: according to the paper, in order

for low-income countries to achieve their Millennium Development Goals, they will have to improve their tax-to-GDP ratios by about 4 percentage points. Structural reform. Better tax administration is just the first step and only part of the picture. What economists like to call structural reform or fiscal consolidation means the promulgation of a tax regime that is not only collection-efficient, but in general maximizes revenues in a coherent and sustainable way. Not surprisingly, its the politicians, again, whove complicated the taxmans job. Over the years, an unruly thicket of tax exemptions here, investment incentives there, has grown up around the Tax Code, reducing collections even if the process were a hundred percent honest and efficient. If we look solely at tax legislation enacted by the last (14th) Congress, we see a slew of revenue-reducing measures, among them:

SELECTED REVENUE-REDUCING MEASURES PASSED BY 14TH CONGRESS

Law/Measure RA 9405 (indicidual income tax relief) RA 9337 (corporate income tax relief) RA 9505 (personal equity retirement act) RA 9679 (power transmission taxation limited to franchise tax) Creation of free ports in Bataan (RA 9278) and Aurora (RA 10083) Estimated Revenue Reduction

26 Billion 15-20 billion 12 billion 9 billion 6 billion

Source: TCR selection of measures from Table 2, Economic Reforms for Philippine Competitiveness, Faculty of Management and Development Studies, University of the Philippines Open University, 2010, p. 10.

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As estimated by the Department of Finance, the revenue losses from all the revenue-reduction measures enacted by the 14th Congress, upon full impact of implementation, would total nearly 90 billion, exceeding the projected 80 billion in VAT revenues over that period. Much of this legislation is useful of course: Who could argue against income tax relief, or the introduction of the local equivalent of 401(k) accounts in the US? But the point being made by the bean-counters is that nothing is free, all good intentions must be paid for one way or another. This is why the agenda of the current Congress includes a long-pending proposal to rationalize the present hodgepodge of nearly a hundred different fiscal incentives being administered by multiple agencies. The reforms include focusing fiscal incentives only on the most important policy issues (exports, investing in the poorest provinces), applying more performance-based incentives (accelerated depreciation, longer tax loss carry-forwards), and monitoring the tax expenditures of the various investment-promotion agencies. Properly implemented, as expressed in the aforementioned IMF study, the IMF believes that these reforms could add the equivalent of several points of GDP through more tax collections. Simpler business taxes. Unfortunately, whats sauce for the goose isnt always sauce for the gander. When you move to the other side of the tablefrom the collectors to the taxpayers side things can look very different. For example, when it is businessesnot individuals that are being taxed, the tax regime can have the additional effect of distorting or even depressing investment decisions that must be made in order to fuel the progress of a market-based economy. In Paying Taxes 2011, the fifth edition of the study of the World Bank, the International Finance Corporation, and PricewaterhouseCoopers, a survey of companies in 183 countries found that companies consider tax ratesnot surprisinglyto be among the top four constraints on their business. In a broader survey of 188 economies over six years, PricewaterhouseCoopers found that the average company pays nearly half of its income on taxes, devotes seven weeks in a year to tax matters, and pays a tax every 12 days. This covers not only the usual corporate income tax, but also an average of eight other taxes, including two separate taxes on labor and one each on consumption and property. Fortunately, tax reforms that were implemented during the survey period have lightened the burden in most of the countries surveyed, with average compliance

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costs going down by 5%, compliance time shortened by a week, and an average of nearly four fewer payments in a year. The Philippines is part of the tax reform story as well, as reported in Ernst & Young's 2011 Asia Pacific tax policy outlook. In the last couple of years, several businessfriendly tax reforms were introduced, among them: Lowering the corporate income tax rate from 32% to 30% Eliminating stamp taxes on listed stock transactions and reducing them on life insurance policies (a boon for financialintermediation activity) Intensifying enforcement against tax evaders and smugglers through programs like Revenue Integrity Protection Service (RIPS), Run After Tax Evaders (RATE), and Run After The Smugglers (RATS). These reforms have kept the country somewhere around the median of global performance. In the afore-mentioned PricewaterhouseCoopers survey of businesses in 183 countries conducted last year, the Philippines ranked low (149th) in terms of number of tax payments, but a relatively high 70th in terms of time required to pay taxes, with higher ranks

indicating better performance: Also being favored for passage this year are additional excise sin taxes to be levied on alcohol and tobacco, although its never been clarified if the real intention behind this is to increase taxes or reform behavior. The presumption must be that the taxes foregone from reformed smokers or drinkers are an opportunity cost worth paying for the net welfare benefit from quitting these vices, not to mention the real savings on such costs as medical care for aficionados of these vices. Value-added tax. Sin taxes are one example of consumption taxation, but the most theoretically attractive form of consumption tax is the value-added tax. This was first introduced in the Philippines under RA 9337 and later expanded (from 10 to 12%) under the administration of former President Arroyo. The IMF estimates that VAT collections can add an extra two percentage points to GDP. Because of the double-entry nature of output debits and input credits, the system ought to be self-policing if consistently observed in all transactions, with complete documentation and few or no exemptions being granted. But there is always room for improvement. At a International Tax Dialogue conference on the value-added

THE PHILIPPINES' WORLD STANDING AS TAX ADMINISTRATOR

Performance Category Ease of paying taxes Tax payments Time to comply Total tax rate Philippines Rank 124 149 70 118
Source: Paying Taxes 2011, World Bank, International Finance Corp., and PricewaterhouseCoopers, Table 1, p. 91

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tax, in Rome in 2005, experts from the OECD, IMF, and World Bank offered lessons from the experiences of their member countries: VAT works just as well in developing countries as in developed countries. They stabilizenot just enhance--revenue collections, and they often replace indirect taxes that are even more complex to administer. A single rate is always easier to administer than multiple rates. Exemptions by their nature can seriously compromise the system and should always be avoided although the experts acknowledged that the politics in favor of exemptions can be overwhelming. In general, only exports should enjoy a zero VAT rate. Challenges remain in many areas of implementation: refunding of excess credits (which can be abused), the integrity of self-assessment by tax payers, the development of effective monitoring and audit procedures. The simplicity of the VAT system is its greatest strength, and the more exemptions are introducedon petroleum products, for example, or on essential purchases by the poorest of the poorthe more that simplicity is compromised, especially in a country like the Philippines where gaming the system has been raised to a high art. Making headway. As the Aquino administration continues to try and find firmer footing on taxation and fiscal issues, it is getting the cooperation and endorsement of some very influential people.

In the latest statement of the RP-US Partnership for Growth (PFG), the Philippine and US governments agreed that the two binding constraints to the countrys growth were weak governance and a narrow fiscal space. These two issues come together, of course, in the policy imperative to improve tax administration. This initiative however is not enough; it must also be accompanied by other reforms intended to permanently improve the tax revenue base andon the spending sidestrengthen key processes in public expenditure management: budgeting, oversight, and audit, among others. From the Philippines' Senate Economic Planning Office, the economists who prepared a proposed legislative agenda for the 15th Congress in December 2010 likewise agree on the importance of fiscal issues: The governments fiscal position plays a pivotal role in fostering economic growth and improving social outcomes. It is a crucial indicator of macroeconomic stability and the main determinant of the countrys capacity to spend on basic services and other developmental goals. In the last

REVENUES, DEFICITS, AND THE PUBLIC

Year Revenues (billion pesos) 1,123.2 1,207.9 1,331.3 1,451.4 1,585.6 Expenditures (billion pesos)

Revenu (% of GD

2009 2010 2011 2012 2013

1,421.7 1,522.4 1,579.1 1,653.7 1,7445.6

14.0

13.4

13.6

13.6

13.7

Source: CEIC, HSBC Hongkong an

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three years, the fiscal position of the government has markedly deteriorated. Thus, putting the fiscal house in order is inarguably one of the legislatures most important tasks for the next three years. For their part, the analysts at Hongkong & Shanghai Bank are already impressed. In their aforementioned Oct. 2011 Flashnote, they acknowledge the fiscal progress that started under the previous administration, whose economic resiliency plan was able to reduce budget deficits to only 1% of GDP from 2006-2008, only to be derailed by the overriding need for fiscal stimulus and much more government spending in the wake of the global recession of 2008. This time around, the current administration freed of the worst of the recent recessioncan afford to refocus its priorities on the deficit. On present trends, the HSBC analysts are optimistic that the government will achieve its deficit target of 2% of GDP by the end of 2013 (see table below). In the bankers words: Step by step, progress is being made.

What local governments can do to improve real property tax collections

The following recommendations are from the final report of a mid-90s U.S. Agency for International Development-funded Governance and Local Democracy (GOLD) project that recommended how local governments can improve their real property tax systems, thereby reducing their dependence on internal revenue allotments from the national government. Property Identification Use all measures to identify property owners, including the involvement of barangay officials Coordinate with concerned local government offices and national agencies (e.g., Register of Deeds, DAR, and DENR) for maps, master lists, titles, etc. Conduct regular training for assessment and collection personnel Assessment and Appraisal Simplify assessment process and procedures Strict compliance with assessment laws, rules and regulations Establish uniform criteria for appraisal of properties Records Management Eliminate unnecessary forms or records Computerize assessment and collection procedures and record management Enhance coordination between treasury and assessment offices Collection and Enforcement Provide funds for tax information campaign Institute civil and administrative remedies for non-payment of taxes Conduct capability-building or training for assessment and treasury personnel Strictly enforce civil and administrative remedies Policy Issues Recommend the amendment of exemption level, assessment levels and the frequency of general revision Recommend that Sangguniang Panlalawigan adjust Fair Market Value to true market value

DEBT: RESTORING FISCAL BALANCE

Fiscal balance (billion pesos) -293.5 314.5 -247.9 -202.3 -160.0 Fiscal balance (%of GDP) -3.7 -3.5 -2.4 -2.2 -2.0 Public debt (% of GDP) 62.4 58.5 55.6 53.3 51.1

ues DP)

estimates as published in Step by Step, by Trinh Nguyen, nd Shanghai Banking Corp. Global Research, Oct. 11, 2011

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The Coco Levy Funds: Is the Shell Game Approaching Its End?
After 25 years, ownership if not control of the coco levy funds is about to be settled . . . maybe
By Atty. John Carlo Gil M. Sadian

STRATEGY POINTS
Forty years after it was established, the Marcos-era levy on coconut farmers has yet to fulfill its promise of uplifting the countrys once promising coconut industry With the Supreme Court rulings awarding a total of 31% of San Miguel Corporation to the government, it still remains to be seen whether said rulings will actually be final and executory The Supreme Court rulings might take the pressure off the government to file criminal cases over questionable maneuvering, but they now put the responsibility for fulfilling the promises of the coco levy squarely on the governments shoulders

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fter a quarter-century of litigation, the long-suffering coconut farmers may finally get their due, or at least part of it. Maybe.

The recent Supreme Court decision awarding 27% of San Miguel Corporation shares to coconut farmers can still be appealed. But farmer advocates are already demanding that the government begin spending the long-awaited megawindfall for the benefit of some four million farmers and their families. But the government seems to have other plans. Government considering borrowing against coco levy funds. On April 10, Secretary Joel Rocamora of the National Anti-Poverty Commission (NAPC) announced that in line with the governments agro-enterprise development and social protection program, the Aquino administration has been considering the possibility of borrowing against the accrued interest from sequestered assets acquired through the controversial coconut levy fund. According to the poverty czar, this move is necessary, as the government cannot wait forever for the courts final disposition of sequestered San Miguel Corporation shares, which were acquired using coco levy proceeds. Some militant groups disagree, with the Kilusang Magbubukid ng Pilipinas (KMP) challenging President Aquino to tap his allies in Congress to enact a law that would declare coco levy funds as public funds. According to the KMP, if the government is really serious in returning

the coco levy funds to its real owners, certifying as urgent Anakpawis Partylist Rep. Rafael Marianos House Bill 3443, which would create a coconut farmers trust fund, would be the best option. This solution appears more legally feasible, considering that the coco levy funds are under escrow upon orders of the Supreme Court. Even Budget and Management Secretary Florencio Abad and Philippine Coconut Authority (PCA) Administrator Euclides Forbes have admitted that the actual interest and dividends from the contested assets could not be tapped to help the ailing coconut industry because the money was still tied up in court suits. The coconut levy litigations. As Dean Andy Bautista, Presidential Commission on Good Government (PCGG) head, reminds us in a recent Philippine Star column, the coco levy case (Sandiganbayan Civil Case No. 33) is actually subdivided into a total of eight cases involving different parties and properties. Arguably the most important of these cases is No. 33-F, which involves 51% of the shares of mega-conglomerate San Miguel Corporation. This majority stake at San Miguel has been further subdivided into three separate litigations, each of which reaching the Supreme Court in highly contentious proceedings. The first case involved 4% of San Miguel shares, which, in the case of San Miguel Corporation vs. Sandiganbayan, was awarded by the Supreme Court to the government. The second case, Republic of the Philippines vs. Sandiganbayan and Eduardo Cojuangco Jr., involved a 20%

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block that the Supreme Court, voting 7-4, awarded to Ferdinand Marcos' main coco-levy administrator. The most recent High Court pronouncement came early this year, Philippine Coconut Producers Federation, Inc. (COCOFED) vs. Republic of the Philippines, where the Court, voting 11-0, declared that the remaining 27% of San Miguel is owned by the government. (Note: The 27% has since been diluted to 24% due to the governments failure to subscribe to the increased authorized capital stock of San Miguel, and in Sept. 2009, the government converted these common shares to preferred shares.)

In line with the mandate of pre-martial law legislation establishing the coco levy funds, the government is now left with the task of distributing properties and assets acquired through the use of such funds. But before pondering how the government can best distribute those properties and assets among the coconut farmers their due, it might be helpful to review the legal background surrounding the coco levy and the moves taken by the government to recover them from and his coco-levy administrators. The Coconut Investment Fund. On June 19, 1971, the pre-martial law Congress

A lovely bunch of coconuts

The Philippines is recognized as the worlds second largest producer of coconut products, after Indonesia. Coconut production constitutes one of the four major sectors of Philippine agriculture, the others being rice, corn and sugar with the coconut industry accounting for some 20 percent of the countrys total agriculture. About one-third of the population depends on coconut production for livelihood. Coconut farms cover some 3.258 million hectares of land area ---- roughly 27% of total farmlands. About 80% of total coconut production is exported in the form of copra, coconut oil and dessicated coconut. Coconut products are important raw materials for many industrial commodities like margarine, soap, lauric acid or glycerine-based industrial chemicals. Recently, new coconut products as well as new markets that offer excellent potential have also been identified. Despite past difficulties, coconut product exporters are currently reaping hefty gains from strong global demand since the past year. According to the private sector-led United Coconut Association of the Philippines (UCAP), the countrys shipments of various coconut products, including coconut oil, reached $2 billion by the end of 2011. Export receipts recorded for the year was almost 23% higher than the $1.63 billion worth of coconut products shipped by local producers in 2010. Data from the Philippine Coconut Authority (PCA) showed that almost all coconut products registered an increase in the value of exports last year UCAP Executive Director Yvonne Agustin said that last year was the first time the Philippines hit its export earnings target for coconut products, and predicted that given good prices for our coconut products, the country could post another increase in export receipts in 2012. Corollary to this development however, PCA Administrator Euclides Flores declared that of the 230 million trees in the country, 44 million of them (14%)

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enacted Republic Act 6260 to establish a Coconut Investment Fund to accelerate the development of the coconut industry. The declared national policy behind the creation of the Fund was to provide adequate medium- and long-term financing to encourage capital investment in the industry. Under the provisions of RA 6260, a levy of 55 centavos was imposed on the first domestic sale of every 100 kilograms of copra or any equivalent coconut product. Out of this amount, 50 centavos accrued to the Coconut Investment Fund, while 3 centavos accrued to the Philippine Coconut

Administration (PHILCOA). The remaining 2 centavos was placed at the disposition of the recognized national association of coconut producers with the largest membership as determined by PHILCOA. The Philippine Coconut Producers Federation, Inc. (COCOFED) was later on declared by PHILCOA to be the recognized association. The Coconut Investment Company. The administration of the funds to be levied under RA 6260 was placed in the hands of a newly created Coconut Investment Company (CIC), whose initial capitalization was pegged at 100 million pesos. RA 6260

are already classified as old and senile (over 60 years old) and can no longer bear any fruit. This, plus the poverty engulfing our coconut farmers, has prompted Senator Pangilinan to press the need for a revitalization of the coconut industry, saying: We need to revive this dying industry, invest the necessary government funding to boost coconut production and ensure the income of our farmers, and develop a roadmap for the sustainability of coconut production. Former Senate President Edgardo J. Angara, chairman of a Senate finance sub-committee, issued a similar call during last years budget hearings, openly asking DTI Secretary Gregory L. Domingo to lead the creation of an innovation cluster within the Cabinets economic cluster to oversee the revival of the coconut industry, which is relied upon by some 20 million Filipinos or one fifth of the countrys population.

The Senator lamented that The coconut industry today is half of what it was 25 years ago, and that the Cabinet must focus their concerted efforts on promising areas for growth, not have segmented interests in their industries. Angara said R&D has the highest rate of return on investment on all economic activities, but we have neglected it. He also added that: We have lost in our pioneering spirit. The Philippines used to be Number One in the coconut industry. We stopped being so when research and development (R&D) waned and eventually stopped. For his part, Senator Pangilinan pointed out that the bottom line for these efforts should be the lifting of coconut farmers out of poverty. Sadly, while the Philippines is known for its coconut products, its coconut farmers earn an average of only P30,000 a year.

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provided that the government would use the Coconut Investment Fund to pay for the capital stock of the CIC, which would in turn invest this capital in financing agricultural, industrial or other productive (coconut) enterprises.

Stabilization Fund (CCSF). Thus, a Stabilization Fund Levy of 15 pesos was imposed on the first sale of every 100 kilograms of copra resecada (dried copra) or any equivalent product. This amount would be credited to the CCSF to be used to subsidize the difference between the actual market price and the prices set by the Price Control Council on edible oil and other coconut oil-based products. While PD 276 provided that this levy would only be collected for one year, a subsequent amendment, PD 414, made the levy permanent.

The government's The governments initial subscription initial to the CICs capital subscription stock was explicitly to the CIC's for and on behalf of the coconut farmers, capital stock was to whom the shares explicitly 'for and will eventually be transferred upon on behalf of the full payment of the coconut farmers' authorized capital stock or upon termination of a tenyear period from the The Coconut Industry start of the collection of the levy, whichever Development Fund. A year later, on comes first. The levy imposed by RA 6260 November 14, 1974, another permanent was collected from 1972 to 1982. fund was established when Marcos issued PD 582. This time, the fund aimed to The intent of the law, therefore, was to use finance the establishment, operation the Coconut Investment Fund collected and maintenance of a hybrid coconut from coconut farmers to pay for the CIC seednut farm and to implement a shares of stock, which would be subscribed nationwide coconut replanting program to and held by the Government until the to be sustained by using precocious highlevy was lifted. Once the levy was lifted, the yielding hybrid seednuts to be distributed receipts earlier issued to coconut farmers free to coconut farmers. This fund was would be converted by the government named the Coconut Industry Development into shares of stock in the farmers Fund (CIDF). names, and the CIC would become a new private corporation. The initial capital of 100 million pesos would then be paid from the CCSF and The Coconut Consumers Stabilization partially from the Philippine Coconut Fund. On August 20, 1973, barely two Authority (formerly PHILCOA). Under PD years after RA 6260, Marcos martial-law 582, PCA was to remit to the CIDF at least regime issued Presidential Decree 276, twenty centavos per 1 kilogram of copra which established the Coconut Consumers resecada or any equivalent product from
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its current collections of the CCSF. The law further provided that in the event that the CCSF is lifted, the same 20-centavo levy would be automatically imposed.

The Coconut Industry Investment Fund. Seeking to codify the various laws relating to the coconut industry, PD 961 was issued to introduce a Coconut Industry

Using our coconuts

According to a 2006 assessment of the coconut industry for the United States Agency for International Development and Ateneo de Manila Universitys Economic Policy Reform & Advocacy program, coconut farms in the Philippines take up close to 3.3 million hectares and represent nearly 30% of all agricultural lands in the country. A full 80% of all coconut products are exported out of the country, meaning that there is a huge worldwide demand for these products. Even though they only represent 1 out of 3 farms, coconut products represent nearly half of all agricultural exports. So, why is the Filipino coconut farmer among the poorest in the country? For one, the majority of the coconut farms are mainly employed in copra production (copra comes from coconut meat, which is processed into oil that is used in explosives, detergents, and soap). Unfortunately, copra production is not a very profitable livelihood for coconut farmers and is very wasteful as well. A farmer earns only a few thousand pesos per month from producing copra, and moreover, when producing copra, three-fourths of the valuable elements of the coconut are thrown away the milk, flower, and water. Thats about 12 billion nuts every year, which hold approximately 4 billion liters of coconut water. All these are wasted products which could have been converted to revenues for the coconut farmers given the proper support and opportunities. Fortunately, a number of entrepreneurs like Mr. Jun Castillo, have expressed not just optimism about the industry, but have been seriously working on new concepts to push the plight of coconut farmers as well. Castillo belongs to a group of advocates called the New Philippine Coconut Society, whose goal is to foster a new coconut industry in favor of the farmers. He has spent the past 30 years working with and defending the rights of coconut farmers and says that even The Coconut House (a restaurant he owns that serves food whose primary ingredient is coconut), is not just a business, but part of this advocacy as well. In the new coconut industry he advocates, Castillo explains, all the elements are taken advantage of to the fullest. Additionally, instead of producing copra oil, a cleaner oil is produced the now-popular virgin coconut oil, which can be used both for food and industry. Castillo calls coconut trees coconut cows, explaining that when properly cared for, 10 coconut trees can provide a years supply of milk for a family of seven. Given the growing demand for coco water, Castillo regularly goes to different provinces all over the country to teach and orient farmers how to make coco water concentrate. Another novel concept is being pushed by the producers of Dr. Gerrys Coco Nectar. The product is a concentrated form of the coconut sap, a sweet liquid that flows out of the inflorescence of the coconut plant. The company, according to their website, pays by the tree so the farmer may see yields as much as 10 times his previous income from copra production.

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Code. However, short of two years since its effectivity, PD 1468 would be issued to further introduce amendments. The amended code which took effect June 11, 1978 would eventually be known as the Revised Coconut Industry Code. tThis law did not only continue the already existing CCSF and CIDF systems but also authorized the use of the CIDF balance to finance other projects. The most significant of these is the use of the CIDF balance for the acquisition of shares of stock in corporations organized for the purpose of engaging in the establishment and operation of industries, commercial activities and other allied business undertakings relating to coconut and other palm oil industries. This fund specifically set aside for this particular purpose became what is known to be the Coconut Industry Investment Fund (CIIF) which, three decades later, would still cause headaches for the government. The Coconut Industry Stabilization Fund. Meanwhile, CCSF and CIDF collections would be suspended by PD 1699, only to be revived on October 2, 1981, by PD 1841 with much larger exactions. This new law renamed the CCSF as the Coconut Industry Stabilization Fund (CISF), which imposed 50 pesos for every 100 kilos of copra resecada or any equivalent product delivered to exporters and other copra users. The CISF would then be distributed among the CIDF, COCOFED, PCA, and the bank acquired for the benefit of the coconut farmers under PD 755, referring to the United Coconut Planters Bank (UCPB), formerly First United Bank.

The government agencies in charge of the funds. As observed by Justice Andres Narvasa in the 1989 case of Philippine Coconut Producers Federation, Inc. (COCOFED) vs. Presidential Commission on Good Government (PCGG), three agencies played key roles in the collection, management, investment and use of the coconut levy funds: (a) the Philippine Coconut Authority (PCA), formerly PHILCOA; (b) the COCOFED; and (c) the UCPB. The first agency mentioned, PCA, took over the collection of the CIF levy under RA 6260 in 1973. Later on, PD 276, PD 414, PD 582, and PD 1841 empowered it to manage the CCSF, the CIDF, and the CISF. More than that, the PCA was also allotted a share in the funds kept in its trust. Note that representatives of COCOFED were required to sit in the governing board of PCA. The second agency, COCOFED, received substantial portions of the funds to finance its operating expenses other projects pursuant to RA 6260. The COCOFED president also sits on the PCA board. It

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also has representatives in the board of the Coconut Investment Company and two CIIF companies, namely COCOFED Marketing Corporation (COCOMARK) and United Coconut Planters Life Assurance Corp. (COCOLIFE). The last agency mentioned, UCPB, was acquired through the use of the CCSF for the benefit of the coconut farmers. Later on, PD 755 authorized UCPB to provide its beneficiaries with readily available credit facilities at preferential rates. The law also authorized the equitable distribution of UCPBs shares of stock to coconut farmersfor free. By April 10, 1986, some 1,405,366 purported recipients were listed as UCPB stockholders. Meanwhile, the issuance in 1978 of PD 1468 empowered UCPB to use the CIIF to enter into investments for the benefit of the coconut farmers. Thus, the companies purchased by UCPB using the CIIF later became known as CIIF companies, some of which include COCOLIFE and COCOMARK. Later on, these companies themselves acquired

shares of stock not only from UCPB, but also from San Miguel Corporation. How San Miguel acquired interest in the coco levy funds. San Miguel entered the picture when PD 755 required the PCA to acquire a commercial bank for the benefit of coconut farmers. As narrated in COCOFED vs. Republic, it appeared that the Cojuangco-controlled First Universal Bank (later renamed UCPB) was the bank of choice. Justice Velascos ponencia in COCOFED further relates that the original plan was for the PCA to buy all of Pedro Cojuangcos shares in the bank. However, things took a different turn when what was supposed to be a direct sale to PCA became an elaborate, circuitous arrangement wherein Pedros nephew, San Miguel owner Eduardo Danding Cojuangco Jr., was given the exclusive option to reacquire controlling interest in the bank. The PCA-Cojuangco agreements. To be able to accomplish that scheme, two agreements were executed. Under the first contract, Danding, for and in his behalf and in behalf of certain other buyers, entered into an agreement with Pedro Cojuangco, wherein Danding was given the option to buy 72.2% of the banks outstanding capital stock, or 137,866 shares at 200 pesos per share. This was before PD 755 was issued. The second contract, an Agreement for the Acquisition of a Commercial Bank for the Benefit of the Coconut Farmers of the Philippines, involved PCAs buyout of the bank, now mandated by PD 755. It was

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entered into by PCA for itself and for the benefit of the coconut farmers, wherein the shares of stock involved in the first agreement were purchased from Danding at 200 pesos per share, with an additional consideration of granting Danding equity in the bank amounting to 10% (or 7.2%) of the 72.2% fully-paid shares. This meant that only 64.98% (72.2% less 7.2%) of the bank pertained to farmers. Some 6,534 shares that did not belong to Danding were also purchased by PCA. In compliance with PD 755, PCA agreed to expeditiously distribute the shares purchased for the benefit of coconut farmers holding registered COCOFUND receipts on an equitable basis. Thus, while the 64.98% portion of these shares supposedly belonged to the farmers, the corresponding stock certificates representing their equity were in the name of and delivered to PCA. However, as observed by Justice Velasco in the abovementioned case of COCOFED vs. Republic, the shares forming part of this 64.98% portion ultimately ended up in the hands of non-farmers. Eventually, UCPB acquired six CIIF oil mills, which collectively owned 14 CIIF holding companies. These holding companies later on borrowed funds from

UCPB to be able to purchase shares in San Miguel. Then came the historic revolution that overthrew the Marcos regime in February 1986. Post-Marcos sequestration. When the People Power Revolution toppled President Ferdinand Marcos, the newly installed administration of Corazon Cojuangco Aquino immediately took steps to recover funds purportedly squandered by the deposed dictator. Under the premise that vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad, Executive Order 1 was issued on February 28, 1986three days upon Aquinos assumption of office. EO 1 thus gave birth to the Presidential Commission on Good Government (GOCC), which was tasked to assist the president in the recovery of ill-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or controlled by them, during his

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administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. Two weeks later, on March 12, 1986, was issued to further charge the PCGG with the duty of investigating claims with respect to assets and properties that are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world. In addition to that, EO 2 also ordered the freezing of all assets and propertiesin the Philippines over which Marcos and/or his wife Imelda, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation. This included the prohibition from transferring, conveying, encumbering or otherwise depleting or concealing such assets and or properties. Persons holding such assets or properties were also required make full disclosure of the same to the PCGG.

On May 7, 1986, Aquino issued EO 14 vesting the PCGG the power to file and prosecute all cases investigated by it under EO 1 and EO 2. These cases were and are still under the jurisdiction of the Sandiganbayan. In line with the mandate of these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of companies, assets, and properties suspected to have been illegally acquired by Marcos and/ or his nominees. Among these properties were the UCPB shares of stock registered under the names of the unnamed 1,405,366 coconut farmers. Shares of stock in the various CIIF companies were also sequestered, including the 27% shares in San Miguel purchased by the 14 CIIF holding companies. Supreme Court awards the 27% San Miguel share to government. Earlier this year, the Supreme Court promulgated its landmark decision in COCOFED vs. Republic, declaring that the six oil mills, 14 holding firms, and the 27% share in San Miguel owned by the said holding firms were acquired using or whose capitalization comes from the coconut levy funds, and their purchase of San Miguel shares proved that these companies were

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The coco levy funds: Is the shell game approaching its end?

formed or organized solely for the purpose of holding such San Miguel shares. Indeed, as found by the Sandiganbayan, the 14 CIIF holding companies used borrowed funds from the UCPB to acquire the San Miguel shares in the aggregate amount of 1.656 Billion. Thus, trimming off the circuitous setup resulting from the PCA-Cojuangco agreement discussed above, the Supreme Court held that the 27% block of San Miguel shares are simply the fruits of the coconut levy funds acquired at the expense of the coconut industry. More than just declaring that these assets were acquired using coconut levy funds, the High Court also decreed that such assets shall be used only for the benefit of the coconut farmers and for the development of the coconut industry. Without actual execution of orders, short-lived victory still looms. The victory of the coconut industry would be short-lived unless the

Supreme Courts decisions on the 4% and 27% blocks are faithfully implemented by the government. And while these two victories constitute only a quarter of the eight coco levy cases, the execution of these awards would be a significant development, considering the protracted quest to distribute what is rightly due our coconut farmers. As Dean Bautista reminds us in his aforementioned Philippine Star column, the 4% block of shares was actually awarded to the government in a Sept. 2000 Supreme Court decision, but two PCGG pleadings for the order to be implemented have gone unheeded. Hopefully, once the Supreme Courts decisions become final and implemented accordingly, the controversy surrounding the San Miguel shares will be resolved, and the coconut farmers attain some closure by collecting on promises made over a generation ago.

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NEWS ON THE NET

Official population tally: 92.34-M Filipinos in 2010
The National Statistics Office (NSO) has revealed that the official population of the Philippines as of May 2010 is 92,337,852. This number includes all Filipinos residing within the Philippines, as well as 2,739 Filipinos in embassies, consulates, and missions abroad from May to June 2010. The results were released this month, after being made official by the signing of President Benigno Aquino III of Proclamation No. 362 on March 30, 2012. The population is based on the 2010 Census of Population and Housing conducted by the National Statistics Office thru census questionnaires accomplished by enumerators all over the country. The results revealed that the CALABARZON region (Region IVA) has the largest population, with 12.61 million, ahead of the National Capital Region's 11.86 million. Cavite is the most populous province, with 3.09 million while Batanes has the smallest provincial population, with only 16,604 persons.

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Gloria Macapagal Arroyo pleads not guilty in NBN-ZTE case

Former President and current Congresswoman Gloria Macapagal Arroyo pleaded not guilty to graft charges filed against her in connection with the cancelled national broadband network (NBN) project entered into between the Philippine government and Chinese firm ZTE Corp. Also included in the charge are Jose Miguel Arroyo and former Comelec Chairman Benjamin Abalos Sr., both of whom also pleaded not guilty before the fourth division of the Sandiganbayan anti-graft court. Co-accused former Transportation Secretary Leandro Mendoza was not able to attend the arraignment because he is still recovering from a recent mild stroke. The graft charges were filed in 2011 by the Office of the Ombudsman for the alleged involvement of former President Arroyo in the approval of the NBN-ZTE contract notwithstanding alleged awareness of irregularities in the deal. The allegations in the NBN-ZTE controversy include corruption in the awarding of a

Nation

$329-million construction contract to ZTE Corp. for the proposed government-managed nationwide broadband network. The contract was canceled in October 2007.

Airlines back to normal route after rocket launch failure

The Civil Aviation Authority of the Philippines lifted its notice to airmen (NOTAM) following the failure of the North Korean government's rocket launch attempt on April 13. The notice directed all airlines to take alternate routes to clear the airspace to avoid any accident during the launch. North Korea launched their rocket on Friday, but after flying for only about a minute it broke apart into four parts with debris landing somewhere near the Yellow Sea, according to the South Korean defense ministry. The launch is said to have been ordered by former leader Kim Jong-Il in commemoration of the April 15 centenary of the countrys founder, Kim Il Sung.

The path that Pyongyang's missile missed: Despite the failure, North Korea remains a dangerous purveyor of arms CBS/CS Monitor video

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After Scarborough, get ready for more tensions with China

By Ricardo Saludo

Red Sky and Yellow Stars over Asia

STRATEGY POINTS
The peaceful unwinding of the Scarborough Shoal standoff is no cause for relief, but a portent of future South China Sea frictions Asean accepted Manilas proposal for a unified front before talking with China on the Code of Conduct, but will the unity hold? The U.S. is strengthening Philippine forces and regional alliances. Will China quietly sit and watch this buildup? Dont even ask

hat a week for the Philippines. Right after the five-holiday break for Christian Holy Week and the April 9 commemoration of the 1941 Battle of Bataan, Filipinos waited anxiously for two regional security threats to pass without grave damage. About 190 km off northeast Luzon, the second booster of a North Korean rocket was expected to fall into the sea. A vast no-flyno-sail zone was declared, and millions of citizens were told to stay indoors. Disaster authorities and coastal communities prepared Chinese fishing for a possible worst-case scenario is avoided of the projectile disintegrating

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and raining debris over populated areas. Thankfully, the widely deplored and dreaded launch ended after 90 seconds with the missiles harmless breakup over the Yellow Sea between China and Korea, 165 km west of Seoul. That was the easy part. Even more directly challenging the Philippines was the weeklong standoff between its navy and Chinese maritime security vessels in Scarborough Shoal, 124 nautical miles (about 230 km) west of Luzon and well within the countrys 200-mile exclusive economic zone (EEZ). In a criss-cross of territorial disputes in the South China Sea, Manila claims the sometimes submerged outcrop of land and reef, which Beijing also considers its own, along with all other islands and geographic features in most of the South China Sea, including the Paracel Islands to the north and the Spratlys to the south (see maps, pages 26-27). Standoff defused for now. Former American Broadcasting Corp. Beijing news bureau chief Chito Sta. Romana spelled

out what was needed to deftly unwind the standoff. One of five Filipino student activists visiting China who stayed on after martial law was declared in 1972, Sta. Romana explained in his interview with ABS-CBN News: The solution would lie in a mutual agreement to back off at the same time. ... Nobody loses face in front of their own people. When it gets dark at a certain time, both will withdraw at the same time. Exactly: By Sunday, the Philippine Daily Inquirer reported, gone from Scarborough were the Philippine Navys largest warship, the U.S.-built Hamilton-class cutter BRP Gregorio del Pilar, two Chinese maritime security vessels, and the eight Chinese fishing boats found with fish, shellfish and endangered coral from the disputed waters. A Philippine Coast Guard ship, the lightly armed BRP Pampanga, and a Chinese maritime surveillance vessel, Zhonggou Haijan, stayed, The Philippine Star added. A Philippine reconnaissance plane flew over the reef, prompting the Chinese to send back one ship and dispatch its own plane, but the standoff seemed over.

vessel and standoff diagram at Scarborough Shoal: As Beijing and Manila withdraw ships, conflict time ABS-CBN/YouTube video

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Manila was keen to assert sovereignty by deploying ships and stopping unauthorized fishing at Scarborough (Panatag Shoal to the Philippines). But it could not bring in the fishermen or their catch. I had stated that we would be willing to allow the Chinese boats to return to China following the confiscation of their harvest of endangered species by our authorities, Philippine Foreign Affairs Secretary Albert del Rosario recounted in the Star report. But he added that Chinese Ambassador to Manila Ma Keqing had asserted that Chinese fishing vessels would be subject to inspection by their own authorities. And that was Beijings way of drawing its own territorial line. Hijacking the summit. For those who see more to the Scarborough incident than fisherfolk looking for a big catch, two recent geopolitical developments may offer some explanation for Beijings assertive move visa-vis Manila. First was the 20th Summit of the Association of Southeast Asian Nations in Phnom Penh, Cambodia, on April 3-4. One key question: Will Asean leaders discuss the South China Sea?

COMPETING CLAIMS IN THE SOUTH CHINA SEA

OIl and Gas Resources Active gas/oil field New field discovery Concession block South China Sea Maritime Claims Line segment shown on Chinese maps Malaysian claim Philippine (Kalayaan) claim Indonesian claim Vietnamese claim Bruneian claim South China Sea Maritime Claims Hypothetical exclusive economic zone limit Hypothetical territorial sea limit (12 nm) Indonesian-Malaysian negotitaed maritime boundary Malaysian-Vienamese joint development Malaysian-Thai joint

China
Macau

Hong Kong
Pirates Islands Hypothetical EEZ limit from coastal states

Hainan Dao
Paracel Islands

2 coa0 nm f stal rom stat es

Vietnam

South China Sea

Manila Scarborough Reef

Bach Ho oilfield (White Tiger) Rorig oilfield (Vietnam) (Dragon) Crestone (Vietnam) exploration Dai Hung oilfield (China) (Big Bear) (Vietnam) Thanh Long (Blue Dragon) (Vietnam)

Spratly Islands

Philippines

Malaysia

Exxon (Indonesia)
Indonesia

BANDAR SERI BEGAWAN Brunei Malaysia Indonesia

Map from GlobalSecurity.org

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The summit chair, Cambodian Premier Hun Sen, sought to keep the topic off the official agenda. His longtime backer China has long opposed internationalizing territorial disputes. A day before the Phnom Penh meeting, no less than Chinese President Hu Jintao visited, pledging nearly $40 million in grants and over $30 million in loans, the Phnom Penh Post reported. Hus host Hun Sen also asked for as much as half a billion dollars more in credit. And he took pains to impress upon media asking about frictions with Beijing: Don't

forget that ASEAN and China are strategic partners. In the Xinhua state news agency report posted on a Chinese military site, the Cambodian leader also maintained: Hu Jintao did not tell me that I have to do this or that; it is not in the practice of Chinese policy. But as Asia expert Carlyle Thayer pointed out, the formal summit agenda does not stop Asean members from bringing up issues not on the list. Thats exactly what Philippine President Benigno Aquino III did. His statement at the Retreat Session

CHINAS TERRITORIAL DISPUTES

Map from Military and Security Developments Involving the Peoples Republic of China 2011, U.S. Department of Defense

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on April 4 called for resolving territorial disputes by international law, a Code of Conduct (COC) in the South China Sea as a legally binding document ... with provisions on dispute settlement and the segregation of disputed and non-disputed areas, and forging a common and collective [Asean] position on the COC before meeting with China. The Philippine position directly countered Chinas view that disputes should be resolved by bilateral talks between itself and each rival claimant. In the end, recounted the BBC, the South China Sea joined Myanmar reforms and North Koreas missile test on the top agenda, and the Voice of America said summit chair Hun Sen himself declared the Asean decision to agree on the Code of Conduct before discussing it with Beijing. Foreign Minister Marty Natalegawa of Indonesia, the Asean member with the most clout, elaborated in a VOA dispatch: Asean first and foremost, must have a solid consolidated position. But at the same time as we proceed, there will be constant communication through the Asean-China framework, so that whatever final position Asean comes up with will have benefited from some kind of communication with China. That wasnt enough to mollify hawkish Chinese General Luo Yuan, who accused the Philippines of hijacking the Asean summit in the military-linked Global Times paper and echoed by other sites like Beijing Shots. After Scarborough, Balikatan. And theres more to roil China: this weeks Balikatan military exercises. Malacaang spokesperson Abigail Valte hopes it wont

Red sky and tellow stars over Asia

provoke Beijing, GMA News reported. She should read the April 15 Global Times interview, U.S.-Philippine drill stirs up troubled waters. One interviewee, senior fellow Ian Storey of Singapores Institute of Southeast Asian Studies, surmised: The exercises are meant to underscore the relevance of the U.S.-Philippine alliance and both countries' concern over developments in the South China Sea. The other interviewee, Su Hao, director of the Asia-Pacific Research Center at the China Foreign Affairs University, believed: the U.S. wants to show its support for the Philippines over the disputes, but doesn't want to confront China directly yet. Su adds: Japan and South Korea will join the drill for the first time. The U.S. is actually taking this opportunity to unite its allies in this region as an alliance to contain China's growth. To be held west of Palawan, the April 16-27 maneuvers involves 2,300 Philippine troops and 4,500 U.S. servicemen near disputed South China Sea areas. It includes the mock retaking of an oil rig supposed seized by terrorists, who could just as well stand for foreign forces. Notably, just over a year ago last March, two Chinese patrol boats forced a seismic survey vessel to withdraw from the Reed Bank within the Philippines EEZ west of Palawan, sparking the first South China Sea incident under President Aquino. Are China and the Philippines on course toward more confrontations? What about Beijing and Washington? And what are the geopolitical interests driving the Chinese juggernaut in the South China Sea? The CenSEI Report looks deeper into these and related issues next week.

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World
Magnitude 8.6 quake strikes off the Indonesian island of Sumatra
A powerful earthquake struck Indonesia last Wednesday, about 500 kilometers from the Aceh province the same location devastated by a post-earthquake tsunami in December 2004. The magnitude 8.6 quake initially caused the Pacific Tsunami Warning Center to issue an alert for the Indian Ocean; it was later cancelled due to further analysis of events revealing that a tsunami was unlikely. However, more than a dozen aftershocks including a strong 8.2 magnitude one continued to rock Indonesia after the initial quake. A day after the Aceh disaster, a 6.2 magnitude temblor hit Mexico; the latest in a series of quakes the country has experienced this year. Hours after Mexico was hit, a 5.9 magnitude earthquake struck off the coast of Oregon in the U.S., followed a minute later by a smaller quake off the coast of California. by South Sudan. Sudan's troops are aiming to retake the town of Heglig from South Sudan. Independent reports have also shed light on the fact that Sudan has been arming civilians in order to increase their numbers during border fights. Heglig is an important area because it accounts for about half of Sudan's 115,000 barrel-a-day oil output; production has currently stopped due to the fighting. South Sudan says that its troops would leave only if defeated. For its part, the UN Security Council has demanded an end to the Sudan-South Sudan clashes particularly through the withdrawal of South Sudanese troops from Heglig and through the halting of Sudanese air strike bombings of South Sudanese territory. has also nullified a food aid deal with the U.S. that it sorely needs to feed its starving people. Meanwhile, North Korea's neighbors South Korea and Japan condemned the rocket launch; while China reacted to negatively to Japan's plans to intercept North Korea's rocket, calling it a "pretext" to contain Beijing. In the Philippines a ban on flying, fishing and sailing was observed, but was lifted after news of the failure broke out, even as a no-fly zone remained in effect until safety was ascertained.

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UN expected to vote on monitor team to oversee Syria ceasefire

The UN Security Council is poised to a vote on a resolution that will authorize the deployment of monitors to Syria to oversee the ceasefire brokered by special envoy Kofi Annan as part of his peace plan. Mr. Annan has called for the immediate deployment of a monitoring team in order to protect the fragile ceasefire and ensure the success of his plan. However, it is not clear whether Russia which has vetoed two previous resolutions will back Annan's plea. Deaths continue to be reported despite the ceasefire; fueling a palpable and universal skepticism toward the situation in Syria as showed in the media.

North Korea may try nuclear test after failed rocket launch
In a rare public admission of failure, North Korea stated that its controversial rocket launch did not succeed last Friday. To deal with this unprecedented embarrassment, the isolated Asian country is now widely expected to press ahead with a third nuclear test. The U.S. and Japan claim that the rocket was a disguised missile test, and a breach of UN Security Council sanctions. North Korea's defiance has not only prompted international outrage; it

Sudan troops advance on Heglig oil field

Reports from the Sudanese government claim that its forces have launched a counterattack on oil fields located on its disputed border, occupied last Tuesday

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Mondo Condo: A Closer Look at Metro Manila Condominiums

By Victoria Fritz
Navotas

Bulacan

North Caloocan

Valencia City

Malabon Caloocan City

Quezon City

Marikina C

North Harbor

Manila

San Juan Mandaluyong Pasig City Makati Pateros

STRATEGY POINTS
Demand for condominium units remains strong, especially in the mid-range market (1.5 million 10 million), even as supply is beginning to outpace demand Underlying the current demand for condominiums in Metro Manila, apart from a basic need for housing, are OFW remittances, the growth of the business process outsourcing sector, and government incentives for developers, to name the main factors Even if there might be periods of oversupply, overall demand is seen to be strong enough to prevent a recurrence of the glut of the mid-1990s

South Harbor

Manila Bay

Pasay City

Taguig

Paranaque City

Las Pinas City

Laguna de Bay

Muntinlupa
Cavite

Laguna

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verythings coming up condos in Metro Manila, or so it would seem as one drives around different parts of the metropolis these days. From Fort Bonifacio, Makati, and Mandaluyong to different districts in Manila, Paranaque, and Quezon City, residential high-rises are either already part of the landscape or looming over a two- to three-year horizon.

market meltdown (34% growth), and its aftermath in 2009 (26% growth). Early signs of oversupply? A little over a year later, the market seems to be showing early signs of oversupply, as a massive supply of units in the pipeline up to 2013 is beginning to outpace demand. This was observed in the latest World Bank Philippines Quarterly Update: From Stability to Prosperity for All, issued in March, which featured the real-estate market as one of four issues meriting special focus. The report cited figures from Colliers International indicating that the 5,964 units completed in 2011 is 53% over the number of units completed in 2010 (see table below). It also mentioned that a major developer recently offered a discount of up to 40% on selected units, sensing greater competition. In effect, it slashed its profit margin considerably. According to the aforementioned developer, SM Development Corp., however, this was just a regular retail sale in line with the holiday season. (Click on the previous link to see a video clip of the explanation)

City

For all the current and planned residentialconstruction activity, one industry expert has predicted that the local real estate market will remain strong up to 2014, when 100,599 units are expected to come on stream alongside 55,526 units that were built from 1999 to the first half of 2010, one industry expert has predicted. According to David Leechiu, country head of global real estate services firm Jones Lang LaSalle, growth will begin to slow down by 2012, but continue to expect seeing large volumes becoming available on the market. As reported in The Manila Bulletin in Feb. 2011, he noted that the local condominium market continued to expand even as the rest of the world was still reeling from the 2008 U.S. mortgage-

Rizal

THE METROPOLIS' NEW CONDOMINIUMS

Resdidential New Supply (cumulative) 2011 2012 2010 13,076 1,659 2,483 2,382 1,336 10,709 1,365 4,099 7,481 1,604 672 5,735 558 39,383 5,964 7,812 Forecast

Location Makati CBD Rockwell Fort Bonifacio Ortigas Eastwood Total

2013 2,105 2,397 1,379 977 6,858

Total 19,323 3,718 18,570 11,136 7,270 60,017

Source: Q4 2011 Research & Forecast Report, Philippine Property Market, Colliers International, page 8

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The report also noted that despite the growing supply and price competition, rental rates and property prices are still stable, along with the 10% vacancy rate in the low- and mid-range market, which it interpreted as strong underlying demand. The Colliers report does predict, however, that the vacancy rate is expected to reach 12% by the end of 2012, reflecting an oversupply condition. Luxury condos still in demand. At the higher end of the spectrum, luxury condos continue to enjoy strong demand from a growing expat population, as reported in a February Malaya Business Insight story reprinted on the CB Richard Ellis Philippines site. Despite steep rental prices, vacancies are few.

Per Jones Lang Lasalle Leechius Feb. 2012 Philippine Property Market The Colliers report also Monitor, property developers are Property notes that while permits to offering a wide range of choices developers construct residences from for upper-class buyers this year. January to October 2011, are offering Eton Properties will complete issued by the Housing a wide range 2,351 units, including Eton and Land Use Regulatory of choices for Residences and Eton Parkview Board, declined by 0.1% in Makatis Greenbelt, and Eton upper-class Emerald Lofts in Ortigas Center from the figure for the buyers this same period a year ago, among others; Federal Land year the number of permits for will construct two more towers high-rise residential units in Fort Bonifacio -- Bloomberg grew by 37.5%. Place and One Liberty Place -offering another 1,392 units, and; Government incentives encouraging Shang Properties has allotted P12.5 billion more building. As previously reported in for One Shangri-La Place, which will have The CenSEI Reports piece on mass housing two residential towers on top of the EDSA (Mass Housing as a Business Venture: Can Shangri-La shopping complex.. It Work?, Issue 2-5), a big factor in the growth of Metro Manilas condominium Mid-range market will comprise market has been government incentives for a big portion of the residentialprivate developers to provide affordable condominium pie. Mid-market housing for the metropolis residents. condominiums range in price from 1.5 million up to 10 million, and are expected The incentives have spurred major to comprise a significant portion of the developers not just to launch new massprojected 100,599 units scheduled to be housing projects, but also to add massavailable in 2014, according to Leechiu, housing components to existing projects. In speaking in the aforementioned Feb. 2011 April 2011, it was reported in The Philippine Manila Bulletin story. Star that SM Development Corporation would avail of income-tax holidays in According to a Dec. 2011 Businessworld adding mass-housing components to three story posted on CB Richard Ellis of its existing projects in Makati, Manila, Philippines website that discusses the and Quezon City. real-estate consultants third-quarter

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Metro Manila MarketView, about 31% of a projected 135,000 units to be completed by 2016 will catering to the mid-range market, selling for between 40,000-80,000 per square meter, with a floor area ranging from 30 to 40 square meters. The steady showing of this segment can be partially attributed to the middle-income market shifting its housing preferences

high-rise lifestyle is also becoming a reality. Leading the pack in last years sales boom is SM Development Corporation (SMDC). According to Colliers International Philippines, SMDC sold more than 6,000 units in 16 projects all over Metro Manila in the latter half of 2011, capturing 24% of the 25,000 residential condominiums that comprised total sales for the period. SMDC has consistently

toward high-rise developments, as reported in a Nov. Philippine Daily Inquirer story that also quoted CB Richard Ellis Philippines extensively. Whereas in the past, starting families would tend to opt for a house and lot, at present they are choosing accessibility to work, school, hospitals, and other necessities. At the same time, a shrinking urban space is making land scarcer. The consulting firm expects more projects for this broad mid-market class to come up. Supply will definitely outpace demand, but will not cause a glut similar to that of 1997. The consulting firm noted that property developers are now more conservative, breaking ground only when there are commitments covering at least 50% of the units. High-rises for the low end of the market. At the low end of the market, the

topped the consultants property survey since July 2009. Ayala Lands affordable brand, Amaia, has ventured into condominium developments in order to cater to a wider market. Amaia Land president Ricky Celis announced that the company plans to begin construction of a high-rise project in Cubao by the middle of this year: a three-tower development, with 3,000 units. The first tower will have 35 floors, with each unit ranging in size from 18 to 27 square meters. The target households are earning in the range of 30,000 to 60,000 monthly, with the amortization budgeted from 8,000 to 12,000 a month. Prices per unit will range from P600,000 to 1.25 million, and will cater to the broad C market, which accounts for 33 percent of the 17 million households in the country. Continued on page 36

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Easy financing schemes: strengths and risks

Once perceived to be focusing only on the rich, residential condominium developers are attracting e broader market through affordable financing schemes. Top seller SM Development Corp. offers many different types of payment schemes, from spot cash with a generous discount, to lease-to-own options. The following unit prices and payment options were listed for its Light Residences project in Mandaluyong, which aims to start turning over units in the third quarter of 2013. UNIT PRICES Tower 1 Studio approximately 20 sq. m. - P1.7M TO 1.9M 1BR approximately 23 sq. m. - P2.1M to 2.2M 1BR with balcony approximately 27 sq. m. - P2.41M to 2.45M 1BR De Luxe approximately 32 sq. m. - P2.9M to 3M 2BR approximately 32 sq. m. - P2.9M to 3M PAYMENT OPTIONS AND DISCOUNTS A. SPOT CASH 30 (Discount - 15% on Total List Price) B. DEFERRED CASH PAYABLE IN 36 MONTHS (Discount - 6% on Total List Price) C. SPOT10; 90% BALANCE PAYABLE IN 36 MONTHS (Discount - 5% on Total List Price) D. SPOT20; 80% BALANCE PAYABLE IN 36 MONTHS (Discount - 7% on Total List Price) E. SPOT30; 70% BALANCE PAYABLE IN 36 MONTHS (Discount - 8% on Total List Price) F. SPOT40; 60% BALANCE PAYABLE IN 36 MONTHS (Discount - 10% on Total List Price) G. SPOT50; 50% BALANCE PAYABLE IN 36 MONTHS (Discount - 11% on Total List Price) H. SPOT10; 10% DP PAYABLE IN 24 MONTHS; 80% BALANCE due 30 days after the last monthly installment (Discount - 4% on Total List Price) I. 20% OVER 24 MONTHS 80% payable on the 25th month (Discount - 3% on Total List Price) J. 30% OVER 24 MONTHS 70% payable on the 25th month (Discount - 4% on Total List Price) K. 20% OVER 36 MONTHS 80% payable on the 25th month L. 30% OVER 36 MONTHS 70% payable on the 25th month (Discount - 1% on Total List Price) A sample computation can also be gleaned from their website:

LIGHT RESIDENECES SAMPLE COMPUTATION

Floor Unit Type Unit No. Unit Area Description Mandaluyong 43rd Floor 1 Bedroom LR1-4303 20.00 sqm

Option 1. No Downpayment (20% in 24 mos. 80% balance - bank, in-house financing or cash) List price 2,303,00.00 Add 5.5% other charges 126,665.00 Total Contract Price 2,429,665.0 20% DOWNPAYMENT 485,933.00 Less Reservation Fee 25,000.00 Net Payable in 24 mos. 460,933.00 MONTHLY PAYMENT 19,205.54 80% Balance 1,943,732.00 5 Years (BDO) 41,778.38 10 Years (BDO) 26,774.91 15 Years (BDO) 22,181.19 This sample computation offers 0% interest on the 20%-down payment, payable in 24 months. The 15-years-to pay option requires a monthly payment of P22,181.19, which is not so far off from the 24-month down-payment amortization rate of P19,205.54. If those amounts are close to rental rates in the same location, it becomes more attractive to buy rather than rent. There is an additional charge (listed as Other Charges) amounting to about 5.5% of the selling price, which includes:

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1. Registration/Annotation fee 2. Documentation Stamps for Title Issuance 3. Transfer Title Tax 4. Electric and water connection 5. Legal Fees DMCI does not provide sample computations on their website, but gives a detailed list of guidelines and requirements for its four payment options: cash, in-house financing, bank financing, Pag-Ibig financing for select projects. For its in-house financing, the buyer is required to issue post-dated checks. It did not list any other requirements. Though DMCI itself might have stringent requirements for in-house financing, some smaller developers may not always conduct sufficient due diligence of the loan applicants, in some cases not requiring even proof of income, according to the aforementioned World Bank report. In the bank financing option it offers only four banks: BDO-EPCIB, BPI Family Bank, PNB and UCPB. It then lists the banks requirements, a sample of which is as follows: Employee in the Philippines: - Certificate of Employment, indicating annual salary and position - Latest Income Tax Return - Pay slips - Proof of Billing Address It restricts Pag-Ibig financing to select ready-foroccupancy projects. Pag-Ibig loans are limited to a maximum of only 3M, according to the DMCI site. In a related development, Pag-Ibig announced that by July of this year, it will raise the maximum loanable amount to 6 million. This will make the loan facility available even to the mid-range buyers. In 2009, the maximum loanable amount was increased from 2 million to 3 million. Loans below 450,000 will have

an interest rate of 4.5%, while loans from 450,000 to P700,000 will have an interest rate of 6%. The Pag-Ibig site itself does not list the interest rates for amounts higher than P700,000, though they have an amortization calculator on site, which can provide the monthly amortization for any given amount. Some payment and financing choices for Ayala Corp.s Amaia Land subsidiary are listed as follows: Cash Total Selling price payable within 30 days; with 7% discount Deferred Cash Total Selling Price over 24 months, no interest In-House Financing 10%-20% Down payment Balance can be paid in ten (10) years at 16% fixed interest rate Bank Financing and Pag-ibig Financing At least 5% down payment over 6 months 95%* balance thru Bank or Pag-ibig Financing *prevailing Bank, Pag ibig, and In-House interest rates apply. The interest rate for in-house financing is fixed at 16%. According to the aforementioned World Bank March 2012 quarterly report, some developers will mitigate the high risks by charging higher interest rates (than market rates). But being fixed, it limits the developers means of adjusting to adverse economic developments. Sources of potential risk were identified as follows: 1. Oversupply relative to demand 2. Potential contraction of remittances due to unrest in the Middle East and reduced deployment to Saudi Arabia; slower growth in the US and recession in Europe 3. Continuing increase in oil prices, which will strain growth in private spending

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No repeat of U.S. housing bubble, 2008 mortgage market collapse. According to a survey by PricewaterhouseCoopers and the Urban Land Institute in Nov. 2010, Emerging Trends in Real Estate: Asia Pacific 2011, industry leaders did not see a repeat of the U.S. housing bubble and subsequent financial crisis in 2008. Banks across Asia were characterized as having strong balance sheets, which have served to prop up real estate markets, having no immediate need to foreclose on defaulting borrowers. Most Asian central banks have now partially withdrawn policy stimulus

by raising minimum reserve requirements, and even increasing policy rates in some cases. Regional banks continue to maintain conservative loan-to-deposit ratios (page 15-16). In addition, there is a chronic housing shortage (page 3-4), hence a real demand for housing in Asia. Focusing on the Philippines, economic indicators are all pointing in a positive direction as the country enters 2011. In terms of real-estate purchases, 2011 was regarded as a Hold period.

PHILIPPINE REAL-ESTATE INVESTMENT PROSPECTS FOR 2011

Source: Emerging Trends in Real Estate: Asia Pacific 2011, PricewaterhouseCoopers and Urban Land Institute, page 49

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There is still no panicked order to Sell. The hold position, as supported by views of CBRE and Jones Lang LaSalle analysts here, is likely to remain the recommended step until 2014. The aforementioned World Bank March 2012 report cites certain trends in the property sector that refer particularly to the residential condominium market. Demand for residential condominium units is mainly propelled by two factors: the BPO industry, and OFW remittances. The BPO sector accounts for the luxury

units, to house the expatriate upper management. The BPO regular employees, and the OFW remittances account for the low-end to mid-range market. Residential units are enjoying brisk sales due to low interest rates and an increasing supply of affordable units. In terms of prices, the markets do not show signs of a bubble, since prices are still below their 1997 peak levels in real terms. The exposure of banks to real estate loans remains manageable. Housing loans to

NOMINAL AND REAL RATES OF HOUSING PRICE CHANGE SINCE 1995 House Price Charge, Annual (%)

75 60 45 30 15 0 -15 95 97 99 01 03 Real
Source: Philippines Quarterly Update: From Stability to Prosperity for All, World Bank, March 2012, p. 45

05

07

09

11

-30

Nominal

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GDP is less than two percent, possibly due to banks strict lending and collateral requirements. Also, the government can counteract economic upheavals by such measures as reducing the loan-to-property value ratio, or banks portfolio in the property sector, which the Bangko Sentral ng Pilipinas is currently maintaining at 20%.

Mondo Condo: A Closer Look at Metro Manila Condominiums

Bulacan

North Caloocan

Valencia City

Navotas

Malabon Caloocan City

Quezon City

North Harbor

Manila

San Juan Mandaluyong

South Harbor

Pasig City Makati

Manila Bay

Pasay City

Pateros

Taguig

Paranaque City

Las Pinas City

Muntinlupa
Cavite

Laguna

In a nutshell, the residential-condominium market in Metro Manila may be

approaching a point where supply will outpace demand, but not by much, as basic factors, i.e., continued growth of the business process outsourcing market growth and a pent-up demand for housing, along with steady remittances from overseas Filipinos, will continue to fuel the market. External risks continue to hover over the market a world economic slowdown could affect remittances severely, and a continuing increase in oil prices could affect local economic growth adversely but end-buyers and investors can still proceed with caution.
Marikina City
Rizal Laguna de Bay

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NEWS ON THE NET

Business
East West Bank sets IPO price range
For its initial public offering, East West Bank has set a price range of P18.50 to P23.50. The IPO is expected to result in the transference of around a quarter of the banks ownership to public hands; raising funds for the bank's expansion and potentially cementing its bid to become one of the countrys major banks. East West Bank has been preparing for the strategic expansion for the last decade; accomplishing three acquisitions in that time, including that of Green Bank just last year. In other local banking news, the Court of Appeals has issued an order to freeze the bank accounts and assets of 37-year old Bryan Ang, former assistant vice president of Citibank's Citigold Wealth Management group and son of Manila councilor Bernie Ang. The younger Ang has been accused of multiple counts of embezzlement. community placed fourth in its most optimistic section. The Philippines is the highest ranked Asian country, trailing only United Arab Emirates, Brazil, and topranking Peru. Based on the survey results, 82% of Filipino respondents displayed a positive outlook for the next 12 months. These numbers belie the results of the survey when respondents were asked about specific economic indicators. In terms of revenue prospects, less than half of Filipino leaders expected an improvement. However, local regulations and red tape have become markedly less of a hindrance, with 10% percent fewer respondents citing bureaucracy as a business constraint.

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Duavit also addressed speculations of a rumored network sale to businessman Manuel V. Pangilinan, chair of rival network TV5. "The network is not for sale... but that is not to say it will not be sold for the right offer price," he said. There are no developments on the last offer from MVP right now."

Philippines expects additional sugar allocation from U.S.

The country is expecting between 50,000 to 80,000 metric tons of additional sugar allocation from the United States, according to the Sugar Regulatory Administration (SRA). Despite projections of slower output this year, the SRA is confident that the Philippines is well-equipped to handle the added demand, along with the usual U.S. quota volume of about 142,160 metric tons of raw sugar. On the local front, raw sugar prices stabilized early last month at around 1,400 per bag; portending a more favorable domestic market as well. The sugar industry is set to end its crop year on a high note this 2012, with more than four-fifths of the nation's targeted raw sugar production met as of last month. With April as the end of the sugar milling season, and August the end of the crop year, the SRA is confident that it will make the 2.242-million metric ton target.

GMA Network profit down 39% in 2011

Broadcast giant GMA Network Inc. suffered a staggering 39% plunge in year-on-year profit numbers in 2011 due to the absence of political advertisement and cuts in ad spending by its big clients. Despite the drop in earnings, GMA president and chief operating officer Gilberto R. Duavit, Jr. remains optimistic, stating that "there are more palpable indications already that this year will be far better than the previous," and proceeding to cite signs of a strong first quarter for the company.

Study says the Philippines has fourth most optimistic business leaders in world
According to the latest Grant Thornton International Business Report for the first quarter of 2012, the Philippine business

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Fighting for Freedom in Cyberspace and on the Ground

How netizens bypass the tangle of Web restrictions and monitoring
By Tanya L. Mariano

STRATEGY POINTS
As governments try to monitor and even police online behavior, online freedom of expression may be emerging as a major domestic and foreign policy issue This is not a cut-and-dried freedomtyranny dichotomy: while known repressive regimes are cracking down to suppress dissent, supposedly democratic republics are also cracking down to enforce security and copyright protection There are ways to bypass online restrictions, ranging from Web proxies and Virtual Private Networks to application-level proxies, and perhaps in the near future, even a U.S.-governmentissued Internet in a suitcase

you're reading this, odds are that you're not living in one of the dozen countries that Reporters Without Borders has included in its annual list of Enemies of the Internet, writes Charles Cooper, executive editor at Web magazine CNET, commenting on the recently published report by media watchdog Reporters Without Borders. The Internet Enemies Report 2012, released in March, calls out 12 countries that curtail freedom of expression on and access to the Internet, and 14 countries classified as under surveillance, and says, 2011 was the deadliest year for netizens, with several killed in Bahrain, Mexico, India, and Syria.

If

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AVOID IF YOU VALUE CYBER-FREEDOM

Enemies of the Internet Countries under surveillance

For travelers on the ground and surfing online, 26 countries to be wary of, some more than others, along with a couple of surprises.
Source: Internet Enemies Report 2012, Reporters Without Borders

While the list includes expected repressive regimes such as Syria, Iran, and North Korea, democratic countries like Australia and France make surprise appearances. According to the report, in the months that followed the Arab Spring, repressive

regimes responded with tougher measures to what they regarded as unacceptable attempts to destabilize their authority, while supposedly democratic countries continued to set a bad example by yielding to the temptation to prioritize security over other concerns and by adopting

THE DIRTY DOZEN PLUS AN ADDITIONAL 14

Enemies of the Internet Bahrain Belarus Burma China Cuba Iran North Korea Saudi Arabia Syria Uzbekistan Turkmenistan Vietnam Countries under surveillance Australia Egypt Eritrea France India Kazakhstan Malaysia Russia South Korea Sri Lanka Thailand Tunisia Turkey UAE

Source: "Internet Enemies Report 2012," March 2012, Reporters Without Borders

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disproportionate measures to protect copyright. With governments pressuring technical service providers to police the Web, companies such as BlueCoat in the U.S. and Amesys in France assisting repressive regimes in online surveillance, hacktivists giving technical assistance to netizens in restrictive countries, and diplomats joining the discussion, including United Nations special rapporteur Frank La Rue, who last year acknowledged access to the Internet as a basic right, Reporters Without Borders believes that, more than ever before, online freedom of expression is now a major foreign and domestic policy issue. For more information about the state of Internet censorship around the world, here are similar reports from the OpenNet Initiative, or OIC, (a collaborative partnership of the Citizen Lab at the Munk School of Global Affairs, University of Toronto; the Berkman Center for Internet

& Society at Harvard University; and the SecDev Group in Ottawa), and Freedom House: Access Contested (2011, OIC) security, identity, and resistance in Asian cyberspace Access Controlled (2010, OIC) - A review off countries that make up the Organization for Security and Cooperation in Europe Access Denied (2008, OIC) - The practice and policy of global Internet filtering in over three dozen countries Freedom on the Net: A global assessment of Internet and digital media (2009, Freedom House) How netizens circumvent Internet restrictions and avoid being monitored. While content filtering, Internet blackouts, and the slowing down of Internet speeds are widely used, many governments have adopted a more aggressive stance against dissidents by

CISPA: A new threat to online freedom?

After PIPA and SOPA caused a stir, here comes CISPA to shake things up again in cyberspace. According to online technology magazine Mashable, the Cyber Intelligence Sharing and Protection Act of 2011 (H.R. 3525), introduced by Rep. Mike Rogers and Rep. Dutch Ruppersberger ,would alter the existing National Security Act of 1947 to allow private businesses and the government to share information about cyber-threats including efforts to degrade, disrupt or destroy vital networks or threat or misappropriation of information owned by the government or private businesses, such as intellectual property. The bill has met widespread opposition from a number of organizations, including the Electronic Frontier Foundation, and an online activist has so far collected over 600,000 signatures to oppose the bill. There are fears that it could significantly compromise privacy and lead to more government spying online, with others comparing it to SOPA (Stop Online Piracy Act). Timothy Lee of online publication Ars Technica, however, thinks that the comparison is a bit of a stretch; SOPA was focused on blocking access to information, while the current crop of cyber-security bills are more focused on network monitoring and information sharing with the government. He concludes, however, that both are likely to attract many enemies.

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out rightly attacking what they consider subversive speech online. In the 2010 Report on Distributed Denial of Service (DDoS) Attacks published by the Berkman Center for Internet and Society at Harvard University, the authors noted a rise in site hijacking, DDoS, and other attacks meant to stifle controversial speech, and not just curtail access to websites where these discussions are taking place. Amidst this tricky landscape, netizens have found creative ways to access banned content and share sensitive information away from the prying eyes of the powers that be. Getting around content filtering. All circumvention tools bypass network filtering by proxy-ing connections through third-party sites that are not blocked, according to the 2011 Circumvention Tool Evaluation by the Berkman Center for Internet and Society, an update of the 2007 Circumvention Landscape Report: Methods, Uses, and Tools. The three authors, who also worked on the 2010 DDos Attacks report, grouped the 19 circumvention tools they identified into four broad categories: simple web proxies, virtual private network (VPN) services, HTTP/SOCKS proxies, and custom tools. To use a simple web proxy, users need only visit the proxys web page and enter

the URL of the banned website they wish to access in the input box. The proxy retrieves the website for the user, who, for instance, has nodirect access to the site because it is blocked in their territory. Simple Web proxies go out of business frequently, however, as governments detect and subsequently block them or shut them down, and operators usually need to play a cat-and-mouse game with governments. VPN services use software that implements a networking protocol to encrypt and tunnel all Internet traffic through a proxy machine, according to the paper. This technology has traditionally been used by corporations to access internal networks through public Internet, but personal use has been on the rise. VPN services can be used as a circumvention tool as long as it is hosted outside a filtering country. The most popular VPN tool, says the report, is the free service Hotspot Shield. HTTP/SOCKS proxies, on the other hand, are application level proxies that funnel network traffic through protocols designed to allow web traffic to pass through firewalls. To use one, users need to enter the IP address and port number of a given proxy into a configuration screen of an Internet browser. The authors say these can be challenging for novice users to use and they believe these are used less often than web proxies.

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All other remaining tools that use the same proxy-ing method and require an application download but are not simple web proxies, VPNs, or HTTP/SOCKS proxies are lumped into custom tools. that the administration of U.S. President Barack Obama gave $2 million for the development of an Internet in a suitcase, literally an inconspicuous suitcase that houses hardware that can be set up to allow wireless Browsing communication over a anonymously. Another wide area with a link to In 2011, it was report, Everyones guide reported that the the global Internet, which to by-passing Internet administration will definitely find use in censorship, released in countries where online activity of U.S. President is heavily monitored or 2007 by The Citizen Lab at Barack Obama The University of Toronto, where Internet access is gave $2 million also discusses web-based completely cut off. According circumvention systems to the news report, this is for the and application tunneling development of one of many circumvention software, but adds a projects the U.S. government is an 'Internet in a section on anonymous involved in, and, by the suitcase' communications systems. end of 2011, the countrys These conceal a users IP State Department would address when browsing have spent approximately and can also be used to bypass content $70 million on related efforts filtering. Services cited in the report are and technologies. JAP ANON, Tor, and I2P. Other ways to bypass restrictions. Tor has been in the news recently, when Movements.org, a non-profit organization it was reported to be working on helping that works to support digital activists Iranians access the Internet, after the worldwide, shared several creative ways government stepped up restrictions on to bypass Internet censorship. Among February 10, 2012. CNET reports that them, using an alternative Internet the government responded to rumors Service Providers (ISPs). According to the of protests being planned for the 33rd document, several ISPs even waive the anniversary of the Islamic revolution that subscription fees of users from countries overthrew the Shah by blocking access to with substantial political unrest. In 2011, sites such as Gmail and Facebook. some citizens of Libya and Egypt were able to let the world know about the unfolding Shadow Internet courtesy of the unrest in their countries by subscribing to U.S. The New York Times in 2011 reported overseas ISPs.

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Another tip is to use very old or very new technology, since filtering and monitoring techniques are usually based on current standards. For instance, one can use the Internet Relay Chat (IRC), a protocol that allows real-time Internet text messaging, which was a popular communication tool before instant messaging platforms such as Yahoo Messenger and AIM came along, or one can use the new Internet protocol, IPv6, which is already deployed in a

number of countries but has not yet been widely filtered. One other way is to find alternative uses for Web services. For instance, the chat capabilities of certain video games can be used to discuss sensitive matters, or a single email account may be shared and conversations may be saved in the Drafts folder to avoid transmitting email messages, which can be easily monitored.

Internet censorship and freedom: The view from TEDTalks

In this 2011 TEDGlobal talk, New America Foundation senior fellow and former CNN journalist Rebecca MacKinnon discusses our increasing dependence on the web and the issues of privacy, governance, and free speech surrounding its use. MacKinnon asks, How do we design the next phase of the Internet with accountability and freedom at its core, rather than control?

Source: Lets take back the Internet! 2011, TEDGlobal

Evgeny Morozov goes in a slightly different direction in his 2009 lecture, criticizing the assumption that technological innovation always fosters freedom and supports democracy, and says that, in fact, the Internet is also a tool for oppression.
Source: How the Net aids dictatorships, 2009, TEDGlobal

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NEWS ON THE NET

Technology
new technology that would help fight off spammers a longtime problem for the social networking platform. Last week, Twitter upped the ante by filing a lawsuit against five aggressive spam enablers. One of the defendants is Philippines-based JL4 Web Solutions. company says it has spent about $700,000 in efforts to combat the defendants' spamming tactics, and is seeking injunctions as well as monetary damages. Twitter is currently cracking down on spam accounts, though there have been observations that it is "killing" some of its funniest accounts in the process. However, it is generally accepted that the company is just shutting down users who don't follow its rules and terms of service. based social networking platform comprised of 30 million users uploading over 5 million new pictures daily is what Facebook is paying $1 billion to acquire. However, the acquisition has left some Instagram users worried that industry giant Facebook will change the compact app so much that it will lose its appeal. There has also been speculation that the $1-billion deal may signal an upcoming end to another tech bubble, similar to what happened when AOL bought ICQ in 1998.

Disaster zone robot competition announced by the Pentagon

The U.S. Defense Advanced Research Projects Agency (DARPA) at the Pentagon has announced a bold new program to further innovations and spur public inventions. On April 10, DARPA released a statement confirming the launch of its Robotics Challenge in October this year. The competition aims to develop next-generation humanoid robots capable of saving lives in disaster zones. The research agency plans to hold a series of emergency response physical challenges to test the entries; the winning team will be awarded 2 million dollars. DARPAs Robotics Challenge will take place over the next two years, with specific goals and schedules, as well as provisions for funding. This is not the only robotics project DARPA is widely known for. Recently, DARPA celebrated the land speed record set by its Boston Dynamics-built Cheetah robot.

Microsoft buys and licenses AOL patents in $1B deal

Trumping companies like Amazon and eBay, Microsoft has announced that it is buying a huge chunk of AOL's patents in a deal worth a little over $1 billion. The acquisition covers the intellectual property rights to more than 800 patents, and licensing rights to about 300 more that AOL is keeping. It is the latest in a series of moves by big industry players such as Intel, Google and Facebook to arm themselves amid the current trend of patent wars. News of the billion dollar deal comes ahead of Microsoft's scheduled appearance in a court in Germany this week, facing patent infringement accusations by Motorola Mobility.

Facebook buys mobile photosharing network Instagram for $1B

Ahead of its flotation, Facebook announced a big move it is buying Instagram, a relatively new player, for $1 billion in cash and stock. Instagram has only been in the app market for iPhones since 2010, and for Android phones since just last week. It is a free service that allows users to apply different filters to the pictures they take using their smartphones, before uploading and sharing the photos to their network of friends. It's said that the combination of its sharing model and a mobile-

Twitter launches legal assault on spammers

In January, Twitter acquired Internet security company Dasient in an effort to being in

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