Finance, Technology and Macroeconomics

Philippine Financial Account 2007

2008-02-12T10:46:00.000+08:00

General Comments

(1) We generally agree with the conclusion of the paper that the country’s international investment position has improved since 2001 due to strong foreign exchange (FX) inflows and improved macroeconomic fundamentals.

(2) The comparison among emerging market economies (EMEs) is a fruitful exercise and provides an overall picture of the country’s relation with respect to other economies. However, the paper fails to provide a more graphic representation of this comparison and does not establish a benchmark where Philippines’ position may be assessed relative to others.

(3) The paper lacks extensive analysis of the country’s low level of foreign direct investments (FDIs) and the policy implications, through rational, does not stem from the description of the country’s financial structure.

Specific Comments

(4) We propose the following revision to first bullet of page 1: “Net foreign direct investment (FDI) flows, which had been slow in previous years, have turned strongly positive since 2005.” We find that the term “very weak” needs a basis for comparison.

(5) On second paragraph of page 5, we request that the paper cites the sources that argued for the relatively small need to attract foreign capital in the Philippines.

(6) We suggest the revision of the last paragraph of page 6 to include efforts that have been made to reverse the slump in investment, such as the implementation of Medium Term Public Investment Program (MTPIP), which guides public sector resource allocation and pipelines public sector programs and projects for official development assistance (ODA), private sector participation and other finance sourcing.

For its part, the BSP continues to foster stable macroeconomic environment by keeping inflation in check and the public’s inflation expectations well-anchored. On the external front, BSP policies have always geared toward: (a) ensuring sustainability of the country’s external debt; (b) maintaining an essentially market-determined exchange rate with scope for occasional official action to smoothen sharp movements in the rate; (c) maintaining a comfortable level of reserves; and (d) further improving the foreign exchange environment through FX deregulation.

The BSP also remains committed to the strengthening the banking system through continued structural reforms and speedier disposition of non-performing assets. The asset clean-up of banks has intended to help spur credit and investments, and contribute in providing the basis for more sustainable economic activity in the medium term.

To further develop the domestic capital market, the BSP continues to work actively with other government agencies and the private sector for the completion of critical market infrastructure to enhance system integrity and overall market confidence.

(7) On the first paragraph of page 8, we suggest the provision of a more detailed discussion on the standards of EMEs to which the paper claims that the Philippines falls short of. In particular, we strongly recommend the identification of the indicators and the benchmarks established on governance, property rights, cost of doing business, competitive market environment and freedom of entry.

On its specific suggestion regarding FDI, we wish to clarify that competition policies are in place, which have been effective in important sectors, such as banking, telecommunications and retail trade.
__________________
Most of the comments were provided by Ms Tets. I just substantiated No. 6 but this provides a good framework in reviewing papers.

Comments on IMF's Access Policy

2008-02-11T21:31:00.000+08:00

Review of Access Policy in the Credit Tranches and Under the Extended Fund Facility and the Poverty Reduction and Growth Facility, and Exceptional Access Policy

Background: In exceptional circumstances, a member's access could exceed the above credit tranche/EFF or overall GRA limits. The exceptional access apply in such cases.

Do the Directors consider the existing structure of annual and cumulative access limits in the credit tranches and the under the EFF, as well as the global limit on overall access to GRA resources provides an appropriate dividing line between normal and exceptional access?

Wala namang problema dito. Ang problema eh granting exceptional access between capital account and non-capital account cases.

We recognize the importance of flexibility in decision-making especially for unique circumstances. We are of the view, however, that existing structure may still need to come up with a clearer dividing line, which may be in the form of general principles, such as providing exceptional access to limit the contagion effect of a potential or actual crisis situation. In view thereof, we suggest that the paper provides a brief description of the bases on granting exceptional access in the past, which may serve as a starting point in developing a criteria in providing exceptional access.

Do Directors agree that the access ceilings and the delining access norms in the PRGF cases remain important to ensure the efficient use of the limited PRGF resources and should continue to be applied?

We agree that access ceilings and declining access norms remain important. We cannot rule out the possibility that the availability of IMF funding promotes investor confidence on member economies. As long as the international financial markets are assured that member economies have liquidity support facilities then we expect robust global economic activity.

Commenting on IMF Papers

2007-12-05T08:25:00.000+08:00

1. Read the questions/issues for discussion;
2. Read the paper;
3. Underline important parts; and
4. Isama ang e-mail (so there's no way for me to slack on this).

The Paris Club

2007-09-18T11:12:00.000+08:00

The Paris Club is an informal group of financial officials from 19 of the world's richest countries, which provides financial services such as debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors. Debtors are often recommended by the International Monetary Fund after alternative solutions have failed.

It meets every six weeks at the French Ministry of the Economy, Finance, and Industry in Paris. It is chaired by a senior official of the French Treasury, currently the Director General of the Treasury and Economic Policy Department Xavier Musca .

The club grew out of crisis talks held in Paris in 1956 between the nation of Argentina and its various creditors. Its principles and procedures were codified at the end of the 1970s in the context of the North-South Dialogue.

In the 1990s, the club began to treat the HIPC (Highly-Indebted Poor Countries) and non-
HIPCs differently. The club began to grant increasingly larger debt reductions for the HIPCs. For the non-HIPCs, the club engaged less in debt reductions and moved towards encouraging the absorption of non-HIPCs' financial losses by bondholders and other private creditors.
In 2004, the Club decided to write-off the debts of Iraq, as the rebuilding of Iraq is incomparable. After the 2004 Indian Ocean earthquake, the Paris Club decided to suspend temporarily some of the repayment obligations of the affected countries.

As of April 2006, Nigeria became the first African country to fully pay off its debt (estimated $30 billion) owed to the Paris Club.

The permanent member-nations of the club are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

2007 Subprime Mortgage Financial Crisis

2007-09-12T16:29:00.000+08:00

The subprime mortgage financial crisis refers to the sharp rise in foreclosures in the subprime mortgage market that began in the United States in 2006 and became a global financial crisis in July 2007. Rising interest rates increased newly-popular adjustable rate mortgages and property values suffered declines from the demise of the housing bubble, leaving home owners unable to meet financial commitments and lenders without a means to recoup their losses. Many observers believe this has resulted in a severe credit crunch, threatening the solvency of a number of marginal private banks and other financial institutions.

The sharp rise in foreclosures after the housing bubble caused several major subprime mortgage lenders, such as New Century Financial Corporation, to shut down or file for bankruptcy, with some accused of actively encouraging fraudulent income inflation on loan applications, leading to the collapse of stock prices for many in the subprime mortgage industry, and drops in stock prices of some large lenders like Countrywide Financial.[1]

This has been associated with declines in stock markets worldwide, several hedge funds becoming worthless, coordinated national bank interventions, contractions of retail profits, and bankruptcy of several mortgage lenders.

Observers of the meltdown have cast blame widely. Some, like Senate Banking, Housing, and Urban Affairs Committee chairman Chris Dodd of Connecticut, have highlighted the predatory lending practices of subprime lenders and the lack of effective government oversight.[2] Others have charged mortgage brokers with steering borrowers to unaffordable loans, appraisers with inflating housing values, and Wall Street investors with backing subprime mortgage securities without verifying the strength of the portfolios. Borrowers have also been criticized for over-stating their incomes on loan applications[3] and entering into loan agreements they could not meet. [4]

The effects of the meltdown spread beyond housing and disrupted global financial markets (see financial contagion and systemic risk) as investors, largely deregulated foreign and domestic hedge funds, were forced to re-evaluate the risks they were taking and consumers lost the ability to finance further consumer spending, causing increased volatility in the fixed income, equity, and derivative markets.

Econ Vocabulary: Global Financial Stability Report September 07

2007-09-07T14:44:00.000+08:00

1. Procyclic - A condition of positive correlation between the value of a good, a service or an economic indicator and the overall state of the economy. In other words, the value of the good, service or indicator tends to move in the same direction as the economy, growing when the economy grows and declining when the economy declines.

"Financial regulation is inherently procyclical"

2. Moral Hazard - Moral hazard refers to the chance, or hazard, that a party in a transaction with more information about its intentions or actions behaves in a way that a party with less information would consider inappropriate, or in the extreme, "immoral". It arises because an individual or institution in a transaction does not bear the full consequences of its actions, and therefore has a tendency or incentive to act inappropriately, leaving another party in the transaction to take at least some responsibility for the consequences of those actions.

Moral hazard is related to asymmetric information, a situation in which one party in a transaction has more information than another. A special case of moral hazard is called a principal-agent problem, where one party, called an agent, acts on behalf of another party, called the principal. The agent may have an incentive or tendency to act inappropriately from the view of the principal, if the interests of the agent and the principal are not aligned. The agent usually has more information about his actions or intentions than the principal does, because the principal usually can not perfectly monitor the agent.

Moral Hazard in Finance

Financial bail-outs of lending institutions by governments, central banks or other institutions can encourage risky lending in the future, if those that take the risks come to believe that they will not have to carry the full burden of losses. Lending institutions need to take risks by making loans, and usually the most risky loans have the potential for making the highest return. A moral hazard arises if lending institutions believe that they can make risky loans that will pay handsomely if the investment turns out well but they will not have to fully pay for losses if the investment turns out badly. Taxpayers, depositors, other creditors have often had to shoulder at least part of the burden of risky financial decisions made by lending institutions.

Moral hazard can also occur with borrowers. Borrowers may not act prudently in the view of the lender when they invest or spend funds recklessly due to the belief that they have access to a large line of credit. For example, credit card companies often limit the amount borrowers can spend using their cards, because without such limits those borrowers may spend borrowed funds recklessly, leading to default.

I encountered this when we were discussing about the opt-out provisions.

3. Propitious - Presenting favorable circumstances; auspicious

4. Hedge fund - a private investment fund charging a performance fee and typically open to only a very limited range of qualified investors. In the United States, hedge funds are open to accredited investors only. Because of this restriction, they are usually exempt from any direct regulation by the SEC, NASD and other regulatory bodies.

A hedge fund's activities are limited only by the contracts governing the particular fund, so they can follow complex investment strategies, being long or short assets and entering into futures, swaps and other derivative contracts. They often hedge their investments against adverse moves in equity and other markets, because a common objective is to generate returns that are not closely correlated to those of the broader financial markets.

In most countries hedge funds are prohibited from marketing to non-accredited investors, unlike regulated retail investment funds such as mutual funds and pension funds. As hedge funds are essentially a private pool of managed assets, and as their public access is commonly restricted by the government, they have little to no incentive to release their private information to the public.

Inarguably private entities, hedge funds have a corresponding reputation for secrecy, and less is known about the methods and activities of hedge funds than about publicly-accessible "retail" funds. However, since hedge fund assets can run into many billions of dollars, and thus their sway over markets—whether they succeed or fail—is substantial, there have been calls for regulation of these private investment funds.

Lotilla perfectly describes how I feel right now

2007-07-19T18:26:00.000+08:00

MANILA, Philippines -- After 22 years as a public servant, Energy Secretary Raphael Lotilla is bidding goodbye to government service, wanting to pursue more “intellectual” endeavors. In one of his most candid interviews yet, Lotilla said that in his more than two decades in government -- particularly during his two years as energy czar -- he had not been able to perform much mental calisthenics.

The pressure of having to jump from one issue to another, he said, deprived him of whatever “intellectual depth” government service could afford. “I want to have more time for that kind of thinking. In government, you don’t have the luxury of time to think that deeply,” he said. “I would like to end my vow of poverty and all the ancillary vows that come with it.”

Bachelor

A bachelor, Lotilla’s frugal nature has been a source of both awe and amusement to energy industry players -- and reporters. He is said to have no TV set at home, making him one of Manila Electric Co.’s (Meralco’s) lifeline customers, or those using less than 100 kilowatt-hours of electricity a month.

No surprise

Wednesday’s announcement of President Gloria Macapagal-Arroyo’s acceptance of his resignation actually did not come as a surprise to Lotilla. “I don’t recall when exactly I found out, but I’ve known for some days now,” he said. Speaking before more than 200 people at the League of Corporate Foundation’s CSR Expo 2007, he somehow preempted the Malacañang announcement by hinting at leaving the Department of Energy.

“I’m sure my successor will do a good job in ensuring that all the reforms that have been put in place will be sustained,” he said during his speech. Shortly after answering some questions from the floor, the organizers announced the arrival of Environment Secretary Angelo Reyes -- Lotilla’s replacement. Neither of the men acknowledged each other’s presence, even if they were within less than a meter of each other. Not even a glance was exchanged.
Vacation and exercise

Talking to reporters later, Lotilla was still in a jovial mood, saying he was ready to take a much needed break. “The first item on my agenda is to go to Palawan. I haven’t gone to Palawan for the last two years, since I became energy secretary,” he said. “And I also haven’t been able to exercise regularly. I’ve actually put on some weight. So that’s what I’m going to do.”

He was silent on what his plans for his professional life, saying only that he was still willing to help the government as best as he could -- and if asked. “It does not mean that I will not assist the government where I can. It’s just full-time government service that I’m taking a break from,” he said.

Long overdue

June 18, the day when heads of government-owned or -controlled corporations were asked to submit courtesy resignations, was not the first time Lotilla attempted to exit from the government. “I’ve been resigning for years. It was only now that it was approved,” he revealed. “I’ve always wanted to take a vacation, as I only intended to stay with the national government for two years. But after President Ramos’ term, I was requested to at least help out the new government.”

More changes

Talk that National Power Corp. (Napocor) president Cyril del Callar would also be replaced surfaced again, following Lotilla’s resignation.

Bloomberg Focus

2007-06-01T11:11:00.000+08:00

15 August 2006

Increased regulation of derivatives mkts.
Fundamental theorem of asset pricing.
Risk-neutral valuation.
Arbitrage pricing theory.

Deputy Governor Nestor Espenilla

1) Everyone is slowly moving to Basel 2 Accord

2) Market risk management

3) Financial liberalization - relaxation of banking regulations, intensified competition. Change in emphasis from profit-oriented to risk-return management.

4) sound risk management systems quantify prices and control risk.

5) Fixed income exchange - increase secondary market trading

6) Risk-based examination of recent banks

7) New regulations do not unduly prohibit banks to avail recent/new products

8) VAR - market risk capital requirement. banking - highly dynamic industry, growing complexity, sophistication and concentration.

9) capital treatment for market risk remain unchanged.

10) capital treatment for counterparty credit

- Internal Model Method (IMM)
- Standardize Method
- Current Exposure Method: presently applied domestically

11) Capital treatment

- failed transaction
- double default
- operational risk capital change

12) basic standard approach

13) a. change in market structure, b. increased trading account.

International Finance Corporation

2007-05-28T09:39:00.000+08:00

A. Background

1. As the private sector arm of the World Bank Group, the International Finance Corporation (IFC), takes a leadership role in areas such as capital markets development, new models of public-private partnership for infrastructure, environmental and social sustainability, corporate governance, environmental finance, and investment climate research.

2. So far, it is the largest multilateral source of loan and equity financing for private sector projects in the developing world. It invests in for-profit ventures and charges market rates for its products and services, which are the following:

(a) Equity and Quasi-Equity: IFC buys shares in project companies, other project entities, financial institutions, and portfolio or private equity funds. They generally subscribe to between 5 and 20 percent of a company’s equity. They do not normally hold more than a 35 percent stake or be the largest stakeholder in a project. With quasi-equity instruments, they invest through products that have both debt and equity characteristics.

(b) Loans and Intermediary Services: IFC finance projects and companies through their A-loans, which maturities generally range between 7 and 12 years at origination, but some loans have been extended to as long as 20 years. IFC’s loans are provided in major currencies and in an increasing number of emerging market currencies. They also make loans to intermediary banks, leasing companies, and other financial institutions through credit lines that result in further on-lending. These credit lines are often targeted to smaller businesses.

(c) Syndicated Loans: Through syndicated loans, or B-loans, financial institutions share fully in the commercial credit risk of projects, while IFC remains the lender of record. Participants in IFC’s loans benefit from the status of IFC as a multilateral development institution, including their de facto preferred access to foreign exchange.

(d) Structured Finance: IFC also offers structured finance solutions to clients, enabling them to raise a significantly larger amount of capital than that represented by IFC’s own exposure. Through partial credit guarantees of debt instruments, the triple-A rating of IFC help clients diversify their funding sources, extend maturities, and obtain financing in their currency of choice. IFC also helps clients structure securitizations and risk-sharing facilities, transactions that allow a client to sell off part of the risk associated with a pool of assets.

(e) Risk Management: IFC’s risk management products provide clients with access to long-term derivatives markets. Currency hedging instruments allow clients to hedge foreign exchange exposures typically related to foreign currency borrowings.

(f) Technical Assistance and Advisory Services: Technical assistance complements IFC’s investment activities by offering advisory and training services to governments and private companies in developing countries. They deliver many of these services through donor-supported technical assistance facilities that focus on either a region or a strategic aspect of development. They also manage trust funds supported by donor governments and have established a funding mechanism that sets aside a portion of the Corporation’s net income as a contribution to donor-funded operations.

3. IFC and the World Bank work together to survey and assess the investment climate of developing countries. An online database makes data from 30,000 firms accessible to governments considering reforms. IFC and the Bank also publish the annual Doing Business report, which provides objective, quantifiable indicators of business regulations in 150 countries. Reform efforts in many countries have been spurred by the data and recommendations.

B. Transactions with IFC

1. Financial Restructuring of Mariwasa Manufacturing Inc. (MMI)/Mariwasa Siam Ceramics Inc.(MSCI): MMI and MSCI had to restructure all its outstanding loans due to financial problems contributed by increased production cost, dampening of domestic demand and depreciation of the peso since the Asian financial crisis.

BSP-Monetary Stability Sector approved the restructuring of the JPY1,257.96 Million (about US$10.37 Million) and US$3 million loans from IFC, which refinanced outstanding FCDU Loans, on 05 March 2007. At the same time, BSP also approved the redenomination to Japanese Yen of the remaining balance of the US$3.0 million IFC loan after restructuring (approximately US$706,161.40 including capitalized interest) to consolidate the IFC loans into one account.

2. IFC Peso Loans Funded by PhP/USD Cross Currency Swaps (CCS[1]). In August 2003, the Monetary Board (MB) approved in principle the proposal of IFC to extend Peso loans to Philippine clients funded by the CCS. The following loans have been approved by MB under the said lending program:

(a) South Luzon Expressway Project Phase 1: US$50 Million 9-year loan to South Luzon Tollway Corporation (SLTC) approved on 16 November 2006.

(b) Financing for the purchase of contracts to sell receivables from real estate developers covering housing mortgages of low and middle income households: PhP1.06 billion (approximately US$20 million) loan to Planters Development Bank (PDB) approved on 22 June 2006

(c) Financing for the purchase of housing mortgages: PhP2.25 billion loan to Filinvest Land Inc. approved on 16 June 2006

(d) Capital investment program: PhP equivalent of the US$15 million loan to Cagayan Electric Power and Light Co.,Inc. (CEPALCO) approved on 05 May 2005

(e) Financing for the purchase of National Home Mortgage Finance Corporation’s non-performing loans: PhP1.65 billion loan to Balikatan Housing Inc. approved on 14 April 2005.

3. Private Enterprise Partnership for the Philippines (PEP-Philippines) : The PEP-Philippines was launched in 2006 and is designed to support the development of small and medium enterprises through the provision of investment and technical expertise to implement projects that would ease small and medium enterprises’ access to finance, strengthen linkages between large and small market players and help improve the overall business environment. This is managed by IFC and co-financed by the Governments of Australia and Canada.

4. Projects provided with Technical Assistance Advisory Services (TAAS) by IFC:

(a) North Luzon expressway on private transport work.

(b) Manila Water Corp. and the Metro Cebu Water District on water and sanitation work.

(c) Light Rail Transit Authority (LRTA) on the extension of the LRT-1 rail line from southern Metro Manila into Cavite province.

(d) Cagayan Electric Power and Light Company (CEPALCO) on private electricity distribution, which is now running on solar-powered photovoltaic cells under the IFC's Global Environment Facility (GEF) in partnership with the international Sustainable Energy and Economy Network.

C. Potential Collaborations

1. IFC may want to consider providing loans with improved terms and conditions for transportation, irrigation, energy and other infrastructure projects to comply with BSP’s external debt management framework that aims to obtain loans at favorable terms and conditions and to channel priority projects and activities. In particular, IFC is encouraged to explore the possibility of waiving some fees to make their proposals at par with those offered by World Bank and Asian Development Bank

2. BSP may also need the support of IFC in the development of a centralized credit information bureau to improve the quality of financial information to investors, expand private sector access to credit and minimize exposure to risks of financial intermediaries.

3. IFC can also be tapped to play an instrumental role in the advocacy program of BSP on microfinance, particularly in promoting the development of sound and sustainable microfinance operations.

[1] IFC swaps its own hard currency financing for local currency at the time of disbursement
--
1. Read on IFC - two hours
9:45 - 11:45

2. Read on BSP - two hours
11:50 - 12:00
12:05 - 12:20
13:30 -15:05

--

Note for me:
1. It would help if you also let the staff know what you are up to. In that way, the staff won't feel that you are just passing the job to him/her.

Asian Bond Fund

2007-05-23T14:02:00.000+08:00

Asian Bond Funds (ABF) were initiated to promote greater regional financial integration particularly in the bond market and to eventually help financing private sector investment in Asia. The initial step involved pooling US$ 1 billion of their foreign reserves to form the ABF1 to purchase a basket of U.S. dollar-dominated bonds issued by eight EMEAP economies (China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, and Thailand).

Since inception in July 2003, the BISIP Series ABF1 has registered a total return of 14.39% versus 13.77% for the JACI sovereign and quasi-sovereign index. The performance of a comparable constant duration US treasury benchmark was 8.93%. Net of fees the ABF1 returned 13.71%. The total size of the ABF1 as of 31 January 2007 was USD 1,165,494,157.

In December 2004, the ABF2 was launched comprising a Pan-Asian Bond Index Fund (which is now named as ABF Pan-Asian Bond Index Fund/ PAIF) and eight Single-market Funds. The PAIF is a single bond fund investing in sovereign and quasi-sovereign local currency-denominated bonds issued in the eight EMEAP markets. The eight Single-market Funds will each invest in sovereign and quasi-sovereign local currency-denominated bonds issued in the respective EMEAP markets.

Taiwan

2007-05-23T08:22:00.000+08:00

Interesting.

How would you call Taiwan if one of the delegates is China?

Still waiting for the answer.

--

Carry trade - investors borrow in low interest rate currency to invest in high yielding currencies, taking on, currency risk in the process

--

Japan Philippine Economic Partnership Agreement

2007-05-23T07:47:00.000+08:00

Also known as JPEPA

A reminder that that I put together notes for the Japanese Legislative Agenda and JBIC yesterday (22 May 2007) as part of the brief of the BSP Governor.

They'll sign a side agreement, to be signed by the two countries’ foreign ministers, will have Japan promising not to export materials considered illegal in the Philippines
A recent report from the Japan Center for Economic Research showing how the ASEAN plus 3 (Japan, Korea and China) grouping would directly benefit the Philippines.
By 2020 the Philippines was projected to grow by 3.3 percent more, which, added to the current projected 6 percent, would mean a growth of 9.85 percent.
With ASEAN plus 6 (Northeast Asia, India, Australia and New Zealand), the country would grow by an additional 4.10 percent, which would mean 10.20 percent.
Philippines is now back on the radar of European and US investors, with the stock market at an all-time high, more foreign outsourcing and IT businesses locating in the country, and higher average growth in the past six years.
With Japan back on track after a decade of economic slump and looking to its neighbors as the key to future growth in the face of its ageing population, we have to develop relationship with them.
If anything, officials are worrying that investments might be coming in too fast and the peso would rise to P45:$1, which would worry exporters.
Siazon pointed out that the Philippines grew 4.3 percent on the average during the past six years.
The President said government activities yielded big economic rewards, including the $1-billion expansion of the US-based Texas Instruments. Tokyo Electric Power Co. and Marubeni Corp. were also making a $4-billion investment -- the largest Japanese investment in Philippine history.
The two areas which the Philippines would like Japan to invest in are power and information technology.
Japan is the Philippines’ second largest trading partner. In 2006, the total volume of trade was $14.7 billion, with the Philippines enjoying a surplus of P700 million.It is also the largest source of tourists, with more than 400,000 Japanese visiting the Philippines every year.
Japan is also the biggest provider of official development assistance to the Philippines, accounting for two-thirds of all ODA annually and there are 200,000 Filipinos working in Japan.
If the JPEPA is ratified, the Philippines can soon start sending trainees as nurses and caregivers to Japan, said Siazon.
Japan and the Philippines share a Mutual Defense Treaty with the United States -- a relationship that the Philippines considers important in stabilizing the region.
The President will meet with Prime Minister Shinzo Abe, who is expected to brief her on the process of amending the Japanese Constitution -- an issue now being hotly debated.
Japan’s pacifist Constitution is seen to hamper its ability to take on a leadership role in the world commensurate with its status as second largest economy.

Financial Market

2007-05-22T21:11:00.000+08:00

Market for the exchange of capital and credit in the economy. Money markets concentrate on short-term debt instruments; capital markets trade in long-term debt and equity instruments. Examples of financial markets: stock market, bond market, commodities market, and foreign exchange market.

--

Types of financial markets

The financial markets can be divided into different subtypes:

Capital markets which consist of:
- Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.
- Bond markets, which provide financing through the issuance of Bonds, and enable the subsequent trading thereof.
Commodity markets, which facilitate the trading of commodities.
Money markets, which provide short term debt financing and investment.
Derivatives markets, which provide instruments for the management of financial risk.
- Futures markets, which provide standardised forward contracts for trading products at some future date; see also forward market.
Insurance markets, which facilitate the redistribution of various risks.
Foreign exchange markets, which facilitate the trading of foreign exchange.

The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.

Moving Up the Ladder

2007-05-20T20:14:00.000+08:00

I keep the newspaper clipping on this. Before I lose it, I'm going to post it here.

10 Strategies for Getting Yourself Promoted

Some career experts say that the day you start a new job you should begin planning for your next job. And you know what? You should! Just make sure that you stay focused enough on the you were hired for that you succeed and excel in the position before looking for the next one.

Promotions are not a given. It is used to be that workers progressed along specific career paths during their careers, but the impact of technology, globalization and flatter organizational structures has changed that paradigm. Today, employees have to create and manage their own career paths -- through one or multiple organizations. And remember that a promotion is not always an upward path. Sometimes - especially in today's business environment -- you may need to make a lateral move to position yourself for a later upward move.

How do you develop your promotion plan? Incorporate these 10 strategies into your plan.

Surefire Ways Not to Get Promoted

1. Don't plan your day. Go to work each day without a plan in mind.
2. Do the minimum. Have the attitude of "they don't pay me that"
3. Rely on your current base of knowledge. No need to learn new skills.
4. Voice your complaints. Be vocal about what you don't like at work.
5. Don't share the credit. Put your name alone at the top of successful projects.

From Dr. Donald E. Wetmore's The Productivity Institute

1. Develop Mentoring Relationships

One recent study found that in four out of five promotions, those promoted had a mentoring relationship with someone higher in the company who helped spread the good word about them. Some companies have formal mentoring programs, but even if your company does not, there are still ways you can build relationships with people in higher positions in the company. Mentors can also be great sources for information and career guidance.

2. Quantify Results

While promotions are not necessarily based on your past performance, you can certainly make a better case for promotion by showing detailed information about your past successes. Those who get reseults, get ahead.

Keep a record of everything you do that enhances the company's bottom line, that puts the company or your department in a good light, that is creative and innovative, and that shows your loyalty and commitment to the organization.

3. Practice Self- Promotion

We're taught by our families that modesty is a virtue, but as with job-hunting, if no one knows how great you are, you simply won't go ahead. Be a known quantity. If you have had a major accomplishment or created new or award-winning programs, make sure people know about them -- especially doing the promoting.

Sell yourself -- and let it be known that you are seeking a promotion. One professional we know sends out a monthly e-mail to his boss and his boss' boss to keep them updated on his progress on various projects -- and to share any accomplishments and accolades that occured in the previous month.

4. Establish a Bond with Your Boss

It might help to think of your boss as one of those border guards between countries. S/he can either be raising the gate and waving you onward and upward to your next position within the company, or s/he can be keeping the gate down and blocking you from any movement within the company. Use all opportunities to make your boss a key supporter of your promotion.

Use professional settings to seek counsel and stress your interest in staying with the company. Use performance appraisals not just to go over your accomplishments, but to talk to your boss about potential roadblocks to a promotion -- and how to overcome those roadblocks.

Some experts also suggest building rapport with your boss by learning more about his/her outside interests and hobbies -- and then chatting about them during conferences, parties or other informal activities.

5. Acquire New Knowledge and Skills

It goes without saying that one of the best ways to succeed in getting a promotion is to expand your knowledge and skills sets in areas that are critical to the organization. As technology and other environmental forces change rapidly, you need an ever-increasing skill set not only to perform your job but to stay marketable.

Experts also suggest that employees who want to get ahead should not only keep current with industry news and event, but also pay attention to trends and events outside their specialty.

6. Build Your Network

The more people who know you, know your strenghts and abilities, know your value to the organization, and know (at least some of) your ambitions, the more likely your name will be discussed when opportunities arise.

An added benefit of networking is that you will learn much more about the company if you network with people in other areas of the organization. Learn more about networking here.

7. Ask for More Responsibilities

Volunteering to help out other departments or teams -- or simply asking for more responsibilities -- increases your value within the organization. Asking for more work shows your interest and desire to help your department and company to succeed -- as well as putting a spotlight on your value to the organization

8. Act Professionally at All Times

Earn a reputation for being dependable, professional and cooperative. Act and look the part.

- Dress professionally and neatly -- even on business and casual days
- Ask questions when you aren't sure how to do something
- Dare to be different -- make yourself stand out from the pack
- Keep a postive outlook on things, even when in tough situations
- Don't whine or complain -- or blame others -- when things don't go your way
- Make a name for yourself in your industry through conferences, articles, speeches
- Don't be a clock watcher

Finally, be a problem-solver. Don't go to your boss with your problems. If a difficult situation arises, be sure to come up with at least one solution before seeking your boss' blessing for dealing with the situation. Problem-solvers get promoted. Complainers who expect the boss to solve all their problems don't.

9. Be a Team Player

Because so much work is now accomplished through teams -- departmental or cross-functional -- it becomes even more important to share successes with your team and to avoid pointing your finger when there are failures.

And by being a team player, you only build your reputation and increase your value to the organization.

10. Create Your Own Opportunities

After studying the needs and challenges of the organizations, if you see an area that has been neglected -- and you have key skills in that area -- write a proposal for a new position.

And even if the company does not go for the new position, you have again shown your initiative, creativity and value to the firm -- and these things can only help you the next time you request a promotion.

EMEAP: Observations

2007-05-19T06:09:00.000+08:00

Executives' Meeting of East-Asia Central Banks

So here's what to know when I get on board.

A. Note in advance external and internal requirements

A.1 External

A.1.1 Logistics: Accommodations, Flights, Activities, Preferences
A.1.2 Programs
A.1.3 Papers: Those to be delivered by Speakers

A.2 Internal

A.2.1 Aide Memoire for the Governor and the like
A.2.2. Information Support from Other BSP Groups (Due Diligence)

---

I am not a fan of short notices. I've been working for the government for the past 8 years and I learned that "working under pressure" is due to holders of managerial position who doesn't know how to manage. Before anything else, the appointed lead should know the big picture. It's similar to knowing the most probable ending of a movie. The financing transactions we had in 2006 were executed smoothly in the span of two weeks because all of us were aware of the big picture. So far, the most difficult was the Offering Circular -- the hundred plus plus investor handbook on everything about NPC/PSALM and ROP. Here are the things I learned with due diligence for the Offering Circular while I was in PSALM:

1. Familiarize self on the topics - Give it a day.
2. Introduction is on the recent activities of the economies.
3. Someone should really lead and impose deadlines.
4. Map and get commitments.

Transfers within the Government

2007-05-10T16:10:00.000+08:00

I am more prepared now compared to my tranfer from DBM to PSALM. Here are some tips:

1. Inform immediate supervisors way ahead prior to actual transfer/resignation.
2. Two weeks' notice is enough. Get salary first before leaving.
3. Make sure you have enough funds to cover periods without salary.
4. Get all your stuff on a weekend.
5. Set up Out of the Office Assistant of your mail.
6. Make notes on computer configurations.
7. Bring CD to transfer files.

I'll miss the fast internet connection in the office. With the 2 Fino Leather Bag on my mind and the Philip Stein Watch, how could I ever get a Globe Visibility? Hay, why am I buying these things with only PhP50,000 in my pocket. Moreover, I still have that Shang-ri La Mactan Conference that I need to attend to. Anyways, tapusin ko na nga yung financial projections para di ko masyadong iniisip ito.

First Writing Racket: Lessons Learned

2007-05-05T00:13:00.000+08:00

1. Get the Big Picture.I took this stint to know how it works so that next time, I can systematize and manage it well. The stint initially involved financial projections for a start-up mining company. Eventually, client asked to provide figures for the financial part of the feasibility study. The dangerous part of it is we left Bob do the coordination part because he was the one who has connections to the client. Bob, however, is too busy to even study the requirements of the projections. Information are usually incomplete and I ended up preparing something that wasn't really needed because Bob failed to capture the big picture. When I was reading the materials for the stint, it dawned on me that our services were sought for the feasibility study. If I knew then that we were supposed to work on it, I should have not gone through great lengths to work on this.

2. Know the industry before opening up to commitment. Ask client to give you 24 hours to think about the service being sought. Since I was assigned to financial projections, I didn't find time to familiarize myself on nickel content. The first thing I did was to check Bloomberg. which showed prices for precious metals and base metals but none of it on nickel with different grades.

3. Sign an Agreement. Prior to making a commitment, spend one hour familiarzing self with the industry. To avoid multiple revisions, sign an agreement with a clear description of what the client needs. Put some allowance for revisions, say the client can ask revisions thrice and every revision thereafter is charged with an additional 5%.

4. Ask for a timeline. Agree on reasonable deadlines. I realized that the stint was stressing me because it was taking so much of my time with Bob asking for outputs to be delivered immediately or on the same day. Initial output to be provided within 5 business days while revisions may need a maximum of 3 business days. Next time, I should be strict to myself. I shouldn't spend the entire day figuring things out. I should take time.

Research (3 hours).
Readings (5 hours).
Research (3 hours).
Action (important things first: 3 hours)

4. Don't commit unless client knows exactly what she/he is looking for. Related to getting the big picture. Awhile ago, when we were having a meeting. Bob was saying that price would depend on importation cost. Eventually, when Eileen arrived with data from, he said the LME would provide prices for nickel with 1.05 something. So, Bob confused me a lot. I realized that with him at the helm, I just have to note everything that he is saying then focus on what matters. Some 90% of the things said doesn't contribute to anything related to the stint.

--

Summary: Arm self with an agreement.

PSALM Strategic Planning: First and Last Before BSP

2007-04-24T15:37:00.000+08:00

April 23 - 24, 2007
Ate Amy and Kuya Jun of Treasury
Have not thought of me actually leaving PSALM.
Avoiding ba so that I won't be dramatic about it.
Anyways, I have to leave.
There's really nothing more I can do about it.

Telecentre.org

2007-03-01T03:21:00.000+08:00

Computer History Museum
Mountain View, California
28 February 2007
www.telecentre.org

1. place where people can access computer and internet
2. innovators - those that have not touched computers
3. there are 100k telecentres globally - powerful platform for social economic development
4. make this centres offer skills, services and opportunities

Pre-Qualification Group in Action

2006-11-23T11:14:00.000+08:00

Day Count Glitch

2006-11-02T23:50:00.000+08:00

When Dulce called me about the day count that is inconsistent with the final approval, I didn't panic. There are two things that can happen, either the bank gives in or P/NLO pull the strings. It was partly my fault because I signed off the third draft of the Purchase Agreement, when it was the first time that the banks reflected the terms and conditions. I now know why VP/NRB requires a table of the main terms and conditions. Nonetheless, when this will be discussed in the evalaution, we'll just accept their suggestion. There is no point in justifying our position to them. At least, we had the glimpse on how the Finance Ministry selects proposals.

Funny moment: We patched in to a different conference call...hahahaha...with Singaporeans on the call.

Offering Circular 2006

2006-10-31T15:05:00.000+08:00

I started reading the Offering Circular. I noticed one mistake for the 5 pages I checked out on the description on the Distribution Sector, which says 142 distribution utilities consisting of 119 electric cooperatives, 17 private utilities and 5 municipal utilities that actually totals 146.

The boss told me that we are going to hold a meeting with Didith next week to discuss the peso borrowings. I should be reminded to prepare the proposals and the calendar.

NPC lights up the market

2006-10-31T12:46:00.000+08:00

Napocor prints lowest ever Philippines dollar coupon

2006-10-31T12:14:00.000+08:00

News article on the bond issue

US$500 Million Notes due 2016; Statistics

2006-10-31T11:48:00.000+08:00

For this year, my job in PSALM only requires me to work non-stop for two weeks.Most of it, however, were spent coordinating information from NPC people to the transaction counsel.

The deal was quick because we were just lucky. There was so much liquidity in the market. It does not require so much brouhaha. It was just tiring because I was surrounded with drama queens. So much of the crap talk, here are the stats.

Terms

Issuer : National Power Corporation
Guarantor : Republic of Philippines
Issue Ratings : BB-/BB
Guarantor Ratings : B1/BB-/BB
Size : $500mm Reg S/ 144a
Yield : 6.875% s/a 30/360
Maturity : 02NOV2016
S/D : 02NOV2006
Spreads : UST+ 207, L+202, 27.5 over implied ROP curve (+30.5 over the OCT16, and 40.5 JAN16)
Price : Par
Books : Citi / DB
Denoms : 100k, 1k
Listing : Singapore

Headlines
Lowest coupon ever
Tightest spread to sovereign since crisis
Largest book ever for Natpow deal
Fastest deal ever for Natpow (14 hour execution)

Book colour
Books over 10X oversubscribed
210 investors
15 orders of over 100mm
Over 100 investor new to the NPC

Geographic Split
USA 31%
Sing 20%
Phils 14%
Cont 14%
UK 12%
HK 8%
Other Asia 2%

Investor Type
Funds 49%
Banks 24%
Ins/pension/cb 21%
Retail 6%

Pre-requisites before Pricing

2006-10-23T21:57:00.000+08:00

1. IAC Clearance
2. Monetary Board Approval in Principle
3. Willingness to Guarantee by DOF
4. NP/PSALM Board Approval
5. First Comfort Letter

Don't forget to check conditions of MB Approval in Principle before asking for Final Approval.

Financing 2006

2006-10-22T23:35:00.000+08:00

Day 1 Friday 13 October 2006 - Prior to this, sabi ng Presidente eh bilisan natin. Position ng bosing ko, hindi kaya. Hush hush kaya mai-commit ang international lawyer. Kaya naman nung araw ng nag-mandate, sabi ng abogado, hindi ko kaya ng isang linggo pero mapilit ang DOF. Ako naman eh nanahimik lang. First time eh, sabi nga ng President eh may birth pains.

Pero nag-commit ang bosing ko na kayang magreview ng proposals in 4 hours. Tama naman yung array namin. In terms of all-in cost, mababa naman talaga yung number 1 and number 2. Tama din yung evaluation ni Didith pero obvious na yung ibang parameters eh dun sa araw din lang naisip.

Ano ang di effective:
(1) Dapat kilala ka ng bangko
(2) Dapat daw yung execution time eh maikli.

Day 2 Saturday - Maaga yata ako sa NPC kasi they scheduled a due diligence that day. Kaya lang, di pa handa yung bangko. Wala pang joint proposal.

Day 3 Sunday - Due Diligence of NPC. Okay, full force. Wala pa rin joint proposal.

Day 4 Monday - Di ko na maalala kung ano ang nangyari this day. Pero alam ko, wala pa ring joint proposal,

Day 5 Tuesday - Lumabas ang first draft ng OC. Conference call with NPC. Dumating ang joint proposal with higher rates than selected proposals for shorter execution time. Didith cancelled the call for banks to review their joint proposal. Finance due diligence call. Requested NPC Legal to prepare clearance draft, which will be on hold pending nego of PSALM Legal with the banks. Mali nga lang title, nakalagay eh 750.

Day 6 Wednesday - Update call. Okay na yung joint proposal. Pero dahil late na sila nagbigay ng joint proposal, hindi na rin natuloy yung launch na gustong mangyari ni Didth. Hindi pa rin okay ang docs. Hindi pa tapos ang OC.

Day 7 Thursday - Wala pa ring nangyayari.

Day 8 Friday - Malaking issue yung certification from COA na di ko alam eh hinihingi pala. In the past eh non-issue ito. Si Joslyn ang salarin dito. Review of F pages.

Day 9 Saturday - Draft 4 ng OC.

Day 10 Sunday - Update call on the legal docs.

Export Credit Agencies

2006-10-13T06:34:00.000+08:00

Cafe Al Fresco, Hyatt Hotel, Roxas Boulevard - There are 29 ECAs in the world. These ECAs are governed by the OECD rule, which only allows funding of 85% of a project's foreign component and 15% of the local counterpart.

I also attended a presentation to investors by the Home Guaranty Corporaion, whose president is an ETC alumnus -- Mr. Bong Bongolan. He was not arrogant as I found him in the SAMASA conference but as naughty. He can't be arrogant because he needs the investors to buy his zero coupon bond issue. I determined, however, that whoever sat in their loan negotiations, was unaware that pari passu ranking of their domestic indebtedness should be limited to obligations similar in nature.

It is also the second time that I rode home with the President. I did not notice that the letter circulated in the e-mail was unsigned. I thought it had her blessings but it turned out that it was an independent action by the Corporate Communications Group. Nonetheless, I told her that the upside of the e-mail are shedding more light in the issue with PEMC and helping the PSALM employees defent the position of the Corporation in confronting accusations of price manipulation.

Busy day today. Circulate computation tables to evaluation team. Finalize results, hopefully, by lunch time. Four proposals per member. Use Bloomberg Swap Manager (SWPM) to determine fixed-rate equivalent of floating rate note proposals. Aja! Aja1

Debt Service Coverage Ratio

2006-09-26T22:14:00.000+08:00

Two meetings today, one on Debt Service Coverage Ratio (DSCR) and with the Pre-Qualification Group.

Debt Service Coverage Ratio: Definition

1. In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.

2. In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts.

3. In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.

In general, it is calculated by: Net Operating Income/Tota Debt Service

Notes:
A DSCR of less than 1 would mean a negative cash flow. A DSCR of say .95 would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean the borrower would have to delve into their personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.

Bond issued below Par

2006-09-22T00:16:00.000+08:00

Bond Discount

Amount by which the Market Price of a bond is lower than its Face Value. Outstanding bonds with fixed Coupons go to discounts when market interest rates rise. Discounts are also caused when supply exceeds demand and when a bond's Credit Rating Is reduced. When opposite conditions exist and market price is higher than face value, the difference is termed a bond premium. Premiums also occur when a bond issue with a Call Feature is redeemed prior to maturity and the bondholder is compensated for lost interest.

--

Original Issue Discount (OID)

The discount from par value at the time a bond or other debt instrument is issued. It is the difference between the stated redemption price at maturity and the issue price.

Investopedia Says: An original issue discount bond is a bond issued at a price below par. The most extreme example of an OID is a zero coupon bond. OID is considered to be a form of interest, so tax issues can get a bit complicated.

--

All-in cost computation:

Re-offer yield and stated redemption price
Coupon and par value

Daily PSALM Activities 2005

2006-09-12T05:18:00.000+08:00

I learned that I will never learn to appreciate what I do if I don't document them. So I gathered all my notes and summarized what I do everyday in the office. Not all, however, are documented. There was a time when there is nothing much to do so there was no motivation to keep a calendar.

I got promoted as Division Manager in May 2005. I chose to keep one staff because the function of our division has always been handled by a partnership. Nonetheless, I plan to add one more so that I can branch out to other activities.

---

28 September 2005 – Drafted letter for RMBSA and ACCRA. E-mailed CALYON on external counsel. Learned that Atty. Magdalena Imperio is the new lawyer of BSP.

29 September 2005 – Asked Dulce to follow-up receipt of BSP of the notarized NP Board Resolution. Drafted uniform guidelines (I am surprised to learn that it was only now that we are able to finalize the uniform. Last year pa pala ito!)

30 September 2005 – Still on the external counsel to opine on the MCA with CALYON. Inquired from PSALM Legal if there is a standard process in availing the services of external counsels. Listed the following transactions that PSALM facilitated for itself and NPC, which are the following: Power Bonds (2005), Nomura (PSALM financing with ADB Guarantee in 2003), ING Zeroes (2004), OPIC (2003), GSI Zeroes (2003), Bear FRNs (2005) and ING Zeroes (2005) and CALYON (2005). Assignments with Debt Transfer Team.

03 October 2005 – RFP Meeting with the Dept. Manager (Gary): Clarify Primary Obligor status of ROP in the guarantee, set meeting with BTr and DOF on the RFP, Board approval on the funding gap. Follow up MB Opinion on ING Zeroes. Debt Transfer.

17 February 2006

Economic tango

2006-09-11T15:16:00.000+08:00

By Cielito Habito
Inquirer
Last updated 09:53pm (Mla time) 09/10/2006

Published on page B2 of the September 11, 2006 issue of the Philippine Daily Inquirer

POLICY reversals and policy inconsistencies have been one of the key reasons the country and its government are persistently unable to earn enough faith and trust from the foreign business community, international development and finance institutions, and from its own people. Our economic policymaking has been characterized as one where we keep stepping backward even as we also try to step forward--sort of like dancing the tango. We can't seem to move forward consistently and continuously.

Another step backward

This relatively low level of trust has been a key factor that has kept the Philippine economy from attracting as much investments and attaining the same dynamic performance displayed by our closest neighbors in recent decades. Economists describe it as having a lower level of sustainable growth than our better-performing neighbors. While Singapore, Malaysia and Thailand managed to sustain rates of economic growth of at least 8 percent for well over a decade in the 80s and 90s, it is estimated that the maximum rate of economic growth we can sustain would be more in the neighborhood of 5-6 percent. Indeed, that's where we are at the moment.

Whether we can finally break out of this lower sustainable growth path has been put into serious question with yet another glaring backward step taken recently by the government. Offering no justification whatsoever, Executive Order 558 repealed EO 138 in a one-liner order, two days short of the latter's seventh anniversary.

In the wrong business

Last week, we explained when government is justified in making direct interventions in the economy, and when it is not. One of the widely agreed principles is that the government has no business being in a business that can be handled more efficiently and more effectively by the private sector.

Is lending money to the public one of them?

Experience through four Presidents had led us to an unequivocal answer. The Aquino administration made it a policy to abolish direct lending by government nonfinancial agencies. The Ramos administration created the National Credit Council to rationalize all directed credit programs. And the Estrada administration issued Executive Order 138 spelling out the government's clear policy on directed credit programs: It put a definitive end to the granting of loans to target sectors by its nonfinancial agencies.

Failed experiments

EO 138 articulated a wisdom gained from accumulated experience out of numerous failed government experiments with direct lending, spanning the Marcos-era Masagana 99 rice program of the 1970s, and the Kilusang Kabuhayan at Kaunlaran (KKK) in the 1980s. The bulk of the subsidized loans were never paid back, and the rural banking system nearly collapsed.

The lessons learned then were clear. Funds lent directly by the government were seen by borrowers as dole-outs that need not be repaid--and so they hardly did. Nonfinancial government agencies do not have the capability to run loan programs, and invariably mismanaged them at great loss. Interest rate subsidies entail huge costs to the general taxpayer and had contributed to the fiscal instability of the government. The programs became a disincentive for private financial institutions to provide credit to smaller borrowers, as they could not compete with the cheap funds being dispensed by the government. And the list of lessons goes on.

Microfinance boom

Estrada's EO 138 paved the way for the current dynamic growth in microfinance initiatives coming from the right source: The private financial institutions. In recent speeches, BSP Governor Amando Tetangco has noted that from just about 55 banks claiming to do microfinance before 2000, there are now nearly 200 private financial institutions, with a portfolio of P3.3 billion reaching more than 600,000 beneficiaries, engaged in microfinance operations. And now the rural banking system is not only back on its feet; it is actually doing quite well and is playing a key role in financing the livelihoods of the rural poor.

Indeed, EO 138 helped earn for the Philippines recognition from the United Nations for having the best micro-finance policy in the world.

Politics first

It would seem irrational, then, that Malacañang--especially with a Ph.D. economist President--would repeal a policy that had not only achieved so much and done so much good, but earned us international admiration too. Not even the key economic managers were consulted in the issuance of the offending EO 558; thus, they have been hard-pressed to explain it. Gone are the days of President Ramos's strict requirement for "CSW"--completed staff work--before he would sign any presidential issuance.

But it doesn't take a genius to understand why some people in government would want its various agencies to be able to hand out cheap money to the public all over again. This time, they carried the tango and won out over the forward-stepping economists.

Comments welcome at chabito@ateneo.edu

No business being in business?

2006-09-11T15:09:00.000+08:00

by Cielito Habito
Inquirer

WHEN must government intervene in the economy, and when must it keep its hands off?

Academic economists are often faulted for being too partial to liberalized markets. But not even the most zealous free-market economists would argue that the government should entirely keep its hands off the economy.

Interventions

Should government be in the business of producing and selling goods and services--like rice, medicines, electricity, education, health services, or third-party liability car insurance--to the public, or should it just leave these to the private sector? Should it be telling private firms what and how much they must produce? Should it pick "winners" among the economic sectors and bias government tax and subsidy policies toward them?

Is it right for government to tax its citizens' every move, from earning an income, owning property, travelling abroad, selling/buying cigarettes, text messages, and practically everything else--and then decide who can be exempted from paying these taxes? Should it tax the rich more heavily than it does the poor--or even the other way around (which we indicated in last week's column to be our actual situation!)?

Invisible hand

It is largely true that leaving the markets alone usually leads to outcomes that are efficient--that is, one where the economy's limited resources are put to their best use. When the government tries to "play god" and decides what, how much, how, and for whom goods and services are to be produced--in short, the basic resource allocation decisions in the economy--it invariably fouls things up. China and the former Soviet Union tried it for many years, and eventually decided to give it up and rely more on the free market, even now embracing the WTO. North Korea and Cuba persist in that path, with disastrous effects for the former, and unclear effects in the latter.

Adam Smith, considered the father of modern economics, had argued in the eighteenth century that left to themselves (laizzez faire), markets would be guided by an "invisible hand" that ensures the most efficient outcomes.

When markets fail

But perhaps what Adam Smith did not explain enough was that markets are far from perfect. They often fail to yield efficient outcomes, and more often, fail to yield outcomes that are equitable or fair. Economic textbooks give at least three reasons why markets fail: public goods, externalities and economies of scale.

Some goods and services are public goods that, in the words of economists, are non-rival and non-excludable. When you buy a nice dress for yourself, you keep everyone else from using it; it is a rival good. But when you benefit from the security of having a national defense system in place, others can benefit from it as much as you do (non-rival), and neither can anyone prevent everyone else from enjoying that benefit as well (non-excludable). In such cases, people will want to "free-ride" and avoid paying for these services, or at least pay less than what it really means to them. Thus, it won't work for a private firm to produce and sell such public goods. Government must step in and provide them directly.

Externalities

When firms produce and people consume certain products and services, they could inflict some indirect damage (external costs) or cause indirect benefits (external benefits) on others. For example, when a cement factory pollutes a river, government must make the producer absorb that additional cost imposed on society to lead him to correct it. Government can regulate the production outright (e.g. impose strict pollution controls), or tax the factory in proportion to the pollution it causes. When the owners of dilapidated antique houses in Vigan or Pila spend money to repair and restore their homes, everyone else benefits from the improved ambience and preservation of cultural heritage. Thus, government can be justified in subsidizing their restoration costs (e.g. by real property tax exemptions, as was done in Vigan, or outright funding assistance). Whether costs or benefits, so-called "externalities" may warrant government intervention in the form of additional taxes or subsidies.

Anti-trust laws

Bigger firms often enjoy a cost advantage over smaller ones due to economies of scale, leading to a tendency for bigger businesses to crowd out or "eat up" their smaller competitors. Last week, we identified this phenomenon as a key reason why the rich tend to get even richer. When economies of scale make bigness an advantage in an industry, government can impose rules that neutralize this advantage, prevent big industry players from bullying their smaller competitors with unfair trade practices, or enhance and expand competition in the industry. The U.S. has anti-trust laws that accomplish this; we have yet to provide the same in our legal system.

Government has no business being in business, it is often argued. But as in every rule, there can be valid exceptions. The challenge is in telling when they are indeed valid.

Approvals for Peso Borrowings

2006-08-31T13:05:00.000+08:00

Peso-denomnated transactions have a different approval process.

1. Issue RFP
2. Evaluate and Request Board for Approval of the Transaction (this is a requirement of the BSP-DER)
3. Inform the selected bank
4. Request for DOF Approval (unlike international deals in which agreements are cleared by the IAC-FLRD, peso agreements only requires the clearance of DOF).
5. Request for MB Opinion, facilitated by DER

So when the boss said the Director of ID already agreed that the approval in principle covers the peso, it does not make sense because they only look at dollar-denominated deals. Strongly note that with PESO, only the DOF calls the shots.

Financing Proposal Evaluation

2006-08-30T17:52:00.000+08:00

Proposal Evaluation:

1. Tenor
2. Structure (Fixed or Floating)
3. Amount
4. Currency
5. Coupon
6. All-in Cost (YTM)
7. YTM over relevant ROP
9. Fees
10. Special Features

Please note the following:

1. Convert everything to semi-annual paying instruments.
2. Convert everything to coupon-paying instruments.
3. Convert fix to floating
4. Convert floating to fix
5. Put all fixed-rate/floating-rate with the same tenors in one excel worksheet.

PSALM Dancing with Former DOF Usec. Singson

2006-08-29T18:19:00.000+08:00

Gabriel "Jay" Singson Jr. (the one in barong, far right) is the former Undersecretary of Department of Finance for Special Concerns and Privatization. I saw him several times in a meeting with Debt and Risk Management Team of the Republic. I formally met him after a meeting with Director Joji Cruz in the office of WESM in Ortigas. I can only remember his Korean-like smile and his firm handshake. I haven't heard him talk on work-related issues though because he was already leaving DOF when he got on-board in financing activities. I didn't dance that night becaus ethe songs they were playing were old but it was a delight watching him. I would also like to add that he doesn't look like his Dad -- the close friend of the great John Gokongwei -- former BSP Governor Singson. He is actually an improved version of his dad, who has strong facial features.

A Cross-Functional Group in Action

2006-08-29T18:06:00.000+08:00

Representatives of Asset Management, Legal and Finance. Indeed, a cross-functional group.

Meeting with Chairman Suratos

2006-08-28T11:41:00.000+08:00

Lessons learned:

1. Courtesy calls do expedite processes.
2. He trusts the judgement of his staff.
3. Forward request for review before you hold a meeting with them.

Atty. Armando Suratos is the Chairman of the Inter-Agency Committee for the Review of Foreign Loan Documents (IAC-FLRD). He is also a member of the Monetary Board. The core members of the IAC include BSP, Department of Justice(DOJ) and Department of Finance (DOF).The Secretariat of IAC is the BSP ID.

How does the process with IAC flow?

After the request for approval in principle of your transaction has been granted, you begin negotiating for improvements on terms and rest of the agreements. The Issuer, the Guarantor and the Bank should have already resolved all issues before proceeding to the IAC. In document form, a clearance from the Issuer and Guarantor should be attached to request for review and clearance of the IAC.

The IAC is the last authorizing entity that the Issuer would have to deal with. Without the IAC clearance, agreements can't be executed and MB final approval may not be granted.

Learning Organizations: TQM 2003

2006-08-26T21:46:00.000+08:00

I am posting my notes of my report of LEARNING ORGANIZATIONS in my Total Quality Management class under Mr. Nestor Raneses. Basically, it is about dealing with change due to intense competition, reduction of barriers to trade, faster information dissemination through culture change. Opening of highly-concentrated groups to expertise of other teams. Grasping the big picture and knowing your contribution to achieving grand goals. Admits that might not be easy to practice but can be done. People just have to be totally pscyhed to do it.

Slide 1

Since the 1980s, the world of business has begun to see the need for entirely new models of management in order to succeed in regaining and defending a position of global competitiveness.

Why? What happened?

On the same decade, flagship US corporations, such as GM and IBM, plunged into failure in the face of devastating competition from Japanese rivals.

Slide 2

Surprisingly, intensive overseas competition came not from low wage areas but from those that reinvented the business corporations to produce unprecedented levels of quality at low prices.

As the 80s turned the 90s, the US managers were challenged to understand the new Japanese paradigm and determine how US companies could compete successfully on these new terms.

Note, however, that it would be foolish to claim that the new paradigm was the sole factor determining the success of some US companies such as Ford but we believe that it was an essential component of their recovery.

Slide 3

So a new paradigm was needed for US businesses. Note again that this paradigm does not necessarily allow us to counter-strike but we must understand it.

There are several sources we must study in order to understand what must have been done differently

- atypical companies, which have successfully met the global challenges
- insights of the QUALITY consultants especially DEMING

Slide 4

The "Art..." by Pascal and Athos, focused on Matsushita, highlighted management's dedication to building a culture that pays attention to each of the seven strategic factors, both "hard" and "soft".

What does US practice?

They paid more attention on hard strategic and structural factors than long-term attention to culture building.

In Matsushita, culture building occurred over several decades finely adjusting to perfect fit.

Slide 5

To substantiate this part of the report, let us look at Theory Z: How American companies can meet Japanese competition.

Theory Z is named to designate a third model different from (I'll check it out soon). It anticipated much of work that adopted the banner of L.O (Again, pardon the lack in information. I think the presentation is in my old notebook). When this factors are cultivated over the long-term within a well-integrated organization and employees do not have their performance appraised against measured criteria, accountability is maintained within a deeper and more subtle shared understanding of the fundamental goals of the enterprise, shared by workers and managers.

Slide 6

-experience and thinking provides third major body of knowledge

Full Circle (Neglected in US companies): Deming's thinking methods influenced some of the leading Japanese companies, which were embraced in their strong and patiently-built corporate cultures. They do this through cross-functional teams, across different status levels, united "horizontally" by a focus on giving customers what they expect.

Real Quality Thinking is a radical break with bureaucratic organization.

Slide 7

Bureaucratic Organizations: central feature of modern, western economies and public administration (I wrote this down " At this point, read slides: Defined by main features"

Whatever their advantages, bureaucracies are not nice places to work.
Communication, especially going up the hierarchy, tends to be systematically distorted.

Assumes expertise of higher levels to solve problems - wrong, because higher level managers lacked the information possessed by lower level workers and vice-versa.
Reasons for not sharing: fear of punishment, boss' refusal to listen, secretiveness of subordinates

Slide 8

Sometimes, these informal arrangements are aligned with the goals of the organization, sometimes they served the goals of the sub-unit rather than those of the whole organization and sometimes they involved sabotaging efforts of the administration to tighten controls on the rank and file.

Slide 9

The Bureaucratic Paradigm - mechanistic product of a modernists, objectively stated (actually, I don't understand what I wrote here because the punch hole took off much from the statement), stipulates required structural features and operating principles -- no post-modernist non-sense about different viewpoints and different realities

So this leads us to question what is a learning organization? One that continually expand its capacity to create.

Generative Learning -- learning that enhances our capacity to create.

Slide 10-16

Peter Senge overviewed the pratice and theory of the L.O. in terms of 5 disciplines that include many tools and infrrastructure.

The Five Disciplines include:

Systems Thinking: learning to see the big picture, to understand how the consequences of our actions loop around to affect us in unsuspected ways and to use this analysis of system dynamics to find points of leverage to free the organization from vicious cycles that thwart effectiveness

Essential that individual aspirations of the membersare linked to the goals of their teams, which should be integrated into the larger corporate goals.

The first 3 disciplines have particular application for the individial participant and the last 2 have group application.

Those who excel in these areas will be natural leaders of learning organizations.

Systems Thinking: distinction as the the fifth (5th) discipline since it serves to make the result of the other disciplines work together for business benefit.

Fundamentally distinguish learning organizations from traditional authoritarian "controlling organzations" will be the master of certain basic discipline.

Systems Thinking: tools developed in 50 years.

Essense of Discipline lies in a shift of seeing ( I still have to find out why I left this blank) rather than linear cause-effect. Seeing processes of change rather than (again, blank).

Starts with simple concept called FEEDBACK.

Systems Archetypes are basic and understandable cycles that systems go through.

If we have personal vision and we also see current reality objectively, then the difference between the 2 causes "creative tension", which can be drawn from (i cant remember what should fill the blanks. Hehehehe), in current reality, to the vision.

Commitment to the truth is the other part of the process.

Using the subconscious is important in personal mastery ( I am pretty sure that this is not something paranormal. TQM might have a different definition for subconscious because it sounds like it doesn't make a huge sense. Nonetheless, this is acceptable as far as I am concerned.)
Mental Models: The discipline of working with MENTAL MODELS starting with (another blank from the outer space), internal pictures of the world, (oh maan! another blank!), hold them rigorously (huh?). It also includes "Learning Conversations" (my notes has "learningful")

The discipline starts with (refer to the powerpoint presentation that I have yet to find), the capacity members of an organization to learn to suspend (another blank, which means it is in the powerpoint being flashed while I was reporting) and enter into a genuine "thinking together". It involves learning how to recognize patterns of interactions in teams that undermine learning such as DEFENSIVENESS.

Involves mastering the practices of dialogue and discussion -- two distinct ways that teams converse. In dialogue, there is free and (ahem..ahem). In contrast, discussion (has been cut because I was referring to the slide).

Dialogue and discussions are potentially complementary but most teams lack ability to distinguish between the two and move consciously between them (For me, dialogue is brainstorming and discussion is coming up with resolution).

For more information, please see David Bohm's analytical discussion on suspending assumptions, team members regard each other as colleagues and on facilitator, who holds the context.

Mind Mapping: way of thinking that you can develop as an individual .

Paradigm Shifting Devices: should you become a manager or someone who could initiate change.

Economist: Job Description

2006-08-25T17:57:00.000+08:00

Will conduct macroeconomic analyses of the U.S. and Japanese economies.

Will collect, interpret, analyze and report macroeconomic and financial information to contribute to the company's knowledge of economy-wide, sector specific and industry specific economic trends and market developments ("macroeconomic drivers") affecting the value of equity and bond investments in those countries.

Will investigate the contribution of various macro-factors (e.g., balance of payments, currency valuation, inflation, budget deficits, inventories, consumer debt and spending, interest rates) to GDP growth.

Will devise and select data collection and sampling methodologies for economic research studies, applying appropriate econometric techniques (game theory, probability theory) and statistical analyses (regression analysis, correlational techniques, Hodrick Prescott filters) to assess the validity and reliability of research outcomes.

Will complete studies of the effects of multiple macroeconomic factors on target industrial and commercial sectors, and stock and bond risks and returns within those sectors.

Will use advanced applications of financial and econometric software and graphing systems to complete analyses of macroeconomic trends ("yield curves"), test research hypotheses, and prepare economic forecasts for use by Capital Group portfolio analysts and asset allocation committees.

Will keep abreast of developments in macroeconomic theory, and in theories of finance and monetary economics, reading the emerging academic literature on topics related to quantitative and model based economic and financial research.Masters degree with a major in economics or finance. Minimum one year (prior to Masters is OK) as economist, investment analyst, or in related occupation. On-the-job experience in constructing quantitative and statistical macroeconomic research for investment decision-making. Training or experience in the use of econometric analysis packages (including Microfit, Shazam, Eviews, SPSS) and financial software packages (Datastream, Stockval, Factset, Bloomberg, Marketwatch, Reuters, Research Direct) for macroeconomic modeling and analysis. Training or experience in advanced applications of Microsoft Excel. Training or experience in the mathematical bases of current academic macroeconomic research, including calculus and optimization techniques, matrix algebra, probability theory and multivariate statistics. Training or experience in the conduct of yield-curve (term-structure) scenarios and in macroeconomic forecasting.

Lead the development, enhancement and utilization of all major aspects of statistical, econometric and financial models in the assigned area of business specialization (e.g. capital allocation, credit risk analysis, new product development, etc.)

Understand the technical issues associated with financial and statistical modeling, and apply these skills to business problems.

Provide technical advice and guidance to senior management on all results from financial and statistical models.

Develop rules, benchmarks etc. for the analysis and interpretation of model data.

Develop and report forecasts on major economic and financial trends, including regulatory issues, and propose appropriate Freddie Mac business response.

Conduct statistical analyses of performance on an ad-hoc basis. Lead a team of managers and analysts.

Job requires a PhD .in Economics, Econometrics, Statistics, Finance, Mathematics or related discipline or an equivalent combination of education and experience from which comparable knowledge and skills may be acquired; five years of experience including experience using specialized statistical tools (e.g. SAS, "Fair Lending

Meeting with a Bank Week 3 August 2006

2006-08-25T16:58:00.000+08:00

I had the following on my notes when I attended this meeting:

1. Check requirement by October: PHP 409 Billion, roughly less than US$100 Million.

2. Remind them to submit a proposal while waiting for RFP

3. In Thailand, corporates borrow yen-denominated loans (low-yielding instrument) fromw hich they based their taxes then swap it to US dollars (currency of the high-yielding instrument).

4. The bank does not have a local office so no operations involving peso but there is so much liquidity in US dollar-yen that they can facilitate. So they can design a longer-term two-step transaction

5. Since we can no longer accommodate loan instruments with maturities equal or shorter than five years, the bank worried that it might be futile ven to respond to our RFP. I said that they can still forward to us their proposals because we really can't make any commitment as to how the entire debt profile looks until we have received all the proposals.

6. One of their bankers moved to another bank. They have noticed increasing movements of bankers. Mr. T said, he noticed the same thing in 1997 before the the onset of the Asian Financial Crisis.

7. A colleague asked the bank's reading of the Japanese economy. They reported that the Japan economy is highly reliant on the economy of China. If China continues to grow and as a result, import capital equipment from Japan then we see on overweight in expectations for Japan's stability. This is further evence by increased demand by their Japanese clients for investments.

8. It was further inquired on the balancing of prtfolio in terms of fixed and floating, the bank responded that usually, it's just half fixed-rate and half floating to limit losses due to volatility.

So it would really depend on the maturities. If you see that interest rates would eventually decline then short-term holdings should be floating. If rates are in the short-term increasing then have it fixed. Seince more than 60 percent of our debts are fixed-rate then we are open to floating but in the end it would all depend on the all-in cost.

Schedule 2: Terms and Conditions of the Notes

2006-08-24T14:18:00.000+08:00

Note that this is part of the Fiscal Agency Agreements. The terms and conditions are broken down as follows:

1. Status, Guarantee, Form, Denomination and Title

If you have read the Purchase and Fiscal Agency Agreements, you are already familiar with the guarantee. The discussion on the ranking in priority of payment, however, is found on this part. The Notes shall rank pari passu with all other present and future External Indebtedness of the Issuer and those guaranteed by the Guarantor. We usually watch out for this provision because banks usually draft all indebtedness.

2. Transfer of Notes - Just a declaration that the Notes are issuable only as fully registered global securities and limitations as regards transfer and exchange. This provision is standard for Notes issued under Rule 144A and Reg S.

3. Negative Pledge - Non creation of secuirty interest on its assets. This is also a standard provision

4. Interest - Rate of Interest is determined by the fiscal agent or its duly appointed successor (the Agent Bank) from the Screen Rate. If this is not available, the Agent Bank, at least 2 Reference Banks will provide such rates. the arithmetic mean will be the determined Rate of Interest. Worst case scenario is adopting the Rate at the last preceding the (day before the last recent) Interest Determination Date.

It is interesting to note that Reference Banks means the principal New York Office of each four major banks engaged in the London interbank market selected by the Agent Bank. Screen Rate, on the other hand, is Moneyline Telerate Page 3750 or such other service (like Bloomberg) as may be nominated by the British Banker's Association.

Interest Determination Date means the second Banking Day in London before the commencement of the Interest Period for which the rate shall apply. I still have to check this, if the Determination Date falls on Wednesday then it's Tuesday.

Note that if coupon payment is semi-annual, the computed interest against the principla must be divided into 2.

5. Redemption and Purchase - Basically, it's the maturity date and the option of the Issuer and the Guarantor to purchse the Notes in the open market.

6. Payments - nothing much here, just a description of the delivery

7. Taxation - all payment sof principal and interest in respect of the Notes shall be made free and clear of and without withholding or deduction for any taxes..blah..blah...blah. Standard provision unless there's a new tax ruling.

8. Events of Default - This is important and must always be read and negotiated. Curing periods should be stretched as long as possible. We were able to stretch up to 90 days. Payment default, Cross-default (Issuer has US$25 Million aggregate principla amount that is due and payable as a result of default), any event or condition the accelerates maturity of any External Indebtedness amounting at least USD$25 Million, bankruptcy, moratorium, law ceasing Issuer's existence, Guarantor ceasing IMF membership.

9.Prescription

10. Replacement of Notes

11. Meeting and Amendments

12. Further Issues - issue further securoties having the same terms and conditions as the Notes in all respects ( re-opening, tap)

13. Substitution - amendment to the Fiscal Agency Agreement

14. Notices

15. Governing Law, Waiver of Immunity, Jurisdiction - should be similar with the provisions of the Fiscal Agency Agreement. Similar in principle with the Purchase Agreement.

Contingent Liabilities

2006-08-23T16:39:00.000+08:00

Direct liabilities are obligations whose outcome is predictable, while contingent liabilities are obligations that may or may not come due, depending on whether particular events occur. The probability of their occurrence may be exogenous to government policies (for example, if they are related to natural disasters) or endogenous (for example, if government programs create moral hazard).

Explicit liabilities are specific obligations, created by law or contract, that governments must settle.

Implicit liabilities represent moral obligations or burdens that, although not legally binding, are likely to be borne by governments because of public expectations or political pressures. Conventional fiscal analysis tends to concentrate on governments' direct explicit liabilities. These include repayments of sovereign debt, budget expenditures for the current fiscal year, and longer-term expenditures for legally mandated obligations (such as civil service salaries and pensions and, in some countries, the overall social security system).

Direct implicit liabilities are often a presumed, longer-term consequence of public expenditure policies and are not captured in government balance sheets. In countries with pay-as-you-go pension schemes, for example, future pensions constitute direct implicit liabilities. Their magnitude is determined by how generous pension benefits are, how many people are eligible to receive them, and at what age pensioners become eligible, as well as by future demographic and economic developments.

Contingent explicit liabilities are legal obligations for governments to make payments only if particular events occur. Because their fiscal cost is invisible until they come due, they represent a hidden subsidy and a drain on future government finances, and complicate fiscal analysis. State guarantees and financing through state-guaranteed institutions may, in the short run, be more attractive than outright budgetary support because of their hidden nature. Such contingent explicit liabilities, however, may well turn out to be more expensive in the long run. Moreover, they may create moral hazard in the markets, particularly if governments guarantee all, rather than a part of, underlying assets (such as a credit to an enterprise) and all risks, rather than selected political and commercial risks. State insurance schemes, for example, often cover uninsurable risks of infrequent but potentially enormous losses; these schemes redistribute wealth because they tend not to be self-financed, through fees, but rely on government financing.

Contingent implicit liabilities are not officially recognized until after a failure occurs. The triggering event, the value at risk, and the amount of the government outlay that could eventually be required are all uncertain. In most countries, the financial system represents the most serious contingent implicit liability. Experience has shown that, when the stability of a country's financial system is at risk, markets usuallyexpect the government to provide financial support that far exceeds its legal obligation.

Fiscal Agency Agreement

2006-08-23T15:32:00.000+08:00

From experience: In order for us to understand this agreement, we must know what is a Fiscal Agent. A fiscal agent keeps a register of the names and addresses of holders of Notes. The transfer of the Notes shall only be effected only by means of an entry in the register. In our recent international transaction, the bank that was appointed as fiscal agent was also the paying and transfer agent.

From Barrons:

1. usually a bank or a trust company acting for a corporation under a corporate trust agreement. The fiscal agent handles such matters as disbursing funds for dividend payments, redeeming bonds and coupons, handling taxes related to the issue of bonds, and paying rents.

2. agent of the national government or its agencies or of a state or municipal government that performs functions relating to the issue and payment of bonds. For example, the Federal Reserve is the U.S. Government's fiscal agent.

From Investopedia: An organization, such as a bank or trust company, that takes responsibility for the fiscal duties of an unrelated party.

These fiscal responsibilities generally include the disbursement of interest and maturity payments on bonds, dividend payouts, and certain tax issues related to corporate securities.

So, if it is a local bond issue, the Bureau of Treasury automatically becomes the fiscal agent, whose responsibility is governed by a Memorandum of Agreement.

A Fiscal Agency Agreement has several parts and annexes. I'll discuss the annexes in another post so we'll just focus on the main document, which has the following:

1. Interpretation - words and expressions defined in the Conditions and not otherwise defined in the Agreement shall have the same meanings when use in the Agreement.

2. Definitions - I don't think there is anything interesting here just like the provisions in the interpretation. I am still wondering though if the definition of Regulations has anything to do with Reg S and Rule 144A. Anyways, it goes this way:

Regulations means the provisions set forth herein concerning the transfer and registration of the Notes, as the same may be amended, supplemented or replaced from time to time by the Republic with the prior written approval of the Fiscal Agent and the Registrar, but without the consent of the Noteholders;

The Notes will not be registered under the United States Securities Act of 1933, as amended (the Securities Act). Accordingly, the Notes will be offered only:
(i)to persons reasonably believed to be qualified institutional buyers (QIBs) in compliance with an exemption from registration provided by Rule 144A under the Securities Act (Rule 144A); and
(ii)in offshore transactions in reliance on Regulation S under the Securities Act (Regulation S).

Now I understand that Rule 144a is for the QIBs in some location, say New York, and Reg S is for those going offshore.

3. Appointment of Agents - nothing much here. Just a declaration that an entity will be the fiscal agent.

4. Form of the Notes - fully registered, without coupons in minimum denomination of US$2000.

5. Payment - Basically, it provides details as to appropraite responses when payments due were/weren't received. Borrower shall inform Fiscal Agent the amount it would pay a day before the actual payment date. It is interesting to note that it's not the Fiscal Agent who delivers payment to Noteholders but the Paying Agent. Moreover, the Paying Agent may advance payment to Noteholders but with approprioate charges based on the ff:

The borrower, shall on demand reimburse the Fiscal Agent for the relevant unpaid amount, and pay interest to the Fiscal Agent on such relevant unpaid amount from the date on which it is paid out to the date of reimbursement at a rate per annum equal to the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) as established by the Agent Bank of the rate at which three-month deposits in U.S. dollars are offered by Reference Banks to prime banks in the London interbank market at approximately 11:00 a.m. (London time) on the first day of such interest period for loans in U.S. dollars to leading European banks for a period of three months commencing on the first day of such subsequent interest period, plus __ per cent. per annum. If the rate cannot be determined in accordance with the above provisions, the rate shall be determined as at the last preceding date on which interest is determined.

I still have too check the exceution copy as to the percentage added to the basis, which is the rate offered to prime banks for 3-month deposits.

6. Repayment - This is about reimbursement by the Fiscal Agent of the borrower's debt service that has been determined as void. The Fiscal Agent is not enjoined to pay is not enjoined any sums that debt service should have earned if it were deposited in the bank. In addition, this provides that the Paying Agent notifies NPC any interest and/or principal payment unclaimed for two (2) years.

7. Book Entry Provisions - Notes sold on reliance on Rule 144A will be evidenced by Form of Restricted Global Certificate (Sechedule 1, Part IV) while those sold on reliance of Reg S will be in the form of Unrestricted Global Certificate (Schedule 1. Part III). Definitive Notes (if you look at the form, it impresses that the Noteholder is determined so may be held until maturity will not be traded but would still have to check.

Certificates with respect to Notes sold in reliance on Rule 144A, will bear the Securities Act Legend, shall be known as the Restricted Notes.
Other Notes not bearing the Securities Act Legend and such Notes will be known as Unrestricted Notes.

The global note issued in respect of the Restricted Notes will be deposited with a custodian for, and registered in the name of, a nominee of DTC. The global note issued in respect of Unrestricted Notes will be deposited with a custodian for, and registered in the name of a nominee of, DTC (for its direct and indirect participants, including Euroclear and Clearstream).

8. Determination and Notification of Rate of Interest and Interest Amounts - The Fiscal Agent is the calculation agent based on certificate given by a Reference Bank. The Reference Bank, however, is not defined in the Fiscal Agency Agreement but in Schedule 2, which is the Terms and Conditions of the Notes. It is our responsibility to insure that the Reference Bank is not the only source of the calculation but also rates found in Bloomberg or Reuters.

----

I stopped here to finish the Terms and Conditions because there are references in the main docs but we are going to proceed. The description, however, would zero-in on the commercial terms.

9. Redemption, Cancellation, Destruction and Records - This is a standard provision. Just check if it is similar to the past agreements.

10. Replacement Notes - standard provision. Be wary, however, on the instructions regarding replacement. The Noteholder should have sufficient evidence to prove his/her ownership.

11. Notices to Noteholders - standard provision

12. Documents and Forms - standard provision (you should know by now that by defining this as standard means just check it with the most recent past loan agreement)

13. Fees and Expenses - the important thing to remember when negotiation is to establish that all fees to be paid and expenses to be reimbursed by the issuer/borrower should be reasonable and documented. We had a terrible experience in the bond exchange that compels us to blacklist one bank. The said bank should have informed us that they held a meeting to discuss the assumption of the new corporation before they billed us. They should have also informed us that they sought legal counsel. Until now, they have not proven that we were informed about the aforesaid services. I won't budge. I'll really hardline on this.

14. Indemnity - Indemnify the Fiscal Agent of any damages arising from legal proceedings brought against the Issuer EXCEPT those as a result of breach by an Agent of the terms of the Agreemnt or arising from an Agent's wilful default. Stand on guard on this provision because most Fiscal Agents and Underwriters expand this even to damages caused by them.

15. General

16. Duties of the Fiscal, Registrar and Transfer Agents - This part will enlighten you on the difference in the functions of Fiscal Agent, Registrar and Transfer Agent.

The Fiscal Agent manually authenticate and delievr each Note. The Registrar, on the other hand, just keeps a register of names and addresses of the Noteholders in their office in New York ( In New York because because the Agreement is governed by the state's law). Meanwhile, a transfer agent would make available teh forms of transfer, forms of proxy and any certificate as to ownership in respect of the Notes. Clear? Now we know.

17. Changes in Agents - standard provisions just notices. Issuer may terminate the services of the Fiscal Agent. Fiscal Agent may resign. In any event. both would provide 60-90 days notice.

18. Communications - Same provisions discussed in the Pruchase Agreement

19. Substitution of Issuer

20. Waiver of Immunity, Submission to Jurisdiction and Appointment for Service

21. Meetings and Amendments

22. Further Issuances

23. Severability - In case provisions of the Agreement are invalid, the parties shall endeavor to replace the invalid provision.

24. Governing Law and Counterparts

-----------

Schedule 1:

Part I Form of Unrestricted Individual Certificate
Part II Form of Restricted Individual Certificate
Part III Form of Unrestricted Global Certificate
Part IV Form of Restricted Global Certificate

Schedule 2: Terms and Conditions of the Notes
Schedule 3: Form of Guarantee

Euroclear System and Clearstream Banking

2006-08-23T15:06:00.000+08:00

Clearstream Banking S.A. (CB) is the clearing division of Deutsche Börse, based in Luxembourg. It was created in January 2000 through the merger of Cedel International and Deutsche Börse Clearing, part of the Deutsche Börse Group, which owns the Frankfurt Stock Exchange. Cedel, established in 1971, specialized in clearing and settlement. In 1996 it obtained a bank licence.

In July 2002 Deutsche Börse purchased the remaining 50% of Clearstream International for €1.6 billion. Deutsche Börse's strategy is to be a vertical securities silo, providing facilities for the front and back ends of securities trading. By 2004 Clearstream contributed €114 million to Deutsche Börse's total Earnings Before Interest and Taxes (EBIT) of €452.6 million. It handled 50.0 million transactions and was custodian of securities worth € 7,593 trillion.

Following the publication of Révélation$ (2001) by investigative reporter Denis Robert and Ernest Backes, Clearstream was accused of being an international platform for money laundering and tax evasion via an illegal system of secret accounts. This became known as the "Clearstream Affair". However, in Spring 2004, a "Second Clearstream Affair" began, which exploded in 2006. This Second Affair, peripheral to the primary Clearstream Affair, accused several French political figures, industrial leaders and members of the secret services of maintaining secret accounts at Clearstream, which allegedly were used to transfer the kickbacks in the French-Taiwan frigates scandal.

Clearing

Clearstream often has been described as a bank for banks, as it practices what is called financial clearing. Basically, its duty is to record each transaction between the accounts of different banks, and using that data to calculate the relative financial positions of banks with regard to each other.

So a bank can just order a transaction between its own account and the other bank's account, in lieu of less secure methods such as carrying a case full of currency or securities around on the street; the bank merely transmits an order to Clearstream to credit/debit one of its own accounts and the other bank's account(s). This general system is in use between regular companies, and governments, and banks around the world.

The purpose of Clearstream is to facilitate money movements around the world, particularly by handling the resolution of sales of European stocks and bonds, in which market Clearstream was a major player, with an estimated 40% market share until May 2004 - together with its competitor Euroclear, the two firms settle 70% of European transactions [3]. Furthermore, in 2005, Clearstream was the 17th biggest employer in Luxembourg [4].

Clearstream does not hold a monopoly in this market: Euroclear, owned by Euronext, and SWIFT are competitors. However, SWIFT mainly assures routing, while only Euroclear and Clearstream supply cross-borders securities clearing and settlement services; Clearstream's quasi-monopoly is demonstrated by this European Union statement declaring that "Clearstream Banking AG is an unavoidable trader partner" [5].

Euroclear was created by JP Morgan in 1968 in Brussels (Belgium). By the end of 2000, JP Morgan had extricated itself from Euroclear, but JP Morgan still is one of the 120 international banks which own shares in Euroclear. In 2000, Euroclear processed 145 million transactions, dealing with a total of 100,000 billion euros [6].

Eurodollars

Cedel (now Clearstream) and Euroclear were started to manage transfers of "eurodollars", U.S. currency kept in banks outside the United States. By the 1990s, the Federal Reserve estimated that about 2/3 of U.S. currency was held abroad as eurodollars.

Cedel and Euroclear later expanded into handling transfers of stock titles and other financial instruments. In 1975, several big Italian and German banks wanted to centralize their accounting, so other members of Cedel directly sent them transfers to the main branch.

"The Cedel council of administration -- its board of directors -- authorized banks with multiple subsidiaries not to put all their accounts on the published list. Backes and Gérard Soisson, then Cedel's general manager, set up a system of non-published accounts (...) Requests for non-published accounts came from some banks that were not eligible, but Soisson turned them down", writes Komisar [7].

Purchase Agreement

2006-08-22T15:56:00.000+08:00

From experience: this is the international debt market equivalent of the issue management agreement. It is an agreement between the underwriter and the borrower.

A Purchase Agreement has several parts, which are the following:

1. Sale of Notes; Guarantee - it conveys that the Issue Manager agrees to purchase the Notes, which are irrevocably and unconditionally guarantted by the government, at a determined price.

2. Representations and Warranties - these are provisions made by the issue manager, he borrower and the guarantor. The reps of borrower are usually on the offering circular, legal basis of existence of the corporation, financial condition, authority to borrow, tax payments, legal form of the agreements, governing laws, non-existence of material default, ranking against other indebtedness with similar structure (pari passu), non-occurence of material adverse change and clear market. There are a number provisions but I mainly listed those that are mostly commercial. Our responsibility is to check if we have signed a waiver as regards to provision of other loan agreements that we have not satisfied or else, it may be a ground for default given our reps.

The other parts are the Indemnity and Contribution; and Currency and Withholding. Our legal group argues against the existence of this provision. Our responsibility, on the other hand, is to cap the provisions just in case the other party won't budge to remove this provision.

3. Covenants - This is on the undertaking of the borrower and the guarantor. Basically, it is on tax payment, notification in the event of material adverse change, no amendment to the Offerincg Circular that has a 9-month validity period (I still have to check if this is a standard market practice), qualify the Notes for offer and sale under the "Blue Sky" laws, Reg 144A, Reg S, not permitting Affiliates to resell any of the Notes during the two years after Closing Date and not addendum or enhancements to the subject-security.

As regards "Blue Sky", I remember a former colleague, Claire Armedilla, asking Jim Grandolfo of Allen and Overy on its definition. Basically, it is opening up the security to all provisions of the Regulation. It came from "giving the entire blue sky", which is the another version of "sky is the limit". I am not sure about this but I'll note it.

4. Closing - This part is about the purchase price and the underwriting fee. Last year, we received criticism on the fee we paid for the notes we issued last year. Actually, it was partly my fault because I didn't negotiate for reduction in fees given that we gave up the derivative instrument they attached to their proposal. I can't remember why I missed it. Maybe because we had to update the full powers and fast-track everything given that investors are usually on vacation on August. Nonetheless, we have adopted some policy changes that relatively expedite our financing process.

It is in this part where the custodians of the notes are determined and where should it be settled, such as the Euroclear System and Clearstream Banking. I'll discuss this in another post, once I am done with this.

5. Conditions Precedent - This provision is on deliverables such as legal opinion prior to and on the Closing Date, such as legal opinions, comfort letter from the auditor, no downgrade in investment rating and certifications.

6. Termination - Surprisingly, the Manager has the absolute discretion in termination the agreement in the event that its is impractible and inadvisable to proceed with the offering and delievry of the Notes. In one negotiation that we had a year ago, I remember that a move of 50 bps in the benchamrk rates would mean postponement but not termination.

7. Survival of Representations and Obligations - Self explanatory but the reps and warranties of the borrower and guarantor only survive up to the Closing Date.

8. Notices - Just the addresses.

9. Appointment of Agents for Service; Waiver of Immunity - Self-explanatory. Just in case we get sued, we authorize someone to receive the summons aborad on our behalf. Hehehehe.

10. Expenses - Self-explanatory. The Manager shall pay or cause to be paid the fees of the Manager’s legal counsel, the Manager's out-of-pocket expenses and those of the Manager’s legal counsel, the cost of financial printers, listing fees and Fiscal Agent expenses. Except as provided in this Clause 10, NPC, PSALM and the Republic shall pay all their own costs and expenses related to their obligations under this Agreement and the offering of the Notes.

11. Counterparts -This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.

12. Applicable Law

From investordictionary.com: A signed document stating the purchaser's agreement to buy and the seller's agreement to sell a specified property under stated terms and conditions.

My foremost responsibility is to review the commercial terms, while the Legal group assesses the legal terms. I try, as much as possible, to insure that the terms and conditions are improvements compared to our past transactions. In other words, we try to protect our corporation's ass as much as possible.

Range Accrual Swaps

2005-04-12T16:20:00.000+08:00

RANGE ACCRUAL SWAPS are swaps where in the payoff is dependent on a benchmark rate(say LIBOR) falling within a particular range. For e.g. if the Libor falls within 2% and 3% the holder of the note will get say a (fixed rate* range/total no of days) where range= no of time libor is within the particular range. Valuation of these notes have to be done by simulating the probability of the rates lying within that range. Generally a monte carlo can be used.

Greenshoe Option

2005-02-21T11:15:00.000+08:00
An option that allows the underwriting of an IPO to sell additional shares to the public if the demand is high.

Accreted Amount

2004-07-14T17:55:00.000+08:00
“Accreted Amount” means, with respect to an Accreting Obligation, an amount equal to

(a) the sum of (i) the original issue price of such obligation and (ii) the portion of the amount payable at maturity that has accreted in accordance with the terms of the obligation (or as otherwise described below),

less

(b) any cash payments made by the obligor thereunder that, under the terms of such obligation, reduce the amount payable at maturity (unless such cash payments have been accounted for in clause (a)(ii) above), in each case calculated as of the earlier of (A) the date on which any event occurs that has the effect of fixing the amount of a claim in respect of principal and (B) the Physical Settlement Date or applicable Valuation Date, as the case may be.

Such Accreted Amount shall include any accrued and unpaid periodic cash interest payments (as determined by the Calculation Agent after consultation with the parties) only if “Include Accrued Interest” is specified as being applicable.

If an Accreting Obligation is expressed to accrete pursuant to a straight-line method or if such obligation’s yield to maturity is not specified in, nor implied from, the terms of such obligation, then, for purposes of (a)(ii) above, the Accreted Amount shall be calculated using a rate equal to the yield to maturity of such obligation. Such yield shall be determined on a semiannual bond equivalent basis using the original issue price of such obligation and the amount payable at the scheduled maturity of such obligation, and shall be determined as of the earlier of (A) the date on which any event occurs that has the effect of fixing the amount of a claim in respect of principal and (B) the Physical Settlement Date or applicable Valuation Date, as the case may be. The Accreted Amount shall exclude, in the case of an Exchangeable Obligation, any amount that may be payable under the terms of such obligation in respect of the value of the Equity Securities for which such obligation is exchangeable.

“Accreting Obligation” means any obligation (including, without limitation, a Convertible Obligation or an Exchangeable Obligation), the terms of which expressly provide for an amount payable upon acceleration equal to the original issue price (whether or not equal to the face amount thereof) plus an additional amount or amounts (on account of original issue discount or other interest accruals not payable on a periodic basis) that will or may accrete, whether or not (a) payment of such additional amounts is subject to a contingency or determined by reference to a formula or index, or (b) periodic cash interest is also payable

Duration

2004-07-09T11:23:00.000+08:00
Duration is a measure of the average (cash-weighted) term-to-maturity of a bond. The are two types of duration, Macaulay duration and modified duration. Macaulay duration is useful in immunization, where a portfolio of bonds is constructed to fund a known liability. Modified duration is an extension of Macaulay duration and is a useful measure of the sensitivity of a bond's price (the present value of it's cash flows) to interest rate movements.

Budgetary policy is so last century!

2004-07-05T13:19:00.000+08:00
By Zach Alexopoulos

For all the fuss over the Federal budget, it may come as a surprise to learn that budgets are not that important as an economic policy lever any more. It is not Peter Costello who is in charge of managing the business cycle, or even John Howard. It is Ian Macfarlane, the governor of the Reserve Bank. Monetary policy, manipulation of interest rates, has overtaken fiscal policy, the budget, as the major policy instrument used to smooth economic fluctuations. The extensive airtime given to the budget on this site for the last couple of weeks is more than justified from a social or political viewpoint, but less so economically.

The reason is this. Not many people outside the economists' clique know it, but in an open economy with a floating exchange rate, monetary policy is always the major economic policy lever available to the government, not fiscal policy. To understand why, we have to delve into the theory of what's known as open economy macroeconomics. If you want to skip the technical bits, you can jump to the paragraph beginning 'what the model is getting at is this' without (much) losing the flow of the argument.

To make the point, we wheel out what's known as the Mundell-Fleming model, which after four decades is still one of the most useful and insightful models in all of economics, and for which its co-originator Robert Mundell won the Nobel prize for economics in 1999. (Marcus Fleming did not share in the Nobel glory because he died in 1976 and the prize can't be awarded posthumously.) The model analyses the effects of monetary and fiscal policy in an open economy under different exchange rate regimes, and it works especially well for Australia. In fact, it has been remarked on several occasions that Mundell-Fleming could well have been designed for Australia – the original version of the model examines a small, open economy which is largely a price taker for exports and imports, ie it has little control over the prices it receives for exports and pays for imports. That is a close fit to Australia. The derivation of the model is straightforward but tedious. I'll spare you the maths, but if you want to see the complete model in all its glory, just pick up any advanced macroeconomics textbook. Rudiger Dornbusch's Open Economy Macroeconomics contains the clearest exposition.

A central insight of Mundell-Fleming is that countries face an 'impossible trinity'. It is not possible to simultaneously maintain all three of an open economy, an exchange rate fixed to another currency, and control over monetary policy. You can only have two of the three. In an open economy with fixed exchange rates, you lose monetary policy autonomy, because you have to follow the monetary policy of the economy whose currency you're pegged to. Under those circumstances, fiscal policy becomes the only effective instrument available to the government for stimulating and contracting the economy. This was indeed the case for many countries last century when fixed exchange rates were the norm.

But matters are different under floating exchange rates, where the value of the currency is determined on the foreign exchange market. Most importantly, monetary policy becomes effective, as countries give up a different leg of the trinity, the ability to fix their exchange rate. In contrast, expansionary fiscal policy (an increased deficit or smaller surplus) leads initially to higher output, as under fixed exchange rates, but that extra output is dissipated in higher interest rates and a resulting stronger exchange rate. The reverse will hold for contractionary fiscal policy (a reduced deficit or larger surplus). This relationship will hold perfectly if capital is free to shift to where it will earn the highest return, and thus migrates to countries where it believes interest rates will be increased by a fiscal stimulus, causing the exchange rate to appreciate (go up) and thus cancel out the stimulus. Again, the reverse will hold for contractionary policy. Theoretically, under perfect capital mobility, fiscal policy will be completely ineffective. Of course, capital is not completely mobile, and so fiscal policy does have some effectiveness, but not as much as monetary policy.

What the model is getting at is this. The essential difference between the two types of policy is that monetary policy directly moves money into and out of the system, whereas fiscal policy faces frictions which reduce its effectiveness. The latter will only be the major lever if the exchange rate is fixed. Under a floating exchange rate, monetary policy will be the major policy instrument available to governments, firstly because it becomes available as a policy lever in the first place, and secondly because it acts more directly and with less friction than fiscal policy.

Of course, fiscal policy still has its uses. Monetary policy is the major lever, not the only one. Fiscal policy does have an important role in stimulating an economy in recession, through running budget deficits to increase domestic spending. It is also useful as a 'sharp instrument', rather than the 'blunt instrument' of monetary policy. This means that fiscal policy is useful in making a difference to individual geographical areas or sectors which are having problems, rather than economy-wide.

And naturally we cannot overlook the social justice issues embedded in the budget. Government programs make a tremendous difference to people's lives. Justifiably, much attention is devoted to dissecting who gets what. It matters how much education or health or defence get, and how much the tax take affects household income. The budget is a source of extremely important micro-level assistance to a huge number of people.

But regardless of how important the budget is in other ways, it is important to remember that there is still a limit to its effectiveness as an instrument for managing the business cycle. Note the recent spectacle of economists arguing over how much the budget will affect the economy. You wouldn't see that sort of disagreement after an interest rate change. Two interest rate rises appear to have almost single-handedly pricked the housing bubble, whereas the budget will not lead to anything nearly as drastic. It may pump up the economy a bit much for this stage of the cycle, leading to higher interest rates down the track (on par with the prediction of Mundell-Fleming), but it probably won't hugely affect the economy's behaviour.

It is fair enough to devote attention to the budget to see what different groups get, or to examine the political fallout (especially in an election year). But don't think of it as the most important economic policy lever. Monetary policy plays that role in Australia, as it must in an open economy with a floating exchange rate. Unless you're in a country with fixed exchange rates, budgetary policy being the major economic policy instrument is really last century