The deal is done

Taipei, July 24^th 2010: The much talked about Economic Framework Cooperation Agreement (ECFA) between Taiwan and China is now a fait accompli. The agreement was signed June 29 during the fifth round of cross-straits negotiations held in Chongqing, China between Taiwan's semi-official Straits Exchange Foundation (SEF) and its Chinese counterpart, the Association for Relations Across the Taiwan Straits (ARATS). A copyright protection agreement establishing a mechanism to reinforce anti-piracy laws was signed at the same time although an investment protection pact and a proposed cross-straits medical cooperation pact have been held over until the sixth round of talks scheduled for later in the year.

Only following signature were the contents of the ECFA revealed and Taiwan's KMT-dominated legislature will only be able to accept or reject the agreement in toto. The government has ruled out any opportunity to review individual clauses. The status of the accord has already come into question as in law it is an agreement signed between two private organizations. Critics have pointed out that this may cause some problems if the agreement is lodged with the World Trade Organization (WTO) (which Taiwan has said it would do) and could be used by China to further erode Taiwan's status by claiming it to be a domestic agreement rather than an FTA, but this has been brushed aside by supporters as a mere technicality. The agreement does provide for establishment of a cross-straits economic commission to be responsible for follow-up negotiations and overall supervision of the agreement and this may go some way towards mitigating concern over this aspect.

In many respects the ECFA follows the Closer Economic Partnership Agreement (CEPA) signed between China and Hong Kong back in 2003. However, one key clause — that pertaining to safeguards, contained in the CEPA, appears to be missing from this latest document. Article 9 of the CEPA states that either side can temporarily suspend tariff reductions in the event that "the implementation of the CEPA causes a sharp increase in the import of [certain] products originating from the other side which has caused or threatened to cause serious injury to the affected side's domestic industry." There is no such clause in the ECFA and therefore no feasible means for Taiwan to suspend imports from China that threaten domestic industries. Taiwan's only recourse would be to the termination clause whereby either side could give written notice of termination of the entire agreement. Only after such notice had been given would Taiwan and China hold negotiations within 30 days to resolve differences and if the parties failed to reach consensus, termination would occur after 180 days. The problem is that such termination would be seen as a political act with dramatic consequences; the reality is that Taiwan must rely on China's goodwill not to undertake dumping or other actions that would damage Taiwan's manufacturing base.

Supporters of the pact are placing much emphasis on the "early harvest" provisions which will be implemented in three phases over the next two years. When the ECFA takes effect, which is expected to be towards the end of this year once both sides have completed their internal procedures, the early harvest lists will allow the 539 items on Taiwan's list, amounting to around US$13.8 billion in exports per year, to receive zero tariff treatment within the next two years, while Chinese exporters will get a reciprocal deal on 267 items representing some US$2.9 billion in exports per year. The real value has yet to be determined. While heavy industrial items such as iron and steel from Taiwan will have easier access to China's market, these are industries which are now being downsized in China and so it suits Beijing to allow entry of these items. On the other hand, high tech items such as flat panels, machine tools and inputs to solar power generation have not been included. China has embarked on an industrial upgrading strategy which will see it in the future competing with Taiwan in these high-end items and their exclusion from the early-harvest list will force Taiwanese companies to shift some of their production to the mainland of China. In short, at first sight it appears that the immediate benefits are slanted in Taiwan's favour while the longer-term benefits accrue to China.

Nevertheless despite the reservations in some quarters, the general mood among economic analysts is upbeat. A number of institutions and think tanks have once again upgraded their economic outlook for Taiwan over the immediate term. The International Monetary Fund (IMF) is now forecasting GDP to grow by 7.7 percent this year (up from the April estimate of 6.5 percent). The local Chung-Hua Institute of Economic Research is now forecasting 6.94 percent (up from 4.99 percent). With early harvest provisions not expected to kick-in until 2011, the immediate reason for better than expected GDP growth is attributed to better than expected export orders (Export orders for June totalled US$34.22 billion and analysts predict orders could reach a record-breaking US$400 billion for the whole year) and improved domestic consumption.

Domestic investment is also recovering. CIER expects domestic investment to increase 15.79 percent for the full year, its highest level since 1992, with private investment expanding 22 percent, compared with a contraction of 19.38 percent last year. 

Unemployment, inched up slightly in June to 5.16 percent (seasonally adjusted 5.2 percent) on the strength of new graduates entering the workforce. For the first half of 2010, unemployment averaged 5.47 percent, down 0.26 percentage points compared with the same period last year. Most analysts are forecasting a steady drop in the unemployment rate as the employment generation effects from closer cross-strait ties and the government's various initiatives to attract foreign investment. take hold. The general consensus among the various agencies is that the jobless rate will fall below five percent by the end of the year.

Barring unforeseen events, the general expectation is that now that China has the deal it has been wanting with Taiwan, the pressure will be lifted for a period to win over Taiwanese hearts and minds and ensure the re-election of President Ma Ying-jeou and his KMT administration in 2012. While both sides have emphasized that the EFCA is an economic agreement, the political ramifications are evident for all to see. Taiwanese vote for the most part with their hip pockets and just as President Ma's popularity plummeted with the onset of the global financial and economic crisis, it could just as easily rebound as the economy recovers – and that appears to be precisely what is happening. Recent telephone polls conducted by the Cabinet Research Office have shown that Ma's overall approval rating now stands at 46.8 percent and that 68.3 percent of voters approve of his efforts to approve cross-straits ties. These numbers need to be seen against the backdrop of another independent survey which showed that 69.9 percent remained against unification with China notwithstanding the signing of the ECFA. This was the highest figure recorded since February 2006. Tellingly, even among government supporters, 60 percent were opposed to unification with China and only 30.6 percent supported unification.

Clearly Mr. Ma and his team remain where they have been for some time now – between a rock and a hard place.

The different faces of corruption

Manila, 23 July 2010: An opinion survey conducted in late June by Philippine pollster, Social Weather Stations, shortly before the inauguration of President Beningno Aquino (on 30 June) showed an approval rating of no less that 88 percent. Clearly the country has high expectations of his presidency. What surprised many was that the incoming vice-president, former Makati City mayor, Jejomar Binay scored almost as high at 77 per cent. Binay, it may be recalled was running on a separate ticket and was allied with former president, Josef Estrada.

Binay is a controversial figure in many quarters, while successfully running the premier business hub in the Philippines for many years, he and his family has in the past been accused of corruption, of rigging votes and stealing taxpayer funds (not to mention the alleged mistress). For a period, and in order to keep control of Makati within the family; his wife replaced him as the mayor after his initial two terms had expired. Other family members run a development company that has an uncanny habit of bagging many Makati construction projects. Yet none of this appeared to matter in the eyes of voters.

Respected Filipino columnist, Conrad de Quiros, writing in one of the country's leading newspapers recently gave an interesting interpretation of the high marks given both Aquino and Binay. He noted that the public view of corruption had less to do with stealing money which has been a common feature of politicians across several presidencies and is certainly not confined to the Philippines; rather it had to do with public revulsion at the manner in which former President Arroyo and her clique stole not only the vote, but debased society's democratic values and its institutions, destroyed lives (often through summary execution of journalists and those opposed to her) and, in his words "the theft of decency." He went on to note that, aside from the Arroyo presidency, that kind of corruption was evident only during the Marcos years:

They trust, and expect, the two leaders who have fought GMA to undo her rule, bring justice to this country, and stand the world back on its feet by punishing the guilty and rewarding the innocent. They trust and expect the two leaders who have fought GMA to run after those who helped her trash everything this country holds sacred, wrench this country from its moral moorings, plunge this country into a pit beyond the pale of the very word "corruption."

Those are strong words but represent as good a summation of the Arroyo legacy as any. People do not expect President Aquino to be a miracle worker; they do expect him and his government to restore a semblance of order in society. Binay is trusted and respected because as mayor of Makati he stood firm against Arroyo and because – despite the allegations made against him – Makati was a modern, efficient and well-run city.

Yet Gloria Arroyo and her ilk refuse to fade into history. Rather, with the Filipino Congress due to reconvene in late July, the former president appears to be engineering a new power base there. Now the representative of the electorate district of Pampanga she has already announced she will seek the speakership and a move to change the system of government from a presidential to a parliamentary system – which would effectively put her back in control. She has entered Congress by winning the seat formerly held by her son Mikey Arroyo. Yet Mikey remains in Congress as a representative of the party-list group Ang Galing Pinoy, which supposedly represents the marginalized group of security guards and tricycle drivers. It appears that COMELEC has issued contradictory decisions regarding who can represent such groups.

Introduced in 1995 through Republic Act, 7941, the party-list introduced a system of proportionate representation whereby voters are given two votes for their congressional representatives; the first vote is for a district representative. The second vote is for a national party-list representative in which the voter selects a party rather than an individual and on a nationwide basis. Twenty percent of all Congressional seats are reserved for party list candidates as a means of providing representation to marginalized and under-represented sections of society. However, unsurprisingly under the Arroyo watch, even this system became debased with wealthy friends of the former president nominating themselves to represent marginalized voters. And with others from this group making the decisions in COMELEC as to who is in and who is out, and with a tame High Court (all members of which were personally selected by Arroyo), even this system has been totally debased.

Prosecuting those who corrupted the entire system is not going to be easy in such an environment and while Filipinos expect the former administration to be held to account for its excesses, the danger is that the country may once again be plunged into political turmoil as a result. Philippine ombudsman, Merciditas Gutierrez, a friend of the former First Gentleman who was roundly criticized for shielding friends and relatives of the Arroyo family from investigation during the former administration has let it be known publicly that she has no intention of standing down. Arroyo it seems has covered all bases.

And so while the focus of the incoming administration needs to be on reforming the economy, creating investment and jobs that will finally bring down the appalling rate of poverty in the country, much of the focus will be on the fancy footwork needed to thwart Arroyo's plans of returning to "business as usual."

The economy is expected to do relatively well this year as the worst of the recent global financial and economic crisis recedes. The Manila-based Asian Development Bank has raised its growth forecast for the Philippines for 2010 to 5 percent from an earlier 3.8 percent. While raising the 2010 outlook it has kept the 2011 forecast steady at 4.6 percent. For the entire Developing Asia, ADB now forecasts a 7.9 percent rise this year (earlier 7.5 percent) and for Emerging East Asia, 8.1 percent (7.7 percent).

While at face value this appears to be a pleasing result, the macroeconomic number hides some serious problems that need to be addressed as a matter of urgency. First among these is the budget deficit which since its low of PhP12 billion in 2007 has been creeping up again. The deficit rose to PhP68 billion in 2008 and to PhP299 billion in 2009 due in part to the stimulus package introduced by the government at the time of the financial and economic crisis (and to counter the impact of two strong typhoons, Ondoy and Pepeng, that wreaked havoc in Luzon in September/October of that year). But the real worry is that for the first half of this present year, largely as a result of overspending ahead of the election, the deficit has climbed to PhP196.7 billion. This is 35.5 percent higher than the target of PhP145.2 billion for the period. As a result the target deficit for the year as a whole has been increased to PhP340 billion. This represents around four percent of GDP. It has also been revealed that ahead of the May elections, the Arroyo administration realigned a French government loan of 150 million euros or roughly PhP8.9 billion intended for climate change mitigation, to plug the budget deficit.

Incoming Finance Secretary, Cesar Purisima, has vowed to halve the budget deficit by 2013. This will be done by targeting tax evaders rather than increasing the burden on existing tax payers.

To this effort might be added that of enticing greater direct foreign investment into the country. In recent years, FDI into the Philippines has been among the lowest in Asia, especially when considered on a per capita basis. According to the Central Bank, net equity infusion in the first four months of 2010 amounted to a paltry $57 million which was 91 percent lower year-on-year than in 2009. Admittedly the 2009 base year was high because of a foreign acquisition.

Foreign investment is desperately needed to create new jobs. While unemployment dipped slightly in 2009 on the strength of government stimulus spending, as that runs its course unemployment is again creeping upward. The employment data shows that much of the job creation in recent years has been in intermittent or part-time employment rather than full-time wage earning opportunities. This has taken the edge off claims that the (previous) government had brought down unemployment. Even the business process outsourcing sector claims that the talent pool has been all but exhausted.

Underemployment of course remains at around the 20 percent mark and there has been a continued drift to the informal sector as jobs in manufacturing have dried up. Informal employment – much of it self-employment – now accounts for more than 70 percent of the workforce; after all the very poor cannot afford to be without some form of work. The middle class – that sector that can afford it – sends family members overseas. For the very poor, the option is street vending or household service – or a drift into illicit occupations such as the sex trade.

The picture is not a pleasant one. The saving feature is that the Philippines now has an administration that cares.

The marginalisation of Taiwan

Taiwan's economy continues its rebound with a number of research agencies upgrading their economic forecasts. Trade has returned as the driver of growth. While the trade figures look particularly good thanks to the low base effect, the fact that exports have reached record high levels underscores the positive sentiment. Despite the good macroeconomic picture, unemployment continues to be a major problem with job vacancies, particularly unskilled jobs, in short supply. Government debt also appears to be a looming problem. President Ma Ying-jeou, continues to insist that Taiwan has to tie itself in with China to secure its future; many others remain unconvinced of the wisdom of this approach.

June 24 2010: Taiwan's exports in May rose to US$25.54 billion or by US$9.4 billion from the same time last year—a year-on-year increase of 58 percent. While the percentage growth was influenced by the low base effect, this amount represents a record high. Imports reached $22.3 billion, the highest amount since September 2008 when the global financial crisis first hit. Year-on-year the increase was 71.4 percent. Demand came from Asia; exports to China, Hong Kong, the ASEAN-six and the Republic of Korea were all at historic levels.

Exports to ASEAN showed the largest increase rising more than 67 percent from a year earlier, followed closely by China (including Hong Kong) which rose by nearly 66 percent. For the first five months of the year, Taiwan's exports totalled US$109.2 billion, an increase of 52.7 percent year-on-year, while in the same period imports rose 71.4 percent to US$98.55 billion. The trade surplus reached US$10.7 billion, down by 23.1 percent from the previous year.

The pleasing trade numbers plus suggestions of recovering domestic demand have enabled a number of Taiwan's economic research agencies to again revise upwards their growth forecasts for 2010. Polaris Research institute is now forecasting 6.82 percent GDP growth for this year—up from 4.65 percent in March. Cathay Financial Holdings is punting on seven percent growth which could increase to eight percent should Taiwan conclude an economic framework cooperation agreement with China. Provided global recovery continues and exports remain robust, Citibank Taiwan concurs that eight percent growth is achievable.

There are downside risks of course. Globally, the primary risk is that recovery will not be sustained and that export growth will falter should the present crisis in Europe worsen and flow on to other markets. The state of the US economy also gives cause for concern. While Taiwan's economy is recovering slowly, much uncertainty remains and latest data suggests that companies are remaining cautious about hiring new workers – preferring instead to extend the working hours of their existing workforce.

Unemployment fell by 0.25 percentage points in May to 5.14 percent of the workforce and the lowest level in 17 months. The ranks of the unemployed now numbers 567,000. Despite the improvement, Taiwan's unemployment rate is still the highest among comparable Asian economies, outstripping Japan at 5.1 percent, Hong Kong at 4.6 percent, the Republic of Korea at 3.2 percent and Singapore at 2.2 percent. The government's stated objective of lowering the unemployment rate this year to below three percent seems a forlorn hope. Most expect unemployment to remain above the five percent mark until next year.

The government is still banking on an economic cooperation framework agreement (ECFA) with China to boost growth and employment but many remain sceptical. A third round of talks on the ECFA was held in Beijing on 13 and 14 June and while progress appears to have been made, no consensus was reached on the so-called "early harvest list" or those items that would be marked for immediate tariff reduction or elimination. According to reports there are around 500 items from Taiwan including petrochemicals, machinery, auto parts and textile products. Tariff reductions will likely be around 60 percent for petrochemicals and 80 percent for textiles. China has around 250 products on its own list. However, neither list has yet been finalized.

President Ma claims that without a trade and investment agreement, Taiwan will be marginalized. He has sought to sell the ECFA on the basis that with China set to become the world's second largest economy, Taiwan can be transformed into a global innovation centre and regional trade hub as well as a global operation headquarter for Taiwanese businesspeople and a regional operation centre for foreign investors.

This concept was fashionable during the last KMT administration during the 1990s but time has moved on. It may be an overly optimistic ambition nowadays since Shanghai has already become the regional trade hub as well as the regional operational centre for many foreign investors—as the hollowing out of Taiwan's international business community over the past decade clearly attests.

Fearful that Ma may be a single-term president, China is placed in a dilemma. On the one hand it wishes to lock down its pre-eminence over Taiwan as early as possible so as to reduce any future government's freedom to manoeuvre while at the same time it wishes to avoid forcing Ma into accepting unpopular terms that move ahead of public opinion in Taiwan. The sticking point at the present time appears to be the issue of whether Taiwan, under an ECFA, will be allowed to enter into bilateral trade agreements with other countries which, in the absence of a successful Doha round of WTO negotiations, have now become fashionable.

Here much ambiguity abounds. Ma Ying-jeou appears to have changed positions several times claiming on different occasions that an ECFA must be a precondition to Taiwan being able to negotiate bilateral trade agreements with other countries; then the conditional tense was introduced with the statement that "an ECFA should lead to…" and then further doubt was introduced when he said that it "might lead to…".

China has been less equivocal. According to a Chinese spokesperson the idea that an ECFA would lead to other FTAs for Taiwan was not even on the table. A Chinese Foreign ministry spokesperson went further during a routine press briefing in saying that China "strongly opposes any official ties in any format that Taiwan might develop [with other countries] although it was not against any unofficial trade ties between Taiwan and China's diplomatic allies.

One newspaper editorial (admittedly pro-Taiwanese) has claimed that Taiwan's "worst nightmare" will be realized if China blocks Taiwan from concluding FTAs with other countries. The press has also pointed out that for many years, Taiwan's economy prospered without China. During the martial law years when Taiwan was run by former presidents Chiang Kai-shek and his son Chiang Ching-kuo Taiwan often posted double-digit economic growth. The mantra at that time was that Taiwan had to open up a wide range of markets in order to minimize the risk to its economy. Of course, that was in a different age and before China embarked on economic reform but the fact remains that it is only in recent years that Taiwan's investments into mainland China have skyrocketed and that investment, some of it quite high risk, correlates strongly with a drop in domestic investment. This goes some way to accounting for the historic high levels of unemployment now being experienced in Taiwan.

Given this constant increase in investment—more than $1 billion since Ma came to power in 2008, China accounts for an increasing share of Taiwan's GDP that may be difficult to reverse. According to this line of reasoning, this shows that Taiwan itself is embarked on a high risk gamble in getting too close to China instead of using the opportunities of globalization to adopt policies that would involve diversifying investments and risks around the globe. When it comes to the marginalisation of Taiwan, perhaps that has already happened; the only question is which is the best road back?

The long road back

22 June 2010: The Philippines stands on the cusp of a new administration, and one which (once again) has promised to bring transparency, accountability, reform and the rule of law to a country that (to paraphrase one Filipino commentator) has been hobbled by problems of political instability, bad governance and mass poverty throughout the nine-year term of President Macapagal-Arroyo. At this time it is worth remembering just how far the country has fallen behind the rest of the world.

In 1950, shortly after the end of the Second World War and at the infancy of the Philippines as an independent republic, it was regarded as the second most advanced country in Asia when measured in terms of per capita GDP. Back then, and with a per capita GDP of US$1293 the Philippines ranked 34^th in the world. In Asia, only Japan outranked the Philippines. Japan at that time stood in 29^th place with a GDP p.c. of $1873.

Fast forward to 2006 (latest comparable data available) and the Philippines had dropped to 111^th place (among 171 surveyed countries). Per capita GDP had barely grown to $1382. Looking at these same numbers another way, in 1950, the US was 740% ahead of the Philippines; by 2006 it was 3194% ahead. For South Korea the comparable numbers are 68% and 1327%; for Thailand, 66% and 118%; and even Indonesia is ahead (68% and 118%).

What went wrong? The glib excuse for the present state of affairs made by many Filipinos is that their country is paying the price of living for 400 years in a monastery and then 50 years in Hollywood. There is an element of truth to this. The Spanish ruled the Philippines (much of it anyway) through the Catholic Church and through bestowing patronage on prominent families. It was a European-style semi-feudal system of government imposed on an Asian people. The Americans did not change things much—perhaps there was not enough time and during the first half of the 20^th century American priorities lay elsewhere. Americans introduced a modern education system and an American style democratic system but made little change to the administrative structure of the country.

When independence finally came, in 1946, the result was probably inevitable. Despite ostensibly being a secular state, the Church has retained its pre-eminent position of influence and remains a part of the "establishment." Powerful families remain entrenched within the national and local political systems and despite pockets of modernism, continue to run many of the provinces along feudal lines. Many such families continue to regard themselves not only as being above the law—but as being the law. How else do you account for the alarming level of summary executions throughout the country? To cite one statistic, one hundred and thirty-nine media workers have been killed since 1986. Of this number, 106 have been murdered (summarily executed) under the watch of President Gloria Macapagal-Arroyo. Two broadcasters have been murdered in the past week.

As this was being written, a fresh report from Human Rights Watch claims that an unidentified gunman shot and killed Suwaib Upham, a witness to the November Maguindanao massacre in which 57 people lost their lives. The witness was a member of the militia that had carried out the killings, allegedly under orders of the politically powerful Ampatuan clan, allies of President Arroyo. He had agreed to testify against the Ampatuans provided he was afforded witness protection. Three months before he was killed, Human Rights Watch had raised protection issues with Justice Department officials in Manila, yet the NGO claims that the department was still considering his request for protection at the time of his killing.

Under the Arroyo watch and more than ever before, the law is meant to serve the elite. Examples abound of courts being manipulated and made to serve the ends of prominent individuals. Foreigners are especially vulnerable. False testimony is often used to grab the assets of foreigners and force them out of the country under threat of incarceration or death.

A culture of impunity pervades the country. President Gloria Macapagal-Arroyo, did not create the present alarming situation; but she did very little during her nine years in office to reverse it. Indeed the slide has continued under her watch. I am indebted to one Filipino columnist for recently introducing me to a new word "kakistocracy" which he used to describe his country—a government run by the least qualified or most unprincipled.

In what may well be her final address to the nation, President Arroyo used Philippine Independence Day (June 12) to extol the achievements of her term in office. Although invited, President-elect Beningno Aquino snubbed the event. To have done otherwise would have been tantamount to a reconciliation. A "seamless transition" in present circumstances could be misinterpreted.

The incumbent President has made much of the "36 quarters of uninterrupted growth" achieved during her presidency. What is conveniently overlooked is the fact that the past decade—at least until the bubble burst in mid 2008—had seen the fastest expansion of the global economy in fifty years. A rising tide raises all boats and it would have been virtually impossible for the Philippines not to have done well. She has also been fulsome in her praise for the Armed Forces of the Philippines, crediting them with bringing peace to Mindanao even though a peace agreement appears to be as far away as ever. Lacking a popular mandate she has been beholden throughout her presidency to the armed forces, the Church and to the local political establishment and it is those groups that have prospered under her watch.

Independent commentators believe that perhaps her most significant achievement was reform of the value added tax system brought about in 2006. This has allowed the debt to GDP ratio to fall from a high of 82.3 percent in 1998 (following the Asian crisis) to a low of 38.9 percent in 2008 although things may once again be faltering with reports of a budget blowout this year. But with the GFC, natural disasters and election spending, perhaps that was inevitable. Aside from her record on VAT reform the list of achievements is dismal indeed. It is one thing to benchmark recent performance against that of her predecessors. It is quite another to benchmark against neighbouring countries. The competitive position of the Philippines in Asia has continued to slide.

According to a recent survey by the World Economic Forum, the Philippines continues to become less attractive as a business destination. The latest WEF Enabling Trade Index (ETI) has the Philippines in 92^nd position this year—down from 82^nd spot in 2009. Among the ASEAN group, even Viet Nam and Laos outranked the Philippines which bested only Cambodia at 102.

Domestically, most of the numbers paint the same dismal picture. From 2000 to 2006, the proportion of low-income families rose from 77 percent to 81 percent. Numerous surveys show that the number of people rating themselves as poor has been increasing as has the number of those who complain of hunger. According to data published by the World Bank, both infant mortality and malnutrition are higher in the Philippines than the average for East Asia and the Pacific.

Nor have the rich been spared. According to the National Statistical Coordination Board, in 2000 there were 51, 160 families classified as rich (0.3 percent of the total) with monthly incomes above PhP200,000 (or around US$4,300 a month). By 2006, this number had declined to 19,738 or around 0.1 percent of total families.

Unemployment and underemployment remain a problem at all levels of society; around 1.3 million people join the workforce every year. Official unemployment is high by East Asian standards and few people believe that the official figures tell the entire story. While unemployment hovers around 7.5 percent; more telling is the fact that underemployment is at about 20 percent. The labour market is characterised by low quality jobs with around 70 percent working in the informal sector. The situation has been aggravated by the GFC which has hastened the hollowing out of the manufacturing sector.

Over recent years, the Philippines has become primarily a service driven economy with domestic consumption accounting for around 70 percent of GDP. However, aside from jobs in business processing outsourcing and in telecommunications—both areas of rapid growth—much other service employment is at the low end, dominated by domestic household workers or self-employed street vendors.

The situation would be far worse were it not for the fact that around 10 percent of Filipinos have found work abroad. It is the overseas Filipino worker (OFW) that has kept the economy afloat. Filipinos have been going overseas to work since the 1970s but the efflux has grown in recent years influenced both by the buoyancy of the global economy (especially in the Middle East) and the dearth of opportunities at home. Indeed even throughout the recent GFC, remittance earnings continued to increase (albeit at a slower pace than previously) and this alone is what saved the economy from recession.

A recent estimate by the Commission on Filipinos Overseas (CFO) suggests that around 8.7 million are now working overseas. Most are employed in skilled or semi-skilled occupations. About 47.36 per cent or 4.13 million of these are temporary workers while permanent residents account for 42.31 per cent or 3.69 million. Irregular workers meanwhile comprise an estimated 10.32 per cent of the total or 0.9 million. These are workers without valid visas or those who entered host countries illegally, many on tourist visas. This problem is particularly worrisome in the Middle East and gives rise to human trafficking, especially of young women.

More than 1,000 now leave the Philippines every day of the year for overseas jobs. Whether or not this can be regarded as an accomplishment of the outgoing administration in finding these positions depends on your point of view. While, undoubtedly it is a safety valve for frustrated work-seekers, given the dearth of opportunity within the Philippines; it has led to a hollowing out of key professions such as teaching, nursing and engineering which adds to the long-term vulnerability of the country. Then there is the human factor to consider as families face long-term separation with many children now in single-parent families or bought up by relatives other than parents.

Lack of investment is the root cause of much of the problem. Gross Capital formation has declined from a high of 20.3% of GDP in 1998 to a low of 15.2 percent in 2008 (World Bank Data). Gross domestic savings as a percentage of GDP has been stagnant for much of the past decade going from 20.1% in 1988 to 13.7% in 1998 and down to 13.4% in 2008. Over the past decade exports of goods and services as a percentage of GDP has fallen from 52.2% in 1998 to 36.9% in 2008.

So much for the "glorious decade."

The mood in the Philippines right now is one of relief, tinged with a measure of optimism. People are relieved that the presidency of Gloria Macapagal-Arroyo will soon be over; and optimistic that the inauguration of a new president on 30 June will reinvigorate the country and bring respect back to governance. President-elect, Aquino, will have no easy task in turning the country around despite the overwhelming mandate he received from the electorate. Chosen precisely because he represents a break from the past, the "past" will inform his present for some time to come. Confirmed on 9 June as the winner of the presidential race he will have Makati Mayor Jejomar Binay for his vice-president. Binay wants to be an active "vice" and is rumoured to be wanting to be put in charge of local government. He would be well suited to the position.

Like Arroyo, Aquino is known as a hard worker. There the similarity may end. Unlike Arroyo, Aquino is known to be an advocate of clean and accountable governance and he has already promised to make his predecessor accountable for the systemic corruption that was endemic to her administration and its transactional style.

But we cannot expect miracles overnight. It will be a long and hard road to turn the Philippines around. Institutions of democratic government, never strong, from the Supreme Court down have been damaged over the past nine years.

The Philippines needs to attract new investment, domestic and foreign to soak up its educated workforce. To do so the incoming president will need first to address some domestic issues.

His promise to rein in corruption is a welcome signal and if he can ensure he surrounds himself with people of similar mindset he is off to a promising start. Corruption can be beaten but it has become so systemic that it will take time—and there appears to be plenty of people who believe that it will continue to be "business as usual."

The second domestic issue to tackle is that of population growth and to ensure that national policy is not dictated by any religious group, no matter how powerful that group may be. In 2000, there were 76.5 million Filipinos according to the national census. By the time of the 2007 census this had grown to 88.6 million and by 2010, the number is estimated at 94.01 million. There are now 17.5 million more Filipinos than there were at the turn of the millennium—or 23 % growth over the space of a decade. No wonder attempts at job creation are never sufficient.

What then would be a realistic goal for the Aquino presidency? Stemming corruption and simplifying business processes (an intrinsic part of the corruption equation) would lead to new foreign direct investment as well as plugging the leakage of revenues from government coffers. New FDI would create new jobs and greater resources available to government would allow greater social investment into education and health care. In time, greater and meaningful employment would allow domestic savings to bounce back. Labour productivity would improve. Once this happens a virtuous cycle would be created.

It is a herculean task but not an impossible one. Consider what has been achieved elsewhere in Asia over the past fifty years. There are plenty of examples from Korea to Thailand on which to draw (and leaving aside the city states of Hong Kong and Singapore which are special cases). There are plenty of hurdles ahead including the possibility of a hostile legislature. But against this must be balanced the overwhelming mandate he received—more than 40 percent of the popular vote in a field of nine candidates. He did not have to cheat in order to win an election; the country is on his side. Let us hope he can make a difference.

Philippines | April 2010

The final countdown

Thailand is in crisis and is once again hogging the world headlines when it comes to news of Southeast Asia. Filipino politicians must be heaving a collective sigh of relief because it has taken the focus of international media away from the shenanigans in the Philippines for a while. Besides which, just how many times can you report on a regime in terminal decay and still find something interesting to say?

Or is it? Filipino President Gloria Macapagal-Arroyo, the president nobody really wanted is into the twilight of her presidency but you do not need to read the teacups to realize that she is planning to be around for a long-time yet. Indeed in all the pre-election manoeuvring that is taking place, much of it seems to centre around a president who far from making a graceful exit appears rather to be simply regrouping.

May 10 is the day that the Philippines goes to the polls to elect a new president, a new vice president and a plethora of other officials. More than fifty million voters—16.5 percent more than in 2004—spread across 76,300 precincts will choose from over 85,000 candidates who are seeking 17,943 national and local posts. By any yardstick that is an enormous undertaking to manage and this time around the entire exercise will be automated for the first time. Knowing the poor track record of the poll oversight body, COMELEC, many observers doubt that the computerized vote tallying will be either credible or accurate.

The presidential race is now dominated by three candidates of which Benigno "Noynoy" Aquino III, son of the late president Corazon Aquino is the front runner and, if recent polls are to be believed, is increasing an already commanding lead. In second place is property tycoon, Manuel "Manny" Villar while running third is former president Joseph "Erap" Estrada who says he is running for no other reason than he wants to be president again. Knowing the mentality of the man, it is probably as good a reason as any, after all his time guarding the till was cut short. Others believe he may have dealt with the devil and is running as the administration's secret weapon—to take the votes of the poor away from Noynoy. The question is a valid one but the answer is that we don't know. In this toxic environment anything is possible.

Running well behind the front-runners is the administration's official candidate Gilberto Tedoro Jr. Tedoro was only ever given an outside chance and news that the Arroyo family is actually secretly bankrolling the campaign of Villar in what has now become popularly known as the Villarroyo candidacy has further muddied the waters—if that were possible. The undercurrent of opinion is that if elections have to be held, President Arroyo will do whatever she can to ensure that Aquino does not get the presidency so that whoever succeeds her will guarantee her safety from litigation over her failings.

But what if he does win? With Mrs Arroyo and many of her family standing for Congress and with the institutions of governance so weakened over the term of her presidency, a power struggle between Congress and the Administration looks increasingly inevitable in that instance. Not content to be an elder statesperson, Arroyo is standing for seat in Congress where it is believed she wants first the speakership and after that the prime ministership if she can engineer a switch to parliamentary government. Giving up her power is farthest from her mind. As one respected newspaper put it in its editorial "For Ms Arroyo, the speakership represents the one thing she craves most, which is power, and the one thing she needs most, which is impunity. She will do anything to get it."

The watchword is "impunity." As the election heads into the home strait, President Arroyo is remaining true to form. Despite her professions of pious faith, meant to ensure the Catholic hierarchy remains on her side (although in some quarters even that is now doubt), consider some of the other irregularities that have surfaced in the past month.

Firstly, the newly appointed Secretary of Justice, no less than her former election lawyer, Alberto Agra, has cleared Governor Zaldy Ampatuan of the Autonomous Region of Muslim Mindanao and acting Maguindanao Vice Governor Akmad Ampatuan of murder charges in the massacre of 57 people from a rival political faction late last year. This has been described in the press as President Arroyo's "debt service" (utang na loob) to the Ampatuan family for their past loyalty and for delivering the vote to Arroyo in the 2004 election. The actions of Secretary Agra have been universally condemned in the local press and Mrs. Arroyo herself has disingenuously called for a review of his decision, but it is looking increasingly unlikely that the Ampatuans will ever stand trial; instead some lower-level flunkies will be made scapegoats for the massacre. Given the transactional nature of this presidency has a further deal been struck to ensure that areas of Mindanao under the control of the Ampatuan clan deliver votes this time around in accordance with the wishes of the Arroyos? The question is being asked.

Secondly, the senior Amapatuan, despite being held in detention, was given the courtesy of holding a press conference from his cell. The press conference he called had nothing to do with his case; rather it was called to announce the support of the Ampatuans for the Noynoy campaign. Now, given that all of this had to be cleared with Malacañang Palace, the only logical explanation for this is that by associating himself with the Aquino campaign, Aquino would be tarnished in the process. If that was the plan, then it appears to have backfired.

Despite ongoing concern at the lack of transparency in the automated vote counting system and continued questions over the accuracy of the machines being used, COMELEC, has again dismissed calls for a parallel manual count to match the computerized tallying claiming this is unnecessary. Since no politician ever loses an election in the Philippines, the stage is being set for some massive disputes to arise. Furthermore the poll body has once again been mired in scandal with new revelations of further rigged contract bidding.

Finally, or at least finally for purpose of this essay, came the news that the seats reserved in the Philippine lower house for marginalized constituents—the so-called "party list" seats—have been hijacked by the political elite. At least 15 party-list groups have been linked to people close to the Arroyo administration thereby ensuring that instead of standing for the poor and dispossessed as was the intention when the present Constitution was framed, these votes in Congress will form part of the Arroyo bloc. Under President Arroyo's watch, the marginalized have become marginalized even further.

We haven't mentioned here the so-called "midnight appointments" but we covered that topic earlier. For a country that takes seriously the concept of delicadenza, the president has none of it.

All of these tales (and they are only the tip of the iceberg) merely reinforces the "culture of impunity" which has pervaded the later years of the Arroyo government just as it did during the Marcos years. As one respected commentator wrote "the rich grab what they want and the poor grant what they must. Thus abuses proliferate, both by state and by insurgents. "

Or as another commentator put it:

"Many of us are stunned by Ms Arroyo's cavalier attitude toward institutions. Unlike ordinary mortals, she seems simply not awed by them. Clearly, her staying power as a politician resides in this-that she looks at the law not as a moral guide but merely as a tool of politics. ... That her weapons of choice, ultimately, are coercion and remuneration. Not since Marcos has the nation seen a politician quite like her.

In the past it has taken up to 60 days to tally the nationwide vote during which time the entire country was in a surrealistic twilight state. This time a result is expected within 48 hours. It may not be the result expected but if will be a result. If we can try and find anything positive in all of this it is that the suspense will be short-lived. Within the week after the election we will know whether order and calm will prevail or whether Thailand will start to look like a Sunday School picnic compared to the mayhem that could be unleashed in the Philippines.

The irresistible force is about to meet the immovable object.

Bouncing back

Taiwan | April 2010

For the "old China hands" news in recent weeks from Taiwan has provided us with a refreshing blast from the past. After all the doom and gloom or recent months there was an air of familiarity about the recent newspaper headlines such as we have not seen for a long time.

True with the Republic of China due to celebrate its centennial later this year, announcement that the slogan for the occasion would be "100 Years of Excellence" seemed to be more appropriate to a venerated department store than a country that has become an Asian wűnderkinder, but then, perhaps after all that is what Taiwan is all about. Democracy, liberty and personal freedom are all very well but it is the ring of the cash registers and (these days) the swiping of the credit card that give people here the warm fuzzies. And after all, talking about democracy and freedom under Ma Ying-jeou are tantamount to treason and best left off the agenda lest someone across the water gets offended.

So for a change, it is good news month! Firstly there is news that Taiwan's economy appears to be well and truly out of the recessionary tailspin of recent times and is once more gaining altitude. All major economic indicators have rebounded, the economy is in expansionary mode and activity has returned to pre-crisis levels. Importantly, consumer confidence is also increasing despite a doggedly high unemployment rate. Unemployment is coming down but only slowly and is proving to be the laggard in the recovery process. Nevertheless unemployment has fallen to a 14-month low but is predicted to remain above five percent for the rest of the year.

Most economic think tanks have again revised their economic growth targets for this year. The Taiwan Institute of Economic Research (TIER) is now forecasting GDP expansion of 5.11 percent year-on-year for 2010, while the other government think tank, the Chung Hua Institute of Economic Research is punting on 4.99 percent. The IMF set heads turning with its announcement in the latest World Economic Outlook report that it expected Taiwan to achieve a 6.5 percentage point growth. Amongst these heady announcements, the government is being a little more circumspect; the Council for Economic Planning and Development is saying that it expected the economy to grow "by at least five percent."

When Taiwan comes out of recession it does not mess around, it is bouncing back with a vengeance.

Exports are now expected to grow by 26.83 percent over the course of the year to US$258.3 billion, according to the TIER. This exceeds the previous estimate of a 10.51 percent increase to US$225.1 billion, by a wide margin.

This optimistic forecast comes on the strength or a rapid rebound in export sales during the first quarter. In March alone exports rose US$7.8 billion, or by 50.1 percent, year-on-year to $23.4 billion; while imports were up US$9.74 billion, or 80.3 percent to $21.9 billion. These were the highest levels recorded since the onset of the global financial crisis. The trade surplus reached US$1.5 billion in March according to the official figures.

Looking at the first quarter as a whole, exports rose by US$21.28 billion, or 52.5 percent from a year ago, to US$61.8 billion. This was the second-highest figure for that period in Taiwan's history. With export activity strengthening, local manufacturers are taking the opportunity to retool and reinvest in plant and equipment. This in turn is driving imports, which were up US$25.1 billion, or 78.4 percent, year-on-year for the quarter. Now admittedly, with the economy mired in recession this time last year, these numbers are influenced by the low base effect but it does mean that Taiwan's export driven economy is back on track—and in the fast lane.

Exports to China, including Hong Kong, rose to a record US$10.26 billion in March, accounting for 43.9 percent of total exports, followed by ASEAN at 14.4 percent and Europe at 10.5 percent.

Export orders in contrast to shipments are a means of looking ahead at the position in coming months. Again the figures are pleasing. Taiwan's export orders in March grew by 43.66 percent from a year earlier to US$34.39 billion. Reportedly this was the highest total in the Taiwan's history and came on the back of strong demand from Asia-Pacific markets for Taiwan's sophisticated electronic products. For the first quarter of the year, total orders amounted to US$92.2 billion—up by almost 50 percent from the same period last year and 28 percent higher than in the final quarter of 2008.

For the first quarter, total orders amounted to US$92.17 billion, up 49.31 percent from the same period last year and 28.03 percent higher than the previous quarter.

Foreign exchange reserves reached a record high of $355 billion topped only by China, Japan and Russia and higher that Korea, Hong Kong and India.

Now these are the numbers that Taiwanese like to hear.

Despite all the good news coming out of the statistical bureau, the Ministry of Foreign Affairs was quick to sound a cautionary note claiming that Taiwan's export competitiveness had steadily declined over the past nine years in comparison with its major trade competitors, especially the other Asian tigers. Of course, this was meant to signal the need for Taiwan to sign the economic cooperation framework agreement with China (ECFA) which, so the government claims, will ensure Taiwan will not be marginalized in the wake of the creation of the ASEAN Plus One (China) free trade area.

Others disagree claiming that despite the agreement between China and ASEAN, Taiwan's economy is proving exceptionally resilient—as the latest export figures show. The fear is the hub and spoke effect whereby Taiwan's future exports to ASEAN would be funnelled through China rather than allowing Taiwan to continue to deal directly with its ASEAN neighbours.

The problem with any proposed agreement with China is that the "devil is in the detail" and the government has been rather coy about revealing any of the detail. It hopes that the framework agreement will be ready for signature within the next two months but President Ma has repeatedly ducked questions as to whether it will be put to the legislature for ratification or not. The implication is that it will not.

What is in the proposed agreement is still a matter of conjecture. Since negotiations are still underway and the issue has such sensitivity—very few people are neutral about it; most have either strong views in favour or strong views against—this is understandable. Much has been made of the so-called "early harvest" provisions which, so the government claims, will bring early benefits to Taiwan by reducing tariffs on a number of items—but so far we do not know which. President Ma has stated that the agreement will not allow Chinese agricultural items into Taiwan thereby protecting Taiwan's own farmers; nor will it allow Chinese labour into Taiwan. Probably it does not need to do so because already most Taiwanese factories are located on the Chinese mainland anyhow. If there has been any rational debate in the local press it has been over the investment conditions, and more precisely, the laws that limit China's state-owned corporations investing into Taiwanese companies. Already China is circumventing these conditions by investments through Hong Kong companies to gain greater leverage in Taiwan's commercial and financial sector.

So is the ECFA a Trojan horse, a gun to Taiwan's head or a panacea to solve all problems? You can find it described as all of these and much more. One thing is certain however, President Ma intends to push it through at whatever cost. People can do nothing other than watch and hope that it will not be a replica of the closer economic partnership agreement Chine signed with Hong Kong.

And now for something completely different...

Ask any visitor to the Queensland Gold Coast what they like about the place and invariably the answer will be "the beaches." Australia has a huge coastline with many fine beaches but perhaps nowhere else does the carefree lifestyle that centres around sun and surf mix so easily with city convenience as it does on the Gold Coast.

It is after all Australia's most rapidly growing city. With a population of more than 500,000 now (2010) but which is expected to grow to more than 750,000 by 2030, it has transformed the area from almost nothing but mangroves in the space of 30 years. It was only a short while ago that development first started with the opening of the "Pink Poodle" – the first motel on the Gold Coast and which can still be seen on the Gold Coast Highway at Broadbeach – but not for much longer it seems; even that icon will soon give way to redevelopment.

The Gold Coast is strung out for 37 kilometres from Paradise Point in the north to Coolangatta in the south, But looking at the urban area from east to west, the width of development is barely 10 kilometres, leaving aside the communities nestled in the surrounding bush. It is the close proximity of the eastern slopes of the Great Dividing Range that hems development into this narrow ribbon.

And this is the hidden charm of the Gold Coast – known as the "hinterland" that for many locals provides the real appeal. There are not many places in Australia or elsewhere for that matter that you are so close to so much convenience and so much natural beauty – and, if needed, Brisbane is less than an hour away on one of the best motorways in Australia.

So when we have visitors, as we did last week, we make a point of showing them not only the beaches but also the lush green hinterland which after the heavy rains of recent weeks is looking particularly magnificent. There are many communities nestled in the surrounding hills and valleys and more often than not these villages are host to vibrant artisan communities from potteries to art galleries, folk museums and tea rooms.

One of our favourite "tours" for out-of-towners is to drive the Gold Coast Springbrook Road. To drive the full distance from Mudgeeraba to the Springbrook National Park is a 27 kilometre drive which, through the winding road will take a journey time of around one hour, despite the good road conditions. Along the way there are a number of places of interest, tea rooms and restaurants and usually we don't drive the entire length of the road opting instead to stop, relax and enjoy the peace and tranquillity of the countryside. One such place, Polly's Kitchen, is a particular favourite of ours. It is an older style Queensland house converted into a restaurant and sitting out on its wide wooden verandas overlooking the bush is one of the best ways to spend an afternoon that I can think of. Sadly though it is only open three days a week – from Friday to Sunday – as we discovered last week when we decided it would make a perfect place for lunch. Because it was a Thursday, the place was closed.

Because our visitor had a plane to catch later that day we decided not to venture further and turned the car around. "Plan B" was to lunch at the Palms Beach Surf Life Saving Club where we are members and which provides an equally pleasant opportunity to sit on the veranda and dine al fresco but instead of the bush and the birds, you have the sea and the seabirds. The advantage of Palm Beach is that it is just a hop, skip and jump to the nearby Gold Coast Airport.

When we turned the car around that day, we did not have "Plan C". But very quickly another alternative presented itself to us and we are so glad we took it.

Driving back along the Springbrook road we noticed a number of cars parked off the road but without any obvious sign of a restaurant; curious and hopeful that something undiscovered lay ahead, we turned in. We had found the Tokonoma Gallery and Green House. What a surprising and charming find!

Tokonoma is unique; at least I have not discovered a place similar to it anywhere around here. It combines a modern Japanese-style art gallery with a fusion restaurant that presents Australian and Japanese flavours in an interesting combination and in a manner that only the Japanese can do – exquisitely!

There were three of us checking in for lunch last week and we opted for a veranda table overlooking the greenery. There was plenty of custom; both Australian families and ladies of Japanese extraction enjoying the afternoon with their friends. The chef was a Japanese Australian who looked decidedly Japanese but who spoke with a broad Aussie accent. He told us he had been in Australia since the age of 11 and trained as a chef in one of the top Japanese restaurants on the Gold Coast before striking out on his own.

My wife ordered Japanese style curry as she needed her "rice fix" for the day. I had been craving pizza all week and opted for the Teriyaki Chicken pizza with avocado topping and our visitor took the salad bowl. Sadly, and this was my only gripe, there were no diet or low calorie drinks available (other than the green tea) so I opted for a skinny Cappuccino. It was a good choice.

The meal was very reasonably priced and lunch for three people including drinks came in just under $60.

We dawdled over our meal as sitting at our table outside on a warm autumn day with a gentle breeze flowing along the wooden balcony gave us little incentive to move.

As a result we did not have time properly to explore the art gallery, the main part of which was located on the floor below; but we did manage to venture a glimpse of some of the exhibits on our way through.

As a place to view (and buy) modern Japanese art this place has no rival locally. The gallery housed a good collection of both traditional ink on paper, paintings on canvas as well as carved artefacts using Australian woods.

Tokonoma will now become part of our own tour itinerary for those friends visiting us on the Gold Coast. Sadly though while it has slightly better opening hours than our previous favourite, it is still only doing business from Wednesday to Sunday between the hours of 10am and 4 pm.

We did not ask if they had a breakfast menu but it would be a perfect place to stop by for an early or late snack on the way to the Purlingbrook Falls at Springbrook. With a round trip of less than 100 km, finding a better day out away from the beaches would be hard to find.