Yes men

When I was still working in a corporate setting, a fellow executive once thanked me for strongly voicing sentiments in a planning session that he said were shared by a number of other executives but were afraid to speak up and put their jobs on the line.

I have told my corporate superiors a lot of unpleasant truths in the course of my career because I believe it was my job to do so. Risk management can only be done well by being truthful. Bosses must always be wary of executives who try to second guess what they want to hear.

The way I see it, the earlier we attend to a potential crisis, the better are our chances to effectively deal with it. I am lucky that the CEOs I reported to share the same feeling and my career did not suffer for anticipating “bad” news. Of course, human nature favors “brown nosers” who pander to the egos of their bosses. These “yes” men are dangerous to any organization.

I agree with the most recent commentary of the retired investment banker who writes the blog Heneral Lunacy that our economic technocrats now seem more interested in looking out for themselves. They are behaving like executives of private corporations on the verge of trouble.

“In their mid-70s, our economic technocrats are seemingly focused on building their retirement nest eggs with, for example, the fabulous compensation packages from Maharlika. In the meantime, their bosses raid the coffers before the whole thing folds…”

“In my career,” Heneral Lunacy recalled, “I have restructured as well as acted as receiver for bankrupt companies so I can spot a flailing enterprise when I see one. Whether a corporation or an economy, they all exhibit the same symptoms just before they get into trouble. Here are what distressed companies look like:

“They stop paying their bills, especially to non-essential suppliers… This buys some relief but ultimately the company runs out of raw materials and spare parts, driving it further into a hole. The Philippines is seeing this right now. When foreign investors are not paid what is due them, they will leave and spread the word…

“Foreign chambers of commerce have publicly demanded the government pay them the VAT refunds owed them. One company alone has outstandings of P3.8 billion. Many of the companies are Japanese electronics exporters employing thousands of Filipinos and generating much needed foreign exchange. They have threatened to pull out if the issue is not resolved. Japanese rarely speak out so the problem must be serious.

“The foreign chambers have cited the VAT refund as a reason for international investors to avoid the Philippines when Vietnam, Indonesia, Thailand and Malaysia are seeing massive inflows from suppliers relocating out of China. In 2022, the Philippines’ foreign direct investments dropped 22 percent to only $9.6 billion and have continued to fall this year. This belies what DOF Secretary (Benjamin) Diokno said are the ‘trillions of pesos’ in foreign investments from the President’s many international trips.

“The VAT is not the only thing this government is not refunding. PhilHealth has P27 billion in unpaid claims to private hospitals…”

And the DOH has yet to completely settle the hazard pay to nurses and other medical personnel promised during the height of the pandemic.

“They ‘kite’ funds – Management moves money around taking from Peter to pay Paul… Confidential funds of agencies are shifted from one office to another. To finance the controversial Maharlika Fund our economic team raided the coffers of the Landbank and the DBP, monies intended for loans to SMEs and farmers.

“This has imperiled the capital of these GFIs who have asked the BSP for ‘forbearance’ i.e. temporary relief from BSP-mandated capital requirements. To restore the banks’ capital the President ordered the Landbank to temporarily stop paying dividends to the government. This will deplete the funds of the Treasury who then has to fill the gap with higher taxes or more borrowings…

“They sell the family treasures – This provides short term relief but eventually even this is spent. The Philippines is considering privatizing PAGCOR and NAIA. This money is by law slated to go into the black hole that is the Maharlika Fund.

“They underserve their stakeholders – To save money government agencies are underspending their budget allocations, scrimping on education and health services…

“They fudge the numbers and talk up the company prospects to keep creditors at bay – PhilHealth reported a profit of P46 billion as of Sept. 30, 2022 even if it had a negative capital of P768 billion, i.e., it is bankrupt. The Philippines is reporting rosy debt/GDP ratios without saying these exclude our payables, be it the VAT refunds that multinationals have cited or payment to contractors and hospitals or pensions due the military personnel.”

And like companies that hoodwink their external auditors, our government is blindsiding credit rating agencies who cooperate with the charade. Heneral Lunacy writes:

“One, they (credit ratings) are based on lagging economic indicators and not on the future direction of an economy. They tell you where you came from but not where you are going.

“Two, they do not reflect governance, corruption, income gaps and the quality of government goods and services e.g. roads built under specs.

“Three, they exclude other financial liabilities like payables and pensions.

“Four, they grade economies on the curve: They do not say how strong you are, only how you are doing relative to your peers.

“And, lastly, they can be massively wrong. Credit Suisse, the Swiss banking giant, went from investment grade to extinction in just three days.”

What happens next?

“Creditors stop believing the hype and start charging higher interest rates to cover the risk premium. Suppliers scale back. Foreign investors pull out.”

If he knows what’s good for him and the country, BBM should fire the economic manager who tells him there is nothing to worry about. A purely academic economist with zero commercial/investment banking experience is probably a bad fit for DOF anyway. It is time the President gets the complete picture of the risks we face. And be honest with the people on what our future holds.

Boo Chanco’s email address is [email protected]. Follow him on X (formely Twitter) @boochanco