Incompetent

Machiavelli instructed us well on this point: power is never to be taken for granted.

As anticipated in this column, Egyptian President Muhamad Morsi was indeed ousted from his post by the army. The lousy constitution he swore by was trashed. Leaders of the Muslim Brotherhood have been arrested. The movement’s media stations were shut down.

Morsi called the dramatic turn of events a “coup.” The leaders of Egypt’s armed forces prefer to call this a “correction.”

The chief magistrate of Egypt’s Constitutional Court, Adly Mansour, was sworn in as interim president. Noble laureate Muhamad Elbaradei, leader of the anti-Morsi opposition, is now prime minister. A new constitution will be drafted and the army promises elections as soon as possible.

Morsi might have wanted to cling to his post despite the worsening conditions in his nation, claiming he had democratic mandate. The millions marching in the streets of Egypt, however, think Morsi and the Muslim Brotherhood commandeered the democratic revolution to serve their sectarian goals.

After a year on the job, Morsi produced enemies and impressed no one. He introduced a constitution that did not guarantee the liberties Egyptians fought for when they overthrew the Mubarak regime. Nothing was achieved to stop the economic decay that was making life more miserable each day for ordinary Egyptians. He never bothered to consult with the many groups and tendencies that had as much claim to the democratic revolution.

Morsi’s exclusivist politics did not help him grow his base. That was compounded by the fact that the Morsi government failed miserably in improving the economy. His dogmatism merely magnified his incompetence.

Economic redemption will not fall from the heavens. It cannot be won by way of moralistic speeches. Jobs cannot be created by doctrinal rectitude. If Morsi stayed a day longer in power, all Egyptians will suffer.

In practice, the legitimacy of modern governments is not based on some scrap of paper called the basic law. Legitimacy is won by making life better for the nation and securing a clear path to the future. Otherwise the people rebel in the myriad ways social media now makes possible.

Machiavelli teaches us not to mourn for people who lose power because they are incompetent. It is in fact just that the incompetents are dislodged because that creates better prospects for the nation.

Rehab

Do we have the framework and the institutions that will enable companies hit by financial volatility to rehabilitate?

My guess is that we are underdeveloped in this regard, although my evidence for this is entirely anecdotal. This could be one of the disincentives to direct foreign investments into our economy.

Perhaps some bright MBA student could do a study of Filipino companies adversely affected by the 1997 Asian financial crisis. Specifically, the study could focus on those that sought help from the Securities and Exchange Commission (SEC) to protect them from creditors and enable financial rehabilitation. How many of these companies actually survived the SEC’s rehabilitation program?

I could not think of one distressed company that did. Our SEC seems bent on liquidating corporations rather than helping them claw back to viability. The main reason for this is that creditors, whose instinct is to collect as much and as quickly as possible, eventually overpower the regulators whose first duty ought to be to help companies survive in an uncertain environment.

Recently, for instance, the SEC ordered the liquidation of the Uniwide Group. When Uniwide went to the SEC for rehabilitation in 1999, the erstwhile retail giant’s assets were larger than its debt. It did so because of cash flow problems, typical of many Filipino companies that suffered the severe realignment of currencies after the 1997 crisis.

Over the period that the company tried to work down its debts under a SEC-approved rehab plan, Uniwide managed to settle P6.16 billion of its original P7.425B debt. That represents an impressive 80% reduction of debt over an 8-year period. That company, whose rehabilitation plan extends to 2015, was confident it would work down the remaining 20% of its debt before the end of the plan.

In a rehabilitation program, a company seeks the aid of the SEC to take advantage of future opportunities for growth with the support of regulators as well as creditor banks. The role of the SEC in managing the rehab plan is key to this.

In the case of Uniwide, however, the SEC seemed inclined to cannibalize the company and sell off its assets. Uniwide had assets worth P30 billion to support rehabilitation, far larger than its outstanding debt. Notwithstanding, the SEC decided to scuttle the company. Liquidating the company translates into thousands of jobs lost, compounding the high unemployment now plaguing our economy.

The owners of Uniwide suspect that some parties were out to make a killing from the liquidation of an otherwise redeemable enterprise. They would rather rake it in from the asset selloff than enable the survival of a domestic enterprise.

Once, the SEC panel overseeing the rehab of Uniwide tried to sell off the entire company to an investor for only P5 billion even as the assets were worth over P30 billion. That makes the “white knight” more of a vulture. Understandably, Uniwide refused the sale.

If the suspicion has merit, then investors should shudder. The SEC’s role is to extend support for companies in difficult straits, not to treat them as carcasses presenting opportunities for quick and dirty money.

This particular case requires thorough review, although not from the same gang that shrunk the company’s worth even as its proper role was to revive it.