Philippines, the new Indonesia?

BY AYA LOWE

 

MANILA, Philippines – As the Philippines continues to register strong GDP growth figures, many economists are increasingly pairing the country with the robust growth of its neighbor, Indonesia.

Both countries have shown remarkable economic growth against a sluggish global economy, almost catching up with Asia’s other economic powerhouses, China and India.

The two neighbors are considered Asia’s rising economic stars, have stock markets that have recently soared to historic highs, and among the most populous in Asia.

In previous years, Indonesia — a nation of about 240 million people, mostly Muslims — has beenattracting the second biggest chunk of foreign direct investments (US$19.2 billion in 2012) flowing into Southeast Asia, next to Singapore’s $54 billion). The Philippines — a nation of 100 million people, mostly Christians — remained a laggard, capturing only $1.5 billion.

With a big push for a credit rating upgrade this 2013 for the Philippines — currently at one level below investment grade — the Philippines is hoping to be in the same level as Indonesia, which has been bumped up to investment grade.

Fast growing economies

“Indonesia has been growing consistently for the last 25 to 30 years. Even during the financial crisis, there continues to be a really high growth so, if there is any single country we would compete with, it would be Indonesia,” said Socioeconomic Planning Secretary Arsenio M Balisacan at a recent press briefing anouncing the Philippine’s 2012 economic performance.

The Philippines grew 6.6% in 2012, surpassing the government’s own target of 5% to 6% for 2012. The country also registered a 4th quarter growth of 6.8%.

This growth, which was well above the expansion of 3.9% in 2011, boosted the country’s position among its ASEAN neighboring putting it on par with Indonesia, which grew 6.5% in 2011.

In the 3rd quarter of 2012, the Philippines recorded a growth of 7.1%, replacing Indonesia as the second-fastest in Asia next to China’s 7.7% and the fastest in Southeast Asia. Indonesia, which dropped down to 3rd position, registered a growth of 6.2%.

While Indonesia is due to announce its GDP data on February 5, the country’s central bank predicts that Indonesia’s economy could grow by 6.3% in 2012, slowed down by weak export performance caused by the global economic slowdown — an experience the Philippines shares.

‘New tigers’

In a recent report, business news site Market Watch christened the Philippines and Indonesia as “the new tigers” or economies that have been overlooked in the past and are now “poised to drive future growth and grab more economic power.”

“In an economically vibrant Southeast Asia, Indonesia and the Philippines stand out as the region’s ‘New Tigers’ with the potential to leave a bigger imprint on global growth for years to come while the developed world struggles with excess debt and traditional regional heavyweights China and India lose momentum,” said the report.

Market Watch stated that the two countries shared similar characteristics that have helped boost it economic ranking among its neighbors;

  1. Large, young and dynamic populations
  2. Relatively low levels of national debt
  3. Expanding middle classes
  4. Diversifying economies
  5. Stable, elected governments with policies that inspire investor confidence
  6. Top performing stock markets

Best performers, borrowers to lenders

Philippine and Indonesian stocks have been advancing to all-time highs.

On Friday, February 1, the Philippine Stock Exchange Index climbed 1.21% to 6,318.61, breaching the 6,300 milestone and closing the week at another historic high — the 13th this 2013.

The Jakarta Composite Index rose 1.4% to 4,517.82. The two indexes were the biggest gainers on February 1 among Asian markets tracked by Bloomberg.

Indonesia and the Philippines are considered among the most attractive markets in Southeast Asiabecause of their improving economy and strong consumer base,” Jonathan Ravelas, chief market strategist at BDO Unibank Inc. told Bloomberg.

Proving their full recovery from the Asian Financial Crisis, Indonesia and the Philippines have also both come full circle. Once borrowers of the International Monetary Fund (IMF), both recently became lenders.

Part of this growth has put down to the reforms implemented by the current administrations. Presidents Susilo Bambang Yudhoyono in Indonesia and Benigno Aquino in the Philippines have both won upgrades from Fitch Ratings and Moody’s Investors Service in the past year as they pledged to contain their budget deficits, fight corruption and woo investment to spur economic growth.

In Indonesia, the nation’s parliament approved a land-acquisition bill in December that will allow Yudhoyono’s administration to accelerate road, port and airport projects. In the Philippines, Aquino is seeking $16 billion of investments in projects including roads in the capital and airports in the provinces to upgrade the nation’s infrastructure.

World renowned economist Nouriel Roubini have cited these reforms when he favored the Philippines and Indonesia over China and India, current members of the so-called BRIC economies (Brazil, Russia, India and China).

“They are actually doing more in terms of structural reform,” Roubini said. “The economies are growing more than 6%,” even higher than the average 5% global growth the developing economies are projected to grow this 2013, and way faster than the 1% estimated pace of growth for the advanced nations.

Roubini has promoted the Indonesia’s credit rating upgrade, and believes the Philippines deserves to be among the A-lister countries, too.

Investment grade

In Southeast Asia, only 4 of the 10 ASEAN member states currently enjoy investment grade status: Malaysia, Singapore, Thailand and the recently upgraded Indonesia.

Indonesia received investment grade status from two of the 3 major credit rating agencies: Fitch Ratings in December 2011 and Moody’s in January 2012 .

According to studies conducted by Moody’s and Fitch’s, it is historically more difficult to reach an investment grade when a country’s GDP per capita falls under the $3,000 range. Indonesia’s GDP per capita is $3,508 in 2011, while the Philippines’ is still way below the mark of $2,223 in the same year.

“I have come to the conclusion that the rating to investment grade is certainly warranted and decision should be formally taken this year,” Roubini said during the Philippine Investment Summit 2013 in Makati City. “I hope that rating agencies will understand that sooner rather than later… and an upgrade will occur in the next few months.”

Getting an investment grade from credit rating agencies encourage more investments to the country, and in turn, supports economic growth.

Standard & Poor’s and Fitch Ratings rates the Philippines one notch below investment grade: BB+ with a positive outlook (S&P), and BB+ with a stable outlook (Fitch). Moody’s Investors Service rates the Philippines Ba1, also a notch below investment grade, with a positive outlook.

The right direction

Is one country better than the other?

“In economics, it’s not a zero sum game,” replied world renowned economist Nouriel Roubini who spoke at the Philippine Investment Summit 2013. “It’s not like private business in which one will be successful in one sector and the other will lose. Both can successful.”

Roubini has been widely quoted for favoring the Philippines and Indonesia over China and India, current members of the so-called BRIC economies (Brazil, Russia, India and China).

“Investors are looking at the long-term prospects of the country. They look at macroeconomic policies [and] financial environment if these are sound, political risks reduced, policies, regulatory environment not changing rapidly. Countries build reputation over time. Overall, I would say certainly Philippines and other emerging economies are going to the right direction

In the same investment summit, businessman Manuel V. Pangilinan, who chairs Hong Kong-based conglomerate First Pacific Ltd, was asked which country he prefers, considering the group’s stakes in both countries. He shared a recent conversation with a large private equity fund manager.”

“He noted that there is election this year (in Indonesia), so there is uncertainty on successor of SBY….He also noted that there are more happening in infrastructure investment in Philippines than in Indonesia. In his eyes, the Philippines compares favorably than Indonesia. And I tend to agree.”

Pangilinan also stresed that the Philippines has to keep this momentum going.

“I agree that governance have improved a lot, prospects have improved a lot. It is incumbent upon both the government and private sector to ensure that the perception is supported by fundamentals. You cannot defy gravity for long. You have to make sure that performance catches up with perception rather quickly.

“Otherwise, when other economies — China, Thailand, other countries within the region — will recover in due course, then there will be more competition with respect to investment dollars. We should be ready for that,” he stressed.

As both the Philippines and Indonesia continue to grow nearly on par with each other, investors have been told to keep their eyes on the upcoming powerhouses. – with research from Lean Santos/Rappler.com

Peso to hit P37.50 in 2013?

BY CAI ORDINARIO

 

EXCHANGE RATE. US dollar expected to weaken further. Photo by AFPEXCHANGE RATE. US dollar expected to weaken further. Photo by AFP

MANILA, Philippines (UPDATED) – Already strong, the peso can further appreciate to P37.50 against the US dollar in the next 12 months.

This was the forecast that Singapore-based Goldman Sachs ASEAN economist Mark Tan announced during a roundtable with business journalists on Thursday, January 31.

He cited the influx of portfolio investments in the capital markets, the continuing weakness of the US dollar, and the robust growth of ASEAN countries, including the Philippines and Indonesia.

The peso has been trading near P40 in recent weeks, worrying dollar earners like exporters and business process outsourcing (BPO) firms, as well as Filipinos who depend on remittances sent by loved ones working or living abroad.

The appreciation of the peso is expected to continue beyond 2013. In 2014, Goldman Sachs expects the peso to reach P35 to the dollar before it depreciates to P40 in 2015 and P41 in 2016.

Speculative?

Tan said the strong peso is linked to Goldman Sachs’ forecasts of a weak dollar and strong economic growth in Asia, including the Philippines. He added that even the Thai Baht and the Indian Rupee are expected to appreciate against the US dollar, alongside the peso.

“In this period of prolonged infrastructure expansion investment, it’s actually beneficial to have a stronger currency because you’re going through a period of intensive capital (inflow) and a stronger currency helps drive that as well,” Tan said.

“As to your comment on the peso appreciation being driven by speculative flows, I think that’s quite hard to estimate, actually. I think a large part of it, as I mentioned, is being driven by FDI (Foreign Direct Investment), remittances, and we would view those as fundamental flows rather than speculation,” he added.

The Philippine economy grew 6.6% in 2012, placing it among the best performing in the region.

Goldman Sachs estimates that the Philippines will grow between 5.5% and 6% from 2013 to 2016. Goldman Sachs expects Gross Domestic Product (GDP) to hit 5.5% this 2013 and 2014 before it accelerates to 5.6% in 2015 and 5.8% in 2016.

This will be propped by a benign inflation environment that is within the government’s 3% to 5% inflation target until 2016. Inflation is expected to post a 4.2% growth this year, 3.8% in 2014, and 3.5% in 2015 and 2016.

The government recently released its GDP growth in 2012 that it pegged at 6.6% on the back of strong household consumption driven by increasing incomes and OFW remittances.

Reservations

“We have to worry about the peso appreciation because it directly impacts employment,” noted Socioeconomic Planning Secretary Arsenio Balisacan during a press conference on the Philippines’ full year 2012 economic performance on Thursday, January 31.

Balisacan said the government is trying to manage the risks, as well as improve the economy’s absorptive capacity as dollars flow in.

“Rest assured that we’re doing our best (so) that the competitiveness of the Philippines won’t be adversely affected by inflows,” Balisacan said. – Rappler.com

South Korea, US drill begins under nuclear test cloud

BY JUNG HA-WON, AGENCE FRANCE-PRESSE

 

SEOUL, South Korea – South Korea and the United States launched a joint naval exercise involving a US nuclear submarine Monday, February 4, as tensions rise on the Korean peninsula ahead of an expected nuclear test by North Korea.

A defense ministry spokesman confirmed the three-day drill — condemned as a “warmongering” exercise by North Korea — was underway in the East Sea (Sea of Japan) off the southeastern South Korean port of Pohang.

Although South Korean military officials stressed the drill was scheduled before the North threatened to detonate its third nuclear device, the presence of the submarine has been seen as a warning to Pyongyang.

The USS San Francisco, armed with Tomahawk cruise missiles, is joined in the drill by a 9,800-ton Aegis destroyer, the USS Shiloh.

“The exercise includes at-sea operating training, detecting and tracking a submarine, anti-air and anti-ship live fire training and anti-missile training,” the Yonhap news agency quoted one military official as saying.

The drill comes as the North has ramped up daily threats of a nuclear test in response to expanded UN sanctions imposed after its long-range rocket launch in December.

The North insists the launch was a purely scientific mission aimed at putting a satellite in orbit.

But most of the world viewed it as a disguised ballistic missile test that violated UN resolutions triggered by the North’s previous nuclear tests in 2006 and 2009.

Seoul’s defense ministry spokesman Kim Min-Seok told reporters Monday that the North had completed all technical preparations for another nuclear test.

“The only thing left to make is a political judgment,” Kim said, calling on Pyongyang to show restraint.

Recent satellite imagery has confirmed activity at the northeastern nuclear test site at Punggye-ri, with the North covering the entrance to a test tunnel in an apparent attempt to external monitoring.

Over the past week Pyongyang has issued a series of daily warnings threatening action over the sanctions, including a promise Saturday of the “toughest retaliation”.

On Sunday, February 3, state media reported that the North’s young leader, Kim Jong-Un, had chaired a high-level meeting to discuss a “great turn” in bolstering military capability and issue “important” guidelines to top officials.

Seoul’s top nuclear envoy left for Beijing on Sunday to meet with his Chinese counterpart in an apparent last ditch effort to avert another test.

The North’s only major ally and economic lifeline, China is seen as the only country with any real leverage over the regime in Pyongyang.

Beijing also chairs the stalled six-nation nuclear disarmament forum on the North, which involves the two Koreas, Japan, the United States and Russia.

The North withdrew from the aid-for-denuclearization talks in April 2009 and staged its second atomic test a month later. – Rappler.com

Spain opposition leader calls for PM Rajoy to resign

BY AGENCE FRANCE-PRESSE

 

POLITICAL CRISIS. Spanish Prime Minister Mariano Rajoy in a file photo from the Spanish government's official websitePOLITICAL CRISIS. Spanish Prime Minister Mariano Rajoy in a file photo from the Spanish government’s official website

MADRID, Spain – The leader of Spain’s opposition Socialist party called on Sunday, Feburary 3, for Prime Minister Mariano Rajoy to resign amid a damaging corruption scandal.

“Rajoy should give up his role as the head of government (because) he cannot tackle the very difficult situation confronting Spain,” Alfredo Perez Rubalcaba told reporters.

Spain’s centre-left newspaper El Pais published account ledgers purportedly showing that donations were channelled into secret payments to Rajoy and other top party officials.

Rajoy said the ledgers were false and has vehemently denied receiving any payments.

The prime minister “cannot lead the country in this delicate time,” added Rubalcaba.

“His presence (at the head of the government) is not going to help resolve this political crisis,” he said, calling on Rajoy to “leave the presidency and cede his place to another leader.”

The scandal has infuriated Spaniards, millions of whom are still struggling to find work in an ongoing recession. – Rappler.com

David Cameron faces party revolt over gay marriage vote

BY AGENCE-FRANCE PRESSE

 

LONDON, Feb 04, 2013 (AFP) – British Prime Minister David Cameron faces a battle to placate traditionalists in his Conservative Party bitterly opposed to gay marriage ahead of a parliamentary vote on the contentious issue on Tuesday.

Cameron has given strong backing to the plans to allow same-sex couples to marry, but they are fast becoming a highly divisive issue for his party.

The prime minister has promised lawmakers a free vote on the proposed legislation in the House of Commons on Tuesday, meaning party managers will not try to influence their choice.

But there is concern in Conservative ranks that more than half of the party’s MPs could vote against the bill.

Many grassroots Tories are warning that a green light for gay marriage could alienate rank-and-file Conservatives.

On Sunday, more than 20 current and former constituency chairmen delivered a letter to Cameron’s Downing Street office urging the prime minister to delay any parliamentary decision on gay marriage until after the next election.

The letter warned that if the plans pass into law, there would be “significant damage to the Conservative Party in the run-up to the 2015 election”.

A ComRes poll of just over 2,000 people who voted Conservative at the 2010 general election found that 20 percent agreed that they “would have considered voting Conservative at the next election but will definitely not if the coalition government legalises same-sex marriage”.

The survey in the Daily Telegraph newspaper also found that 62 percent of voters overall thought Cameron’s chief motivation was trying to make the Conservatives seem “trendy and modern”.

But Maria Miller, the Conservative culture and equalities minister, warned opponents of gay marriage that they were out of step with social progress.

In an article in The Times on Monday, she dismisses the concerns of traditionalists who believe marriage should be the preserve of heterosexuals, arguing that giving same-sex couples the right to marry was “the right thing to do now and for the future”.

Miller also insisted the new legislation could not be challenged in the European Court of Human Rights.

Former children’s minister Tim Loughton said: “This is a wake-up call to just how damaging an issue gay marriage is for the Conservative Party.

“Many stalwart Conservative supporters are feeling pretty bruised by this issue which came out of nowhere, didn’t feature in the manifesto and is now being forced through by the government that seems to want to pick a fight with its own supporters.”

The Conservatives’ junior coalition partners, the Liberal Democrats, and the opposition Labour party are broadly in favour of the gay marriage legislation.

But the new Archbishop of Canterbury Justin Welby, the spiritual leader of the world’s Anglicans, is expected to reveal after his official confirmation on Monday that he believes marriage should be between a man and a woman.

In plans unveiled in December, the government said it was proposing to allow same-sex couples to marry, but would explicitly ban the established Churches of England and Wales — which are opposed to the legislation — from conducting ceremonies.

Other religious institutions can “opt in” if they wish to conduct ceremonies.

Gay couples in Britain have had the right to enter into a civil partnership since 2005.

Civil partnerships offer identical rights and responsibilities to civil marriage, although campaigners point to some differences such as international recognition which applies to marriage but not partnerships.

The vote comes after France’s National Assembly on Saturday overwhelmingly approved a key piece of legislation that will allow homosexual couples to marry and adopt children, to the delight of gay activists. –Rappler.com

The impossible dream and the West Philippine Sea

BY JAY L. BATONGBACAL

 

Foreign Affairs Secretary Alberto del Rosario’s announcement that the Philippines is initiating UNCLOS Annex VII Arbitration has finally ended the suspense on the announced intentions of the Philippines of taking China to before an international tribunal. But it leaves many unanswered questions.

The most obvious question is whether it is possible to take China to arbitration without its consent. The government believes so, relying on the fact that China, like the Philippines, accepted arbitration by default because it did not choose any other procedure upon ratification of UNCLOS.

However, this is only one aspect of consent in international arbitration. The importance of consent of both parties cannot be underestimated; it is essential at each stage throughout the entire arbitration process, from the appointment of the arbitral panel, determination of jurisdiction to proceed, implementation of the process and trial on the merits, and compliance with the award. To achieve an unquestionably binding resolution, State consent is crucial at all these stages of the proceeding.

The second question is what happens next, what might China do at each of these stages in the coming months or years? DFA says that the process will take 3-4 years. In reality many things can happen during that period.

China’s options

First, China may either join the arbitration by appointing the 5-man arbitral panel with the Philippines, or ignore the Application completely. Joining the arbitration however is contrary to China’s long-standing position against allowing any third party to intervene in any of its disputes with other States, so most believe this to be highly unlikely.

But if China still ignores the Application after two months, the Philippines may request the President of the International Tribunal of the Law of the Sea (ITLOS) to appoint the remaining members of the panel. However, the idea of appointing a panel in this manner is so far untested, and there is no precedent for the unilateral appointment of an arbitral panel over the objections of a disputing State.

If constituted, the panel can establish its rules of procedure to govern timelines, reception of pleadings and evidence, and decision-making. Its first order of business will be to determine whether it has jurisdiction to settle the case, and if the claim is well-founded. China may appoint arbitrators and participate only for the determination of whether the case can be settled by the arbitral panel in this preliminary phase.

It may raise various objections: such as that it has not given consent, or that despite the Application’s description the case actually falls within either the mandatory or optional exceptions under UNCLOS; or, that there is a procedural infirmity such as failure to exhaust local remedies, or the existence of another dispute settlement mechanism under a different agreement such as the 2002 Declaration of Conduct; or that UNCLOS Annex V Conciliation instead of arbitration is the proper 3rd party mode applicable under the circumstances. Any one of these may be cause for a finding of lack of jurisdiction.

If China does not participate at all, the Philippines must then be the one to persuade the panel that none of those objections apply, and also it is sufficiently empowered to proceed with the case and decide on the merits. This will not be an easy task: as stated, an arbitration conducted over the express objection and without the participation of one of the parties contradicts the very essence of the international arbitration process.

If the panel decides that it does have jurisdiction, China may then decide to either continue with or withdraw from the proceedings. Continuation of the proceedings will require China to defend the so-called “nine dashed lines” as a singular exception to the system of maritime zones established by UNCLOS. Most scholars agree that the nine dashed lines is indefensible in international law, and is precisely the kind of exaggerated maritime claim that UNCLOS was designed to suppress. The inherent weakness of the position is therefore a serious disincentive for China.

If China decides to risk a defense, it would probably be accompanied by a legal offensive. It may invoke the equitable doctrines of estoppel and “he who comes to court for equity must come with clean hands,” attacking the validity of the Philippines’ own maritime zones based on what it calls the “illegal occupation” of the Kalayaan Island Group and calling it to task for previously insisting that its national territory extended westward only as far as the 1898 Treaty of Paris limits, and for enacting PD 1596 inconsistently with UNCLOS.

If it decides to fully participate in the arbitration, it may also attempt to expand its scope by seeking a favorable determination of sovereignty over the islands and rocks themselves, which the Philippine Application deliberately avoids.

A full determination of not only maritime zones but also of sovereignty over the islands and rocks in the West Philippine Sea (WPS) poses extreme risks to both sides, more so for China since on balance it has more maritime areas to lose. Again, it would contradict their long-held policy against third party intervention. It would thus be perfectly logical for China to instead withdraw, as this would leave issues hanging at the status quo.

Scenarios

If the arbitral proceedings reach argument and decision on the merits, the tribunal shall either award or deny the reliefs sought by the Application. Assuming that the Philippines is entirely successful, it would have on hand a definitive opinion about the illegitimacy of the nine dashed lines and a legal characterization of waters and seabed areas measured from the western coast of the main archipelago.

Its practical effect is to officially declare illegal all artificial structures on submerged reefs not built by the Philippines and constructed without its permission. Foreign occupation of islands and rocks would not be similarly affected, since this is integral to the issue of sovereignty over islands and rocks that the Philippine Application excludes from consideration. Since China currently occupies mostly underwater features and no full-pledged natural islands, the ultimate gain from a completely favorable award for the Philippines are a statement of legal obligations to remove structures like those on Mischief Reef, and to stop interfering with Philippine fishing, petroleum exploration, or other activities.

China would then decide whether or not to recognize and comply with these terms of the award. It would be well and good if it does recognize the award as it would imply a retreat of China’s permanent presence in the WPS. But if it refuses at the end of the international arbitration process, there is no international sheriff or police force to enforce the judgment against the losing State, hence, the integral need for State consent and good relations between the parties.

Wild cards

A number of “wild cards” can complicate this already difficult process. These are events not currently at play but which could take place and sidetrack Philippine expectations.

1.) The first is if China attempts to consolidate its position and create a fait accompli by building additional permanent structures on Bajo de Masinloc or any of the remaining reefs and shoals around the Kalayaan Islands while the case is pending.

The Philippines may seek an order for provisional measures from ITLOS, which it is authorized to issue in support of an Annex VII Arbitration process in order to preserve the rights of the parties pending the constitution of the arbitral tribunal.

This is a delicate matter, because by its very nature, provisional measures apply to both parties and the entire area of the dispute, which in this case is the WPS. For example, a measure requiring the parties to stop all petroleum exploration activities would be more damaging to the Philippines because all of its exploration areas are within the WPS, while China has many other areas other than the WPS.

If provisional measures are issued and an arbitral panel is subsequently constituted, the latter will then also decide whether it should maintain those measures as part of preliminary proceedings to determine if it has jurisdiction over the case. Such measures are dissolved if the panel finds it has no jurisdiction. But it is important to note that a request for provisional measures must be treated and argued as a separate case; the proceedings and decisions of one body have no bearing on the other. The Philippines must therefore be prepared to wage its legal battle before two separate fora: the ITLOS and the arbitral panel.

2.) A second wildcard is if China, pending arbitration, decides to suddenly “clarify” its nine dashed line claim and declare UNCLOS-based maritime zones to their maximum breadth around every island, reef, and rock it claims.

This is technically feasible and would result in relatively minimal changes to the outer periphery of the area of the South China Sea its claims under its jurisdiction. It will take the steam out of the arbitration by transforming the situation indubitably into one of maritime boundary delimitations falling within the optional exceptions to dispute settlement that China made in its ratification of UNCLOS. But the risk to China is that it implies an abandonment of the nine dashed lines, so it will require an enormous amount of spin-doctoring on the China’s side in order to address their domestic audience.

3.) What if Vietnam intervene in the arbitration?

Although an arbitration cannot affect the rights of non-parties, obviously if the result of this process is a legal characterization of the maritime zones in the WPS, the logic of any favorable findings could also work against Vietnam’s current position. It holds the most number of features in the Spratly Islands, but majority are also artificial structures on submerged reefs like China’s, and at least five are within the Philippine EEZ and continental shelf.

If Vietnam joins the Philippine cause against China, it would be admitting that these are likewise illegal. Removal of those structures will not affect its island possessions, but Vietnam might consider it to be in its legal interest to contest the Philippine Application to either preserve or pursue its claims to the entire Spratlys, which it calls Truong Sa. A Vietnamese intervention, if allowed, combined with Chinese non-participation could turn the legal contest into one between the Philippines and Vietnam instead.

4.) Another scenario is the tribunal proceeds, but grants an award that directs the parties to enter into bilateral negotiations to settle the issues between them. Especially in light of the absence of consent, and the interim nature of the reliefs sought in the Application (after all, the issue of sovereignty over the islands and rocks are the very source of the maritime disputes), a directive to negotiate would place the Philippines, after all that is said and done, right back at square one.

Alternative tracks

Yet, there are also several alternative tracks that the arbitration process might divert the parties to.

One is an amicable settlement negotiated between the two parties as recommended by UN Secretary General Ban Ki-moon.

It has happened on occasion that States began arbitral proceedings and then ended up negotiating a compromise agreement before the tribunal finished its task. Litigation, after all, can serve as leverage between parties, and may instead bring them to an agreed resolution they both create. This is usually preferable to States because the outcome is subject to their control unlike an arbitral award which may result in a completely satisfactory relief.

This presumes that there remains sufficient trust, confidence, and good relations between the disputing parties so that they continue to discuss possible solutions despite the engagement of the arbitration process. It goes without saying that it also requires an enormous amount of skill in bilateral diplomacy and negotiations, and a willingness to negotiate.

Another possible track is the intervention of a conciliator or mediator who offers amicable solutions to both parties.

Going into arbitration essentially means that there is a deadlock between parties, which often results from their having become too entrenched in their positions that they see no other ways out of their problem. A third party may have a different view of the issues and offer a fresh, independent perspective that enables it to find solutions where the disputing parties see none.

However, this presumes the existence of a disinterested conciliator/mediator who is independent and credible to both parties. It also assumes that parties are willing to negotiate a settlement based on the conciliator/mediator’s proposals.

Yet another track is the outbreak of hostilities.

Nobody wants this to take place, but logic dictates that it remain a possibility. While the chances of general hostilities are remote, incidents involving the use of arms on a limited scale are not precluded. All that it really takes is a simple mistake by a nervous, impulsive individual out at sea. China and Vietnam have already had such incidents take place between them, resulting in casualties and the forceful taking of islands in the South China Sea, even though the incidents did not escalate into war. The level of risk is usually proportional to the actual state of relations and speed of real communication between the two countries involved; hence, the importance of ensuring the continuation of cordial and genuinely friendly ties all throughout the arbitration process.

Though hostilities are very unlikely, non-military conflict in the form of economic and political altercations are par for the course and to be expected. Officially, both the Philippines and China agree and reiterate that the contentious issues in the WPS do not constitute the sum-total of all their relations, and that the dispute should not affect the development of other bilateral relations.

But the truth is that this separation is only artificial: one cannot be extremely hardline and adversarial one day and then completely friendly and cooperative on the next without losing trust and credibility. Only doubt and suspicion are generated by obviously inconsistent conduct.

It would be surprising if China were to not respond economically or politically with punitive intent, not only directly through its bilateral relations with the Philippines but also through its relations with other countries. The country could be politically isolated and economically stranded, especially from the expected growth of the Asian hemisphere.

The road ahead

The above scenarios paint a long and difficult road for the Philippines’ attempt to bring China to arbitration, and highlight the seriousness and gravity of such a decision.

It is no wonder that some describe the Philippine move as “bold” while others “desperate:” its future path appears as a battle between Don Quixote and the windmill, in addition to David versus Goliath. It is indeed an idealistic gambit, requiring the confluence of both good fortune and skill in order to prevail.

What people must understand is that the idealism in UNCLOS rules and the reality of international relations do not converge, and there is a constant tug-of-war between the demands of principles and the requirements of politics.

If anything, the arbitration process only places a greater onus on the Philippines to become better in international diplomacy, enhance its skills in bilateral and multi-lateral negotiations, and ironically, improve its relations with China. The arbitration cannot take place in isolation from other foreign relations, and any one of the wild cards and alternative tracks outlined above will require major diplomatic activity. Unlike in a domestic context where litigants can ask a court to render and enforce judgment after which the parties go on their separate ways, an international arbitration requires the parties to work together and jointly recognize and implement the award.

If the arbitration succeeds then the award can only provide a new starting point for conducting bilateral relations, and falls rather short of defining a final, comprehensive, and durable solution to the issues in the WPS.

If the arbitration fails then the parties likewise have no choice but to continue working bilaterally toward a peaceful solution because no proposal can work without both parties’ cooperation. This arbitration exercise may in fact be more useful in providing opportunities for breaking the deadlock in relations rather than producing a decision.

In the end, a truly durable solution to the issues in the WPS requires the Philippines to marshal incredibly skillful diplomacy, muster improbably good luck, and have absolute and unshakeable faith in an impossible dream. – Rappler.com

What our China ‘problem’ really means

BY JULIO AMADOR III

 

The Philippines’ initiation of arbitral proceedings against China has taken many people by surprise. To some, it is a brave act by a small nation against a domineering regional neighbor. To others, it is the height of folly, because in the end, China can just ignore this action and still get away with it.

Such is the nature of an anarchic international system, which knows no master beyond the nation-state. Dating back to ancient Greece, the dictum that the strong do what they can and the weak suffer what they must is still a key point in the study of international relations.

Chinese Foreign Minister Yang Jiechi puts it succinctly in a statement at a meeting of the Association of Southeast Asian Nations in 2010, “China is a big country and other countries are small countries and that is just a fact.” Behind this statement of “fact” is the implicit threat that small countries, such as the Philippines, really have no choice but to accept that the regional order of power is going to change, whether we like it or not.

Generally safe under the United States of America’s security umbrella we, Filipinos, have grown to believe that foreign policy is mainly about our considerable Overseas Foreign Workers (OFW) or, if it crosses our minds, about trade matters that are esoteric except to the knowledgeable few. We seem to have lived under the surety that, being an archipelago, we are safe from possibilities of inter-state conflict and war. China’s changed behavior, from a country asserting that it was on a peaceful rise, to an aggressive would-be seeker of regional hegemony, has upset our beliefs that we need not worry about the prospect of conflict with other nations.

As a nation fascinated or obsessed (depending on your view) with the law, we have also lulled ourselves into thinking that international law is just like any other law. That when a decision is given somewhere in the obscure world of the United Nations, everyone is bound by it and everything will be fine and dandy. However, let us disabuse ourselves of that notion.

States still have the capacity to ignore international laws that they feel are contrary to their national interests. From the conflict in Afghanistan and Iraq to the uprisings of the Arab Spring, we have seen how states can pick and choose what international norms they want to observe because at the end of the day, who will enforce international law?

We should not kid ourselves, therefore, that bringing the disputes in the West Philippine Sea to an arbitral tribunal will cause the main issue to go away: China has risen, and beyond the territorial disputes, we have to deal with its claim to regional leadership and do our best to ensure the Philippines’ security when China flexes its considerable power.

National interest

Which brings us back to our basic problem: What do we Filipinos really consider as our national interest? Philippine foreign policy is an expression of our national interest and we should therefore be clear about what our national interest really is. Foreign Secretary Albert Del Rosario, in a 2012 statement, believes that the roots of our foreign policy can be found in our democratic values as a people. He states that “It is our values and principles as a people that define our national interest.”

Our national interest is clearly the protection and preservation of our values and principles as a people. This should be the start of our understanding of our basic foreign policy problems, including our current impasse with China.

Anyone who has listened to or read the statements that come from former national security adviser, Jose Almonte, will know that our long-term security is only possible if we are able to transcend our parochial interests and truly start the process of consolidating our nation-state. This means that we need to consolidate our democracy, end our internal conflicts, and ensure that political power is in the hands of the many and not in the hands of the elite few.

Some may argue that these are long-term reforms, but when will we start? It has been more than 20 years since the EDSA I revolution, and more than a hundred years since we declared our independence from Spain but we still have not come to grips with the issue of weak national material and ideational infrastructures. For our foreign policy therefore to be able to protect us from all external challenges, whether political or economic in nature, we have to start working as one people who are clear what our national interests are.

Which brings us back to what I contend is the real premise behind our issue with China. If observers contend that, as a country with no considerable power in the international system, the Philippines has no choice but to behave according to Chinese dictates, we have to assert that we are only seeking to protect those values that define our being Filipino, which Secretary Del Rosario identified as “principles of democracy, human rights, good governance, and the rule of law.” And if we are called naïve because we believe that these values are also the values that humanity should be upholding in this era of globalization and interconnectedness, then let it be so.

As we face an international environment that is continuously in flux, Filipinos have to be firm in holding on to our values that speak of a future that is not a product of a global system of pure power politics, but one of responsibility and non-indifference to the plight of our fellow global citizens. But this should start with us as well, that we cannot be indifferent to the suffering of our fellow Filipinos nor can we disassociate ourselves from the difficult task of nation-building and democratic consolidation.

As Almonte reminds us, “Those who sacrificed and died for us and for Filipino generations yet to come will never forgive us if we fail to summon the courage and the will to take the radical steps toward our future.” This China “problem” therefore should serve as a challenge to us to find how we as a people can work together to resolve an issue that matters to all of us who proudly call ourselves Filipinos. –Rappler.com

Filipinos wiser in money decisions

BY RAPPLER.COM

MANILA, Philippines – From a nation of spenders, the Philippines is becoming a nation of savers, according to the latest Citi Fin-Q survey by Citi Philippines.

Filipinos scored a record high of 53 out of 100 points in the survey, which measures consumers’ financial quotient.

“We are seeing how Filipinos are taking a more active role in managing their finances and planning their future,” City Country Officer Sanjiv Vohra said in a statement.

The survey found that 9 out of 10 Filipinos set budgets on a monthly basis, and 65% stick to their budgets.

Nearly 8 out of 10 said they own insurance products or enjoy income protection, while a total of 63% said they are on track with their retirement or have started to set aside some savings for it.

Building savings is also the top financial concern of Filipinos, according to the survey results. Six out of 10 said they “know a fair bit or know exactly their current net worth.”

The survey interviewed respondents who were over 18 years old and owned either a bank account or a major credit card. The responents were scored on 11 different questions related to financial decision-making and habits.

The results of the survey mirrored figures released by the Bangko Sentral ng Pilipinas that showed Filipino households were the primary savings driver in the 2012 economy.

According to BSP data, Filipino households’ savings increased by 6.3% to P909.8 billion in 2012. “This could be attributed to sustained inflows of overseas Filipino remittances and favorable domestic labor market conditions,” the BSP said. – with reports from Aya Lowe/Rappler.com