Why the Duterte Government’s “Build, Build, Build” Signifies a Recipe for a Crisis

Last weekend, I wrote

The NEDA just did NOT get the memo. Like the war on drugs, political mega deals with the Chinese government will be beyond the scope of edicts, legislation and mandates—or even the constitution.

Confirmed!

From the Friday’s proposed massive infrastructure spending program (Inquirer November 4, 2016)

“Build, build, build” is the battlecry of the Duterte administration as it intends to ramp up infrastructure spending to the tune of P8 trillion in the next five years, according to Transportation Secretary Arthur Tugade.

Cabinet members on Thursday called on Congress to grant President Duterte emergency powers on transportation projects as they presented the administration’s planned infrastructure program to spur development and ease traffic congestion in the country.

Without the emergency powers, the projects, which include new roads, bridges, railways, and the improvement of airports, will  be delayed, Tugade said.

Selective bidding

“Is the population willing to wait some more?” he said at a press briefing in Malacañang.

The emergency powers being sought for the President would allow him to conduct selective bidding, direct contracting, or negotiated procurement for materials or services for projects intended to deal with the transport problem.

The bill that would authorize these powers would also bar lower courts from issuing temporary restraining orders or injunctions against the projects. Only the Supreme Court would be given the authority to issue such an order.

First, emergency powers simply omit or bypass the check and balances provided by the extant institutional and legal framework. Through centralization, the executive imbues or absorbs MORE political control over the economy.

Short circuiting the defective check and balances would entail of even MORE abuses than less. Greater risks of abuses have been sidelined due to the populist embrace of the superhero syndrome. Or the public’s blind faith on the strong man government to deliver promises. Yet the public forgets that the leadership is NO god and is just a human being who is subject to mortal frailties.

Second, it is pretty much obvious that martial law would NOT be required at all for the current drift to an ochlocratic leftist dictatorship.

The executive only requires a stamp pad legislative branch and a supine supreme court to put in effect its pet projects.

By virtue of complete control over the other branches of government, the executive branch can unilaterally impose whatever it desires.

Third, transforming the consciousness of the society requires a strong command of language that gains popular acceptance.

And this has easily been attained by virtue of indoctrinating fallacies as reality.

Government infrastructure spending equals G-R-O-W-T-H has signified a shibboleth for the majority, including so-called experts.

Benefits are seen, but never the cost.

Mao’s China, USSR, Cuba and North Korea have all relied on government spending including infrastructure, but where are they now?

The Japanese government has embarked on a series of fiscal infrastructure stimulus since its bubble imploded in 1990s. Yet more than two decades after, the Japanese economy still wobbles from economic stagnation while the cost of such undertaking has catapulted its debt conditions to the largest in the world. It’s why Abenomics embarked on a grand NIRP experiment which also includes never ending infrastructure spending. So Abe-Kuroda’s grand experiment has now translated to greater risks of instability more than G-R-O-W-T-H. [I dealt with this in Philippine Peso Tumbles 1.4% the Largest Weekly Loss Since 2014; Why the Weak Peso Signifies a Long Term Trend September 18, 2016]

Modern day China or “Communism with Chinese characteristics” has been no different.

Even the Chinese government’s addiction to credit intended just to inflate GDP statistics has become so evident for the mainstream to ignore

From Bloomberg (November 2 2016; bold mine)

In the five fastest-growing provinces, total fixed-asset investment exceeded the sum of their gross domestic product in the first three quarters of this year, according to new data from 29 of 31 provincial governments. In Chongqing, Guizhou, Tianjin, Jiangxi and Anhui, combined total investment was 6.56 trillion yuan ($969 billion) versus their combined economic output of 6.37 trillion yuan, the data show.

Despite a transition toward services and consumer-led growth, investment by the government, developers, or companies is still the engine fueling the fastest expansion rates. While the economy looks resilient for now -- the latest evidence of strength coming Tuesday with data showing the official manufacturing gauge jumped to a two-year high -- the addiction to investment and rapid credit growth needed to fund it is a growing concern.

China’s government has vowed break its stimulus addiction by boosting services, which accounted for more than half of the overall economy’s output last year for the first time, and consumption, a major prop this year. But quitting the old build-it-and-they-will-come mentality is proving harder to do at the provincial level as it remains the quickest way to juice GDP.

The reason why the Chinese economy seems “buoyant” today has been due to the astounding skyrocketing of social financing costs to the tune of $2.6 trillion (Yardeni.com). Bank loans have shot to the moon with a stunning $1.9 trillion of credit growth in a YEAR! That’s T-R-I-L-L-I-O-Ns!

It’s a grand stimulus which has been DWARFED the 2008 (US $586 billion) scale. The IMF warned last August that China’s 254% debt to GDP is unsustainable and must "urgently address the problem." (CNN MoneyAugust 12)

Such massive infusion of credit has only stoked a runaway bubble in property that may spillover to stocks.

Yet the Chinese government cannot wean away from credit, because doing so would mean a collapse of the house of cards entirely DEPENDENT or built on credit expansion.

Government infrastructure spending does NOT represent the HOLY GRAIL.  

Since resources are scarce, government spending would entail resources taken away from the productive economy. The significance of the proposed “Build, build, build” project is the expansion of the government at the expense of the productive economy.

Another is that since the said infrastructure projects are political, then distribution of benefits would favor the politically well-connected parties from the private sector. Chinese and Japanese sponsors are likely to benefit from the administration’s doleouts.

Yet once China and or Japan will be engulfed by a crisis those deals with Philippine government can be expected to vaporize.

Third, with government growing faster than the private sector, this entails more debt, higher taxes and increased inflation which will all be manifested through a weaker peso. Yet more politicization would postulate to greater risks of instability and crisis.

Finally, all it takes to increase investments is to respect and uphold private property or property rights and its ramifications: promote voluntary exchanges and sanctity of contracts. The short of this is to implement Economic FREEDOM.

But since HUMAN LIFE is the ESSENCE of property rights, and since life has NOT been respected—having been subjected to political fetishes by playing the role of god—then NO amount of government spending will translate to an avalanche of investments.

That’s because investors would not only seek a Return on Investments (RoI), but more importantly, desire an assurance of the Return OF Investments as a fundamental feature of a commercial environment. If the latter can’t be secured, then there would hardly be any investments at all.

Mind Control Propaganda: About that $19 Billion of Japanese Investments and the Bizarre Love Triangle Foreign Policy

From the Inquirer

The Philippines has received offers of investments and loans totaling $19 billion during President Rodrigo Duterte’s three-day official visit to Japan.

The bulk of the amount, $17.2 billion, was offered by Marubeni Corp., one of Japan’s major integrated trading and investment business conglomerates, Trade Secretary Ramon Lopez said in a text message to reporters in Manila on Thursday.

According to  a document provided by Lopez, Marubeni will be “involved in $3.2 billion worth of projects (short term) and $14 billion (medium to long term) worth of projects in mass transport systems, roads and highways, water and power.”…

The agreements were signed after the Philippine Investment and Economic Forum on Thursday, which was attended by more than 1,000 Japanese businessmen and about 200 representatives from the Philippine business community, Lopez reported.

The impression generated by the article here is that Mr. Duterte’s visit to Japan elicited Marubeni and other Japanese business interests to impulsively open their checkbook and send them to the leadership. 

Both media and the government projected C-O-N-F-I-D-E-N-C-E in the article!

Such misperception has been reverberated or echoed by the public based on many commentaries.

Yet economics tells us that these “investors” EXPECT not only a RETURN on their capital but likewise INTEREST payments on loans.

In other words, Marubeni and other Japanese investors haven’t panicked to send their money to the Philippine government BECAUSE of the leadership alone. They have MOST likely conducted FEASIBILITY studies to determine whether these short and long term investments would generate sufficient returns and interest payments from their investments.

And they have done this EVEN long BEFORE Mr. Duterte’s visit. And the administration simply GRABBED credit for these long due investments.

Proof?

Trading house Marubeni, which has been doing business in the Philippines for more than a century, is “upbeat” about its investments in the country.

These include stakes in the power and energy development sectors, mass transportation projects such as the Metro Rail Transit 7 and the Light Rail Transit 2 extension, and the water sector.

New forays

Marubeni chair Teruo Asada said his conglomerate was also looking into new forays in the Philippines, including commercial vehicles.

Or this…

The President also met with Teruo Asada, chairman of Marubeni, which has had a 105-year presence in the Philippines.

Coloma said Marubeni is upbeat about its current Philippine investments in power, energy development, water utility, and mass transportation (MRT 7 and LRT 2 extension).

The Japanese company has also shown great interest in exploring new fields of business development in the Philippines, such as in commercial vehicles.

President Aquino arrived at the Haneda International Airport about 3:19 p.m. Tuesday for a four-day state visit.

The former quote was from an Inquirer article “Japanese traders eye PH investments”, in June 3, 2015. The latter was an Interaksyon article “Japanese investors eye business expansion in Philippines”, also from the same date.

Note that Marubeni has been “upbeat” in the Philippines even during the former president’s time. Importantly, the Japanese firm talked about virtually the same field of interests with what Mr. Duterte reportedly obtained: namely, mass transport, power and energy and utility

In fact, Marubeni has been mulling investments here way back in June 2009 or SEVEN years ago! From Philstar “Marubeni mulls investments in renewable energy projects”  June 30,  2009.

Japanese trading giant Marubeni Corp. is mulling investments in renewable energy projects.

Masumi Kakinoki, Marubeni senior operating officer for the Power Projects and Infrastructure Division, said this is consistent with the company’s thrust of promoting a cleaner environment.

We are eyeing more investments, especially in renewable projects. We are very much an environment conscious company,” he said…

The Marubeni official said they are still studying which kind of renewable projects they will venture into.

This shows that Marubeni has been “upbeat” and has mulled over Philippine investments even PRIOR to the Aquino administration or during the GMA administration!

The simplistic idea presented has been Duterte PLUS $19 billion Japanese EQUALs C-O-N-F-I-D-E-N-C-E and eventual G-R-O-W-T-H!

Another sad post hoc fallacy designed to feed politics as salvation to the masses.

There have been lots of issues to deal with on reported Chinese investments. Some sectors have already raised concerns over dubious or tainted characters of so-called Chinese investors.

Yet there is also the sphere of geopolitical relations.

Given that the Japanese government has been demilitarized as consequence to World War II, they have largely been dependent on the US for its defense. The US maintains several bases in Japan.  In fact, Japan has a non-nuclear weapons policy, though the Japanese government has the infrastructure to produce themfast, if they so desire.

So Mr. Duterte’s angling of the Japanese signifies nothing more than a charade. The Philippine administration appears to be adopting a “bizarre love triangle” as foreign policy.

And given that Japanese could be seen as vassals for the American imperialism, Japanese "investments" will most likely have some tacit concurrence with the US government. This means that the US may be giving the Philippine leadership some room for normalization of foreign policy. 

Besides who will Mr. Duterte chose in the territorial island dispute between the Japanese and Chinese government? How much more if these parties end up in a shooting war?

From Nikkei Asian Review [Duterte walks fine line between Abe, Xi on South China Sea October 27]

Abe called on Duterte to stand by Japan on the dispute, calling it a "matter of interest to the entire international community that is directly tied to regional peace and stability."

Mr. Duterte doesn’t seem to be playing neutral here. Instead, it would appear that he has been playing these contentious forces against each other (the Machiavellian divide and conquer strategy).

Bizarre love triangle.

Finally, Philippine populist ochlocratic politics have reached goofy levels.

From Washington Post's headline (October 27): Philippine leader Duterte says God told him to stop cursing

On the issue of Philippine patrols at disputed islands: From GMA: (October 28) Duterte: I don’t think China will stop PHL from patrolling territorial waters [bold and capitalization added]

President Rodrigo Duterte sees no issue with China in using patrol vessels acquired from Japan in the West Philippine Sea. 

"Yes, within our territorial waters… But if you want, wala man tayong problema. I don’t think they would stop us, I mean China would stop us just going there and making a cruise," the President said in a chance interview after visiting the Japan Coast Guard on Thursday afternoon. 

Duterte then added that he even told China could even park near Philippines' territorial waters. 

"As a matter of fact, I also told them [China] that they can go near MY territorial water and park there if they want," the President revealed.

The Philippines now represents a fiefdom of Mr. Duterte?

As German propaganda minister,  Joseph Goebbels said in a speech in 1923 (bold mine)

It is the absolute right of the State to supervise the formation of public opinion.

If you tell a lie big enough and keep repeating it, people will eventually come to believe it.

The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.

All actions have consequences. Sad to say, implicit in these actions would be a far BIGGER government that comes at the expense of the private sector economy and a severely restrained civil liberty