Bacevich:A Time for Reckoning-Ten lessons to take away from Iraq

A Time for Reckoning
Ten lessons to take away from Iraq
By Andrew J. Bacevich

Reality has not dealt kindly with the hopes and expectations conjured up to justify Operation Iraqi Freedom. Although the war may not be lost, it cannot be won, at least not as the Bush administration once defined winning. What then are we to make of this experience?

The question may strike some as premature. Whether President Bush (or President Kerry) “stays the course” or cuts American losses, difficult days lie ahead. The bill yet to be levied for this misadventure promises to be steep. More Americans and even larger numbers of Iraqis will lose their lives. Combat operations and the black hole of “nation-building” will consume additional billions of dollars, adding to the ocean of red ink that is the federal budget. Yet even as events wind their way toward what promises to be a deeply unsatisfactory denouement, the argument over what it all means must necessarily be joined. Common sense dictates that we apply to future U.S. policy what we have learned in Iraq, and the future will not wait.

With an eye toward that future—and with no claim that any of what follows qualifies as definitive—herewith a first cut at identifying the war’s operative lessons.

First, ideology makes a poor substitute for strategy. With the invasion of Iraq, it became impossible to deny that in the heady aftermath of the Cold War American grand strategy became uncoupled from reality. Certain that history had spoken and that Americans were uniquely able to interpret its meaning, policymakers both Democratic and Republican uncorked old vials of Wilsonian illusion and breathed deeply. As a consequence, zealotry supplanted calculations of power and interest as a determinant of U.S. policy.

Bill Clinton entertained visions of globalization, creating a world without borders in which all nations would be sure to enjoy the blessings of peace, prosperity, and democracy. George W. Bush topped Clinton, vowing after 9/11 not only to eliminate terror (an impossibility) but also to put an end to evil. But mixing utopianism and politics is a recipe for miscalculation and an invitation to strategic bankruptcy—as the Iraq War has painfully reminded us.

It is the tradition of George Washington rather than the tradition of Woodrow Wilson that best serves American interests. The nation’s first president—and successors like Lincoln, both Roosevelts, Truman, and Eisenhower—understood not only the uses but also the limits of power. That balanced sensibility, anchored to considerations of prudence, has vanished from the current foreign-policy elite. There is an urgent need to restore it.

Second, wars leave loose ends. In a political sense, decisive victory—meaning military success that makes a clean sweep of the complaints giving rise to war in the first place—is a pipe dream.

Operation Iraqi Freedom was supposed to finish the job that Bush’s father had left undone in 1991. Oust Saddam Hussein, the war’s supporters promised, and all sorts of good things were sure to follow. War would transform Iraq into the first Arab democracy, usher the Middle East into an era of lasting peace, and nudge Islam toward moderation and modernity. Today, the Ba’athist regime is gone, but none of the predicted benefits seems likely to materialize. Instead the United States has exchanged the limited burdens of containment for the far more onerous burdens of occupation. We have overthrown a tin-pot dictator posing no immediate threat to the United States and thereby energized and encouraged far more dangerous enemies. Rather than persuading Muslims to see America as liberator and friend, we have cemented our image as Great Satan.

War is like a highly toxic drug: with the cure come side effects. And Iraq reminds us that the side effects can prove worse than the disease.

Third, allies have choices—and will exercise them. Across a decade of hyping the United States as “sole superpower” and “indispensable nation,” too many policymakers persuaded themselves that America’s traditional allies had no alternative but to accede to U.S. “global leadership.” Both the Persian Gulf War of 1990-1991 and the Kosovo conflict of 1999 seemed to show that when Washington called, others clamored to board the bandwagon. To opt out was to be left out and left behind: from Washington’s perspective, this was a risk that few “friends” were likely to take.

Iraq demolished such fantasies. Allies are not vassals. When interests diverge sufficiently, “friendship” counts for little. The Iraq experience has, time and again, affirmed this fundamental principle: when “old Europe” chose to sit out the war altogether; when Turkey rejected Washington’s request to allow U.S. troops to cross its territory; when Spanish voters concluded that occupying Iraq was exacerbating rather than reducing the threat of terror. At every step of the way, as key allies stiffed us, the costs borne by the United States have necessarily risen.

Even before Iraq, the bonds that once joined what was called “the West” had already (and perhaps inevitably) begun to fray. Thanks to its insistence on preventive war, the Bush administration has hastened the West along the path toward oblivion. Nations whose support we once assumed to be a given now question the acceptability of the Pax Americana and may yet muster the collective will to proffer an alternative. Before launching on more crusades, we have diplomatic fences to mend.

Fourth, Israel’s war is not our war. President Bush’s undifferentiated “global war on terror” has encouraged the government of Ariel Sharon to assert that Israel’s enemies and America’s enemies are one and the same. But they are not. Indeed, Sharon’s misguided effort to crush resistance to Israel’s occupation of the West Bank and Gaza through brute force serves only to complicate and exacerbate our own problems. Sharon’s policy will not work, and as Israel’s chief supporter we get tagged with much of the blame.

Resolving the Israeli-Palestinian dispute will not itself alleviate Muslim antagonism toward the United States. But absent such a resolution, that antagonism will fester, thereby providing fertile ground for Osama bin Laden and other Islamic radicals to enlist new recruits.

We should not deceive ourselves about the prospects of bringing real peace to the Holy Land. Something like partition is probably the best outcome one can hope for. But brokering and if necessary enforcing such a partition rather than vainly attempting to democratize the Arab world at the point of a sword ought to form the centerpiece of U.S. policy in the Middle East. Further deference to Israeli hardliners like Sharon, who know nothing but force, is contrary to American interests. True friends of the Jewish state will see it as contrary to Israel’s interests as well.

Fifth, “shock and awe” gets you only so far. More than a decade ago, the previous U.S. war against Iraq brought to full flower the American romance with high-tech warfare. Operation Iraqi Freedom has offered the fullest illustration to date of what this new American way of war can and cannot do. On the one hand, it affirmed what we already learned in Desert Storm: U.S. forces will make short work of any conventionally organized and equipped adversary foolish enough to put up a fight.

On the other hand, developments since the fall of Baghdad have also affirmed what we learned in Mogadishu: against a determined insurgent armed with even primitive weapons, air power, stealth, and precision weapons—all the signature capabilities that distinguish the preferred American style of warfare —won’t do the trick. Defeating guerrillas requires something more and something different. The United States military is no closer today to devising a technological solution to the riddle of unconventional war than it was when Vietnam ended in defeat.

Sixth, the margin of U.S. military supremacy is thinner than advertised. Ours is undoubtedly the mightiest military the world has ever seen, with a more than ample inventory of high-performance fighter jets, aircraft carriers, and top-of-the-line nuclear submarines. But our inventory of soldiers and Marines is grossly inadequate—inadequate at least to implement President Bush’s grandiose plans for sprinkling the blessings of liberty throughout the Greater Middle East. Despite the administration’s obdurate insistence to the contrary, the fact is that the United States today has too few soldiers doing too many things.

In just one year, the Iraq morass has brought U.S. ground forces within a hair’s breadth of overstretch. Expedients such as relying on reserves and hiring thousands of mercenaries have not fixed the problem; they embody it. Announced plans to divert troops from Korea to Iraq and to deploy stateside training cadres show just how bare the cupboard has become.

If the United States is intent on playing the role of global hegemon, we need to put more young Americans in uniform—lots more. If as citizens we’re not willing to pay that price, then the Iraq experience should oblige policymakers to scale back their ambitions.

Seventh, the myth of American casualty aversion is just that. The conventional wisdom of the 1990s was that a risk-averse military and a casualty-phobic public constituted major obstacles impeding the effective use of force. For the Clinton administration and its defenders, this became a convenient device for offloading onto others responsibility for American military fecklessness. The onus for the pseudo-campaigns of the decade leading up to 9/11—the zenith coming in 1998 when U.S. Navy cruise missiles demolished an empty pharmaceutical factory in Khartoum—lay not with the commander-in-chief but with foot-dragging generals and fainthearted citizens who lacked the stomach for serious military action.

Historians can debate whether or not the sensitivity to casualties was ever as great as it once appeared. But there is little room for debate that the events of Sept. 11, 2001 swept aside any such constraints. Traditional American ferocity and bloody-mindedness reasserted themselves with a vengeance. All that was needed was competence at the top to harness and direct it. But as the Iraq debacle has made plain, competence remains, as it was in the 1990s, in precariously short supply.

Eighth, so too with the myth of an American genius for spreading democracy. From the very day that U.S. forces entered Baghdad, the officials charged with raising a new Iraq out of the ashes of the old have displayed remarkable ineptitude. However admirable the hard work of those who have risked life and limb to give the Iraqi people a fresh start, the overall effort has misfired.

Far from replicating the success achieved in postwar Germany and Japan after 1945, L. Paul Bremer has managed to reprise the sorry record achieved in places like South Vietnam. If the United States insists that it needs to be in the nation-building business, then it’s time to go back to square one, drawing on the disappointments of Iraq to devise the techniques, create the institutions, and develop the leaders to do better next time out. Or, perhaps more wisely, we might conclude that bringing democracy to the Arab world is akin to making bricks without straw—a trick best left to others.

Ninth, it’s hard to win when you don’t know whom you’re fighting. Much has been made about the blunders in strategic intelligence such as the failure to anticipate 9/11 and the bogus assertions regarding Saddam’s weapons of massive destruction. But the inadequacies of tactical intelligence have been at least as great, if not greater.

In a situation truly without precedent in all of American military history, American forces in Iraq have for more than a year been engaged in a full-fledged shooting war and still do not know whom they are fighting. The reliance on generic terms to describe the “terrorists,” “insurgents,” or “foreign fighters” tells the story. Exactly who is the enemy? How is he organized? Who gives the orders? What are his aims? We don’t know. And as long as we don’t, the enemy will retain the initiative.

In short, the Iraq War shows that the imperative of intelligence reform goes far beyond any problems attributed to the CIA.

Tenth, civil-military relations at the top are broken. The Iraq War has confirmed what had already become evident during the 1990s: the relationship between senior military leaders and the top echelon of civilian officials is dysfunctional. That dysfunction contributes to flawed decisions on crucial issues related to peace and war.

During the Clinton era, the problem was one of a weak commander-in-chief unable or unwilling to assert effective control over the generals. Donald Rumsfeld came into office intent on clearing up any confusion about who is in charge. But the Rumsfeld approach is to treat his principal military advisers with McNamara-like disdain. Those who speak up—like the Army chief of staff who had the temerity to suggest that occupying Iraq might require a considerable number of troops—are rebuked and marginalized.

The point is not to suggest turning war over to the soldiers. Unambiguous civilian control is essential. But effective civil-military interaction demands something more than simply throttling generals. It means incorporating professional military expertise into the debate over basic national security policy. That in turn requires a combination of trust, honesty, mutual respect, and mutual self-restraint that has been absent for many years. This is an intolerable situation that in all likelihood the Department of Defense itself cannot fix. It cries out for serious and sustained congressional attention.

As was the case with Vietnam, the debate over the lessons of Iraq promises to be a protracted one. Again as was the case with Vietnam, the temptation to exploit that debate for partisan purposes will be great. But the issue is too important to use as an excuse for bashing neoconservatives, scoring points against President Bush, or luxuriating in the peculiar satisfactions of Schadenfreude. To avoid repeating the errors that got us into this mess, we need to get those lessons right.

___________________________________________________

Andrew J. Bacevich is professor of international relations at Boston University.

His latest book is American Empire: The Realities and Consequences of U.S. Diplomacy.
July 19, 2004 issue
Copyright © 2004 The American Conservative

The Economist on Greenspan's Testimony: Your flexible friend

Your flexible friend
Jul 21st 2004

From The Economist Global Agenda

The hard times are behind us, says Alan Greenspan. And the American economy is flexible enough to withstand any troubles on the horizon
 
WHEN Alan Greenspan, the long-serving chairman of the Federal Reserve, needs help nodding off at night, he sometimes reads his own speeches. This confession, made on Tuesday July 20th during his twice-yearly Humphrey-Hawkins testimony to the Senate, brought a ripple of laughter from the assembled lawmakers, and a murmur of recognition from Fed-watchers everywhere. In the past few months, Mr Greenspan has succeeded in making monetary policy soporific. He has said nothing that he hasn’t been keen to repeat several times. He has done nothing that he hasn’t been careful to talk about well in advance.
 
This week’s testimony, delivered first to a Senate committee and the next day to a committee from the House of Representatives, will make for prime bedside reading. With the recovery proceeding apace, a tighter monetary policy was both safe and necessary, he said. Rates will most likely rise at a “measured” pace, but if he has to raise them faster to contain inflation, he will.
 
Inflation had picked up, he conceded, partly due to a “transitory” surge in energy prices, partly due to sustained strength in the economy. Mr Greenspan’s favourite measure of inflation (the price index for core personal consumption expenditures) stood at 1.6% in May, compared with just 0.8% in December. He does not think these rises will continue, but neither does he discount the possibility that more “deep-seated” inflationary pressures are building, as yet unseen in the data.
 
So far, Mr Greenspan noted, inflation could not be blamed on higher labour costs. Rather, price rises were passing straight into the corporate bottom line. In the year to the first quarter, prices had risen by 1.1%, all of which can be attributed to a rise in profit margins. Fully 12% of the value of corporate output is now being taken as profit, up from just 7% in the autumn of 2001.
 
Buoyed by such strong flows of cash, corporate America is once again prepared to hire and invest. One or two companies with more money than they can easily spend, such as Microsoft (see article), are even handing some back to shareholders. But though companies are happy to invest again, they are still reluctant to borrow to do so. They remain careful to live within their means, their outlays on new equipment and replenished inventories never exceeding their cash flow. Mr Greenspan is surprised by the durability of this diffidence. “The protracted nature of this shortfall is unprecedented over the past three decades,” he pointed out. We are still, he thinks, living with the legacy of past corporate excesses and the fear of present terrorist dangers.
 
Mr Greenspan wants to return monetary policy to a more neutral stance. But no one knows quite where neutrality lies. The idea owes something to Knut Wicksell, a 19th century Swedish economist, who posited a “natural” rate of interest that would balance the supply and demand for capital. One senator, perhaps not au fait with his dead Swedish economists, asked for a number. But Mr Greenspan remained coy. We know when we are above the neutral rate, he observed, and we know that now we are below it. But we won’t know we have arrived at the neutral rate until we get there.
 
What is beyond doubt is that interest rates have been unnaturally low for an unusual length of time. Some fear that Mr Greenspan’s “accommodative” monetary policy has given households too much room to acquire debt. Now that rates are rising, households that have overstretched themselves may begin to feel the strain. Mr Greenspan disagrees. Far from tempting Americans to spend recklessly, low interest rates have helped them improve their balance sheets, he says. Even as they acquire new debt, they have shifted old debt to longer, cheaper rates. In the space of a year, between mid-2002 and mid-2003, homeowners refinanced almost half of their outstanding mortgage debt at more favourable rates, he points out.
 
If monetary tightening proceeds at the “measured pace” Mr Greenspan deems likely, he expects businesses and households to cope admirably. Financial strain will be confined to “individual instances”. Capital losses, particularly on bonds, will fall primarily on financial institutions that are well capitalised and well prepared.
 
Mr Greenspan’s speeches may be soporific, but the dreams they induce are cosy and sweet. His testimony revealed once again his confidence in the famed “flexibility” of America’s economy. Mr Greenspan’s is a world of smooth adjustments: households will make just such an adjustment to higher interest rates, he says; the dollar will adjust gradually to the slowing or withdrawal of foreign capital flows. As China slows, America will—you guessed it—adjust smoothly. America the Flexible bends before the prevailing winds, it does not break.

July 22 Philippine Stock Market Commentary

July 22 Philippine Stock Market Commentary
 
Our forecast that the US markets would rally due to the optimistic assessment by the US FED Chair Alan Greenspan boomeranged due to the weaker-than-expected corporate earnings specially affecting the TECHNOLOGY sector.  Nonetheless, the underpinning sanguine outlook of the local investors in the Philippine market once again boosted the key index benchmark to defy the regional sentiments weighed upon by the last night’s flogging of the US equity markets.  As of this writing 10 of the 15 indices of the Asian region are in the red.
 
The Philippine composite index, the Phisix rose a modest 13.47 points or .88% on lean volume, as local investors shored up the broader market while foreign buying remerged on select index heavyweights. 
 
Foreign capital inflows reappeared as today’s activities recorded a moderate P 57.813 million worth of equity asset acquisitions, while foreign trading activities accounted for 31.31% of accrued output.  Once again overseas investors directed the bulk of these inflows to PLDT (+1.7%) where 66% of today’s the company’s turnover were credited to foreign money.  The other major recipients of foreign capital were Jollibee (unchanged), Ginebra San Miguel (+1.72%) and First Philippine Holdings (unchanged). 
 
Aside from PLDT, two other major index components helped buoyed the Phisix, these are local-driven technically-oversold Globe Telecoms (+2.53%) and Ayala Land (+1.88%).  The rest of the heavyweights were neutral at best.
 
Once again market sentiment was largely in favor of the bulls as advancing issues whipped declining issues 39 to 28 while industry sub-indices were all higher except for the OIL index which closed unchanged. 
 
The market has shown a MINOR shift in gears, as foreign capital, despite the diminishing presence marked by the lower percentage share to total output (6th successive trading day below the 50% mark), has seemingly RENEWED its gradual and selective accumulation phase, REVERSING the outflows during the recent sessions or particularly the past week.  On the other hand the local punters have continued with its reshuffling ‘speculative’ activities reactivating moribund second and third tier issues on ‘tall tales’ or ‘insider triggered’ speculations with today’s 122 issues traded the 24th in 25 sessions.  A look at the top gainers list we have Gotesco Land ‘A’ (+50%), Gotesco Land ‘B’ (+46.66%), Alson Consolidated (+44.44%), ersatz bubble ‘BW’ now Fairmont holdings (+18.51%), Liberty Telecoms (+14.28%), call center Fil-Hispano (+14.28%), MRC Allied (+14.28%), AJO.net (+13.04%), PICOP Resources (+13.04%) and First Metro Investment Corp (11.76%). 
 
Well of course, trading based on ‘insider tips’ or ‘blah blah’ tales is a hazardous proposition considering that you might be at the tail end of the ‘word of mouth/tale’ cycle where insiders/insider associates, who spawned these nefarious activities, would be selling for profits while the ‘greater fool’ would be buying and left holding an empty bag.
 
Today’s trading environment is definitely distinct in contrast to the recent years where foreign money was the main catalyst to the directional flows of the market.  In other words, your portfolio could be adjusted to focus on ‘plays’ that have shown consistency in its price movement trends and supported by contingent measures to reduce losses.

July 21 Philippine Stock Market Commentary

July 21 Philippine Stock Market Commentary
 
Inspired by the yesterday’s gains in Wall Street, Global bourses picked up the buoyant sentiment to likewise register advances.   As of this writing, European bourses, which just opened, are trading mostly positive while closing Asian bourses are ALL in the green.  Leading the region’s top winner are South Korea, Hong Kong, Taiwan, and Thailand with more than 1% gains.
 
The Philippines similarly was on the optimistic side of the trade up .41% or 6.32 points as chirpy local investors bought into the broader market.  Except for BPI, which grew by a hefty 2.46%, most of the blue chip issues reported scant gains led by PLDT up .42%, Globe Telecoms higher .63% and San Miguel ‘B’ added .73% while the rest of the heavyweights were unchanged. 
 
On the surface, volume turnover improved moderately to P 579.251 million but excluding cross transactions net turnover amounted to a niggardly growth of only P 312.798 million.  Cross transactions accounted for 56.64% of the aggregate output with ISM Communications and Salcon Power taking up the bulk.
 
While market breadth was palpably bullish, advancing issues trounced declining issues 46 to 19 or more than 2 to 1 and major subindices were mostly positive except for the OIL and PROPERTY index, foreign investors unassumingly disposed of the major index issues, as 6 of 8 heavyweights posted minor to moderate outflows. 
 
Foreign participation in the local trading continued to manifest declines as foreign share to total output contracted to only 39.94%.  Yes, net foreign money flows reported a positive P 13.091 million although this largely comes from the cross trades of ISM Communications shares which reportedly sold 7.6% of the its outstanding shares owned by Philweb to a Hong Kong publicly listed wholly owned subsidiary.  
 
Again the thrusts of the local investors have been on SPECULATIVE ISSUES which can be viewed from the list of top gainers.  Gotesco B and Premier Entertainment were up 50% a piece followed by Gotesco local (+45.83%), Crown Equities Inc (+26.66%), EIB Realty (+25%), Uniwide Holdings (+ 21.42%), APC Group (+20%), Global Equities Inc (+20%) Vitarich Corp (+18.51%) and Macroasia Corp (+18.29%). 
 
Today’s number of traded issues hit more than the 2 1/2 year record high of 124 issues.  Once again this manifest underlying bullishness by the locals, however due to the dearth of volume the advances have not been translated into substantial growth in the major composite index but were distributed among the third tier issues represented by the enormous broad market gap between advancing and declining issues.
 
US FED chair Greenspan’s recent optimistic assessments of the US economy gave reprieve to the oversold US markets that spilled over to the world.  Actually Greenspan’s appearances have sparked rallies in almost countless occasions since.  Today, Greenspan is scheduled to appear at the Congress after yesterday’s Senate Banking Committee appearance and should provide some impetus to sustain yesterday’s gains.  However, over the longer period the economic health of the largest economy of the world, the sustainability of corporate earnings growth and the ramifications of the Fed’s actions to restore normalcy to its short end interbank rates and the residual effects of the reduced fiscal stimulus are just some of the most important variables in play that would shape the US and affect the sentiments of the global financial markets.  Stay tuned. 
  

Hong Kong Remains World's Freest Economy, Says Cato Institute

Hong Kong Remains World's Freest Economy, Says Cato Institute,
by Mary Swire, for LawAndTax-News.com,

Hong Kong 19 July 2004

 
Hong Kong has retained the highest rating for economic freedom (8.7 out of 10), followed closely by Singapore (8.6 out of 10) in the latest Economic Freedom of the World survey conducted by free-market think-tank, The Cato Institute.

The United States tied for third place (8.2 out of 10) with New Zealand, whilst Switzerland, the United Kingdom, Australia, Canada, Ireland, and Luxembourg rounded out the top 10. The bottom five nations of the 123 studied by the Institute were Venezuela, the Central African Republic, the Democratic Republic of Congo, Zimbabwe, and Myanmar.

 

Botswana's ranking of 18th was by far the best among continental sub-Saharan African nations, the survey revealed, whilst Chile, with the best record in Latin America, was tied with four other nations, including Germany, at 22nd.

 

Other large economies achieved the following scores: Japan and Italy, 36th; France, 44th; Mexico, 58th; India, 68th; Brazil, 74th; China, 90th; and Russia, 114th.

 

The 2004 annual report measured a number of factors including taxes, business regulation, and hiring and firing flexibility in order to decide the economic freedom rating of each country. The figures were based on information collected in 2001, which is the most recent data available.

The survey found that nations in the top fifth of the economic freedom ranking have an average per capita income of $26,100, compared to $2,800 for countries in the bottom fifth. It also revealed that nations with greater economic freedom attract almost $11,000 of investment per worker, compared to $845 per worker in the most restricted economies. 

July 20 Philippine Stock Market Commentary

July 20 Philippine Stock Market Commentary
 
The SOFTENING US equity markets have clearly permeated into Global Bourses, which as of this writing resembles a flickering Rose garden with both the closing Asian bourses and the opening European markets mired in lackluster trading.
 
TEN of the fifteen bourses in Asia are in the red including that of the Phisix which fell for the second day of the week.  The major composite benchmark slipped .73% or 11.26 points as 6 of the 9 index heavyweight issues recorded declines for the day.  Bank of the Philippine Islands (-2.4%), Ayala Land (-1.85%), PLDT (-1.27%), Globe Telecoms (-1.25%), San Miguel local or ‘A’ shares (-.87%) and San Miguel foreign shares (-.87%).  Ayala Corp, Metrobank and Ayala Land were unchanged for the day.
 
Capital flows from foreign investors accounted for only 37.94% of today’s activities and is ostensibly on a DECLINING TREND.  In addition, net money flows from overseas investors posted a negative P 14.069 million.  Trading turnover continues to emaciate as local investors were left to support the market from exiting foreign money; 5 of the 8 index heavyweights manifested net foreign outflows. 
 
Market sentiment was preponderantly bearish, net foreign outflow, decliners beat advancers 40 to 31, and all major sub-indices were in the red except for the Phi-all index which was buoyed by the slight increase of Sunlife and Manulife shares.
 
Trading activities during the past quarter has shown dwindling interest of foreign money on local equity assets, this the Prudent Investor believes as empirical evidence suggests is largely due to evolving global financial and monetary conditions and NOT by domestic political related activities.  Besides the third quarter is usually the leanest season of the stock market, even in the Philippines.
 
The Phisix has broken its 50-day moving averages and points towards possibilities of more renewed weakness than strength, although a technical bounce could not be discounted anytime.  Again it would take local investors to inject more moolah into the market to boost the index than simply fiddle with third liners which have been the case of late.
 
In absence of the propulsion from the market leaders, the Phisix is expected to meander in the immediate term. 
  
  
 

A Libertarian's Critique of Spiderman 2, by Jeffrey Tucker: A Class Act

A Class Act
by Jeffrey A. Tucker
lewrockwell.com
 
The skinny on Spiderman 2 is that this is a movie that even movie snobs can love, and there's certain truth in this view. Its characters are more introspective and thoughtful than other superhero fare, and its social-critical undercurrent isn't overtly political enough to become annoying. In fact, its leftist core is barely discernable to most viewers; indeed, the over-arching critique of socialized crime control makes this a movie libertarians can love.
 
Leftist core? Let me explain. Spiderman has long been the approved superhero of the left, and the movie shows why. Peter Parker (Spiderman as civilian) is brilliant and gifted, but he is of working class origins, lives in a dumpy old apartment, and barely makes ends meet. His intelligence can only be employed to his advantage so long as he is in costume, at which point his gifted powers can be used to maximum effect (so long as he believes in them).
 
Otherwise his intelligence and powers have a limit in this bourgeois world: they cannot help him avoid his grasping landlord or bail out his aunt whose house is being taken by the bank. Parker's employers are cruel to him, a fact that seems to be necessitated by the cash nexus. Parker's only real source of income is to sell photographs of Spiderman to the newspaper. Hence is he forced to commodify himself into visual imagery just to survive.
 
This has all the makings of a dialectic that calls down the need for revolutionary change. The dialectic encompasses not only Parker but everyone around him. The class origins of others in his circle are barely disguised. His girlfriend Mary Ann is from the same background, though she has landed a part in a theater production of "The Importance of Being Earnest," Oscar Wilde's hilarious send up of the London upper class and an exposé of its essential phoniness and artificiality. This is a wonderful play but "no accident" (as the Marxists say) that it was chosen as the fiction-within-the-fiction.
 
Mary Ann's face appears on thousands of advertisements all over the city – she is beautiful after all – but even her act of image commodification doesn't somehow pay the bills. Her face is merely exploited in the service of consumer vanity and corporate greed. As a way out, she considers marrying "up" by attaching herself to some handsome young society man, but we discover later that he is the son of a newspaper editor who himself is probably one generation away from proletarian roots, and she doesn't love him anyway. Her true love is Peter, who embraces his class identity.
 
The villains in Spiderman emerged, predictably, from the milieu of the techno-corporate world where the pressure is always toward making gizmos of ever more power and might that will supposedly supply the world with energy, light, food, or whatever it may be. But the attempt to feed the voracious appetites of the mass consumer end up creating hubristic monsters bent on world hegemony. In this film, the corporate-villain is Ozcorp – no need to comment on the message behind that name.
 
As for Spiderman's choice – he can give up his superhero status and marry the love of his life, or he can dedicate himself to his calling above all else – is merely the re-rendering of the mythical professional revolutionary of socialist lore. In the stories told on the left, history is filled with great heroes who gave up private pleasure to dedicate themselves to the cause of bending history toward its rightful path: Marx, Lenin, Che, et al.
 
Thus can we see why Political Affairs, the Marxist journal, praised Spiderman as allegory of "populist identification with an ordinary character’s day-to-day frailties in corporate America, but also the desire to escape them and flee from the mundane cruelties of life. There is a hope here for something better, a higher striving, another freer existence." (For the same reason, the left has always hated Batman, the aristocrat of inherited wealth whose powers are not granted but built by private innovation.)
 
But you know what? All this talk about this class and that class means nothing at all to the American middle class, which imagines the category as so fluid in reality as to be meaningless in any structural way. Perhaps an ideological theory of class really stung in London in the 1890s and perhaps it still does overseas, where the institutional structure limits class mobility. But the idea of fixed stations in life stemming from class origins has never had any serious resonance in the United States, where all classes are commercial classes to some extent and there remains an essential truth in the observation that one can buy oneself social position.
 
The old planters of the original American "aristocracy" were self-made. The same was true of the industrialists. Even the upper class in the Gilded Age was unashamedly self-made. To be one generation away from the gutter has always been a badge of honor in the United States, while membership in the rolls of "heritage organizations" that classify people by birth origin are restricted to aficionados.
 
When Americans are shown an image of a working class kid with superior intelligence who is behind on the rent, they don't think: "overthrow the capitalist system!"; they say: "get that kid a scholarship!" When we hear of an old lady being evicted from her home, we don't think: "Expropriate the expropriators!"; we say, "she should contact her pastor right away and get her local church involved." We can't imagine that there is any contradiction between being pro-market and being working class.
 
As for the bad-guy corporate big wigs inventing gizmos to run the world, we enjoy the fantasy but in the end, we know that the only way a business ever really gets "out of control" is when it is linked with the state. Otherwise, they are wholly dependent on the consumer to grant and take away "power," such as it is.
 
Thus are the class-based socialist themes in Spiderman completely lost on American audiences. What is not lost on us is the fabulous portrayal about crimes and government in American cities. The cops seem to do nothing but buzz around and get in wrecks. The government is simply invisible as a service-providing agency. After Spiderman gives up crime fighting, crime soars to 75% and no one seems to have any idea what to do about it, certainly not the police.
 
Fighting crime is a purely private activity, and Spiderman himself functions as a kind of private vigilante, making up for the failures of the supposed "public good" provisions that the state never gets around to providing. It is these themes – the chaos of the city, the inability of government to stop crime, our dependence out private solutions – that connect with us. The equivalent of Spiderman in the real world is the not the mayor, police chief, or cop on the beat, but the private security agency, the entrepreneur who started the gated community, the manufacturer of the stun gun.
 
As for Spiderman's choice of private life over public service, this is not a choice that confronts only the Marxist revolutionary, but also the intellectual or activist dedicated to liberty. Mises might have landed a position at Harvard after his immigration to the US had he been willing to go along with socialism or Keynesianism. There can be no question that Rothbard would have been in the Ivy League had he been willing to forego his political attachment to anarcho-capitalism. The history of liberty is strewn with great men and woman who paid a heavily professional price for their dedication.
 
To be dedicated to the defense of liberty, property, and commercial freedom is to stand up against the state at home and abroad and to be wedded to the wonderful ideal of freedom itself. And yes, there is always price to be paid. Like Spiderman, many freedom-minded intellectuals have had to look out over the horizon and imagine how much simpler and easier life would be if they would just be willing to give and inch here and there. They are usually right. The libertarians are the real idealists, giving up pecuniary reward for the sake of a larger goal!
 
Spiderman fits not the leftist model of sacrifice for the revolution but the Misesian genius, who is far from being rich for it:
 
It may well be that he who gives new values to mankind, or who is capable of so giving, suffers want and poverty. But there is no way to prevent this effectively. The creative spirit innovates necessarily. It must press forward. It must destroy the old and set the new in its place. It could not conceivably be relieved of this burden. If it were it would cease to be a pioneer. Progress cannot be organized. It is not difficult to ensure that the genius who has completed his work shall be crowned with laurel; that his mortal remains shall be laid in a grave of honor and monuments erected to his memory. But it is impossible to smooth the way that he must tread if he is to fulfill his destiny. Society can do nothing to aid progress. If it does not load the individual with quite unbreakable chains, if it does not surround the prison in which it encloses him with quite unsurmountable walls, it has done all that can be expected of it. Genius will soon find a way to win its own freedom. Socialism, p. 167
 
But just as Spiderman saw his calling more clearly as the crime became rampant, so too do libertarians see their calling more clearly when they imagine a world where the state faces no opposition at all. Also making that choice are people who donate money to the cause of liberty, knowing that governments and large corporations are the last to support principled scholarship. In order to do what is right, we must all make a sacrifice of ourselves. This was the lesson Spiderman learned, and this is one we can learn from him. 
 

July 19 Philippine Stock Market Commentary

July 19 Philippine Stock Market Commentary
 
A MIXED Picture marks today’s trading activities as foreign investors sold BLUE CHIPS down while local investors bolstered the BROADER market.
 
THE Phisix fell 6.97 points or .45% as index heavyweights led by the telecom issues weighed on the benchmark index on light volume of P 352.046 million (US$6.29 million).  FOUR index heavyweights declined namely, PLDT down .84%, Globe Telecoms lower 1.24%, SM Primeholdings slipped 1.69% and BPI dropped 1.19% against the only heavyweight gainer Ayala Land up 1.88%.  San Miguel Local and Foreign shares and Metrobank were unchanged for the day.
 
Of the 9 issues that comprises more than 75% of the Phisix, San Miguel foreign or B shares, Bank of the Philippine Islands and Metrobank failed to make the top 20 most traded issues, while 5 out of the 8 heavyweights reported net foreign outflows against Ayala Land, BPI and Ayala Corp that posted foreign buying.
 
Net foreign activity accounted for 49.63% of today’s output while foreign money flows recorded a net outflow which totaled P 10.844 million.  Foreign money sold more issues than they acquired.
 
On the other hand, market breadth was mixed as advancers pounced on decliners 46 to 24 while the sub-indices manifested mostly declines as only the OIL and PROPERTY index defied the bearish bias.
 
For the SIXTH consecutive session foreign capital flows have been on the NEGATIVE side of the trade which means that foreigners have been SELLING local equities in TEPID volume and has substantially been REDUCING their participation as evidenced by the FOURTH straight session where foreign money’s share of trade accounted for LESS than FIFTY percent.
 
AVERAGE Trade per share has fallen below the P 160,000 for the THIRD session, the last of which occurred during mid MAY of 2003 when the Market was at the root of last year’s BOOM.  This reflects that RETAIL INVESTORS NOW DOMINATE the market, hence the LOW Volume of KEY heavyweights and the NEGATIVE showing of the sub-indices.  The 112 issues traded today represents the FIFTH straight session and the 21st in 22 sessions since June 18th ABOVE 100-benchmark which shows that local investors have been pushing up THIRD TIER issues.
 
Take a look at today’s major winners, the top ten according to the citiseconline.com, are Jardine Davies** (+49.3%), Fil Hispano** (+46.18%), MRC Allied** (+40%), Macroasia Corp (+25.28%), Philippine Telephone and Telegraph (+21.73%), House of Investments** (+21.62%), Alcorn Petroleum (+20%), Southeast Asian Cement (+15%), Ever-Gotesco Resources (+14.81%) and DM Consunji (+13.69%), all of the above can be classified as third liners.
 
** volume below P 200,000.
 
Looking at the region, as of this writing only the South Korean Bourse has made a major upside move while the rest of ASIA are likewise trading MIXED. SEVEN of the 15 bourses are lower and except for the KOSPI, the rest of the region does not have more than a 1% move in either direction.  In other words the REGIONAL BOURSES like the Philippines are undergoing CONSOLIDATION. 
 

Dueling Analysts on PLTL: Bullish Mr. BearBull, Bearish Random Walker

Here are two articles by high profile analysts engaging in a Piltel 'Bull-Bear' debate...
 
******
A stock with certain growth potential
Posted: 0:43 AM 
Jul. 13, 2004
Ron Nathan
Inquirer News Service

NOTHING of importance has happened in the stock market this week, here or abroad, so I will write about a company instead.
 
My last recommendation was Petron Corp. at P1.80 and allowing for the 20-centavo dividend, anyone who bought it almost doubled his money.
 
Before that was Philippine Long Distance Telephone Co. (PLDT), which has risen to more than 5.5 times my original price of P226.
 
The first was on the basis of a guaranteed 11-percent return; the second, purely on the chart.
 
There were no fundamentals, but the technical indicators suggested minimal downside risk and large potential recovery.
 
Now I have a similar pattern, connected to the last stock, only this time with compelling fundamentals as well.
 
The stock is PLDT affiliate Pilipino Telephone Co. (Piltel), which was issued originally at P20 and went subsequently to a high of P44 before biting the dust.
 
After rising from a low of 28 centavos very rapidly, the shares have moved within a narrow range of P1.60 to P1.88 for the past four months.
 
Suddenly, just over a week ago, the price surged to P2 on unusually high volume of 43 million shares.
 
This constitutes a breakout and bearing in mind the length and narrow width of the base, a short-term target price of P2.55 looks likely. There should be good support at P1.88 so the current buying price of P1.94 has little downside risk.
 
In March, the PLDT group set in motion a series of events that will eventually make Piltel a very profitable and valuable company.
 
At the end of the day, PLDT's wholly owned Smart Communications will be both the majority owner (with a 92-percent stake) and biggest creditor (69 percent of debts).

Smart decided to acquire its equity and debt holdings in Piltel (stock symbol: PLTL) in order to access the latter's huge base of deferred tax assets, thereby reducing its own tax burden.
 
Management said that the only way to accomplish this is by revising the revenue-sharing agreement between Smart and PLTL.
 
The new split has not yet been disclosed, but from the current 50:50, I believe that it will be changed to 85:15 in favor of PLTL.
 
By shifting more revenue into PLTL, Smart will substantially reduce the tax it has to pay for its own account. At the same time, the profits of PLTL will surge.
 
For example, if we assume P15 billion in net cellular revenues for next year, the 35 percent difference between the old and new sharing schemes will result in P5.25 billion worth of additional revenue for PLTL. Because it has huge deferred tax assets, nearly all of the P5.25 billion will flow into the company's bottom line.
 
Thus, even with an expanded capital base of 11.77 billion shares, the 2005 earnings per share should be at least 50 centavos. Minority shareholders should therefore take the impending dilution in its stride because the company's recovery will accelerate rapidly in the coming months and the stock should follow suit.
 
Meanwhile, how high PLTL can go is anybody's guess. Assuming, an undemanding price-earnings multiple of 6, the shares should be worth at least P3.
 
Given its negative equity of over P22 billion, the company is unlikely to declare cash dividends before 2011.
 
On the other hand, the negative equity can easily be wiped out in four or five years, by which time, earnings per share should comfortably exceed P1.
 
Management has admitted that a 50:50 sharing is not fair to PLTL because it does not affect the true profitability of the company.
 
On the other hand, an 85:15 split would be unfair to Smart in the long run because it is the one that is making all the investments for the cellular infrastructure upon which PLTL is dependent.
 
After the deferred tax assets are eventually depleted, I expect that the revenue sharing will be shifted again and that a compromise would be reached at around 60:40.
 
This will allow substantial profits to remain with PLTL and at the same time allow Smart to earn a good return on its investments.
 
Smart will always have the best interests of PLTL in mind. As mobile penetration reaches the lower income groups, Piltel's Talk 'N Text will be the brand of choice.
 
Already, Piltel's subscriber base is foreseeable future, and so the firm will remain profitable in the long term.
 
PLTL, therefore, represents a near-term recovery story as well as a play on the industry's substantial future growth.
 
It was noticeable that this week most of the advertising was on Talk 'N Text instead of Smart.
 
What will happen to the eight percent still in the hands of the public? It is quite possible that Smart will let it be, although it slightly reduces the maximum advantage it can get from Piltel's tax losses of P50 billion.
 
It might decide to bid when PLTL has paid off all its debt to Smart and redeemed its outstanding preferred shares.
 
The only problem is that by then the shares will be worth much more, and eventually large dividends could be paid out.
 
This is an ideal stock for pension funds, insurance companies, bank trustee departments and anyone who does not need income but would rather hold a stock whose inherent value is steadily accumulating.
 
I do not expect the original buyers to see their money back (anyway they probably committed suicide years ago,) but I can envisage a price of P6, five years from now.
 
My 85:15 split is admittedly a guess, but Smart will announce the actual figure within the next month. If I am anywhere close, analysts will be doing their calculation and extrapolations, and foreign brokers might then get interested as the telecom sector is their favorite.

If this should happen, my short-term target could be comfortably exceeded.

****
 
A Smart exit strategy from Piltel
Noel G. Reyes
Random Walker
Businessworld, July 14, 2004
 
An astute reader made some keen observations about last week's column, "Why Smart and Piltel cannot wed," and I must admit, he pointed out a number of flaws in the 1,000-word column that I had to rush off in less an hour last week.
 
At any rate, the reader (name withheld on request) added in his e-mail: "I hope I've made sense. Obviously, I'm bullish on the stock [of Piltel]. And I have to admit that I do own a small number of Piltel shares. But I believe my objectivity is intact and that my optimism is well-placed. Of course, I may be wrong so please comment on any error made."
 
So now I am taking him up on that last request for a comment on his comments.
 
He makes three major points:
 
first, on the planned change in revenue sharing between Smart Communications, Inc. and Pilipino Telephone Co. (Piltel);
 
second, on any potential leakage of these revenues to the minority shareholders of Piltel; and
 
third, on whether or not Piltel can be a viable stand-alone business even after its tax assets will have been depleted in two years.
 
On the first point, he wrote:
 
"As you mentioned, the revenue-sharing agreement between Smart and Piltel will need to be revised in order to take advantage of the latter's deferred tax assets. Assuming PhP17 billion in cellular revenues for 2005 and a shift in the revenue split from 50:50 to 80:20, Piltel stands to earn PhP5.1 billion more next year under the new sharing scheme as compared to the old one. Practically all of this will flow into the company's bottom line and is equivalent to 43 centavos per share based on the enlarged number of shares outstanding (PhP5.1 billion/11.77 billion shares). Thus, even with the huge dilution minority shareholders will experience, they will still come out far ahead vis-a-vis their position if the debt swap/Smart buy-in had not occurred."
 
A possible weakness in his reasoning here is that the assumed PhP17 billion in revenues for 2005 takes for granted that Piltel's revenues would continue to grow at a 30% to 35% clip this year and next year, the same as the past two year's average growth. On the other hand, a mere 30% growth in revenues this year would not be enough for Piltel to take advantage of the PhP10.2 billion in deferred tax assets, otherwise known as net operating loss carryover (NOLCO), that would be expiring this year. Another PhP3.3 billion worth of NOLCO would be expiring next year.
 
The tax benefits of both, at the statutory 32% corporate tax rate, are equivalent to PhP4.32 billion -- this represents the amount of tax savings available to Piltel if it had enough taxable income to cover it.
 
In other words, if Piltel and Smart were to rely solely on the existing Facilities Service Agreement signed in April 2000 (amended in December 2003), then part of the rationale for Smart's purchase of a major portion of Piltel's debt and 85% of its equity would collapse like a house of cards.
 
The agreement covers Piltel's use of Smart's GSM service network and facilities, which service it markets under the Talk 'N Text brand. For such usage, Piltel pays Smart a combination of fixed and variable fees. These fees last year amounted to PhP1.4 billion for interconnection and PhP4.25 billion as Smart's direct share in Piltel's GSM revenues; altogether, both fees came to almost 55% of Piltel's subscriber revenues of PhP9.77 billion.
 
Even if the terms of these fees were dropped to zero percent, meaning all PhP5.3 billion of last year's fees would immediately drop to Piltel's bottom line, this won't be enough to take advantage of this year's expiring NOLCO of PhP10.2 billion.
 
Since it would be a total waste of available resources not to take advantage of that huge NOLCO, Smart obviously needs to channel some of its own revenues into Piltel this year. This is where a new marketing agreement could come into play.
 
On this account, Napoleon Nazareno, president of Smart and its parent, Philippine Long Distance Telephone Co. (PLDT), has some interesting words. "We haven't really done the level by which we would allocate the value to Piltel to take advantage of the NOLCO," he was quoted as saying. "So I am not sure if (Piltel's share price of) PhP1.90 correctly factored in the potential of Piltel."
 
Meanwhile, the reader made a second point:
 
"As for the 8% leakage, it won't necessarily materialize or, if ever, it will happen more than a few years from now. Dividends on the common shares can be delayed for a number of reasons. The most basic hurdle is that Piltel does not have retained earnings out of which to declare dividends. Since it has an accumulated deficit of over PhP50 billion, it will take six or seven years (even with the revised revenue sharing deal) before it turns positive again. Secondly, to avoid the leakage, management will pay off its debts first. Since Smart is now Piltel's biggest creditor, most of the cash used to pay down debt will accrue to the mother company. Third, Piltel still has 4.9 million Series J preferred shares outstanding all held by PLDT (not sold to Smart) which has a dividend of PhP90 each per annum and a redemption (due starting 2015) price of PhP1,000 per. Thus, on the Series J alone, Piltel can plow back nearly PhP12 billion back to PLDT."
 
This was an error on my part. It is true that Piltel, or any company for that matter, cannot distribute profits to its shareholders while it maintains a capital deficit in its books. In Piltel's case, it has a deficit of PhP59 billion as of last year in its capital account.
 
On the other point, that Smart could get out its cash flow out of Piltel through loan repayments, that is so brilliant -- the kind of thinking that I have come to expect of the people in Smart and PLDT.
 
Another outlet for the channeled cash flow from Piltel into the books of Smart and PLDT would be the Series J preferred shares issued by Piltel to PLDT. These shares have an annual cumulative divided of PhP90 per share.
 
Furthermore, Piltel may start redeeming these shares at issue value plus any unpaid dividends on the fifteenth year after issue (2015) or even earlier, upon "full repayment of the restructured indebtedness of Piltel "
 
Still, no matter how ingeniously these cash flow outlets and conduits tie in together, they all hinge on whether Piltel can generate enough revenues and cash flows.
 
"Finally, on whether or not Piltel can stand on its own two feet after the deferred tax assets are all used up, we believe that it can. Even without the change in the revenue-sharing pact, Piltel already posted a profit in Q1. Admittedly it was small at PhP8 million, but the new revenue split will accelerate the company's recovery and allow it to pay off its debts. Furthermore, the firm's subscriber base is rising faster than the industry average. This may be due to the fact that mobile penetration is reaching the lower income groups more and more. Since Piltel is focused on the low end of the market, it will most likely reap a big portion of the industry's future growth. Thus, once its debts have come down to a reasonable level, Piltel can remain profitable even without the benefit of its deferred tax assets. Some people, meanwhile, fear that the revenue-sharing scheme will revert to 50:50 once the deferred tax assets are used up. Management, however, has indicated that it will not flip-flop on this issue."
 
Piltel does not have much time before the prince possibly turns back into a frog. Its deferred tax assets would run out in 2006. After that, it would have to be valued on its own, mainly on the merits of its single brand, Talk 'N Text.
 
With this brand's focus on the low-income segment of the subscriber spectrum, Piltel needs to be, and remain, a low-cost producer.
 
With only one employee, the company obviously doesn't have much elbow room to cut costs further.
 
Its biggest costs, on the other hand, are the interconnection and revenue-sharing fees it pays to its major shareholder, Smart.
 
Piltel, thus, has no choice, but to live and die on the direct benevolence of Smart when it comes to these fees.
 
And that, to me, represents a considerable risk.

July 16 Friday Philippine Stock Market Review

July 16 Friday Philippine Stock Market Review
 
After drifting lower for most of the day the Philippine benchmark, the Phisix eked out a paltry 1.25 points or .08% gain to break its 6th consecutive sessions of decline on very light volume.  Peso Volume turnover amounted to a puny P 305.889 million (US $ 5.42 million).  Local investors dominated trading activities for the third straight session, and accounted for 53.64% share of the aggregate output.
 
Among the index heavyweights, Globe Telecoms inched higher by .62% together with Bank of the Philippine Islands up by 1.2% against a sole decliner, SM Prime down 1.66%, which led to the miniscule rise of the key index.  Ayala Land, San Miguel local and foreign shares, Metrobank, Ayala Corp and PLDT were unchanged.
 
Because local investors dominated trading activities while foreign investors either sold out (net outflow totaled P 8.395 million) or stayed on sidelines, four of the 9 heavyweights were off the list of the 20 most traded issues, a rare circumstance.  And in lieu of them were companies from the mining sector and other second tier issues.  
 
The Mining Index, after 4 straight sessions of decline, soared by 9.89% to command the day’s biggest advance on frenetic buying on index lightweights such as Manila Mining local (skyrocketed by 44.4%) and foreign shares (flew by 36.84%), Atlas Mining (surged 20%) and Abra Mining (rose 12.5%).  Index heavyweights Philex Mining climbed a modest 6.25% for its local shares while its foreign shares accounted for a moderate growth of 5.71% while the largest market cap Lepanto shares plodded along up 2.6% for the local shares and 2.04% for the B or foreign shares.  Apex Mining was also today’s top winner with a frothy 50% advance for its ‘A’ shares while its foreign shares was likewise higher by a bubbly 31.81%.
 
The Prudent Investor is unaware of the reason that prompted the buying frenzy although one can expect ‘stories’ on the press most likely about ‘deals’ to rehabilitate the mining operations, or foreign financing/buyouts or reactivation or reopening of its mining pits for commercial operations.  Cash generating mining issues were largely discarded in place of ‘deal-based speculations’, these highly reflect on the quality of the mindset of the typical local investor.
 
The Oil index, another extractive industry, posted a hefty advance of 8.27%, the second best growth among the industry indices, mostly from the rebound of the index heavyweight Oriental Petroleum whose local and foreign shares were both up 13.33%.  After five sessions of sharp declines today’s uptick could mostly likely be construed as a technical rebound.
 
As we previously have noted, the number of issues traded exceeding the 100 threshold represents bullishness from local investors.  Market sentiment despite the slight increase of the Phisix, showed dominant optimistic local punters, as advancers thrashed decliners 50 to 27.  Industry indices were mostly up except for the Phi-All index, weighed down by the decline of Manulife the index’s largest component, and the Property Index. 
 
The light volume, the broadening breadth, the declining foreign activities, and the stonewalling of the index heavyweights, as well as its diminishing trade activities manifest that local investors, whose underlying psychological framework is bullish, have been rotating the buying binge across the board while eluding the heavyweights, which would require substantial volume to boost up.  In other words, the fundamentals behind today’s market activities vastly differ from the trading environment of last year.  Foreign investors were the growth locomotive responsible for the substantial climb of the Phisix in 2003, this was largely brought about by the accommodative global monetary policies adopted by the world’s central banks.  In today’s tightening climate, foreign investors have scaled down on their activities prompting the locals to pursue with its newfound optimism arising from the recently concluded elections.  But unfortunately, due to the shallow breadth of local investors one can expect trading activities to be limited to the second and third tier issues.  Hence, a different strategy or approach is required.  More on this in our weekly newsletter. 
  
 

Tanzanian President Mbaka:A better way to help the least developed countries

A better way to help the least developed countries
Benjamin William Mkapa IHT Tuesday, July 13, 2004

DODOMA, Tanzania. As a leader of a least developed country, I speak from experience when I say that poverty is too complex a phenomenon, and the strategies for fighting it too diverse and dependent on local circumstances, for there to be one silver bullet in the war on poverty.

We have learned the hard way over the years. We have experimented with all kinds of ideas.

Yet a report recently released by the World Economic Forum shows that barely a third of what should have been done by now to ensure the world meets its goals to fight poverty, hunger and disease by 2015 is done. I am now convinced that the Millennium Development Goals set by the United Nations in 2000 can only be attained through a global compact, anchored in national policies that take into account local circumstances.

Aid and trade are both necessary, but they are not enough on their own. Neither is good governance enough in itself. Above all, nothing can move without the direct participation of local communities. I fear that we lecture too much. This is not the best way.

All initiatives toward reducing poverty must rest on three pillars: First, there must be political will and good governance in the poor countries. Second, there must be local ownership of initiatives, achieved through direct participatory democracy in setting priorities, planning, implementation and evaluation. Third, the external environment must be not only conducive to the attainment of the Millenium Development Goals, it must actually be supportive through measures such as direct aid - including debt relief - and through enhanced market access and reform of agricultural subsidies in rich countries.

I will give an example of how such a compact worked in Tanzania to achieve universal basic schooling.

In the mid-1990s, almost all indicators for basic education were in free fall. The gross enrollment rate had fallen from 98 percent in the early 1980s to 77.6 percent in 2000. The net enrollment rate had likewise fallen, from over 80 percent to only 58.8 percent. The enrollment of girls fell faster, and dropouts rose higher, than among boys.

Then several things happened. We decided at the top political level that basic education would be a top priority, and adopted a five-year Primary Education Development Plan to achieve universal basic education by 2006 - nine years ahead of the global target.

Good governance produced more government revenues, which quadrupled over the last eight years. In 2001, we received debt relief under the World Bank's enhanced HIPC (heavily indebted poor countries) Initiative. Subsequently, more donors put aid money directly into our budget or into a pooled fund for the Primary Education Development Program (PEDP).

The government's political will was evidenced by the fact that over the last five years the share of the national budget going to poverty reduction interventions rose by 130 percent. We abolished school fees in primary schools.

Then we ensured that all PEDP projects are locally determined, planned, owned, implemented and evaluated. This gave the people pride and dignity in what they were doing. After only two years of implementing PEDP, tremendous successes have been achieved:

Gender parity has been attained in primary schools; The number of children in primary school has increased by 50 percent; The gross enrollment ratio has risen from 77.6 percent to 105.2 percent, the net enrollment ratio has risen from 58.8 percent to 88.5 percent. 31,825 classrooms and 7,530 teachers' houses have been constructed through the direct participation of local communities; 17,851 new teachers have been recruited and 14,852 have been sent to upgrading courses;

More than 9,000 science-teaching kits have been supplied to schools; The pass rate in primary school examinations has risen from 19.3 percent in 1999 to 40.1 percent in 2003; Some 12,689 school committees have been trained to build capacity for local implementation of projects and management of the schools; PEDP implementation has been, and continues to be, predominantly based in the community. All resources are managed in total transparency, with all accounts being posted on the school notice board.

I have written this article to show that it is indeed possible to achieve the Millennium Development Goals if we are all committed to putting the right pillars in place.

We have achieved so much in only two years. Much more will be accomplished by 2006. This is a formula that can work for all the other Millenium Development Goal targets. It can be done if everyone plays his or her part.

Benjamin William Mkapa is president of the United Republic of Tanzania.

July 14 Philippine Stock Market Commentary

July 14 Philippine Stock Market Commentary

Piltel stole the limelight from parent PLDT on a speculative buying frenzy, significantly higher for the third consecutive session on a spectacular intraday surge of 11.21%. PLTL accounted for 22.65% of today’s activities making it the heaviest traded issue surpassing its heavyweight counterparts.

As noted before domestic punters are very much agog on boosting issues with ‘underlying stories’, hence while the simmering telltale of SMART’s buying into PLTL have practically entranced the market, the general sentiment fell prey to continued selling pressures as investors probably went into a portfolio reshuffling. The key Philippine benchmark Phisix fell .44% or 7.69 points on selloffs by three index heavyweights, particularly Ayala Land (-1.85%), Globe Telecoms (-1.8%) and Bank of the Philippine Islands (-1.17%). The other index heavyweights were unchanged for the day.

The Phisix fell for its fifth successive day while the broader market’s climate remained bearish for the 6th straight session, although on a more subdued scale as decliners edged advancers by 32 to 25. Industry indices were all down except for the Phi-All, whose gain came from Manulife, the largest market cap of the said index. Local investors accounted for the majority 54.7% of today’s trade.

Foreign money depicted a net outflow of P 43.597 million, however P 40.556 million of which came from the special block sales of Equitable banking shares. On the broader front foreign money have accumulated more shares than it sold indicative of improving outlook in the immediate future.

With the much constrained selling as evidenced by the narrowing advance-decline margins plus improving accumulations by foreign money on the broader scale, Friday’s activities could probably show some bounce from the series of declines envisaged this week.

The Phisix seemingly shares the same sentiment with that of our neighbors. As of this writing, only Sri Lanka has had meaningful gains while Pakistan and Singapore are trading marginally higher; the rest of the region are all in the red.

Of today’s most winning issues aside from Steniel (+50%) and Fil Hispano (+16.47%) which scored highs on a single trade, the other more liquid advancers were Yuchengco construction company EEI (+16.66%), Senator Villar’s real estate flagship C & P Homes (+13.63%), Semirara makeover story majority shareholder DM Consunji (+10.71%), Yuchengco holding company House of Investments (+8.82%), foreign buying spurred Security Bank (+6.84%), new mining revival deal Abacus Mining B (+6.66%) and PLDT’s Pangilinan real estate and shipping company Metro Pacific (+6.45%) surfing on PLTL’s wave.

Forbes: Lee Kwan Yew on Islam and Democracy in Southeast Asia

Islam and Democracy in Southeast Asia
Lee Kuan Yew, 07.26.04

In March, Malaysia, with a population of 25.1 million (65% Malay and indigenous peoples; 35% Chinese, Indians and others), held its 11th peaceful general election since independence. The United Malays National Organization (UMNO), which has led the country continuously since independence in 1957, had suffered a serious setback in 1999's general election, when the Islamic opposition party (PAS) for the first time won more Muslim constituencies in the Malay heartland than UMNO. The spiritual head of PAS advocates Sharia law, which mandates the severing of hands of thieves, the stoning to death of adulterous women and a return to the purity of 7th-century Islam.

Against Terrorism and Muslim Extremism

Malaysia's constitution reflects its multiracial society. Article III states that Islam is the religion of the federation but that other religions may be practiced in peace and harmony. The rise of Islamic religiosity worldwide, however, has helped the Islamic opposition gain support for Malaysia's becoming an Islamic state.

When Abdullah Ahmad Badawi became prime minister in 2003, he neutralized this issue, declaring that Malaysia was an Islamic state--one that follows Islam Hadhari (progressive Islam), which stands against corruption and nepotism and encourages cooperation with other races and religions. Badawi, well liked for his honesty and fairness, has impeccable Islamic credentials. He is the son and grandson of respected Muslim scholars and holds a degree in Islamic studies. In this age of resurgent Islam, such credentials matter.

In the March elections Badawi won back the Muslim seats and the one state government that prime minister Mahathir Mohamad lost to PAS in 1999. Badawi's victory showed that Muslims will support a progressive Islamic government led by an honest leader over Islamists who present themselves as the only force able to prevent the corruption and debasement of Muslim societies. With the hard-core Islamic vote for PAS increasing from 15% to 15.8% it is clear, though, that future electoral contests will be about the nature of the Islamic state and whether a leader has the right Islamic attributes.

UMNO has taken a firm line with PAS, rooting out terrorists because they threaten its power base. Even a son of a PAS leader was detained under the Internal Security Act for being a member of a terrorist group.

A Different Approach

In April, Indonesia, with a population of 238 million (88% Muslim, 8% Christian, 2% Hindu, 2% Buddhist and other), held its second peaceful parliamentary elections since President Suharto resigned in 1998. The Muslim parties' vote increased by 1.3% to 38.9%, but 61% of the vote went to secular parties. (The three leading candidates in the presidential election are nationalists, but all three have chosen leading Muslim figures as vice presidential running mates in order to win the Muslim vote.)

The feared electoral strength of the Muslim extremist group Jemaah Islamiah (responsible for the bombings in Bali) did not warrant the government's kid-glove handling of Abu Bakar Baasyir, the group's spiritual leader. In Indonesia only those terrorists directly involved in bombings are prosecuted; their religious mentors are left untouched, even though they are the most crucial part of the terror chain. Because of this, madrassas (religious schools) that teach and promulgate extremist Islam continue to spawn new generations of suicide bombers.

Sobering Reality

Malaysia and Indonesia carry the promise that Muslims can run democratic systems of government. However, we must keep in mind that democratic elections in Indonesia are in their infancy. Moreover, Indonesia has yet to establish the rule of law, without which no constitutional rights are guaranteed or enforceable. Both countries have tolerant Muslim populations that have lived peacefully for hundreds of years with indigenous and immigrant peoples of different religions and races. Both have educated their people, including women. Many of their citizens work for multinational corporations and are comfortable with foreigners.

Can similar conditions be created in Arab countries? Though more secular, Iraqis are Arabs. Theirs is a male-dominant society. Iraqis are more intense in their faith, and Muslim clerics have more influence than political leaders. Over many long years it might be possible to create conditions like those in Malaysia, but it is doubtful U.S. forces will stay that long.

On June 28 American authorities restored Iraq's sovereignty under a UN Security Council Resolution, handing authority to a caretaker government led by interim Prime Minister Iyad Allawi. Elections for a representative government are to be held no later than Jan. 31, 2005. The result should be a better Iraq. But if U.S. forces leave precipitately because of terrorist attacks, Muslim terrorists throughout the world will be triumphant. Where the Vietnamese were content to see Americans leave and to concentrate on building socialism in Vietnam, Islamic militants will pursue departing Americans to all corners of the globe. If the militants succeed in thwarting the U.S. in Iraq, their zealousness to die in pursuit of an Islamic caliphate spanning the globe will reach new heights.

Lee Kuan Yew, senior minister of Singapore; Paul Johnson, eminent British historian and author; and Ernesto Zedillo, former president of Mexico, in addition to Forbes Chairman Caspar W. Weinberger, are now periodically writing this column. To see past Current Events columns, visit www.forbes.com/currentevents

Bloomberg's Mukherjee: Sri Lanka's Stocks Surge Defies Bearish Outlook

July 13 (Bloomberg) -- Without a whiff of good news supporting them, stocks in Sri Lanka, the teardrop island off India's southern coast, are the world's fifth-best performers this year.

There's no apparent reason for the 22 percent surge in the Colombo All-Share Index in U.S. dollar terms, a gain exceeded only by Colombian, Austrian, Egyptian and Hungarian equities. The increase is all the more puzzling because it follows a 30 percent spurt in shares last year and a 26 percent jump in 2002.

The exuberance ``is difficult to explain,'' says S. Jeyavarman, chief executive officer of National Asset Management Ltd., the country's largest unit trust company. ``It's a surprise to everyone in the market.''

If anything, there's plenty of bad news in the nation of 19 million people wracked by two decades of civil war. The Tamil guerillas, who have honored a cease-fire since February 2002, are threatening to resume fighting even as a three-month-old, Marxist- supported government consolidates power. The Marxists oppose regional autonomy for the minority Tamils, lowering the chances of a peace accord that looked in sight even a year ago.

A woman suicide bomber killed herself and four police officers in the capital of Colombo last week. Incidents like that could cripple tourism, which, along with tea and garment exports, supports the $18 billion economy. In June, 30,000 tourists were drawn to the sandy beaches and Buddhist temples of this former British colony, a 6 percent drop from a year ago. The full-year target of 600,000 tourists is becoming unattainable.

Best in Asia

Share prices have risen in Sri Lanka even as they have slumped elsewhere in Asia amid concerns high fuel prices will stoke inflation, and interest-rate increases by the U.S. Federal Reserve may pull investment dollars away from local bourses. Thai, Indian, Chinese and South Korean stocks are among the world's 10 worst-performing benchmarks this year.

And all these economies, with the exception of Korea, are forecast to grow faster than the 5.5 percent pace at which the Sri Lankan economy may expand in 2004.

So if you haven't already invested in the island's top shares, like John Keells Holdings Ltd., which runs hotels and a sea port, and makes foodstuff, are you missing out on a juicy market?

Too Bullish

One may look at Sri Lanka's surging stocks as evidence that investors are ruling out a return to civil war, interpreting the government's landslide win in Saturday's provincial polls as a sign that the United People's Freedom Alliance will attract some opposition lawmakers to switch sides, giving the coalition more stability and a better chance to take the peace process forward.

There's also a view that Western supporters of the Tamil Tigers have started investing in the island's north and east, another indication that fighting may not resume.

Investors, however, may be expecting too much too soon. In reality, the economy, which expanded 5.9 percent last year, is already slowing and local investors are putting up a brave face only because they have nowhere else to go.

Foreigners are largely staying out. On Friday, when the Colombo index rose 0.7 percent, purchases by overseas investors made up 6 percent of total stocks traded. That's a far cry from last year, when foreigners accounted for 23 percent of turnover.

No Choice

For local investors, parking money in government bonds isn't an option because inflation is quickening and may shoot up if global fuel prices remain high. The yield on a government bond maturing in August 2013 has risen more than a quarter percentage point in the past six months.

The Sri Lankan government borrowed 137 billion Sri Lankan rupees ($1.33 billion) by selling bonds in the local market last year. Total outstanding government debt was 1.86 trillion rupees at the end of last year, more than the country's annual gross domestic product.

Since the government restricts outflow of domestic capital, investors don't have too many options. If bombs start going off in Colombo like they used to with frightening regularity until three years ago -- the central bank was bombed in 1996, the business district in 1997 and the only international airport in 2001 -- real estate prices may not hold.

Nor does it make much sense to hold cash at a time when the benchmark interest rate is 7 percent, the lowest since 1997.

Jeyavarman of National Asset says he has kept 60 percent of his funds in stocks and the remaining in debt.

``The rise in the stock market may or may not sustain,'' he says, ``but it's been too big to ignore.''

Correction Due?

And Sri Lankan stocks are indeed cheap. The price-to-earnings ratio of Colombo-listed shares is 10.3, compared with 12.5 for the top 100 shares in India and 20.6 for Singapore. Brokers are advising investors to buy more.

``We renew our recommendation to accumulate fundamentally sound counters,'' researchers Inthi Mohammed and Ineka Dunuwille at Ceylinco Stock Brokers Pvt. in Colombo said in a note to clients yesterday. ``We expect the market to show upward movement although a correction is due anytime soon.''

Yet, bear in mind that Sri Lanka is also an illiquid market. In 2003, trading turnover was 28 percent of market capitalization. In neighboring India, the turnover-to-capitalization ratio was more than 50 percent last year.

For foreigners to bet on the island's fragile peace may not be such a good idea. True, there may be exceptional opportunities. Returns, however, are shrouded by a shadow of looming risks and are best left for local investors to savor.

July 13 Philippine Stock Market Commentary

July 13 Philippine Stock Market Commentary

Now we are seeing a more meaningful decline in the Phisix, as the key Philippine benchmark took a breather down by .83% or 13.22 points.

As mentioned in our previous postings, after attempting to cross the 1,600 psychological threshold, the Philippine market as measured by the Phisix have palpably been stalling. The overall market’s bearishness replicated yesterday’s performance albeit on a more intensified scale; losers beat winners by 37 to 20 or almost 2 to 1 (fifth straight session), the industry indices were all down except for the Banking and Financial Index, foreign money registered a net P 12.830 million of outflows and lastly foreign money sold more companies than bought them.

The stepped up ‘correction’ saw more volume in terms of Peso turnover at P 673.493 million up 69.84% from yesterday’s volume although cross trades took up 50% of the total turnover. In short, net of cross trades today’s Peso volume added only P 65.987 million or 30.42%.

Among the Index heavyweights, PLDT the market’s sole pillar has finally gotten its required break, after plodding to take the Phisix past the 1,600 level. PLDT was lower 2.03% and was accompanied by declines in SM Primeholdings down 1.63%, Ayala Land and Ayala Corp both lower by 3.57%. The advances in the Banking and Finance index were primarily due to gains from BPI higher 2.4% and Metrobank up 1.85% whom were outnumbered and outperformed by the decliners. Meanwhile Globe Telecoms and the San Miguel local and foreign shares closed unchanged.

Foreign investors accounted for 57.04% of today’s trade. First Philippine Holdings and PLDT, accounted for the most of the net outflows, a variance from its routine with Ayala Land taking up the third spot. On the other hand, the gist of the inflows were registered among Bank of the Philippine Islands, Globe Telecoms, Ayala Corp and Union Cement.

Again the domestic performance mirrors that of the region’s activities. Most Asian bourses as of these writing are trading lower, 8 out of 15 bourses are in the red including our close neighbors Indonesia and Malaysia with Thailand among the minority trading slightly higher.

Today’s darling is no other than PLDT’s subsidiary PLTL on news that a recent share swap has brought SMART’s, PLDT’s major wireless subsidiary, interests in PLTL to 32.7%. PLTL gapped up and vaulted 10.3%.

Well there are varied analyses on the unfolding corporate developments in the Manny Pangilinan led companies. Of course, we have noted that the inherent culture of the Filipino mindset in investing is on the account of ‘stories’ investing, which makes Mr. Pangilinan’s companies very toothsome for investor plays. There are speculations that SMART, whom is required to be listed, will probably do a backdoor through PLTL. SMART has frequently issued a denial for the said intentions. However there are others who argue that the current ownership restructuring program of PLTL which would pave way for a shift of ownership from PLDT to SMART is for the purported NOLCO Net Operating Loss Carry Over of PLTL of which SMART would like to utilize for tax shield purposes. And this requires SMART to course some or most of its revenues to PLTL which would see an inflated bottom line or a ‘recovery’ story in short. But what of PLDT whose phenomenal growth is based mostly on SMART wireless revenues?

Another beneficiary of today’s activities is Metro Pacific (up 6.89%) another Pangilinan led company which is into shipping and real estate. The company has been riding on the coattails of PLTL’s climb, could another corporate prestidigitation be on hand?

DM Consunji’s 9.8% run today has been on streak since Semirara Mining Company announced of an ownership-restructuring program on June 16th of which DMC is the majority owner. DMC is now up 108% again on 'ownership restructuring tales'.

Finally the oil exploration companies saw another round of battering as the consortium at the Sulu Sea project have winded down operations in its second well. According to the final report issued by the Department of Energy “The operator likewise conducted wire-logging operations to determine the petrophysical properties of the drilled formation.” Case closed, wait for the next project, perhaps? Go Figure.

July 12 Philippine Stock Market Commentary

July 12 Philippine Stock Market Commentary

Lacking the proverbial ‘wall of worry to climb’ the market drifted lower today as both local and foreign investors eased up on their portfolio positions.

The Phisix closed 6.21 points or .39% down on thin volume with Peso turnover amounting to only P 396.555 million. Cross trades accounted for 45.3% of today’s output, thereby reducing actual board transactions net of cross trades to a scanty P 216.902 million.

Market breadth was overwhelming bearish. Four index heavyweight issues declined, namely BPI down 1.19%, San Miguel local or A shares lower .85%, Globe Telecoms declined .59%, and PLDT fell .4% while the rest of were unchanged. Declining issues drubbed advancing issues 32 to 19, while all of the industry indices, except for the Property Index, registered declines. Moreover, foreign money recorded a net outflow of P 11.655 million with 14 of the 25 issues, which reported foreign money movements, posting outflows. Overseas money accounted for 66.24% of today’s Peso turnover.

This is the first in seventeen sessions where number of companies traded fell below the 100-benchmark.

The lean volume, declining number of companies traded and the dominant activities of foreign capital meant that local investors were either selling today or staying on the sidelines, while foreign investors were likewise in an easing mode. The good thing is that the retracements come in light volume while the drop in the main index benchmark was contained, meaning that today’s market reflected a deceleration from its previous ascent or in technical lingo a ‘correction’.

On a wider picture, the activities of the Phisix seem to move in consonance with our close neighbors. As of these writing, Thailand, Malaysia and Indonesia are all trading slightly lower while on a region wide basis the bourses are trading mixed, 9 declining against 6 advancing.

Finally, the only noteworthy activity today amidst the sluggish backdrop is the apparent panic-stricken oil index which fell a hefty 11.18%, its second straight session of bloodbath. Oriental Petroleum local and foreign shares dived 15%, Philodrill foreign shares dropped 9.09% while its local shares were unchanged. Ostensibly, these reactions are related to the ongoing drilling project at the Sulu Sea by the UNOCAL led consortium, as other non oil index members but key players in the drilling project likewise suffered from steep price drops, Basic Consolidated crashed 16.66% while South China Resources tanked by 9.09%. Again we note that these violent reactions could probably stem from insider information driven actuations indicative of an unsuccessful mission of the consortium to discover commercially viable oil or gas fields. However, these have yet to be disclosed in the PSE, as the latest disclosures reflect that the project is still ongoing and has yet to reach its targeted depth.

Japan Times: Lack of continuity in English teaching hit

Lack of continuity in English teaching hit
Effort afoot to foster seamless progress from grade school to junior high

By AKEMI NAKAMURA
Staff writer

The introduction of English in elementary school classrooms to help improve fluency in later years is bringing to light a problem that has dogged Japanese educators for years -- how to provide continuity in teaching the language so that students can graduate from university with a conversant level.

Although English is not a formal subject at public elementary schools, the Central Council for Education will decide by the end of March whether to make it one.

At the same time, the council is looking at how to build a comprehensive language program that would follow students from grade school through university.

A rise in the number of elementary schools dabbling in English lessons has underscored the particular need for public elementary and junior high schools to cooperate in forming an integrated program that provides students with some continuity when they move from grade six to junior high school.

According to the Education, Culture, Sports, Science and Technology Ministry, 88 percent of the nation's 22,526 public elementary schools had English activities in fiscal 2003.

Since April, Shigeyo Ota, a veteran English teacher at Narita Junior High School in Narita, Chiba Prefecture, has been visiting Nakago Elementary School in the city every Thursday to help teach several of the 20-minute English classes the students take four times a week.

"I wasn't that familiar with the kind of (English) programs elementary schools were offering," Ota admitted. "But because we are now trying to hammer out a new curriculum that will provide integrated English education (for elementary and junior high school students), it's important to know."

In these classes, a Philippine assistant language teacher teaches English songs, games and simple conversation based on a program designed by the city's board of education.

Ota and the homeroom teachers help by demonstrating conversations and occasionally explaining in Japanese what the assistant language teacher says.

Educators are particularly keen on an English program encompassing both elementary and junior high schools.

In April 2003, Narita Junior High and Narita Elementary School began work on creating an integrated nine-year English curriculum.

"Academic guidelines are changing to provide programs that enable students to acquire necessary skills and knowledge," an education ministry official said. "Integrating curricula, including that of English education, from elementary schools to junior high schools to high schools to universities is one of our challenges."

When the students who studied English at elementary schools enter Narita Junior High, there is some progression in their course work, and they seem to enjoy the classes as they begin to better understand English conversation.

"In elementary school, I was speaking English without fully understanding" the words, said Yuma Yamazaki, a first-year student at the school. "But now I've learned how to use a dictionary and can look words up."

At Narita Junior High, the English course for first-year students includes rephrasing textbook conversations and using the English they learned at elementary school to form their own conversations, said Eiko Suzuki, another English teacher at the school.

She added that the junior high also plans to have the first-year students interview foreign visitors at Naritasan Shinshoji Temple in the city, a project similar to one many of the students did in elementary school.

But some students who once enjoyed studying English begin to lose interest as the lessons in reading, writing and grammar become more challenging, said teachers at Narita Junior High.

Elementary schools focus on speaking and listening skills, but junior high schools are required to teach writing and grammar so students can pass high school entrance exams.

And even for those who work hard, there is another roadblock.

First-year student Ayami Kurashige said there are few opportunities for her to speak English outside of school.

Teachers at the junior high say they are concerned about students' fluency levels because, while students often only get the chance to speak English at school, the upper grades allocate little time for conversation in class.

To keep students interested in English, the school has taken advantage of its status as a state-designated research and development school to improve its curriculum.

Beginning in April, it altered its curriculum to increase the number of English classes to four times a week from three. In addition, students were divided into three groups based on their English abilities.

"This enables us to provide more opportunities for students at advanced levels to speak English, while allowing others to devote more time to writing and grammar," Ota said. "We want to create an environment in which students can continue to enjoy studying English."

But some experts predict a rocky road ahead in trying to create a seamless English program spanning elementary and junior high schools.

Ken Kanatani, a professor of English education at Tokyo Gakugei University, noted that public schools have yet to create an English curriculum that successfully provides continuity from junior high to high schools, despite 40 years of trying to achieve this.

Junior high and high school teachers do not make sufficient efforts to teach in a progressive way so students can build on their existing knowledge, Kanatani added.

The key will be whether schools can construct syllabuses in ways that enable students to develop their skills consistently, he said.

He added that even if a coherent curriculum is introduced, the number of competent speakers will not rise significantly unless junior high school classes are increased from the current three a week.

"We can't expect much improvement (in English education) as long as the number of classes is so limited," he said. "I think this is one reason why few Japanese acquire a good command of English."

Kensaku Yoshida, a professor of English at Sophia University, would like to see more focus on the junior high and high school connection.

He believes high school and university entrance exams obstruct the creation of an English curriculum that links junior high and high school learning.

"If a curriculum from elementary to junior high school can be created, it would also provide more incentive to review current English education programs at the junior high and high school levels," he said.

The Japan Times: July 8, 2004
(C) All rights reserved

***
The Prudent Investor:

Japan’s ageing population will eventually compel for the opening of its economy to foreign workers. According to recent reports, the country is now considering the services of Filipino nurses.

In the same context, Japan’s push for more intensive English education to its primary schools could provide economic opportunities for Filipino labor and domestic industries specializing in the field of education. Educators, translators, publishers, educational software developers/programs and other adjunct skills or products are possible candidates for these opportunities, i.e. manpower deployment, ‘offshoring’ or exports. Through bilateral cooperation, the Philippine Government must take the first steps and be ahead of other countries in offering the required educational services and negotiate for the permissibility of the flow of labor to its highly regulated economy.

On the other hand, by identifying the opportunities presented by the rapid integration of global economies due to the IT enabled globalization, the Philippine Government must lead its entrepreneurs and workers to benefit from the continuing economic evolution by establishing the requisite framework for trade and flow of its manpower services, as well as, retooling the skills of the populace to that of where opportunities abound.