Jack The Scribbler

Throwing money at a problem to solve it is pretty much like giving alms to beggars to lift them out of poverty: the effort does little to produce intended results, except to create publicity stunts and assuage guilty consciences.

Without addressing the root causes of global and local economic crises and poverty, any entity, however wealthy, well-connected, or well-intentioned, will be rendered ineffective.

While this may sound trite, obvious, and old-hat, it bears repetition, especially in Asia.

Fortunately, Sebastian Mallaby, Washington Post columnist, has taken it upon himself to emphasize this point more than once while writing about the triumphs and tribulations of Australian-born James Wolfensohn, the first non-American to become president of the World Bank.

In The World’s Banker, Mallaby has dished out a dramatic narrative combined with substantial research to illustrate what even non-economists presumably know all along: that good politics is inextricably linked with economic development and that poor governance can introduce or exacerbate a crisis.

In 1996, just a year before the Asian crisis struck, the World Bank and its Bretton Woods sister, the International Monetary Fund, pumped in billions of dollars to strengthen the balance sheets of Indonesia’s state-owned banks.

Unfortunately, most of these funds went to undeserving borrowers, including those close to the Suharto regime.

As a result, when the contagion hit, the banks remained on the verge of collapse, the very situation that the Bank and the IMF wanted to avoid when they released the funds in the first place.

The banks, in the end, barely had anything to show for except bad assets, soured loans, and poor corporate governance.

In turn, the volatile mix of financial instability and the effects of a regional crisis culminated in the resignation of president Mohamed Suharto in May 1998.

“The [World] Bank has been engaged for years in Indonesia but its economists’ worldview had left no room for the idea that if you don’t get the politics roughly right a lot of development progress may be wiped out in a few weeks,” Mallaby says in a chapter about Indonesia, the Bank’s poster country for its poverty reduction strategies (or at least before 1997).

Mallaby’s assertion could very well apply to the Philippines, a heretofore willing subject of IMF-inflicted structural adjustment programs.

With a yawning fiscal deficit, the current [Arroyo] administration has ignored calls for an independent, no-nonsense audit of the power purchase agreements* made between the government-owned National Power Corporation (Napocor) and independent power plants (IPPs).

While the justice, finance, and energy departments have said that most of the contracts are on the level, various independent studies indicate exactly the opposite.

Like the huge, fraudulent debt incurred from the construction of the Bataan Nuclear Power Plant, the government continues to honor these deals, which binds Napocor and consumers to pay the IPPs for unused and even ungenerated power, which, incidentally, is one of the reasons for the country’s current fiscal mess.

Although the administration remains optimistic that the new value added tax as well as a slew of other measures will address the fiscal deficit, it nevertheless remains politically fragile, especially with unresolved allegations of election fraud.

How then is development ever going to proceed when it appears that the country can’t even get its politics right?

Despite its reputation for swallowing every bitter economic pill that both the IMF and the Bank have prescribed, the Philippines in the 21st century is a stark contrast to Uganda five years before the millennium.

Burdened by a series of dictatorships and erstwhile anti-free-market policies, Uganda significantly reduced poverty incidence with the help of the hard-hitting yet sensible Emmanuel Tumusiime-Mutebile, a technocrat whom Mallaby refers to as a “hammer.”

As overall financial adviser to President Yoweri Musuveni, Tumusiime made it possible for the former British protectorate to hold its poverty conference in its very own territory, perhaps the very first country in Africa to do so.

Combined with the efforts of Wolfensohn and Jim Adams, then the Bank’s director for East Africa, Uganda’s poverty reduction initiatives — previously held in Paris — were discussed by donor country representatives, nongovernment organizations, and Bank officials right at the heart of Kampala, the country’s capital.

But it was more than a change of venue.

It was also a paradigm shift, the very instance when the World Bank — or at least under Wolfenson’s term — began to re-examine its ideas about development.

Nowhere was this transformation more dramatic than in the Bank’s engagement with Uganda.

The Bank, for instance, gave Musuveni money to build more roads even though it believed that these funds could be best used for education.

But then again, Wolfensohn’s Bank — as Mallaby sometimes called it — was now more open to other ideas.

“There was a good case to be made for rural road building, which would link poor farmers to markets, boosting their incomes and therefore their ability to pay for school fees,” Mallaby writes. “If the Ugandans did not want money for education, was it wise to jam it down their throats?”

As Mallaby shows, this kind of pragmatism could only have happened under Wolfenson’s term, whose early years were marked by swift, decisive, and positive action, especially when its dedicated executives intervened in Bosnia.

Although brash and impulsive, Wolfensohn — reportedly an Olympic swimmer — was able to transform the World Bank from a centralized and stodgy institution into a flexible agency which, more or less, willingly worked with nongovernment organizations to help lift millions out of poverty.

However, Wolfensohn was not always on target, a fact well-documented by Mallaby who took the extra effort to ensure that the portrait he has painted is accurate and balanced.

Aside from firing old hands or forcing their resignations, Wolfensohn, for better or for worse, created unnecessary tension in the Bank’s board by deliberately withholding discussions about policy shifts.

Due to Wolfensohn’s single-mindedness and a mania for doing things his way, one G7 country representative recited a poem during a meeting, comparing him to Narcissus.

These anecdotes, peppered with policy framework documents and strategy papers, only underscores that The World’s Banker remains a compelling read.

Its quick narrative pace, together with its intention to avoid development jargon, has made the book accessible, especially to regular readers, giving them an inside look at the workings of what may well be the only bank in history directly participating in programs which help the world’s poor.
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*Power purchase agreements include foreign exchange and fuel price covers.
Besides being required to buy electricity from power plants, Napocor, the Philippines’ largest power producer, is also required to protect these same power plants from volatility of fuel prices and foreign exchange.
Some power plants use either diesel or bunker fuel to produce electricity.
This means every time oil prices (including prices of bunker fuel and diesel) go up, Napocor is required to fill in the difference in the price gap.
With every increase in global oil prices, the Philippines also pays more pesos for the same amount of fuel imports. Napocor is also expected to cover the difference in foreign exchange costs for independent power producers.

From the Fine Print Dept. This piece is an edited version of a previously published book review in the Manila Times in September 2005. World Bank icon is from http://mt.educarchile.cl/MT/jjbrunner/archives/2010/01/gestion_basada.html.

When Jose de Venecia Jr. was a boy, he was almost killed by a goat.
The enraged beast — the head of the herd that he was leading out to pasture — charged at him without any provocation, flinging his body into the air.
De Venecia avoided serious injury — and perhaps even an early death — after being saved by his belt. The billy goat’s horn snagged the leather strip fastened onto his waist, missing the target by just a few inches.
Whatever epiphanies de Venecia derived from this incident are not indicated in Global Filipino, his authorized biography, written by Brett Decker, a speechwriter and a newspaper editor.
But the anecdote — however incredible it may sound to friends, foes, and frenemies — serves the books purpose.
The goat attack and many other stories help drive narrative action, encouraging readers to actually go through the whole volume, a 400-page work that includes a 15-page Philippine history chronology, praises from presidents Aquino, Ramos, and Estrada.
No such remarks came from President Gloria Macapagal-Arroyo for obvious reasons.
In early 2008 — the same year the book was published — her allies unseated de Venecia as House Speaker despite years of unwavering and critical support.
But that’s how the game is played and no one knows this better than de Venecia, who was able to unite all political parties in the late 1990s in what was then known as the Rainbow Coalition.
But in 2008 — when Arroyo deemed him useless — he may have recognized that the jig was up and that he was old and rich enough to publish his biography.
Unknown to many, de Venecia’s biggest contribution to the country may very well be his move that asked allow local lenders to accept US dollars.
Proposed in the mid-1960s and later approved by both the US and the Philippines central bank, the move continues to benefit the country by making it easier for overseas Filipino workers to send money home.
De Venecia’s dollar remittance proposal earned him a belated recognition from the Bangko Sentral ng Pilipinas in 2005, the book says.
Besides commendations — presidential or otherwise — the book also carried blurbs from 20 other heads of state including South Africa’s Nelson Mandela and the United Nations’ Kofi Annan.
What purposes do these blurbs and written testimonies serve?
That our man from Pangasinan are in the good graces of leaders, both global and local, including the late dictator Ferdinand Marcos who may have considered him close enough to be a crony.
To this day, de Venecia denies the appellation.
Never mind that a company he once controlled — Landoil, which, among others, built ports and drilled for oil in the Middle East — was able to borrow a $120-million loan that was guaranteed by the Marcos government.*
After failing to collect from projects that were derailed when the Iran-Iraq war erupted in 1981, Landoil was eventually unable to pay its debts.
And just like any lucky guy, de Venecia got another break.
Landoil’s unpaid debt was covered by the Filipino taxpayer through Philguarantee, another government entity.
Decades after the goat attack, it seemed that de Venecia’s good luck remain in ample supply.
The Philippine Supreme Court later sustained a decision — rendered earlier by an anti-graft court — that cleared Landoil and de Venecia of any wrongdoing regarding its loan from the Marcos government, the book says.
His good fortune doesn’t stop there — it apparently extends to the spiritual realm.
Divine Providence has deigned to favor de Venecia and his family by allowing them to witness a few miracles, the biography says.
In December 2004, after his daughter Kristina Casimira, or KC, died in a fire at their home, de Venecia and wife Gina sought spiritual refuge at the convent of the Pink Sisters in Quezon City.
Unknown to both grieving parents, the prioress, Sister Hermenegildes, already instructed a younger sister, Incarnita, to offer prayers for KCs soul.
Except that she didnt tell anyone that her prayers for KC accompanied a personal petition. “[S]he had asked for a sign that KC was already in God’s bosom. In her prayer the young nun asked for a new pair of shoes. Her only pair was tattered and needed to be replaced,” the book said.
On January 25, 2005, the fortieth day of KCs death, the devout sisters prayers were answered. She received a pair of shoes, an indication that KC de Venecia was already in heaven. “In the pale glow of the convent light, Sister Incarnita’s eyes caught sight of a brand-new pair of shoes. They were Manay Gina’s birthday gift for Sister Hermenegildes, but they were a bit too big for her. She decided to give them to Sister Incarnita. They fit her perfectly,” the book says. “Mother, Mother Prioress, cried Sister Incarnita. You don’t know it, but this is the sign I have asked from the Lord to indicate that KS is in good hands! The shoes were delivered to the convent on January 24, the eve of KCs fortieth day of death, the day which, for the faithful, marks the ascension of the soul to heaven.”
None of these supernatural events reflect badly on de Venecia.
After all, these help embellish the latter half of the book, which resemble fairly well-written brochures filled with platitudes.
Take de Venecia’s speech during the Global Interfaith Dialogue in the United Nations in 2005. “There can be no peace between the great powers without peace between the major religions. And there can be no peace among the religions unless there is a dialogue among the religions,” the book says, quoting its subject, who, from all appearances, feel mighty important to emphasize the obvious.
It may be argued that the lackluster text may only be the result of de Venecia’s kind of politics — safe, centrist, and therefore traditional.
But one thing’s for sure, no one knows what would have happened to Philippine politics if the goat had a better aim.

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*In 1987, a year after the late dictator Ferdinand Marcos, family members, and cronies left for Hawaii, the Presidential Commission on Good Government (PCGG) filed Civil Case No. 20 against de Venecia.
The case alleged that he took undue advantage of his links with Marcos to secure Landoil loans, a transaction considered behest.
The $120 million-borrowing reportedly satisfied any two or more of the following conditions: that it was either given under duress, undercollateralized, spent for other purposes, endorsed by senior government officials, used by persons associated with Marcos, and/or bankrolled programs or projects that were not deemed feasible.
To settle the case, Landoil entered into a compromise agreement with the Presidential Commission on Good Government (PCGG) in 1988.
Under the compromise, de Venecia agreed to transfer 45 percent of Landoil shares to the PCGG and the company’s claim against a foreign insurance company that agreed to cover its losses arising from non-payment for its Middle East projects.
As of late 2007, a blogger familiar with the matter said that only P13 million has been reportedly received by the PCGG even as Landoil has allegedly received payments from its insurer. (Landoil reportedly demanded $700 million in compensation but it supposedly reached a settlement with its insurer.)

From the Erratum Dept.
On page 138, it says that To control inflation, de Venecia proposed a solution: reduce the reserve requirements for banks.
A professor at the Asian Institute of Management and an expert at the Asian Development Bank have been consulted about this point and they both agree: the proposal is wrong.
It either should have been corrected and/or edited.
Cutting bank’s reserve requirements — the amount of cash it stores in the vaults of the BSP — will increase the money supply in the financial system. A higher money supply in the system leads to increased inflation, the very thing that de Venecia’s proposal intended to reduce.