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Senators Question 2021 Budget’s Priorities Amid Covid-19 Crisis

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A woman wearing a mask prays inside a church south of Manila last week. Photo: EPA

Senators on Wednesday questioned the economic team’s priorities under the proposed P4.5-trillion national budget for 2021 as allocations for health and social safety nets were cut and funds for infrastructure projects increased despite the ongoing pandemic.

Senator Franklin M. Drilon asked economic managers why the Department of Health (DoH) budget was slashed by 14% to P131 billion in 2021, when the agency’s role in restoring confidence in the public health system is crucial for economic recovery.

“It’s P153 billion for this year as adjusted with Bayanihan I and II and yet for next year, we are only allocating P131 billion. Isn’t there something wrong with this? When in fact we should recognize that economic recovery depends upon protecting public health because that is where the confidence of the consumer has weakened,” he said during the Development Budget Coordination Committee (DBCC) briefing at the Senate on Wednesday.

Even if there are questions over the DoH’s handling of the health crisis, Mr. Drilon said it is still important for the government to give a bigger budget to improve testing, contact tracing and treatment of those infected by the coronavirus disease 2019 (COVID-19).

Budget Secretary Wendel E. Avisado said the DoH’s budget was higher this year because they made substantial investments such as buying testing machines and other equipment to deal with the health crisis.

“Next year, what will be covered mostly are the consumables, the test kits and therefore, that is where we wanted to ensure that there will be more than enough consumables to be able to correspond the capital investments that we had this year, and other accompanying items,” Mr. Avisado said.

Senator Cynthia A. Villar also pointed out only 30 out of 70 DoH-operated hospitals have set up COVID-19 testing facilities despite the increased budget.

“Apart from testing, there is also the question of contact tracing and our ability to treat and therefore this is an issue that I take with you because the budget didn’t sufficiently address the protection of public health which for this budget is key for economic recovery,” Mr. Drilon added.

Senator Risa N. Hontiveros-Baraquel also raised concerns the estimated P20 billion to be set aside for the free vaccination program against COVID-19 may not be enough.

Ms. Hontiveros estimated around P189 billion would be needed to subsidize the vaccines for 18 million poor families, assuming there are five members in a family and three doses worth P700 each would be needed.

Finance Secretary Carlos G. Dominguez III said the budget for the vaccination program was only based on estimates given by the Health department. In July, he said P20 billion will be able to provide free vaccines worth P1,000 each for 20 million Filipinos.

“Pati ang Secretary ng Health ina-underestimate ’yung kailangan ng department nila para magsagawa ng isang seryosong (Even the Health Secretary is underestimating the budget they need to implement this) vaccination program. P20 billion is only one-ninth of the P189 billion that we initially computed on this end… At pag kaharap ang isang napakatinding virus tulad nito (and if we are facing a serious virus like this), ideally, it’s universal vaccination so malayong malayo pa tayo,” Ms. Hontiveros said.

There is P2.5 billion allocated for the purchase of COVID-19 vaccines under next year’s budget and another P10 billion in standby funds under the proposed Bayanihan to Recover as One Act (Bayanihan II).

Mr. Dominguez said the program will be funded through the state-run banks, which is “outside of the budget” for next year but will be paid in future spending plans of the government.

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Mr. Drilon also expressed concern over the lack of funding for a Social Amelioration Program (SAP) next year, given that the poverty incidence in the country is expected to worsen because of the pandemic.

Mr. Avisado said while the cash aid program has already been discontinued once lockdown was eased, the government still has other job-generating programs and social safety net programs.

The government rolled out a P200-billion emergency cash aid program to 18 million poor families in April during the lockdown.

Under the 2021 budget, P149 billion was allotted for social protection programs, 16% lower than the P177.2 billion for this year.

Meanwhile, Senator Panfilo M. Lacson asked the economic team to explain why the country’s two major infrastructure agencies still received substantial budget allocations despite their history of underspending.

His presentation showed the Department of Public Works and Highways (DPWH) had the biggest unused budget in 2019 worth P83.7 billion, while the Department of Transportation (DoTr) ranked fourth with P21.65 billion.

The DPWH received the second-largest budget allocation for next year worth P667.3 billion, up 52% from the P438.9 billion it has this year. The Transportation department ranked seventh with a P143.6 billion budget, up 71% from the P84 billion in 2020.

“With the performances of the two BBB (Build, Build, Build) frontline departments, will the two agencies be able to deliver in 2021? Although construction works [for this year only] resumed in May, ’yung efficiency remains low due to the protocols and restrictions being implemented,” Mr. Lacson said.

Mr. Avisado said the DPWH and DoTr committed to ramping up the implementation of all infrastructure projects.

“Hopefully they do their best to comply. In terms of policy, I think we all agree that we cannot afford delays especially at this time given that we have already suffered enough under the current conditions,” he said.

The budget for infrastructure projects was increased to P1.107 trillion next year from the reduced P785.5-billion budget this year as the implementation of the “Build, Buid, Build” program was seen to help with economic recovery.

“In your planning and projections, have you considered the efficiency of the construction in relation to the infrastructure strategy under the present pandemic? Kasi if things remain constant in 2021, how do we foresee the efficacy of the rebound strategy,” Mr. Lacson said. (Business World)

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Hun Sen’s labor sop will cost Cambodian industry

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Cambodian Prime Minister Hun Sen’s political move to hike the minimum wage for textile and footwear workers threatens to undermine the crucial industries, which combined account for two-thirds of the nation’s exports.

Under the executive order, announced last week, garment and footwear factory workers’ minimum wages will increase around US$2 to $192 per month beginning January 1, 2021.

Employer groups that have argued for wage reductions for next year say that this additional burden could make the sector even more uncompetitive and hinder recovery amid the pandemic-induced economic crisis.

Almost a quarter of Cambodia’s workers have been laid off since the pandemic began and after the European Union partially knocked Cambodia from a privileged tariff-free trade scheme, known as Everything But Arms (EBA), in reprisal for Hun Sen’s democratic backsliding.

The National Council for Minimum Wage, a tripartite body composed of representatives from the government, trade unions and employer groups, meets annually to discuss minimum wage increases. But it couldn’t reach an agreement for what the basic salary should be in 2021 after weeks of debate.

Most industries in Cambodia have no set minimum wage, but the salary of textile workers tends to be the highest.

Trade union representatives went into this year’s discussions demanding a wage hike of $11.59 for next year, which they say is a necessity given the ever-increasing cost of living in Cambodia. Employer groups, which had tried to have these discussions postponed by a year, demanded a $17 cut.

There are conflicting reports as to why Hun Sen intervened. One claim is that the National Council for Minimum Wage simply couldn’t agree on a figure so turned the decision over to his government to settle the impasse.

Another suggestion is that the council agreed to keep wages the same for next year, only for the prime minister to then intervene with his raise.

This isn’t out of character for the national leader. In 2014, 2015 and 2018, Hun Sen added a few dollars to higher minimum wages that his ministers had previously agreed.

While unions and business groups have tacitly accepted the decision of Cambodia’s strongman leader, who has been in power since 1985, neither side are pleased with an outcome that appears to most benefit the government.

Hun Sen is keen to maintain some calm in a country that has seen escalating youth-led protests in recent months, especially after the arrest of prominent trade unionist Rong Chhun in July. Placating garment workers with even a limited wage bump is the other side of the coin to his government’s violent crackdown on these latest protests.

It was also a populist measure by Hun Sen who has been keen in recent years to woo garment workers, who in the past typically voted for the now-banned Cambodia National Rescue Party (CNRP), the largest opposition party until its forced dissolution in late 2017.

A promise to boost the minimum wage was key to the CNRP’s campaign ahead of the 2013 general election, at which it won 44% of the popular vote. Afterward, this policy was immediately appropriated by Hun Sen’s ruling Cambodian People’s Party (CPP) as a way to curry favor with this part of the electorate.

The minimum wage for textile workers rose from just $80 in 2013 to $190 this year. Government propaganda circulated on social media shows images of Hun Sen being embraced by adoring garment workers, alongside the boast that Cambodia is the only country in Southeast Asia that has increased the minimum wage during the pandemic.

Core inflation reached 3.2% in June as Cambodia’s consumer price index hit a five-year high. The cost of living has increased significantly over the past five years. The price of fresh fish, for instance, rose by 11.4% in June compared to the same month last year.

Phnom Penh, home to many of the typically young, female migrants from the countryside who work in the textile factories, is now the sixth most expensive city in Southeast Asia, according to the Numbeo Current Cost of Living Index. It ranked fourth last year.

It is estimated that one in five Cambodians depend on salaries earned in the textile sector, as workers send home large chunks of their wages to families back in the countryside. The considerable decline of the sector during the pandemic has contributed to rising poverty in rural areas, analysts say.

Government data claims that textile exports fell by only 5.4% in the first half of this year, compared to the same period in 2019, an official figure that has raised a few suspicious eyebrows considering the loss of certain tariff-free trade privileges in the EU.

The government also asserts that only 50,000 jobs have been affected by the pandemic-induced economic crisis. But the Garment Manufacturers of Cambodia (GMAC), the main industry body, puts the number of job losses at 150,000, out of around 700,000 pre-pandemic.

In February, Hun Sen promised that furloughed textile workers would receive 60% of the minimum wage, or roughly $114 per month, with the majority being paid for by the state and the rest by employers.

Two months later, however, the leader reduced the amount to just $70 per month. It remains unclear whether Phnom Penh caved to demands from employers for the original sum to be reduced or, more likely, the government realized it didn’t have the funds to make the payments over a medium or long-term period.

Most years, employer groups have gone into minimum wage discussions with the goal of keeping salary hikes as low as possible. Seldom, however, have they demanded a cut in minimum wages, as they did this year.

Textile factory owners contend that the minimum wage is something of a red-herring, as most workers receive more than the basic salary.  Employers must also pay overtime bonuses, a $7 monthly accommodation allowance, good attendance add-ons, and seniority payments for long-serving staff.

It is thought that these bonuses, on average, cost employers an additional $15 per month per worker.

Phnom Penh has put a positive spin on the minimum wage hike. “The raise is also a message to attract more investment and new factories to Cambodia,” Labor Minister Ith Sam Heng told local media.

Yet it is difficult to see how the move to increase costs would necessarily attract new investors. Indeed, if the textile sector is to recover to near pre-pandemic levels it will need substantial investment in the coming years, mostly from overseas.

Some of the factories barely surviving at present are expected to collapse once state bailout funds are withdrawn. Others will need to raise working capital to pay for operations and wages, since earnings from exports are rarely paid up-front.

A recent GMAC survey found that only 35% of factories have enough orders until the end of the year, while quarter 25% reported having no orders until the end of 2020, the Southeast Asia Globe reported last month.

To raise the necessary investment, Cambodia’s textile sector will need to show it remains competitive against its more developed and higher-end rival producers in Thailand and Vietnam.

Not only has the pandemic significantly reduced demand from Western buyers for Cambodia-made textiles, the country also recently lost many of its trade privileges with the EU, traditionally its largest textile market. Last year, the EU purchased the majority of Cambodia’s textile exports.

In August, tariffs were slapped on one-fifth of Cambodia’s exports to the EU, including some goods from the textile sector, though it is difficult to estimate the costs of the new charges.

Kimlong Chheng, director of the Centre for Governance, Innovation and Democracy at the local Asian Vision Institute think tank, has claimed that total removal from the EBA scheme would cost Cambodia’s economy as much as $650 million each year.

Given that only a fifth of trade privileges under the EBA was cut, the cost may be around US$130 million each year.

Much depends on whether textile factory owners shoulder the additional costs of tariffs by cutting into their profits, or whether they shift the additional costs onto clients by increasing prices, making Cambodia’s textile exports less competitive.

Now, factory owners must also find additional money for higher wages. If the textile sector was to recover to near full employment next year, representing around 750,000 workers, the minimum wage hike will cost employers an additional $1.5 million each month, or $18 million annually.

For years, analysts and industry insiders have warned that Cambodia’s textile sector was losing its competitive edge vis-a-vis neighbors.

Vietnam, now a Southeast Asian powerhouse for manufacturing exports, boasts far higher standards of transport infrastructure, a more productive workforce and easier export capabilities for business owners.

Cambodia’s minimum wage was already higher than its more productive neighbors, which in comparison have avoided hefty wage hikes in recent years to maintain their competitiveness.

Wages for Thai textile workers are currently $191 per month, compared to Cambodia’s US$192 from next year. In Vietnam, where wages differ based upon location, the highest salary i$182 per month. In Laos, the minimum wage is just $88 per month.

Another reason for Cambodia’s faltering competitiveness is political unpredictability. For almost two years, textile owners and investors were left guessing whether Hun Sen’s government would loosen its political stranglehold to maintain economic benefits with the EU. He didn’t and now business owners and workers are bearing the costs.

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Indonesian bill an environmental, economic disaster

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Firefighters work to extinguish a fire at a peatland forest in Payung Sekaki regency in Pekanbaru, Riau province, Sumatra, on August 2, 2019. Photo: AFP / Wahyudi

Indonesia’s  parliament is poised to pass a massive “omnibus bill” stimulus package by early October to help offset the economic damage incurred by the Covid-19 pandemic. Unfortunately, that package currently contains provisions that will allow unbridled deforestation that will both harm the environment and sabotage the bill’s economic growth potential.

The omnibus bill involves the insertion of 174 new articles into 79 existing laws governing areas including taxation, labor, investment and the environment. President Joko “Jokowi” Widodo’s government has pitched the bill as an essential job-creation tool designed to streamline business-unfriendly bureaucratic processes in order to boost investment.

However, some of the bill’s provisions would also directly increase the risk of massive deforestation by eliminating existing legal protections for primary forest cover.

Specifically, the bill would loosen requirements for environmental impact assessments for industrial and agribusiness projects and empower the central government to approve business and investment in officially designated forest and peatland areas, which are currently protected by a deforestation moratorium.

The bill also eliminates the legal requirement that provinces maintain a minimum forest cover of 30% on provincial land by allowing them to set such standards “proportionately.”

And it includes a provision that could increase the regional risk of catastrophic haze from plantation fires by lifting the existing strict legal liability for companies with fires occurring on their concession areas.

According to an analysis by the Indonesian non-governmental organization Madani of these provisions, their potential impacts are nothing less than catastrophic. The NGO warns that the omnibus bill if passed in its current form could lead to the complete destruction of natural forest cover in the provinces of Riau, Jambi, South Sumatra, Bangka Belitung and Central Java over the next two to three decades.

This assessment is reinforced by a public letter sent to domestic and international financiers by a coalition of Indonesian civil-society and environmental NGOs. They warned that the result of the bill’s passage will be that “Indonesian​​ current laws and regulations will no longer​​ comply​​ with​​ globally accepted​​ environmental and social safeguards.”

These concerns aren’t limited to environmental organizations. In July, the World Bank’s Indonesia and Timor Leste country director, Satu Kahkonen, criticized the bill by warning that in its present form it “is basically not helping Indonesia” because it will “move Indonesia’s environmental legislation further away from the implementation of best practices.”

Tragically, the severe environmental consequences of the omnibus bill will also directly undermine its stated intention of economic stimulus and job creation. That’s because the environmental harms wrought by the bill will harm Indonesia’s  attractiveness as an investment destination and exporter. That will in effect reverse recent hard-won progress by the Indonesian government and the private sector in reducing widespread deforestation and destruction of peat lands.

One of the sectors that have the most to lose from the omnibus bill’s pro-deforestation elements is the palm-oil industry. The sector – whose exports constitute more than 2% of Indonesia’s annual gross domestic product – has made strides in recent years to shake its well-earned reputation as a major driver of forest destruction by implementing “No Deforestation, No Peatland, No Exploitation” (NDPE) policies.

Those policies, in tandem with Indonesian government initiatives, including the enactment in August 2019 of a permanent moratorium on forest clearing for timber and plantation development, helped reduce deforestation in Indonesia in 2019 to its lowest levels in almost two decades.

But rather than decrying the omnibus bill’s pro-deforestation elements, Indonesia’s palm-oil sector has instead taken a position of complicit silence.

The glaring exception to this has been Astra Agro Lestari, a subsidiary of the British conglomerate Jardine Matheson. Astra Agro Lestari, Indonesia’s second-largest palm-oil producer, has significant influence within both the palm-oil sector and the Indonesian government through Joko Supriyono, Astra’s vice-resident director and chairman of the Indonesian Palm Oil Producers Association (GAPKI).

Despite Astra’s adoption in 2015 of an NDPE policy, in February this year, Supriyono expressed unqualified support for the deeply flawed omnibus bill as “a solution to the complexity of licensing in the palm-oil sector.” He described GAPKI’s support for the bill as essential to “the interests of the national palm-oil sector.”

That stance suggests willful blindness to the damage that the omnibus bill poses to the palm-oil industry, both domestically and internationally. Major palm-oil importers including the European Union and United Kingdom are considering increasingly stringent environmental standards for agricultural imports, including palm oil. Those standards, if enacted, will in effect block any Indonesian agricultural exports linked to deforestation that this omnibus bill, in its current form, would fuel.

The Indonesian government and its palm-oil industry have a choice. They can allow the passage of an omnibus bill that will worsen deforestation and undermine economic growth by discouraging foreign investment and stigmatizing key agricultural exports, or delay the bill’s passage and allow for meaningful public consultation on its environmentally harmful provisions to help ensure that economic stimulus measures are built on a foundation of environmental sustainability rather than destruction.

With the Indonesian parliament expected to approve the bill within weeks, President Widodo, legislators and the private sector need to move urgently to address the bill’s flaws before it’s too late.

Phelim Kine is the senior director for Asia at the environmental campaign organization Mighty Earth and a former deputy director in Human Rights Watch’s Asia Division. He is also an adjunct professor in the Roosevelt House Public Policy Institute at Hunter College in New York. – ATIMES

 

 

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China, Indonesia Sea Dispute Hot and Getting Hotter

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Security ship crew members of the Ministry of Maritime Affairs and Fisheries prepare for a patrol along Indonesia’s exclusive economic zone in the Natuna Islands. Credit. Ulet Ifansasti/Getty Images

Chinese Coast Guard (CCG) cutter 5204 has become such a familiar sight inside and on the fringes of Indonesia’s 200-nautical-mile Economic Exclusion Zone (EEZ) that it is now suspected of trying to stake out the limits of Beijing’s nine-dotted line of historically claimed sovereignty over the South China Sea.

The Indonesian government issued a formal protest to Chinese ambassador Xiao Qian over the latest intrusion on September 12, in which the Indonesian Maritime Security Agency (BAKAMLA) said the Chinese used the specific term “nine-dash line” in radio messages with an Indonesian patrol vessel.

While China recognizes Indonesian sovereignty over its northernmost Natuna archipelago, it has always refused to provide the exact coordinates of the nine-dash line, a broad tongue-shaped swathe of the South China Sea extending into the North Natuna Sea.

The latest incident suggests that Jakarta may sooner or later have to confront the fact that China is now seeking to lay down markers in claiming traditional fishing rights inside Indonesian waters in a clear breach of the 1982 United Nations Convention on the Law of the Sea (UNCLOS).

“In many locations, the CCG/People’s Liberation Army (PLA) Navy are trying to normalize the presence of their ships and then eventually move into enforcing their fishing rights and the nine-dash line,” says one naval analyst who requested anonymity.

Although not included among ships listed in the CCG fleet, 5204 is a 2,700-ton Zhaojun-Class cutter which normally plies between the Chinese-occupied Spratly islands and the Vanguard Bank, the westernmost reef of the disputed island group known for its oil and gas reserves.

Natuna Sea

Last January, it was also one of three Chinese cutters which intruded 100 kilometers into Indonesian waters in a large-scale incursion that caused Indonesia to scramble F-16 jets from Pekanbaru, southern Sumatra, and dispatch eight naval vessels to the scene.

Since then, the cutter is believed to have made several other intrusions after switching off its automatic identification system (AIS) for up to 36 hours as it ventured close to the maritime border, which lies about 70 kilometers south of Vanguard Bank.

The difference this time is it kept its transponder activated, which as the analyst explained, “means they want you to know.” It also took two days to return to international waters after it was intercepted by an Indonesian patrol vessel.

In its most forthright statement so far, Chinese Foreign Ministry spokesman told reporters at the height of the January stand-off: “Whether the Indonesian side accepts it or not, nothing will change the fact that China has rights and interests over the relevant waters.”

Pompeo told last week’s East Asia Foreign Ministers summit that Beijing had no respect for democracy in the region and called on the region’s nations to fight Chinese domination and cut business ties with Chinese companies with interests in the South China Sea.

Speaking at the same online meeting, Chinese Foreign Minister Wang Yi denied that Beijing claimed all the waters within the nine-dash line as internal and territorial waters, calling it a “deliberate confusion of concepts and a distortion of China’s position.”

China’s Foreign Minister Wang Yi (C on screen) addresses counterparts from the Association of Southeast Asian Nations (ASEAN) countries in a live video conference during the ASEAN-CHINA Ministerial Meeting, held online due to the COVID-19 novel coronavirus pandemic, in Hanoi on September 9, 2020. (Photo by Nhac NGUYEN/AFP)

But he prefaced his statement by asserting that China has “sufficient historical and legal basis for its sovereignty and sovereign rights over the South China Sea,” claiming that under UNCLOS the “historic rights of countries should be respected.”

Four years ago, in a case brought by the Philippine government, an arbitral tribunal convened under a provision in the UNCLOS ruled that China has no legal basis to claim historic rights within its nine-dash line. Beijing rejected the ruling, which lacked an enforcement mechanism.

One noteworthy development was Wang’s support for “actively advancing” the long-delayed maritime Code of Conduct with the Association of Southeast Asian Nations (ASEAN), which aims to prevent armed clashes in the South China Sea.

“China persists in advocating ‘shelving disputes and developing together’ and is willing to pay attention to the energy needs of coastal countries under this framework and seek win-win and multi-win results,” he said.

Indonesian Foreign Minister Retno Marsudi used the East Asian conference to warn the US and China, as she has previously,  not to involve Indonesia and its Southeast Asian neighbors in their competition in the South China Sea.

Coordinating Minister for Political Legal and Security Affairs Mahfud MD has said Indonesia will never be drawn into negotiations over its sovereign rights to waters north of the Natuna archipelago, which is part of the country’s Riau province.

Indonesian President Joko Widodo aboard a naval vessel in a file photo. Photo: Twitter/Presidential Handout

Marsudi and other senior officials also continue to insist there is no overlapping jurisdictions with China and that Indonesia has never recognized the nine-dash line, which first appeared in a map published by the Republic of China in 1947.

The Pekanbaru-based F-16s now conduct regular patrols over the Natunas. So do Boeing 737 and CN-235 maritime reconnaissance aircraft, flying out of Makassar in South Sulawesi, and a squadron of Israeli-made drones based in West Kalimantan. ATIMES


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