Tuesday, June 22, 2010

ON IMF-ESPOUSED NEW PROBLEM-SOLVING ERROR IN GOVERNMENT

rsj n print:ON IMF-ESPOUSED NEW PROBLEM-SOLVING ERROR IN GOVERNMENT by Mar Tecson
Tuesday, 22 June, 2010 13:16
From:
"Erick San Juan"
To:
princesanjuan@yahoo.co.uk


--- On Mon, 6/21/10, Marcelo Tecson wrote:

From: Marcelo Tecson
Subject: *Fwd: ON IMF-ESPOUSED NEW PROBLEM-SOLVING ERROR IN GOVERNMENT....
To: culdesac0002@yahoo.com.ph, bertdg@gmail.com
Cc: 2viking@yahoogroups.com, SilvinoandJuliaRiveraclan@yahoogroups.com, jcentino@gmail.com, villapretoria@yahoo.com, mjarasa@earthlink.net, ellienic@hotmail.com, asinson3@yahoo.com, renetsioson@yahoo.com, wengbasilio@fairview.sti.edu, mamajeep1939@yahoo.com, roselle22@sbcglobal.net, gines_benjamin@hotmail.com
Date: Monday, 21 June, 2010, 9:27 PM

----- Forwarded Message ----
From: Marcelo Tecson
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Sent: Mon, June 21, 2010 5:47:40 PM
Subject: *Fwd: ON IMF-ESPOUSED NEW PROBLEM-SOLVING ERROR IN GOVERNMENT....

---------- Forwarded message ----------
From: Marcelo Tecson
Date: Mon, Jun 21, 2010 at 5:17 PM
Subject: ON IMF-ESPOUSED NEW PROBLEM-SOLVING ERROR IN GOVERNMENT....
To: "“Mr. Dominique Strauss-Kahn”" , "“Sec. Margarito Teves”" , "“Gov. Amando Tetangco Jr”" , "“Mr. Benjamin Diokno”"

ON IMF-ESPOUSED

NEW PROBLEM-SOLVING ERROR
IN GOVERNMENT:

APPEAL TO ECONOMISTS
IN
IMF,
GOVERNMENT, AND ACADEME:
BEWARE OF PITFALLS IN
PROBLEM SOLVING


Problem solving is an integral part of governance. How governments do it leads to good governance, poor governance, or combination of both. Decision makers in government have to be aware of pitfalls in problem solving, which already caused monumental errors in the past at the expense of the people. This paper aims to present some of these pitfalls so that past problem-solving errors will not be repeated.



PART I

OPPOSITION TO APPROVAL
OF CURRENTLY RECOMMENDED NEW
PROBLEM-SOLVING ERROR IN GOVERNMENT:
INCREASE IN VAT FROM 12% TO 15%


PAST GOVERNMENT PROBLEM-SOLVING ERRORS
IN ADDRESSING ECONOMIC CRISIS WERE COMMITTED
AT THE BEHEST OF IMF OFFICIALS/ECONOMISTS

I am part of faceless millions upon millions of innocent victims of unpardonable errors in problem solving committed by PhD holders in IMF—including past and present professors of economics in Harvard University and other top universities—who prescribed ultra high interest rate of 60% during the 1997-1998 Asian crisis, as divulged in media interviews by Bangko Sentral ng Pilipinas (BSP) Governor Gabriel Singson, the then Philippine central bank governor. The crisis-hit Asian countries under IMF sway implemented the IMF-prescribed high-interest-rate antidote at varying dosages, which peaked in the Philippines at roughly 40% and in Indonesia at 65%, culminating in, among other things, 36% or P600-BILLION bad loans in the Philippine commercial banking system, as well as 75% bankruptcy rate in Indonesia’s business firms, as gathered and derived from media reports. IMF’s and central bank’s gross mishandling of the Asian meltdown is presented later in this paper.

It appears that IMF’s problem-solving errors are not limited to victimized Asian countries under their sphere of influence. While economists in government and academe have been generally mum on IMF’s disastrous high-interest-rate prescription and related measures in economic crisis, someone from far away Africa has been quite vocal against them, as shown in ANNEX A.



A NEW PROBLEM-SOLVING ERROR
IS ESPOUSED BY OFFICIALS/ECONOMISTS
IN IMF, GOVERNMENT, AND ACADEME
AS THE NEW AQUINO ADMINISTRATION
EMBARKS ON MASSIVE PROBLEM SOLVING

Speaking Wednesday at his first press conference only minutes after being proclaimed winner of the presidential election, (Noynoy) Aquino... said his first order of business on July 1, his official first working day, would be to conduct an inventory of all the problems he would inherit from President Gloria Macapagal-Arroyo’s administration, from the budget deficit to speeding up the prosecution of criminal cases. “I want to emphasize that wrong identification of the problem leads to wrong solution, so there has to be correct identification,” Aquino said. (Gil C. Cabacungan Jr., "First order of business: List down all problems," Philippine Daily Inquirer Online, June 10, 2010)

An immediate major problem that the new Administration has to confront is the national government’s P300-BILLION annual budget deficit, which some economists in IMF, government, and academe want to address through intensified VAT taxation, a case of potential problem-solving error in government.

“The International Monetary Fund…wants the value-added tax raised to 15 percent and the income tax rate slashed to 21 percent under the next administration, according to Finance Undersecretary Gil Beltran. Beltran said he learned of the IMF position during the institution’s recent meetings in Washington, which he attended. Raising VAT from the current 12 percent to 15 percent and cutting the income tax from 30 percent to 21 percent were mainly recommendations of University of the Philippines economists. Finance Secretary Margarito Teves has endorsed the recommendations.... This year’s budget deficit is at P293 billion, slightly narrower than the P298.5 billion deficit incurred last year.” (Iris Gonzales, “IMF wants next government to hike VAT, The Philippine Star Online, May 4, 2010).

UP economist and former Budget Secretary Benjamin “Diokno said that regarding tax reforms, (President-elect Noynoy) Aquino should consider reducing income taxes by at least 10 (percentage points), from 30-32 percent to 20 percent, but at the same time increasing the 12-percent value added tax (VAT) to 15 percent. There will be a net gain for taxpayers and the consuming public since the income tax reduction would be a lot bigger than the VAT increase, he said. He said those opposing his proposal do not perhaps realize the effective gain it would achieve for taxpayers." (Jess Diaz, “Initiate reforms in making budget, Joker tells Noy,” The Philippine Star Online, June 21, 2010)

The basic problem with the foregoing suggested regressive taxation is that we are not talking of just one affluent taxpayer who will pay increased value added tax, then save much bigger income tax. We are also dealing with the much, much larger number of poor and jobless Filipinos. They will not benefit from reduced income tax rates, yet they will be captured by increased consumption taxation as they buy essential commodities to meet their needs. They will become hapless victims of the proposed increase in VAT from 12% to 15%. What’s more, the anticipated overall net gain to taxpayers will worsen, not alleviate, the national government’s already acute budget-deficit problem.




THE PRESENT RECOMMENDED INCREASE IN VAT
FROM 12% TO 15% WILL BE A REPEAT OF PAST
ERROR IN GOVERNMENT PROBLEM SOLVING—
WITH POOR FILIPINOS AS POTENTIAL VICTIMS

In addressing the national budget deficit, the proposed raising of VAT from the present 12% to 15%, recommended by Finance Secretary Margarito Teves, some UP economists, and IMF economic experts, is in effect a repeat of the same type of unfortunate error in problem solving committed by IMF and central bank economists in the past: solving a problem without addressing its root, which can result into a classic case of solving a problem by creating another problem.

In solving the national government's budget-deficit problem, the responsible government officials should follow at least two problem-solving rules--which the cited recommended VAT increase to 15% failed to consider--as follows:



1. Addressing the Root of the Problem

In problem solving, after properly defining the problem, its main ROOT or cause has to be determined. If the problem is just a symptom of its cause, then leaving the cause untouched will not stop its manifestations. In the budget-deficit problem, the principal root is CORRUPTION, the economic plague that has sucked the lifeblood of the nation to the shocking tune of some $73 BILLION over two partial periods of our economic history, culminating in the roughly P300-BILLION annual budget deficit that a new Administration has to grapple with starting July 1, 2010. Corruption has drastically reduced government revenues and wastefully bloated government expenditures--resulting in staggering national budget deficit. Solving this poison fruit of corruption through raising VAT to 15%, in lieu of waging a total anti-corruption war that would address the budget-deficit problem through improving tax collection and conserving precious public funds, is tantamount to condoning corruption in government. In effect, in the past, VAT had to be raised from 10% to the present 12% because doing so would make up for public funds lost from corruption—and thereby render avoidable the all-out anti-corruption war evaded by a graft-ridden Administration. Economists from the academe who advocated such VAT increase seemingly played naively into the hands of the Administration. Stated differently, had the $73-BILLION loss from CORRUPTION been minimized instead through all-out war against it, raising VAT would not have been necessary.

The cited $73-BILLION cumulative loss from corruption is the sum of two quantified losses, as follows: According to World Bank, the Philippine “government has lost $48 billion to corruption over the last 20 years, as against borrowings of $40.6 billion over the same…period.” (Elena Torrijos, “$48B lost to graft in 20 years—WB,” Philippine Daily Inquirer, December 2, 1999, p. 4; Office of the Ombudsman, "A Snapshot of Philippine Governance: Status Programs and Guidelines," June 2000). Thereafter, in 2005, “Ombudsman Merceditas Gutierrez disclosed that at least P1.3-trillion (about $25 billion) in public revenue were lost due to fraudulent practices of some government officials and agencies from 2001 to 2005. Speaking at the start of a seminar-workshop on Integrity Development and Public Accountability at the Quezon City Hall, Gutierrez said the money lost could have been used in improving health, education and social welfare services and to reduce the national debt. ‘Bigger amounts have been lost to corruption. We could have wiped out totally our foreign debt if we used the amount for that purpose, and would still have a surplus,’ Gutierrez said.” (Julie Javellana-Santos, “Philippine Govt Lost $25 Billion the Last 5 Years to Corruption: Ombudsman,” Arab News Online, May 24, 2006)].

In fighting CORRUPTION, the lack of all-out effort by responsible government officials in the Office of the President, Presidential Anti-Graft Commission (PAGC), Commission on Audit (COA), Office of the Ombudsman, Senate Blue Ribbon Committee, etc. is treated since 2005 in my series of unheeded articles, letters, and emails to government officials concerned (copy furnished select members of media, concerned organizations and citizens, etc.), samples of which I can email to those who may claim that the government has been doing everything to combat corruption.


2. Exploring Possible Alternatives and Choosing the Best Alternative

Before going into increased VAT taxation as a way of alleviating the budget-deficit problem, there is a need to look at less punishing or better ALTERNATIVES, which definitely are not lacking. Offhand, following are such possible alternatives:

(a) Using the goodwill of the new Administration in requesting for temporary partial deferment of our foreign loan amortization that eats up more than one-third of our annual national budget;

(b) Rationalization of taxes through legislating a progressive system of taxation--the taxation system mandated in Article VI, Section 28 (1) of our Constitution.

Our request for temporary reduction in foreign loan amortization is all right--it is a matter of justifying it--for as long as we are doing it not because we cannot pay but because we simply want to prioritize and augment the funding for poverty alleviation and economic development projects, aimed at easing the suffering of the bulk of the now more than 90 million Filipinos.

On the other hand, the bearable progressive taxation system is anchored on the pragmatic ability-to-pay taxation principle, rather than on the need to purchase and consume goods under increased VAT--a consumption tax--which is so easy on the rich but quite hard on the poor.

The case for progressive taxation system is treated at length in my article/email on the subject: ON RATIONALIZATION OF TAXES: APPEAL FOR PROGRESSIVE TAXATION SYSTEM, which I will update and reissue later.



RECOMMENDED
BEST MANAGEMENT PRACTICES
IN GOVERNMENT-- AIMED AT PREVENTING
THE REPETITION OF MONUMENTAL ERROR
IN PROBLEM-SOLVING THAT RENDERED
MANY PRODUCTIVE ECONOMIC PLAYERS
BANKRUPT DURING THE ASIAN CRISIS

At all times, with or without prevailing economic crisis, to avoid the repetition of past government problem-solving errors, following are the most relevant two out of ten BEST MANAGEMENT PRACTICES (subject of my article included in a book anthology) that I wish our highest government officials would favorably consider in the performance of their functions:


(1) The art of effective problem solving, which requires looking into the root of the problem because the problem may just be a symptom of its root, then finding solutions that will address both the problem and its root.

In addressing and tackling countless national problems during regular and special meetings, government executives have to follow the simple art of effective problem solving, which, if overlooked, could lead to wastes and disastrous results. In fact, the Philippine central bank’s failure to follow it during the 1997-1998 Asian crisis already led to grave injustice and financial disasters to many Filipino industrialists and entrepreneurs, especially those who operated partly using borrowed funds.

Right upon the onset of the Asian meltdown in July 1997, in dutiful obeisance to IMF and its prescribed high interest rates, Bangko Sentral ng Pilipinas intentionally stimulated 30% “middle ground” high interest rates in the Philippine banking system (“Bangko Sentral chief: Worst is over,” MarketWatch, June 1999, p. 9), which eventually peaked at roughly 40%. Thereafter, as admitted in BSP’s February 10, 1998 letter-reply to me, the central bank lamented that “despite…(its concessionary) measures (to banks aimed at bringing down high interest rates)…the prime lending rates of banks have remained recalcitrantly high….” Hence, to appease the business sector’s clamor for the lowering of prevailing abnormally high interest rates, BSP had to create a committee that would study the high-interest-rate problem and find ways of alleviating it.

Unfortunately, the BSP Committee bungled its job during its conduct of public hearings on high interest rates, through failing to prepare and issue a backgrounder—in the form of written case problem, including its roots--on the high-interest-rate issue. This background information was important because it was needed in the art of effective problem solving, which involves the following steps:


(a) Defining the problem;
(b) Tracing the roots or causes of the problem;
(c) Determining alternative solutions, which should address the roots
of the problem; and
(d) Deciding on the best solution (or combination of solutions).

Without the case study, after stating the problem, the BSP Committee led participants into the pitfall of skipping the second step—tracing the roots of the problem—through immediately looking for alternative solutions to high interest rates, without first determining and attacking the causes of the problem. The hearings centered on how to bring down high interest rates (whether to regulate or not) without the needed focus on the curbing of its root—dollar speculation. By not properly guiding the uninformed participants, the blind BSP Committee led them into the pit. No wonder, it failed in its mission to elicit the right solutions from the public, thereby resulting in BSP sticking to deregulated high interest rates. For the BSP Committee's simple problem-solving error, bankruptcy-inducing high lending rates continued and eventually helped provoke 36% or P600 BILLION bad loans in the Philippine banking system, part of which remains a problem to this day. [Marcelo L. Tecson, Sr., Puzzlers: Economic Sting, (Makati City: Raiders of the Lost Gold Publication, 2005), pp. 72, 195].

Had the BSP Committee pointed out in a written case study that the root of the high-interest-rate problem was BSP’s use of IMF-prescribed high interest rates as monetary tool in curbing dollar speculation—which speculation had to be contained because it was the deemed major provocation to local currency depreciation—then experts outside the central bank could have readily prescribed the applicable solution that does not entail high interest rates—currency speculation control. This control system turned out to be part of BSP’s own antique regulations promulgated since President Diosdado Macapagal's institution of decontrol (today’s currency liberalization) in the early 1960’s. BSP inherited it from the defunct old Central Bank of the Philippines. Its latest amended version during the Asian crisis was BSP Circular No. 138 dated July 31, 1997—overlooked, unrecognized as the needed solution, and not properly enforced by BSP when needed most during the 1997-1998 Asian meltdown.

Coincidentally or not, after receiving repeated written recommendation to implement currency speculation control, BSP successfully implemented it since mid-August 2001 and continues to do so to this day—probably the reason why we do not encounter media reports regarding destructive dollar speculation despite the global economic meltdown since 2008.


(2) In finding solutions to major national problems—such as complex economic issues and sophisticated modes of corruption—employ not just the services of economics, finance, and internal control experts but also those of systems and procedures specialists, to arrive not just at the solution but at the best solution.

Systems and procedures as a form of "discipline" is governed by fundamental "principles" or problem-solving rules and work guidelines, such as the following: do not solve a problem by creating another problem; do not strive for uneconomical precision; do not make universal rules on the basis of exception, or do not have the tail wag the dog; do things in parallel, not in series; guard against fallacious cause and effect analysis; and, start from ground zero, or do not be afraid to question even today's conventional wisdom, for those concerned may be doing it all wrong all these years.



In systems work, we challenge and rationalize every important process, every major activity. We ask why something is, or is not, done. We question age-old methods. We look at things in many possible ways, analyze data and information, and generate alternatives—until we find that elusive one best way of doing things. [Marcelo L. Tecson, Sr., Puzzlers:Economic Sting, (Makati City: Raiders of the Lost Gold Publication, 2005), p. 195].

IMF’s and central bank’s failure to get out of the high-interest-rate box during the turbulence was a function of their failure to employ systems experts, who could have come up with obvious and less catastrophic high-interest-rate alternatives, as briefly presented in PART II hereunder.



PART II
REVISITING PAST PROBLEM-SOLVING
ERRORS IN GOVERNMENT—SO THAT
THESE WILL NOT BE REPEATED


IN THE ASIAN CRISIS, DID THE FATE OF CRISIS-HIT
ASIAN ECONOMIES DEPEND ON INCAPABLE HANDS:
IMF AND CENTRAL BANK OFFICIALS/ECONOMISTS
WOEFULLY IGNORANT OF SYSTEMS AND PROCEDURES
AND COULD NOT COME UP EVEN WITH THE MOST
OBVIOUS LESS DISASTROUS HIGH-INTEREST-RATE
ALTERNATIVES?

While high interest rates as the usual one-track solution to currency speculation was already satisfactory to seemingly systems-illiterate IMF and central bank officials/economists, it could not be satisfactory even to an ordinary internal control professional like me with some systems experience on the side—because, based on analysis of the case problem as gathered from my exchange of letters with BSP, there were (and there still are) less disastrous viable alternatives to high interest rates during the Asian crisis!


On Astounding High-Interest-Rate Fallacies:
During the Asian Turmoil, IMF-Prescribed High
Interest Rates Constituted a Wholesale Scheme
of Subsidy by Borrowers to Non-borrowers,
Orchestrated by Free-Market Economists in
IMF and Central Banks Who Abhor Subsidies


On top of the availability of less disastrous alternatives to it, the high-interest-rate solution is profoundly defective because, among other fallacies, it is a wholesale scheme of subsidy by borrowers to non-borrowers. It is given that free-market apostles IMF and central banks all over the world abhor subsidies that distort market prices, vitiate free market, and encourage wasteful consumption by subsidized sectors. Incredibly, during the turbulence, in the Philippines they forced three million sacrificed borrowers, no matter how poor, to bear BSP’s tight-money policy implementation cost—in the form of high interest rates, exacted from discriminated borrowers beyond the limits of sanity: in excess of their capacity to pay and up to the point of loan defaults or even bankruptcies, while more than 70 million free-lunching non-borrowers, no matter how rich, equally benefited from BSP’s policy measure but did not share in its cost, a classic case of unsound economics that culminated in P600 billion or 36% bad loans in the banking system—at the expense of borrowers and the entire economy (Puzzlers: Economic Sting, 2005, outside back cover).



On Elusive High-Interest-Rate Alternatives:
The Inability of Advanced-Degree-Holder IMF
and Central Bank Officials/Economists to Come Up
With Even the Most Obvious Less Disastrous
Alternatives to High Interest Rates Boggles the
Mind and Does Not Speak Well of the Academe

The inability of PhD-holder economists in IMF and central banks to think of obvious and common-sense less disastrous alternatives to high interest rates is both sad and astounding. It suggests the failure of the academe to produce graduates who can bridge the chasm between theory and practice, between textbooks and the real world. The high-interest-rate tight-money policy tool is in textbooks as a form of PRICE RATIONING (minimizing loans through prohibitive borrowing cost), but so is its less costly major alternative—QUANTITY RATIONING (minimizing loans through drastic reduction in loan value of finite collateral)--so why was the concept of quantity rationing not given substance during the Asian crisis? Why was this form of theory not put into practice when needed most during the turbulence?

As presented in my book published in 2005—Puzzlers: Economic Sting—as well as in emails sent to past and present IMF officials (cc World Bank, Asian Development Bank, and Bank for International Settlements) in 2006 and 2007, followed up and reiterated in 2009, following were the then available alternatives to the high-interest-rate solution—in its role as tight-money supply stimulus and defense against currency depreciation—which any systems man worth his salt could have very well recommended if given the right backgrounder on the root of the high-interest-rate problem:


(a) First and foremost, BSP's own long-standing central bank regulation issued when lawyer-economist President Diosdado Macapagal abolished currency control in early 1960's--in substance a mode of currency speculation control embodied in BSP’s amendatory Circular No. 138 dated July 31, 1997--as stated: overlooked, not discerned by the modern crop of BSP officials as the needed solution, and not implemented when needed most during the entire duration of the Asian turmoil; under this circular, at the pain of punishment, banks are prohibited from selling dollars to currency speculators, or those without foreign obligations but buying dollars merely for hoarding or speculation purposes, with the intention of reselling or converting the hoarded dollars to local currency at a profit once the local currency depreciates—which depreciation comes about precisely because induced by the economic-sabotage dollar speculation that creates artificial increase in dollar demand, to the detriment of the local currency and the economy;

[NOTE: Without knowing that it is in fact part of BSP's own regulations, I recommended the above currency speculation control measure to BSP under my letter personally issued to BSP officials when I attended the BSP Committee hearing on high interest rates at its head office on April 17, 1998, but it was ignored by BSP. When I issued written follow-ups, BSP condemned it as a cure worse than the disease in its June 30, 1999 letter-reply to me. After I accidentally learned--from former BSP Governor Gabriel Singson’s explanation in a TV interview on October 24, 2000--that my recommendation is actually a central bank regulation, I issued
candid and severely critical follow-up letters which, in August 2001, apparently helped constrain BSP to run after dollar-speculating and dollar-speculation-abetting banks, or those violating BSP Circular No. 138. As a result, the peso suddenly appreciated from P53.05 to P51.85 to the dollar (Fil C. Sionil, "Peso rebounds to P51.85 from P53.05 to dollar," Manila Bulletin, August 11, 2001, p. B-1; Puzzlers: Economic Sting, pp. 119-124)].


(b) Exchange rate hedging on foreign loans, which IMF should have prescribed since the advent of globalization and currency deregulation—or long before the Asian flu--to avoid the cataclysmic exchange loss problem among dollar-debt-ridden Asian corporations during unpredictable economic crisis; as pointed out in my cited book, two Filipino Wharton alumni, my then immediate boss Mr. Antonio V. Del Rosario of Filoil Refinery Corporation (part today of Petron Corporation), when the Philippines adopted the floating exchange rate system for the first time on February 21, 1970, and Mr. Manuel V. Pangilinan of First Pacific, during the Asian crisis, successfully employed foreign-loan exchange rate hedging in saving their respective companies from catastrophic exchange losses;


(c) Cap or limit in bank dollar holdings, to avoid the problem of banks themselves engaging in dollar hoarding or speculation;


(d) The economic crisis itself as tight-money supply stimulus that renders the high-interest-rate tight-money policy tool superfluous—through its provoking economic slowdown, wait-and-see attitude by investors, lack of appetite to borrow some more by borrowers while amortization on existing loans continue, discouraged spending by consumers, and capital flight of foreign funds that all work to drain any excess liquidity in the economy;


(e) Quantity rationing through drastic reduction in loan value of finite collateral as tight-money policy tool, which would drastically minimize new borrowing while amortization on old loans continue, thereby tightening money supply even without instituting high interest rates on outstanding old loans as of the onset of crisis; and


(f) High loan repayment rate as another tight monetary policy tool, under which there is the same borrowers’ increased loan amortization to banks as a way of siphoning off excess liquidity from the economy, but the increase in amortization is treated as loan principal repayment, not interest expense.

During economic crisis, when IMF imposed tight-money policy to nations under its sway, central bankers will drain liquidity in the spending sector of the economy through promoting HIKE in loan amortization from borrowers to banks by way of high bank lending rates, which they provoke through increase in central bank key policy rates. The additional amortization is treated as debtors' INTEREST EXPENSE, therefore its OWNERSHIP is TRANSFERRED from borrowers to banks. Then, when the same central bankers want to avoid excess liquidity in the banking system resulting from the increased loan amortization to banks, they mandate INCREASE in RESERVES kept by banks with the central bank. However, this time, the hike in reserves is treated as DEPOSIT on the part of banks. Consequently, unlike increase in borrowers' loan amortization, its OWNERSHIP is NOT TRANSFERRED from banks to the central bank. Therefore, we have to ask: Why this utterly discriminatory double standard against borrowers in favor of banks? What convoluted economic wisdom justified it?

In tightening money supply, the above present system of treating as borrowers' interest expense the stimulated increase in loan amortization (done through raising interest rates) is not tenable from the standpoints of law, moral, and sound economics--because in substance the increase in amortization is not cost of borrowing money for the benefit of borrowers. It is the cost of implementing a government economic solution for the benefit of the nation, instituted by the central bank in pursuit of its mandate, hence such cost should be borne not by borrowers alone but by the entire benefiting nation—under a system which, if IMF and central bank economists cannot conjure, should be developed by outside systems experts on an ad hoc consultancy basis.

In essence, what I am referring to is the fundamental philosophy that serves as standard of fairness, the generally accepted BENEFIT PRINCIPLE of public finance (or taxation), under which a cost for the benefit of the nation should be borne by the nation. However, did IMF and central bank officials/economists have to be told about this obvious and common-sense economic wisdom? Was following it not instinctive to them?

Moreover, as a rule, the objective of tightening money supply through accelerating the PHYSICAL FLOW of MONEY from borrowers to banks--by way of increased loan amortization--can be achieved even if the increase in amortization is treated as loan principal repayment rather than interest payment. Thus, what was needed during the crisis was simply a high loan repayment rate scheme that would attain the tight-money-supply objective without having productive investor-borrowers shoulder unjust, DISCRIMINATORY, and back-breaking increase in INTEREST EXPENSE.

In other words, IMF and central banks may restrict the PHYSICAL supply of cash in the economy, but it does NOT follow that there should be change in OWNERSHIP from borrowers to banks of the induced increase in CASH FLOW from the borrowing sector to the banking system. It does not mean that the treatment or RECORDING of the reduction in money supply, or SIPHONED OFF excess CASH from the economy, is INTEREST EXPENSE on the part of borrowers--it can logically, legally, and morally be LOAN PRINCIPAL REPAYMENT.

How the reduction in money supply (by way of increase in borrowers’ loan amortization to banks) is treated in the books of banks and borrowers—whether loan principal repayment or interest expense of borrowers—makes no difference to IMF's and central banks' tight-money-supply objective, because what matters to it is the PHYSICAL reduction in money supply, not the treatment or RECORDING thereof. Therefore, how the IMF-prescribed reduction in money supply happened to be treated and recorded as borrowers’ INTEREST EXPENSE no matter how substantial, confiscatory, impoverishing, and unconscionable the stimulating high interest rates were, is simply mind-boggling! It is as though we do not have thinking and caring economists with "PhD" appended to their names in IMF, central banks, and academe. It is as if exalted economists in IMF—past or present professors even of economics in the world’s top universities—were so bankrupt in ideas and creativity that they could not tighten money supply, or curb currency speculation, in crisis-hit economies of nations without slaughtering through high interest rates their borrowing sectors!



FILIPINO ECONOMISTS SHOULD LEND
THEIR EXPERTISE TO THE PEOPLE


How IMF and central bank officials/economists were tolerated in their implementation of the big-hoax, fraud, farce, economic-folly, and subsidy-flawed high interest rates during the Asian crisis is a sad commentary on us all.

We have to realize that IMF is not the best judge of what is good for the Filipino people. Therefore, I wish Filipinos economists would lend their expertise to the people through (1) recommending/supporting the right national economic policies/measures and (2) opposing harmful ones.



MARCELO L. TECSON
A Concerned Citizen

San Miguel, Bulacan
PHILIPPINES
6-15-10, 6-21-10

Additional cc through separate emails:
Select IMF, WB, ADB, and BIS officials;
Select Foreign Embassies;
BSP Monetary Board members;
Commission on Audit, other government offices;
Select economists from the Philippines and abroad;
Select members of academe and professional organizations;
Select members of media, civil society organizations, etc.
For future copy distribution after 6-30-10:
Select executive and legislative government officials




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ANNEX A


Nigeria: Meltdown - Sunmonu
Urges
Nations
to Shun World Bank,
IMF Solutions
Funmi Komolafe
June 13, 2010, allafrica.com


“Governments have been warned to steer clear of recommendations of the World Bank and the International Monetary Fund (IMF) in their bid to find solutions to the current global financial meltdown. The Executive Secretary of the Organisation of African Trade Union Unity (OATUU), Alhaji Hassan Sunmonu, gave the warning while addressing the 99th session of the International Labour Conference in Geneva, Switzerland. He told the delegates including those of developed economies such as America, Japan, Britain, China that ‘Governments which have now started to adopt IMF/World Bank style neo-liberal Structural Adjustment Programmes as a response to the present financial and economic crisis are warned not to repeat Africa's sad experience of 1980-2000.’ …The former president of the Nigeria Labour Congress recalled that the IMF/World Bank's Structural Adjustment Programme which included, ‘massive retrenchment of workers in the public sector, withdrawal of subsidies on food, housing, health, education, transport etc, high interest rates, financial deregulation and trade liberalization’ impoverished Africa. The consequence of this programme, he said, was the destruction of most of the industries established since independence, causing what development economists call de-industrialization in Africa, massive debts and debts servicing… massive increase in poverty, political and social instability….” (Funmi Komolafe, “Nigeria: Meltdown--Sunmonu Urges Nations to Shun World Bank, IMF Solutions,” June 13, 2010, allafrica.com)
























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