Incubating PERA

YOU KNOW A PIECE OF LEGISLATION is truly great for the life of a nation if it takes an eternity to enact. It may be the mark of an immature body politic that the public benefit promised by a reform law is directly proportional to the voracity of vested interests gnawing away at it the way piranhas would dispatch a capybara. An alternative theory (one that's less uncharitable): the more noble the agenda, the less useful it can serve as a fulcrum for blue-ribbon grandstanders to elevate their prestige at their enemies’ expense. (Or, what is ANC for, but to give us continuous coverage of our government’s lurid absurdities?)

But once in a blue moon, lawmakers do actually come through. In August 2008, after nine arduous years in the cellar, the Personal Equity and Retirement Account (PERA) Law (R.A. 9505) was finally passed. This is the Philippines’ equivalent of the US ERISA law of 1974, which created the now-famous Individual Retirement Accounts (IRAs) – which in turn are now bemoaned to have halved in value since the start of this year. Altogether, IRAs have created a whole lot of good for US citizens. So if you feel the pain of the impoverished American, who now finds his IRA glass half full, spare a tear or two for Juan dela Cruz, whose PERA glass has yet to be created – because the myriad regulators are still struggling to cobble together the law’s implementing rules and regulations (IRRs).

Though I may sound wholly ungrateful, I am not blind to the heroic husbanding of the PERA law by the Philippine Stock Exchange (PSE), the Bangko Sentral ng Pilipinas, and other members of the Capital Markets Development Council. These folks' dedication reassures me that patriotism is alive and well, even among the suits and the bureaucrats. I’m sure it was more than just the prospect of a profitable “Big Bang” which kept them faithful to the cause during the years in the legislative wilderness. Let us be thankful for what we have achieved so far.

Yet much remains to be done. Banks, insurers, and other players in the financial markets may salivate at the forecast income from PERA, but many have made the observation that the devil is in the details. The coming PERA ecosystem will initially be messy and complex as a result of the wide range of investment instruments encompassed, a host of tax questions, and the need to quickly grow whole industries to fill key vacuums in the ecosystem. Overlaying all this nitty-gritty is the continued fragility of political will. (Surprise, surprise! And you thought PERA’s political chapter was all over.) If, hypothetically speaking, you’d like to close your term in Malacanang with a minimal deficit or even a balanced budget (global recession notwithstanding), wouldn’t it be tempting to defer PERA’s IRRs, thereby bequeathing the negative fiscal impact of PERA’s tax incentives to your successor?

Let’s hope it doesn’t take nearly another decade to produce the PERA IRRs. But maybe PSE President Francis Lim has the better prayer in that he wishes for a pragmatic, workable set of IRRs: palatable to both the participating financial institutions and the average Filipino investor, while sufficiently protective of the latter. Never mind another prolonged gestation, this school of thought goes – as long as PERA does not emerge stillborn. For it would be tragic farce if, when PERA’s full framework is finally unveiled, nobody comes. To make the IRRs work, we’ll need everybody’s voices. The market players will need to actively engage the regulators, and also to begin whetting the investing public’s appetite so as to create a groundswell of expectation and impatience.

I have a dream. I dream that one day Filipinos’ savings rates might approach those of our neighbors in East Asia, and that we might finally become the latest tiger economy. I dream that, thanks to a rising tide of long-term monies provided by PERA contributors, there will be patient capital available for longer-term purposes in infrastructure and other industries, and that domestic employment might blossom, thereby reversing OFW deployments and the hollowing-out of Filipino families. It is a captivating pipe dream. By itself, PERA will not magically bring this dream about and cure all ills, though it would be a great help in this. At a higher plane of analysis, better governance is really the chief key to improving the climate for both the propagation of capital and the retention of human talent.

Better governance is not a destination or a summit, but is instead a never-ending process, and a practice. One small way we as citizens can practice demanding better governance from our government is by pressuring our PERA regulators to design the IRRs reasonably well (not make them overprotective, restrictive, byzantine, and loophole-ridden) – and to please finish the job at least within our lifetimes, for God’s sake.

The Reverend Jackson's Tears

IT’S EASY TO GET SWEPT UP in the moment, for this was certainly a historic event for not just Americans but for all people on the planet. I will long remember the moving sight of the Reverend Jesse Jackson holding his finger to half-open lips, eyes fixed into the distance, and cheeks shiny with the smear of tears. You could almost feel he was in a religious trance, savoring a glimpse of the promised land that had been denied his “Moses”, Dr. Martin Luther King. I also found touchingly tragic the high expectations voiced by ordinary Kenyans about how Barack Obama would bend his godlike visage towards the plight of their poor and divided country. I understand some Latin American and Asian communities partied at the news, or at least were impressed by the sight of America living up to its ideal of equal opportunity – even consenting to confer the highest power to a member of an ethnic minority.

A colleague of mine joked that Jackson was crying not out of joy at this triumph for blacks; instead he was thinking: “damn, that should’ve been me doing the acceptance speech!” It's boorish to believe that, to say the least. But the joke got me thinking: perhaps the US was not yet ripe for a black president when Jackson sought the Democratic nomination. Or maybe voters could not shake the recollection of his more militant youth, whereas Obama has a more conciliating, uniting personality. What’s undeniable is that America has undergone a tremendous demographic shift in recent decades, and this trend continues apace. One could easily imagine Jackson rationalizing to himself that all this was achieved in God’s time, and by God’s choice of prophet.

Yet if the passage of time, the sea change in the composition of American voters, and idiosyncratic differences between Jackson's and Obama's personalities all conspired to, at long last, devise conditions hospitable to the first black US president, more than anything else it was the faltering economy that provided the motive force behind Obama’s surge in the closing weeks of the campaign. The specter of higher unemployment was what really turned a dead heat into a clear advantage over John McCain's survey numbers.

If you look at the popular vote on election day rather than the electoral college results, it was not the thumping victory, not the sweeping mandate that the liberal media paints. Lots of people still voted for McCain, and they had mighty sound reasons for this as well. Americans voted, by and large, according to their parochial concerns, and not just because the world was watching. An electoral college landslide just means superior campaigning, but not necessarily dominance measured by that most purely democratic metric of one person, one vote.

It’s just as well that the voice of realpolitik continues to be clearly heard above the jubilation of the moment. For instance, the Arab street shrugged that American policy may not materially change in the near term, especially since the Bush-created morass would be hard to undo. Obama himself recognized in his acceptance speech that folks should brace themselves for disappointments and setbacks along the road to change. With so much on his plate (and all of it vegetables! Yuck!), the new American president should not be saddled with unrealistic expectations. Not even Superman could patch up the economy, bring the troops home from Iraq, stamp out Al Qaeda, reverse global warming, etc., etc. overnight.

It's sad that race still matters to many Americans; but Obama's victory has forever narrowed the elbow room within the racist argument. For the moment, America deserves some measure of congratulations from the rest of us. By allowing a black man to govern in the White House, the US has clawed back a bit of its badly-dissipated prestige and moral ascendancy. Well done, America.