Christopher Harriman on Hot Money and Mining

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Christopher Harriman on Hot Money and Mining in the Philippines

Business tycoon Manny V. Pangilinan and environmental advocate Gina
Lopez exchange sharp words on mining issues during the open forum of
the Conference on Mining’s Impact on the Philippine Economy and
Ecology at the Hotel Intercontinental in Makati City on Friday.

Hot Money and Mining in the Philippines with Global Strategist
Christopher Harriman

In an attempt to maintain high growth Bangko Sentral ng Pilipinas
again cut its key policy rates by 25 basis points Thursday, bringing
down its overnight borrowing and lending rates to historic low of 4
and 6 percent, respectively. The record low was last implemented in
March 2011.

Net foreign buying at the local stock market amounted to P22.72
billion during the January to February period, a dramatic turnaround
from the P7.65 billion in net selling recorded in the same period last
year, the Philippine Stock Exchange reported.

The Philippine Stock Exchange index traded above the 5,000 mark for
the first time in history this week; in 2012, the index has gained 13
percent.

Q1: Firstly, welcome back for another discussion on the Philippines.
Many people would not know that the Philippines has mineral wealth
worth more than $840 billion, and the Philippines is “one of the
world’s most highly mineralized countries,” according to a US
Department of State.

Despite its rich gold, copper and chromate deposits, however, “the
Philippine mining industry is just a fraction of what it was in the
1970s and 1980s when the country ranked among the 10 leading gold and
copper producers worldwide,”.

However, there is a heated dispute now in Manila regarding, mining
legislation, and the moral and environmental considerations.

Where do you see the Philippines Mining Sector in 2020? Who will be
the Winners and Losers?

A: Thank you for asking me back; it is indeed my pleasure to join you
here again today. These are interesting times in the region to
discuss. Well, their mining sector is volatile with hot money and soft
regulations, fueled by a near trillion dollar mineral industry. There
are many challenges involved in the realm of emerging economies, where
there is need for dramatic changes in the status quo, from trying days
gone by. Their world over the past few decades has been fraught with
all manner of oscillating waves of melodramatic transformations
socially, politically, economically and environmentally. The
Filipinos, as a result, have developed a very thick skin viewing such
storied dramas as spectators, seemingly numbed from the effects of the
harsh realities in their lives brought upon by outside forces.

The Philippines is at the heart of Asia, the influential epicenter of
almost every geopolitical yearning for foreign hegemony in the region,
starting with the Portuguese, then the Spanish, Americans, the
Japanese Imperialists, today China and now the world’s overblown
appetite for resources. Because of their sordid past, unwittingly put
upon them, these ‘paradiso islanders’ are resilient. I have a deep
respect for them, in how they’ve managed through it all.

Yet, perhaps out of living in a survivalist mode, they have also
developed characteristics of the indigenous peoples that were
prevalent during the European onslaught of intense manipulation of
natural resources and slave trading, starting during the 16th century
on the Barbary Coast of North Africa. There were no defining lines for
business and trade, as it eventually became a free-for-all, spiraling
recklessly out of control, which by its very nature led to the British
and European colonialism for the next five centuries.

Most encouragingly, today Filipinos can stave-off this syndrome once
and for all and take control of how the world deals with them and
their fabulously rich lands. They must ameliorate their methods of
governance concerning how private enterprise engages with the
exploitation of their treasures in paradise in a manner respective of
the international standards and practices imbued and enforced by
UNESCO and other relevant actors. Private companies are managed by
people with a desire to succeed at the lowest possible cost. The
hunger for nature’s bounty at the lowest denominator is the stuff of
dreams for today’s publically traded mining conglomerates from London,
Melbourne, Hong Kong, Paris, Frankfurt and New York.

In foregone eras, there was more of a focus on power than wealth, and
many resource driven acquisitions were carried out on the battlefields
rather than the favoured boardrooms of today. Nevertheless, basic
definition is the same: the desire for excess, provoking a similar
ire. Greed in many forms in the ancient world and almost the entire
modern world is a term of abuse and object of criticism. Hence, how
they manage and provide the running rules for development using
environmentally responsible methods is of paramount importance. Once
the actual resource is exploited from mother earth, it returns
nevermore…often-leaving lasting scares to the communities and
unspoiled landscapes.

A proactive ‘planning system’ supports vibrant, healthy sustainable
communities, promotes international awareness and competitiveness, and
enables the infrastructure, which is vital to their quality of life,
in a way that is integrated with the delivery of other sustainable
development objectives. It ensures that local communities and members
of the regional public can make their views heard through proactive
and constructive enterprise, under proper leadership.

If they want long-term economic performance, they need to effectively
manage their resource base, in particular the people and the
environment. If they want to protect future generations, they need to
know what they are protecting, for whom and why. If they want to make
long term decisions, they need to know what they are trading off and
if they want to manage risk, they need to know what risks they are
taking.

They need to establish détente between both extremes. Everyone wins
when good governance meets high productivity.

Q2: Business tycoon Manny V. Pangilinan and environmental advocate
Gina Lopez represent the extreme gap on the mining issue, can Manila
enforce their already strong environmental protection laws, or is
corruption an obstacle?

A: The mining issue has already stirred national awareness with no
less than Gina Lopez, managing director of ABS-CBN and passionate
advocate of environmental concerns leading the charged against with
what seems to be the entire mining industry with Manny Pangilinan of
Philex, manning their ramparts. The latest confrontation between the
protagonists, as based from the former head of the Bureau of Mines,
saying they are desperately on the defensive because Gina has
mobilized the vast network of ABS-CBN to bring the issue to the
people.

The recent Mining Laws may also unwittingly add to its woes by
empowering local government (LGU’s) to issue small mining permits and
that has caused the massive proliferation of backyard mining which may
have wreaked havoc to the environment and caught the attention of
environment crusaders like Gina, as well as other governance bodies
globally.

President Aquino is now forced to revisit the Mining Act and that may
have initiated a panic among investors, though I think the mining
sector is already on the retreat now. The rebound will come, as it
should but with well-built foundations that the world community can
embrace.

Corruption, which the Philippines has allowed to proliferate in the
public sector, has also played some role on the negative image of the
mining industry because the Local Government Unit’s (LGU) and also
some senior personnel in the Department of Environment and Natural
Resources, have looked the other way in the enforcement of
environmental laws. Nevertheless, really it has been simply bad luck
for them that they decided to spar with a fierce advocate like Gina
Lopez who has not only the diverse relations and influence, but also
the infrastructure and family credibility to fight against a powerful
industry like mining. My feeling is that both sides can come out of
this fiasco as friends and partners, as is the practice in other
resource rich nations, such as Kazakhstan, where I spent a number of
years working to establish an accepted amalgam of coexistence between
the industrial scale developments that serves to compliment the
environs simultaneously.

Sustainable Development is meeting the needs of the present without
compromising the ability of future generations to meet their own
needs. Now is the right time to Filipino leadership to act. But the
government acting by itself is insufficient. Philippine policies that
are not owned by the people will not sustain themselves as their
government changes.

Sustainable development is defined as balancing the fulfillment of
human needs with the protection of the natural environment so that
these needs can be met not only in the present, but in the indefinite
future. Hence, Filipinos while maintaining these central environmental
and business resources development principles will benefit for
generations to come.

Q3: So much debate on Mining, yet so little focus on Agriculture, is
this the forgotten Silver Lining in the Philippine Economy?

A: Yes, there has been a significant gap in how the government has
focused its resources husbandry. Between her underground and offshore
hydrocarbon cache’s and the massive agro-industrial complex that has
had the luxury of centuries in development, with recent modernizations
in only specific sectors, the agriculture industry has the serious
possibility of augmenting the nations GDP, through strategic alliance
building with other world agro-powers.

Once again, it is up to the leadership of both the public and private
sectors. The government has the responsibility of learning how to
modify its relationship building with the international communities
that are major market influencers and narrow the gap of environmental
resources management methodologies, as other governments have done
successfully with far less bounty comparatively. Whereas, the private
sector can lead the charge to adopt advanced agro-economic modeling
and technological solutions garnered through joint ventures with
global agro-industrial leaders, which can serve to enhance
productivity. Then it is back to the government to consider
overturning the Land Reform Act initiated in the mid 1960’s, which was
only deployed as a tool devised by the United States political system
to defend its dominion in the global market, but with hard working
Filipinos holding the short-end-of-the-stick ever since.

I was recently visiting the rural fertile farmlands in the southern
Batangas province, while opening some fresh “Buko” to quench my
afternoon thirst, the charmingly hospitable coconut farmers once
shared some local lore saying…”He who unites the coconut farmers,
unites the country and the presidency is theirs”…which translates as,
the agro-industry today and in the foreseeable future, or until the
underground resources accelerates productivity, will be the mainstay
of real wealth and economic security for both the public and private
sectors.

Q4: While other Countries around the world have panicked as so called
Hot Money flooded in to their economy, the Philippines has rejoiced
and sought to spur growth further.

Is this a gamble that internal growth can match inflows, or a policy
error by Aquino?

A: Clearly, the Hot Money issue is an interesting and challenging
economic phenomenon indeed to be on a close watch. Without seeming
blatantly accusatory, but due to China’s flagrant open displays for
regional hegemony crescendoing though this decade, I would not be at
all surprised if China were the prime target for hot money inflows
into the healthy Philippine open public markets. In reality, hot money
takes many different forms of investment, often through highly
disruptive activities that are demon-seeded in extra market activities
of central bank market manipulations that are specifically designed to
create conditions of disequilibrium in the targeted local economy.

The Philippines internal growth patterns needn’t change to suit
external financial challenges, other than responding to natural market
demands for healthy productivity. They have been under external duress
of threat for all sundry of self-absorbed reasons by foreign elements.
This is not news for them. However, temptation does get the better of
some people in leadership from time to time, most notably in the
Philippines. In reality, Filipinos have many nation-state friends
globally that are more than willing to heed the call to stand behind
her specific to this situation.

In the winter of 1992, former Russian Federation President Yeltsin,
after losing his southern breadbaskets of Armenia, Azerbaijan,
Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, and
Uzbekistan, attempted to flood the southern Former Soviet Union’s
(FSU) CIS’s with actual cash in hundreds of semi-trucks parked along
their borders. This exercise in futility only served to bolster the
CIS’s resolve for both unity and independence and embrace the
international banking communities, that in short order ran to their
aid by offering cheap currency securitization packages, which helped
them in preserving their resource rich lands as theirs alone and not
for the taking by hot money marauders. This is when leadership circles
their wagons to stave off volatile invading forces, masked as passive
or otherwise and instill fervent inner fortitude in the face of
adversity.

Yet, historically few industrialized nations have escaped the
temptation of utilizing the hot money stratagem, when the opportunity
struck. The United States had successfully engaged in similar
strategies during the Cold War, as President Reagan used this as a
very sophisticated weapon in his arsenal of counter measures that
served to dismantle the Soviet Union piece by piece. If not for their
crumbling energy infrastructure, with which they were highly
dependent, together with their disenfranchised internal/external
antiquated governance, it might not have been successful. Yet, Reagan
followed his hunch and his risk paid off. They eventually became a
house of cards, poised to implode. Indeed, they did and they never saw
it coming.

I am not suggesting that a nationalist mindset be encouraged in an
already healthy free market society that is so intertwined with the
global village, but open markets are healthy when managed closely. The
underlying message for President Aquino…is proactive, unify and
husband your resources, stand guard and watch your flanks.

Q5: Inside Malacañang, the National Geographic Channel documentary on
the Philippine presidency will air on Asian TV on March 18, having
worked with several Governments what do you feel is unique about the
Philippine Presidency?

A: For the United States, the genteel Filipino peoples have been loyal
allies. They stood by the U.S and selflessly sacrificed their lives,
supporting General Douglas MacArthur, who then returned in 1945 to
accept the Japanese surrender in WWII on terms that were highly
controversial in those times.

There are other resources driven nations that have major mining
expansion programs with environmental controls that are operating very
lucratively in places such as in Brazil or South Africa, Namibia,
Kazakhstan and have been for decades. Hence, there is no reason that
President Aquino should not vanguard the charge across the threshold
into a new era of globally recognized sustainable development
practices in resources management for the Philippines, bringing them
front and center with the other esteemed success stories of nation-
states having to rise to the similar plateau of a balanced and
productive resources industry.

The president can encourage these perceptive initiatives and work to
curtail any further penetration of hot money, which has been a problem
for the developing world and this includes the origins of the G8
countries. Their President can support the BRICS development model
that could be of significant benefit and lend support to the
developing world working to evolve without dependency upon the
developed world.

By contrast, to other world leadership roles, the Philippine
presidency is unique; in that they are expected to govern over a vast
open ocean and landscape of 7000 islands, many of which are not
actually geopolitically allied, save for the federal government. There
is a kaleidoscope of cultures that are closely connected by a dominant
common bond of Christianity. Yet, injected right in the middle of the
Catholic thread, is a small enclave of Muslims isolated on the island
of Mindanao and other small sparsely populated islands in the south.
Clearly, the challenge for any president is daunting, so as to provide
cohesive imagery for everyone to feel loved and cared for by their
grand overseer in Manila.

The neighboring Indonesians for centuries used the successful system
of Sultanates to rule over their vast archipelago of some
disenfranchised 13,000 islands and it worked for a time until they
were savagely murdered and robbed of their resources rich lands.
Diametrically diopposed, the Philippine Sultans who still rule
autonomously inhabit a number of islands like Zulu and others. They
live harmoniously among modern day Filipinos which leadership
tolerates as useful.

The Philippine presidency has had a colorful array of characters and
some were in it for the wrong reasons. I feel that the country doesn’t
need to entertain any more melodramatic charades of immature
leadership, unbecoming of a statesman.

As I have said in my previous interview, the Philippines’ time has
come to take hold of their own place in modern history, to proudly
take their rightful position beside the other regional economic and
industrial powerhouses, on their own fairly-gained accomplishments as
their economy emerges.

Being at the heart of Asia, three important sectors can be used to
catapult the economy soundly: Regional Energy Logistics, Advanced Agro-
industrial enhancements for underdeveloped expansion in the global
markets and the socially responsible sustainable development of
natural resources. Leadership can drive these solutions home to the
people on a fast-track basis under a balanced sky.

Shayne Heffernan

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Shayne Heffernan oversees the management of funds for institutions and
high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over
25 years of trading experience in Asia and hands on experience in
Venture Capital, he has been involved in several start ups that have
seen market capitalization over $500m and 1 that reach a peak market
cap of $15b. He has managed and overseen start ups in Mining,
Shipping, Technology and Financial Services.

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