TWO critical and important pieces of legislations were signed into law by President Aquino this week. These are the Philippine Competition Act, or Republic Act 10667, and the amendments to the cabotage law. These came at the homestretch of the Aquino administration and further strengthening the country’s commitments to the Asean economic integration.
In gist, the laws are designed to provide fair play in the course of doing business in the country. They are to benefit consumers by allowing an environment of expanding choices and prices determined through efficiency and not through agreements, negotiations and influence. The amendments to the cabotage law effectively removed the internal barrier that limits foreign vessels from directly bringing cargoes to other ports within the country. This has made products costlier in the provinces and has, in a way, contributed to higher inflation. Thus, these laws will certainly attract more foreign investments, lower the cost of doing business, and provide consumers with efficiently priced products.
Again, in the midst of these good news, a barrage of alarming news on the proliferation of investment scams came along. The competition laws again are buried by these economic news that are immediately affecting people. The recent debacle involving One Dream Global Marketing and the subsequent warnings of the Securities and Exchange Commission (SEC) on related schemes, such as FLAG and Success2000, bring to fore a recurring issue that no existing law is able to stop. Consider these data on the biggest investment scams and losses from Salve Duplito:
- Legacy Group (2008)—P30 billion
- Multinational Telecom Investment Corp. (2002)—P25 billion
- Aman Futures (2012)—P12 billion
- Performance Investment Products Corp. (2007)—P11 billion
- Mateo Management Corp. (2003)—P4.3 billion
There are still a number of smaller schemes implementing almost the same low risk—high return approach that have gone unnoticed, or because people did not bother to complain. The reality is that these scams recur because there remains a huge gap in financial literacy and inclusion in the country. It can be observed that the scams rode with the economic boom. For instance, those that occurred in the late 1990s to early 2000s rode on the crest of the economic expansion under former President Fidel V.
Ramos. At that time, the target were local workers and professionals concentrated in urban centers—mostly in Metro Manila. For those riding the recent growth of the economy, the approach has been to target locals, as in the case of Aman Futures and the recent One Dream. Nonetheless, because of social media, they have been able to penetrate a wider segment of the populace, including overseas Filipino workers (OFWs).
Understandably, as the economy continues to expand and incomes grow, people are looking for opportunities and investment instruments that give a higher return for their savings. With the local interest rates hitting all time lows (we have projected it to remain at these levels for some time), those with extra cash are tempted to look for other investment opportunities with higher returns. This tells us that people with extra resources are in need of basic financial information and knowledge. We have found this to be true in our research of OFWs, their families and those families who do not have OFWs. Most Filipinos claim that their financial knowledge is self-developed and not learned from anywhere. Responses to basic financial-literacy test, such as interest rates, inflation and savings, showed that correct answers are just about half of the respondents.
With these news coming together at the same time, there need to be a basic response from the government beyond warnings from the SEC. Putting the brains into jail cannot bring back the lost investments—much more the dreams and aspirations of those who were gypped. In line with this, a small analogy on competition and scams can be considered. Competition, when allowed freely, will definitely lead to more information, better choices and better quality products (investment instruments). In small investors, the competition for investments is dictated by the returns—hardly anyone looks at the three other conjoined characteristics, i.e., risk, liquidity and taxes. This means that going into investments requires beyond having street-smart knowledge and needs to have a more detailed understanding of these four characteristics. It is hoped that beyond creating the fair environment for competing for investments, the government should jump-start a massive financial information and literacy campaign that can be implemented by schools, universities, and even different civil-society advocacy groups. This should set the standards and competencies of having an organized financial- literacy campaign that will support the competitive environment. Competition works best when the participants and beneficiaries are well-informed on the nature of their choices.
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We would like to invite you to the Ateneo Eagle Watch Mid-Year Briefing, scheduled August 6, 2015, at the Ateneo Rockwell Campus. As seats are limited, please reserve your seats via eaglewatch.soss@ateneo.edu, or call 426-5661, local 5221 or 5222, and look for Riz Jao.
Alvin P. Ang, PhD, is professor of Economics and senior fellow of Eagle Watch, Ateneo de Manila University’s macroeconomic forecasting unit.