Cryptocurrency exchanges are growing in the Philippines, despite a downturn last year in the value of the virtual currencies, due to growing popular demand and lenience among regulators.

Authorities in the developing Southeast Asian country have permitted at least 29 exchanges of cryptocurrency following three that the central bank said it approved this week, according to domestic media reports. 

That count, which is high for Asia, follows a total of 10 exchanges permitted by the central bank. The Cagayan Economic Zone Authority in the archipelago’s far north has issued 19 additional permits, the zone’s website said in October. 

These exchanges feed into the development of a fast-growing financial technology, or fintech, sector in the Philippines, said Jonathan Ravelas, chief market strategist with Banco de Oro UniBank in Metro Manila.

“Fintech appears to be very advanced in the Philippines,” he said. Consumers, he said, “eventually look at the mobility of having it in mobile wallets, [which] gives them flexibility to use money.”

Uses for cryptocurrency

Cryptocurrency, most notably its standard bearer Bitcoin, became an investment vehicle in much of the world about a decade ago. But a 70% drop in Bitcoin prices last year weakened enthusiasm for crypto overall. 

​Filipinos generally pick more traditional investments such as equities, Ravelas said, but young companies are eyeing cryptocurrency to raise capital, a process called initial coin offerings. Seven in 10 Filipinos have no bank account, he added, so virtual currency gives those consumers a new option for making payments.

That population would be able to jump on a currency source that’s open to anyone and transparent because of its online transaction ledger called the blockchain.

Government support

The central bank governor may see the cryptocurrency trade as part of his bigger plan to advance the country’s electronic payment systems, analysts say.

Cryptocurrency “probably goes toward those efforts at facilitating electronic payments. I think that’s the key point,” said Christian de Guzman, vice president and senior credit officer with Moody’s Sovereign Risk Group in Singapore.

The 2016 National Payment Systems Act, among others, “bolsters the central bank’s capacity to foster the efficiency of payment systems as pipelines of funds in the financial market,” the authority’s governor Benjamin Diokno said in a speech last month.

The central bank and Securities and Exchange Commission are “working towards regulating cryptocurrencies to protect the Filipino people,” domestic Bitcoin and blockchain news website Bitpinas said in November. “This is a positive step towards adoption as this move will give users security and confidence in dealing with it.”

Said de Guzman: “A certain segment of the population is certainly very technically sophisticated.” 

First mover advantage?

The Philippines, though later than much of East Asia in picking up cryptocurrency, would eventually stand out if regulators embrace rather than restrict it.

China and South Korea have placed curbs on certain types of crypto trade. Both banned initial coin offerings in 2017, and China ordered the closure of cryptocurrency exchanges as part of that move. South Korea has at least 21 exchanges.

​Japan is widely seen as Asia’s most liberal place for cryptocurrency. That country, which has let 17 exchanges fully register, overtook China in 2017 as the biggest Bitcoin market in the world with 58 percent of the global volume. Japan declared Bitcoin legal tender in 2017.

The Philippines in its current groove should take a “first mover advantage,” said Kenneth Ameduri, financial analyst and CEO of the crypto-specialized news website Crush the Street in the United States.

“I think the Philippines understand that it’s going to be a very big deal to be involved with cryptocurrency, because it’s going to happen no matter what, and if they’re the ones to treat this capital best, the capital is going to flow there and the other jurisdictions are just going to completely miss out,” Ameduri said.

The Philippines might eventually look harder at the role of cryptocurrency in falsifying tax payments and paying for illegal drugs, de Guzman said. Taxation and drugs are already sticky issues without crypto.

Exchanges contacted for this report declined comment.
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In a twist, China has announced that it has persuaded Malaysia to resume a canceled rail project worth $10.7 billion. The sudden about-face by Kuala Lumpur, which had earlier rejected the Chinese-funded project, will be a big boost for China ahead of a Belt and Road Forum in Beijing later this month, say analysts.

China is hosting its second annual Belt and Road Forum from April 25 to 27 in Beijing. The event is likely to include the heads of state and governments of 40 different countries and officials from 60 others as Beijing tries to win more support for the trillion-dollar infrastructure and investment plan known as the Belt and Road Initiative, or BRI.

In recent months, the initiative has faced tough challenges as Sierra Leone, Bangladesh, Myanmar and Malaysia canceled or reduced the size of previously negotiated deals. Although Malaysia is back on board, it has forced China to accept a 30 percent reduction in the price of the project.

The reworked deal with Malaysia highlights how China is trying to face up to widespread criticism about the financing costs of its projects and concerns expressed by experts and government leaders around the world that the projects are nothing but diplomacy debt traps.

“I think China is trying to make changes. But it is trying to do too much too quickly and with too much skepticism facing it. No wonder it’s having a torrid time,” said Kerry Brown, director of the Lau China Institute at King’s College London.

Analysts said it is likely that the forum will be mostly about optics, but some real deals could be finalized. Given the heavy criticism about the projects, there will be high expectations from participants, which Beijing has said will include 40 heads of states and governments.  

“They will presumably want something more than mere protocol. Even the promise of deals is better than none at all,” Brown said.

Analysts add that, despite the criticism of the plan, which has been loud at times, the BRI has been able to attract dozens of foreign governments and has been backed by institutions like the World Bank because it is offering to build much-needed infrastructure and help foot the cost.

“The reason so many countries are interested in BRI is because China is offering something no one else is and there is genuine demand for what BRI represents,” said Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy in Beijing.

Still, it has not been easy for Chinese leaders to wade through the skepticism and sometimes strong opposition to the program from the United States’ and China’s neighbor, India. Critics see BRI as China’s attempt to impose financial imperialism on economically weak but strategically located countries. Many have also raised questions because of the lack of transparency surrounding the projects.

Recently however, there have been signs China is modifying the program to suit the needs of its customers, particularly those like Malaysia and Italy, which are not as desperately in need of Beijing’s financial largesse and deep pockets. Italy recently joined the BRI bandwagon after visiting Chinese President Xi Jinping provided the kind of assurances Rome sought.

“Chinese regulators realize they need to be pragmatic if these projects are to be successful, especially where there is local pushback on political and societal levels,” said Andrew Polk, partner at Beijing-based consultancy firm Trivium China.

There are still serious questions about the kind of changes that Beijing is ready to make. Some analysts believe that China might offer better financial terms and stop its practice of flooding foreign projects with Chinese workers; however, they say Beijing is unlikely to make changes in crucial areas like the transparency of deals and Chinese companies involved in overseas projects.

“Beijing could make the terms of deals public, which would be a major signal of change, but no indications of that happening soon,” said Jonathan Hillman, director of the Reconnecting Asia Project at the Center for Strategic and International Studies in Washington.

“Greater transparency would constrain Beijing’s ability to funnel cash through BRI projects to its friends in high places,” he said.

There have been problems even in places where Chinese projects have proven to be successful in terms of implementation. For instance, Chinese companies have ensured the commercial success of the Greek port city of Piraeus. “But its political impact is mixed. Greeks might welcome Chinese investment, but they don’t want China’s environmental or labor practices,” Hillman said.

The U.S. recently described BRI as a “vanity project” and announced it would not send a high-level delegation to the forum. Analysts are wondering if the U.S. will stay away from the meeting altogether.

“The U.S. has made its position clear. It opposes the BRI. Attendance under the current circumstances with the trade war unresolved would be odd,” Brown said.

Haenle said he believes the U.S. should engage with the BRI along with its friends and partners.

“The U.S. is right to point out the flaws in the Belt and Road Initiative, but if it wishes to see them corrected, it must also put forward its own alternatives and refrain from knee-jerk reactions,” he said.
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The latest power outage started another tough week for factory owner Antonello Lorusso in the city of Valencia, once Venezuela’s industrial powerhouse.

For the past month, unprecedented nationwide blackouts paralyzed the factory and the rest of the country, cutting off power, water and cell service to millions of Venezuelans.

Lorusso’s packaging plant, Distribuidora Marina, had already struggled through years of hyperinflation, vanishing client orders, and a flight of employees. Now the situation was worse.

For the whole month of March, Lorusso said, his company produced only its single daily capacity: 100 tonnes of packaged sugar and grains. When Reuters visited on April 8, he was using a generator to keep one of his dozen packaging machines working to fulfill the single order he had received. Power had been on for a few hours, but was too weak to run the machines.

“There is no information, we don’t know if the blackouts will continue or not,” said Lorusso, who has owned the factory for over 30 years. He said the plant had just a day’s worth of power over the previous week.

Power has been intermittent since early March, when the first major blackout plunged Venezuela into a week of darkness.

Electricity experts and the opposition have called the government incompetent at maintaining the national grid. President Nicolas Maduro has accused the opposition and the U.S. government of sabotage.

Venezuela’s industry has collapsed during six years of recession that have halved the size of the economy. What is left is largely outside of the capital Caracas, the only big city that Maduro’s government has excluded from a power rationing plan intended to restrict the load on the system.

In Valencia, a few multinational companies like Nestle and Ford Motor Co cling on. But the number of companies based there has fallen to a tenth of the 5,000 there were two decades ago, when Maduro’s predecessor Hugo Chavez became president, according to the regional business association.

‘The game is over’

The government said on April 4 that the power rationing plan meant Valencia would spend at most 3 hours a day without electricity, but a dozen executives and workers there said outages were still lasting over 10 hours. Generators are costly and can only power a fraction of a business’s operations, they said. Many factories have shut down.

“The game is over. Companies are entering a state of despair due to their inviability,” said an executive of a food company with factories in Valencia, speaking on condition of anonymity.

Industrial companies this year are operating below 25 percent of capacity, according to industry group Conindustria. It estimated companies lost about $220 million during the days in March without power, and would lose $100 million more in April.

Nestle’s factory, which produces baby food, halted during the first blackout in early March and operations again froze two weeks later, with employees sent home until May, according to Rafael Garcia, a union leader at the plant. He blamed the most recent stoppage on very low sales of baby food which cost almost a dollar per package, or about what a person on minimum wage earns in a week.

“My greatest worry is the closure of the factory,” said Garcia, as he sat at a bus stop on Valencia’s Henry Ford avenue, in the city’s industrial outskirts where warehouses sit empty and streets are covered in weeds.

Nestle did not respond to emails seeking comment.

Ford’s plant along the avenue was working at a bare minimum for several months, union leaders said. In December, the carmaker began offering buyouts to staff after it received no orders for 2019, they said. Ford, in December, said it had “no plans to leave the country.”

The outages have idled more than just factories. In the countryside, lack of power has prevented farmers from pumping water to irrigate fields.

Since January, farmers have sown 17,500 hectares of crops, a third of the area seeded last year, and they fear losing the harvest due to the lack of water, according to agricultural associations. In the central state of Cojedes, several rice growers have already lost their crops, farmers said.

“In the rural areas, the blackouts last longer,” said Jose Luis Perez, spokesman for a rice producers federation. Producers of cheese, beef, cured meats and lettuce told Reuters orders had dropped by half in March as buyers worried the food would perish once their freezers lost power in the next blackout.

Back in Valencia, Lorusso was preparing his factory for the new era of scarce power. He has converted one unused truck in his parking lot into a water tank. He plans to sell another to buy a second generator.

“We’ve spent years getting used to things. Then we were dealt this hard blow, and now we’re trying to find ways to cope,” he said.
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