BRITISH banking giant HSBC sees developing countries in Asia in a much better position to withstand the current global financial turmoil than during the 1997-98 regional currency crisis. While emerging Asia would slow down alongside the global downturn triggered by the US credit crunch, the region--the world's fastest growing in the last few years--would likely remain resilient, HSBC group chief operations officer Michael Geoghegan said in an international teleconference late Monday.

He said Asia outside Japan would still sustain a respectable growth of 7 percent this year.

"If the world economy slows, Asia will be impacted, but unlike the Asian crisis, the Asian economies are strong. They have strong reserves, current account reserves and each country is capable of stimulating domestic demand," Geoghegan said.

He noted that Asian stock markets have already fallen by 40-50 percent this year but the outlook was now turning to be "modestly positive."

"Asia is certainly still stronger than in other parts of the world and will remain stronger than in other parts of the world," he said.

HSBC would like to see contribution from emerging markets rising to 60 percent as a ratio of its business.

"We will continue to focus on core business, accepting deposits and lending," he said.

Asked whether HSBC was interested in some of the assets of beleaguered US financial giant AIG, he said the group would "look at opportunities as they arrive" but could not comment at this point in time.

In the Philippines, he said HSBC would continue to build opportunities in business process outsourcing or global resourcing. HSBC recently opened its second BPO hub along Commonwealth Avenue, Quezon City.

HSBC's pre-tax profits hit $4.3 billion in the third quarter, higher than a year ago, despite loan write-offs in the United States. Loan impairment charges in the United States rose by $700 million from the second quarter.

President Gloria Macapagal-Arroyo is supporting a plan to set up a P100-billion program aimed at upgrading expressways, roads and bridges as a means to pump-prime the economy amid the global economic slowdown.

Speaking before business leaders, the President said Wednesday she was open to tapping government financing institutions (GFIs) for the proposed fund, as she outlined contingency plans against a recession in the United States, a major trading partner of the Philippines.

Arroyo said Donald Dee, chairman emeritus of the Philippine Chamber of Commerce and Industry (PCCI), had suggested that P50 billion would be drawn from the GFIs and an equal amount from private banks.

“I welcome the proposal given to me on the platform by Donald,” she said in her speech at the Philippine Business Conference and Exposition, an annual event of the PCCI.

Dee said the proposed P100-billion fund for infrastructure upgrade was an offshoot of a brainstorming he had with Romulo Neri, president of the state-run pension fund Social Security System (SSS), and Reynaldo David, president of state-owned Development Bank of the Philippines (DBP).

He said the government investment unit National Development Co. (NDC), the DBP and the SSS had committed P10 billion each to the public sector counterpart of the fund, and he would next talk with other GFIs and banks to complete the fund.

The SSS, DBP and NDC “will invest jointly with the private sector to create the growth momentum,” Dee said. “For every peso that you put in, you will have a seven times multiplying effect in terms of the jobs that it will create.”

At a news briefing in Malacañang later in the afternoon, Finance Secretary Margarito Teves said the PCCI proposed tapping half of the P100 billion from GFIs so as not to touch the national budget.

When asked whether the government was realigning funds from GFIs for the infrastructure upgrade, Teves said, “Not necessarily. Implicitly, they have money for this outside of their own commitments or existing priorities.”

Sen. Manuel Roxas II has proposed that P100 billion from the proposed budget for 2009 be realigned to benefit food, education and health sectors to cushion the impact of the global financial crisis on the country.

An economic adviser to the President, Gov. Jose Salceda of Albay province, is also calling for a realignment of a part of the proposed budget for next year. He wants the realignment of P33 billion from capital spending to direct subsidies for education, health service and food.

In her speech, President Arroyo said the P100-billion program was getting the support of various sectors.

“We hope the private banking sector will join in this,” she said.

“In that way, we can put our money in human capital formation, which will provide direct income and services to the poor during the coming period,” she added.

The President said the economy could withstand the effects of a US recession because of the solid banking system in the country, increasing foreign exchange remittances from overseas Filipino workers, a growing business process outsourcing (BPO) sector, a manageable budget deficit, and slowing inflation, among other good economic factors.

“The Philippine economy has certain shock absorbers,” she said.

In her speech, the President said the government should upgrade the country’s infrastructures under a Comprehensive Integrated Investment Program (CIIP) to stimulate the economy.

The CIIP contains projects funded by both public and private sources, including the national budget, official development assistance, cost sharing between the national government and local government units, private-public sector partnerships, joint ventures, among others.

The government has placed at P2 trillion the investment requirement to implement the CIIP from 2008 to 2010.

The transport sector alone will need P755 billion under the program. Arroyo said the government would increasingly tap the private sector for priority transport projects under the build-operate-transfer (BOT) law.

These projects include the Tarlac-Pangasinan-La Union Toll Expressway, C-6 Road, Manila-Cavite Coastal Road, the North Metro Manila Skyway, Southern Luzon Expressway and Southern Luzon Arterial Road.

“But if the US recession happens, we would need more private financing and BOT so that we can realign some of our infrastructure money to strengthen programs that promote human capital formation,” Arroyo said.

These programs include conditional cash transfers, scholarships, rice procurements and health insurance, among others, designed to carry families through an economic slowdown.

Dee said the government would go ahead with the upgrade of major infrastructure projects whether or not the United States slid into recession.

He said of the President’s message: “What she’s saying is, ‘I’m not going to wait. I’m going to do it to make sure that the economy is sustained.’”

The President also announced other strategies to pump-prime the economy and shield different sectors from the impact of a US recession:

• Heightened monitoring of displacements of overseas workers, and the setting up of a P250-million livelihood fund for displaced overseas workers.
• Procurement of one million metric tons of “palay” [rice before milling] from farmers beginning this coming harvest season, up from 100,000 metric tons last year.
• Increasing the insurance coverage of depositors from P250,000 to P1 million through a bill to be filed by Rep. Joseph Violago.
• Marketing Philippine BPO as a “cost-cutting solution” for US firms.

ANY MOVE TO RAISE the ceiling on insured deposits should be accompanied by government equity infusions into the central bank and the state deposit insurer, the two institutions’ chiefs yesterday said.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said the central bank supports the proposal to hike the maximum deposit insurance coverage but the BSP and the Philippine Deposit Insurance Corp. (PDIC) also need to be strengthened.

"We support the proposed increase in deposit insurance coverage. But this and other reforms should be taken in a context of an overall plan to strengthen the BSP and PDIC," Mr. Tetangco told reporters.

Jose Ma. Clemente "Joey" S. Salceda, Albay governor and Palace adviser, has suggested hiking the insured deposit ceiling to P500,000 from P250,000. President Gloria Macapagal Arroyo on Tuesday said she wants it set at P1 million.

Mr. Salceda has also proposed a national government equity infusion of P40 billion into the central bank and P10 billion in PDIC. He also pointed out the need to give "pre-emptive inspection powers" to PDIC and the central bank.

The BSP is waiting for P40 billion in additional capitalization from the government. The Securities and Exchange Commission needs to approve the issuance of so-called financial stability bonds for this purpose.

Jose C. Nograles, PDIC president, said the government should infuse P45 billion to beef up the Deposit Insurance Fund where insurance payments are sourced.

Leonilo G. Coronel, Bankers Association of the Philippines executive director, said raising the insured deposit ceiling was needed to prevent deposit flight to other countries that have promised a 100% guarantees.

But he stressed the need for more oversight by the BSP and the PDIC to check "moral hazards." He pointed out that a higher deposit insurance coverage could trigger complacency among depositors and prompt them to park their funds in risky banks.

"[Increasing the maximum deposit insurance coverage is] certainly worth looking into because other countries have hiked their deposit [guarantees]," Mr. Coronel said in a telephone interview. "But we have to strengthen the regulatory framework. If regulations are strong enough, we can avert losses."

As the increase to either P1 million or P500,000 would be left to Congress to decide, Mr. Tetangco said lawmakers should be wary of the costs this would incur.

Banks pay annually an insurance premium equivalent to a fifth of 1% of total deposits to the PDIC. It is not clear who will shoulder the added cost since a higher insured deposit ceiling necessarily requires a higher insurance premium.

Mr. Coronel said: "It makes sense to do it to allay fears and to prepare ourselves, but we have to balance it against costs."

Mr. Nograles said the P45 billion in fresh capital would fund the proposed P1 million deposit insurance coverage. It would allow the PDIC raise the Deposit Insurance Fund to over P100 billion. The fund stood at P54.3 billion as of December 2007.

The PDIC chief, who met with Malacañang officials yesterday, said the government would ask Congress to amend the PDIC charter to accommodate the increased capitalization, which he said would be a "quick response mechanism".

"We’re not contemplating an increase in assessment. We are requesting P45 billion, which we can access on a staggered basis," he said.

Banks have said a hike in insured deposit ceiling would dent efficiency ratios — operating expenses in relation to profits — and that the additional cost could be passed on to borrowers by way of increased loan rates.

Mr. Nograles said he had proposed a plan to have the PDIC revert to the P250,000 deposit insurance coverage "after three years when the situation normalizes".

"The P1 million is only for three years, but extendable. We don’t know how long this global financial crisis will persist," he said. — Gerard S. dela Peña with a report from Ma. Eloisa I. Calderon

PRESIDENT GLORIA MACAPAGAL-ARROYO yesterday announced plans to establish a P100-Billion fund — to be part of a series of government contingency measures — that would help insulate the economy from a global slowdown.

Mrs. Arroyo said the fund had been proposed by the Philippine Chamber of Commerce and Industry (PCCI), the organizer of the 34th Philippine Business Conference she was addressing, and would be equally shouldered by the state and the private sector.

No further details were provided, and Cabinet officials said the plan would still have to be discussed by private sector representatives and economic managers.

"We must not lose sight of the impact on the ordinary Filipino who bears the brunt of the market fluctuations ... During this time it is the role of the government to help insulate the citizens from price shock and economic pressures," Mrs. Arroyo said.

The government’s contingency plan, she said, includes:

• upgrading infrastructure by encouraging projects funded by both the private and public sector;
• strengthening the financial system by supporting a measure that would hike the deposit insurance coverage to P1 million from P250,000;
• continued support for agriculture by sourcing more rice locally;
• support for housing, and small and medium enterprises ;
• promoting the Philippines as an outsourcing destination;
• attracting investors from the Middle East and diversify the country’s trading ties with China; and
• monitoring labor market displacements, and repatriation and livelihood packages for overseas Filipino workers who may be affected by the global economic slowdown.

The Philippines remains “an island of calm” amid the global financial storm because of its good macroeconomic fundamentals, an official of Standard & Poor’s said.

Press Secretary Jesus Dureza and National Economic and Development Authority (NEDA) deputy director general Rolando Tungpalan made public the statement of Agost Bernard, S&P’s associate director, during a news briefing in Malacañang yesterday.

The statement was also part of Tungpalan’s presentation to President Arroyo during a NEDA Cabinet Group meeting at the Palace on the current global economic developments.

“The Philippines is ‘lucky’ because they have made the necessary adjustments and reforms when times were still good. So they are facing the global market problems and economic slowdown from a considerably improved position, compared to what they were in three to four years ago,” Tungpalan said quoting Bernard.

“The Philippines is an ‘island of calm’ currently, while there is turmoil in the higher rated and previously stable countries,” he said. The S&P official apparently was referring to Malaysia and Thailand but Tungpalan declined to confirm this.

The NEDA official did not read Bernard’s entire statement but said it was part of an email of the S&P official to the Investor Relations Office of the Department of Finance the other day.

In an earlier report, S&P’s said the global financial crisis will not threaten the Philippines’ credit ratings but the government must improve its fiscal position.

The President earlier called for a coordinated regional action to help cushion the effects of the global economic slowdown.

The country’s economic contingency plan as well as the performances of the stock markets around the world was discussed during the Cabinet meeting. Press Secretary Jesus Dureza said Mrs. Arroyo is expected to issue a statement today on her call for a region-wide approach to addressing the financial crisis.

He said Mrs. Arroyo had dispatched Finance Secretary Margarito Teves, Socioeconomic Planning Secretary Ralph Recto and Budget Secretary Rolando Andaya to the US to discuss her proposal.

The economic managers were expected to return to the country yesterday and report to the President.

Tungpalan said the improvement in the stock markets around the world “gave us a boost of confidence in where we are right now.”

He said there “seems to be better comfort” from the initiatives taken by developed countries to address their financial problems. But he said the Philippines will not let down its guard.

Mrs. Arroyo earlier told an economic forum that despite the looming recession in the US and in other major economies in Europe, the Philippines will not experience negative growth at least until next year.

“There is no doubt that we live in unsettled times today. The world is at a tipping point,” she said.

She said the setbacks from “the past year and the past weeks are real and profound. It will take time and perseverance to put the pieces back together.”

She said that while a recession in advanced economies is a cause for concern, “we are in best position to be able to weather such slowdown.”

“It (reform) is paying off. Our economy is more resilient today than ever before,” she said.

“We have created almost seven million jobs in seven years. Our international reserves cover six months of imports and the reforms have given us some running room to weather the wave of global price shocks that reverberated across the world this year,” Mrs. Arroyo said.

“It hasn’t been easy but Filipinos are tough and resilient and that is one of our sources of competitiveness,” she said.

“We have pulled together. We have been able to draw on additional revenues to provide targeted investments in food and fuel to keep our poor afloat until a better day,” she pointed out.

She argued that while some economies in the region were experiencing recession in 2001, the Philippines was posting growth.

She said the administration is doing everything it can to keep the country’s fundamentals stable.

The country, she said, has already diversified its export markets and that the US is no longer its No. 1 market but China.

“Our banks are well capitalized and the innate conservatism of our bankers is matched by the prudential foresight of our regulators,” Mrs. Arroyo said.

MANILA, Philippines—Despite the gloomy forecasts, Filipinos should not fret about job losses or possible cutbacks in opportunities in the United States, the Middle East and elsewhere, Labor Secretary Marianito Roque said Tuesday.

Roque said the Department of Labor and Employment (DOLE) had not received any reports from its 37 labor officers posted abroad about cutbacks in the demand for Filipino workers in the face of the global economic crunch.

“So the situation remains stable and we do not expect any reduction in the demand for overseas Filipinos especially in the Middle East,” he said at a press briefing.

The Building and Wood Workers’ International had warned that the number of jobs in the badly hit construction industry in the United States could further shrink, increasing the number of undocumented Filipinos there.

It said it had monitored some overseas Filipino workers (OFWs) who had flown back to Manila after losing their jobs, adding that their “families will have a sad Christmas.”

Over the years, OFWs have managed to keep the economy afloat, sending home some $14.4 billion last year, nearly a tenth of the gross domestic product.

Roque said it was inaccurate to assume that the OFWs coming home were laid off as a result of the global economic slowdown.

“This is the normal trend after their contracts have been terminated,” he said.

Jobs in Canada, Australia, Europe

Contrary to fears of a contracting job market abroad, there are many jobs awaiting Filipinos in Canada, Australia and European countries, Roque said.

“We have signed up with four provinces in Canada,” he said. “The pay rates are relatively higher compared with what the Filipinos are enjoying in other countries.”

Another DOLE team is leaving for Australia to start negotiations on the possible employment of Filipinos there, Roque said.

“When the option comes for Filipinos to go overseas, and entertain a job offer from Australia, we have ample potential mechanisms that are already in place,” he said.

Both Canada and Australia are offering jobs for nurses, IT personnel, truckers and hotel workers, among others, Roque said.

Worst-case scenario

“We are also looking at France, Norway and New Zealand as new markets that would be needing the services of Filipinos,” he said.

Roque said that the DOLE had drawn up a contingency plan for overseas workers in case the United States slides into a recession.

“We have assumed the worst-case scenario; and we are prepared for it. We have the mechanics to assist our workers and we will provide them with the necessary assistance,” he said, but declined to go into specific details.

Hurricane Ike

In some parts of the United States, the aftermath of nature’s wrath is cushioning the impact of the global financial crisis on Filipino construction workers.

Some labor groups fear that the economic slump would hurt the construction business in the United States, which employs many Filipino workers.

But 50-year-old Jerry, a private contractor in Texas, said the construction business is booming now in states recently pummeled by Hurricane “Ike.”

“The business is booming now because of the damage brought by “Ike.” Many homes and buildings have to be repaired,” Jerry told the Philippine Daily Inquirer by phone.

Hurricane Ike hit Texas and nearby states in early September, shutting down oil production in the area as well as damaging residential areas.

But Jerry acknowledged that a few of his friends from other states, like New Jersey and California, had already lost their jobs.

He also said that prices of basic commodities had gone up.

International labor groups with Filipino members said the other day that the financial slump was also threatening the jobs of more than eight million Filipinos overseas.

They said those in the service sector, like construction workers and nurses, are the most vulnerable. If they lose jobs, they are likely to stay as undocumented migrants instead of coming home, since no work awaits them in the Philippines, said the Building and Wood Workers’ International.

Overseas Filipino workers are also likely to reduce the amount of their remittances this holiday season, the group also said.

Filipinos in the United States are not giving up hope, however. “There are many jobs here that the Americans do not want to take. So we are optimistic we can survive the crisis,” Jerry said.

Second or third jobs

Aside from the looming threat of losing their jobs, Filipino domestic helpers will have to learn to cope with cuts in their salaries due to the global financial crisis.

Connie Bragas-Regalado, chair of Migrante International, said Filipino maids would have to cope with the crisis by taking on other jobs, borrowing money or participating in the underground economies in their respective countries.

“To ensure that they can send money home, they will have to find ways to cope. Our maids will have to look for a second or even a third job or sell goods in the underground economy,” Regalado said.

THE PHILIPPINES’ BALANCE-OF-PAYMENTS SURPLUS LIKELY breached the $7-billion mark as of end-October given the favorable foreign investment climate and stronger overseas Filipino remittances, the Bangko Sentral ng Pilipinas estimated.

From January to September this year, the BOP surplus amounted to $6.7 billion, already exceeding the central bank’s full-year target of $6.3 billion.

But BSP Deputy Governor Diwa Guinigundo Tuesday said the central bank was still reviewing its external payments forecasts for this year and next in time for the forthcoming annual review with the International Monetary Fund.

The BSP is set to release the actual BOP report for October later this week.

The BOP measures the foreign exchange transactions between the domestic economy and the rest of the world. Any transaction which gives rise to a payment by a Philippine resident like importation or debt servicing is a deficit item in the BOP while any which gives rise to a receipt like borrowing, exporting or overseas Filipino worker remittance is a surplus item.

The strong BOP position since the start of the year had fueled the peso’s appreciation by more than 14 percent since the start of the year, making the local currency the best performing in developing Asia.

Robust OFW remittances and foreign investments are driving up the country’s foreign reserves and external payments account to record surpluses this year.

Based on the latest data from the BSP, money sent home by overseas Filipinos through the banking system surged by 10.6 percent in August from a year ago to $1.2 billion despite the downtrend in the offshore deployment of new workers.

The year-on-year growth in August was faster than the 4.64-percent annual expansion in July and brought total inflows for the eight-month period to $9.3 billion, 15.3-percent better than the remittances in the same period a year ago.

The US Federal Reserve’s recent interest rate cuts have also revived global investors’ appetite for assets from emerging markets like the Philippines.

The monetary easing by the US central bank was meant to avert an economic recession that may be caused by rising delinquencies in the American subprime mortgage credit or housing loans given to borrowers with blemished credit history and little equity.

Aside from the BOP and its components, the BSP is likewise reviewing its forecasts on the gross international reserves for this year and 2008.

The country’s chronically poor performance in various international competitiveness surveys has alarmed both the public and private sectors, although the urgency seems to be felt more by the latter than the former.

During a recent presentation by the National Competitiveness Council (NCC), its co-chair Cesar B. Bautista pointed out that the Philippines ranked 49th out of 61 economies in the World Competitiveness Yearbook of the Switzerland-based IMD business school.

It also ranked 126th out of 175 countries examined by the International Finance Corp.'s "Doing Business" survey, and 71th out of 131 economies in the Global Competitiveness Report of the World Economic Forum.

Behind these weak numbers is the reality that the country continues to face an uphill struggle to improve the local economy and the lives of Filipinos.

"The challenge is not merely to improve ratings, but to create a better environment for business and our people," Bautista said.

Last year, President Gloria Macapagal-Arroyo created the NCC, which brought together representatives of the private and public sectors in an effort to arrest the country's slide in world competitiveness rankings.

Its goals were to help create a competitive Philippines by 2010, instill a culture of excellence in the country and use so-called public-private partnerships (PPP) as the country's development engine.

These goals are no less lofty when translated in tangible terms.

"We want the country to rank in the top third of all major international surveys by 2010, from our present position of being in the bottom third," NCC executive director Virgilio Fulgencio said in an interview.

Difficult task
The task is no walk in the park, however, and there have been many large-scale efforts over the last few decades--initiated by both the public and private sectors--to remedy the country's chronic problem.

According to the latest survey of the Makati Business Club (MBC) conducted for the World Economic Forum, the country rates poorly in the competitiveness of its institutions and infrastructure, with only macroeconomic stability as its saving grace.

"We're talking about our low inflation rate and low interest rates which should basically be credited to the BSP (Bangko Sentral ng Pilipinas)," MBC senior research associate Michael Mundo said in an interview. "We're very strong in that department."

The same survey revealed that businessmen were also worried about policy instability, an inefficient government bureaucracy, government instability and coup attempts and tax rates and regulations, among others.

Given the urgent problems in many sectors that make up the overall competitiveness picture, the task facing the NCC seems daunting.

The group's priorities, however, are centered on medium- and long-term solutions to buttress the country's strength as a service economy.

"We are focused on human resource development," Fulgencio said. "We want to improve basic education like English, science and math proficiency."

He noted that no less than the Department of Education is alarmed by the falling test scores of public school students in these fields, all of which are critical to retaining the country's traditional strength in the service industries.

2010 target
The NCC's program calls for a 30-percent score improvement in these fields by 2010, the implementation of teacher support programs to promote the profession and student nutrition programs.

"Education is an important field because our strength in services is founded on this," Fulgencio said.

Other aspects that the NCC wants to focus on is effective access to financing for small and medium enterprises, effective public and private sector management, improved transaction costs and flows, a seamless infrastructure network, and energy cost competitiveness and sufficiency.

For sure, the NCC's game plan is not lacking in boldness, given the failure or similar efforts in the past.

The peso continued its rampage yesterday, easily crashing the P43/$ 1 psychological barrier to enter the P42/$ 1 territory, and closing at P42.795 to the dollar, a new seven-year peak as the US dollar extended its decline to hit new lows after Fed Chairman Ben Bernanke’s view of the US economy.

Despite intervention from the monetary authorities, the peso climbed on big inflows from Overseas Foreign Workers and portolio investments also boost the local currency, now described as the best performing Asian currency in the past two weeks, having gain 1.0 percent during the period.

Expectations of another cut in the Bangko Sentral ng Pilipinas policy rate next week also lifted the peso which rose as high as P42.65 in early trade.

The BSP, armed with a record-high foreign exchange reserve of $ 31.4 billion as of last September, has been intervening actively to slow the peso’s gains.

Bank treasurers are looking at "lows of P41 or possibly highs of P40" as the rate for the end of the year.

"The current strength will give impetus for peso to fly to lows of P41 and possibly highs of P40 by year end," projected Rizal Commercial Banking Corporation (RCBC) Executive Vice President and head of treasury Eduardo Sergio G. Edeza.

As early as mid morning trade in the spot, the peso already touched down the P43 barrier to hit P42.85. New concerns on the extent of the damage wrought by the subprime mortgage sector turmoil in the United States prompted some portfolio managers to preen their eyes on emerging markets, including the Philippines.

This pushed the peso to breach the P42 level, commented Chinatrust Philippines Executive Vice President Roland Avante.

Before the end of the morning session, the peso surged to P42.67.

"The weakness of the dollar, continued flows of OFW remittances and investments, including in government securities plus the speculative positioning by market on the expected rate cut by the BSP next week were the factors driving the peso to its new levels," explained Avante.

BSP Deputy Governor for monetary stability Diwa Guinigundo admitted that the strong inflows as shown by the "impressive performance in the stock market" is driving the peso up.

"The strong inflows are consistent with our projection of a strong BoP (balance of payments) arising from our strong financial system," Guinigundo said.

In fact, Guinigundo disclosed the BSP is currently reviewing its BOP numbers for a possible revision, in preparation for the visit of the International Monetary Fund (IMF) later this month.

But analysts also suspect the central bank is happy to see the currency appreciate slowly, to alleviate the pressure on inflation from rising food and crude oil prices.

"We continue to see a stronger peso going forward because of expectations OFW remittances will pick up during the Christmas season," another trader said.

"This coupled with dollar inflows expected from the stockmarket and privatisation of PNOC-EDC... our target is P42.50 now," he said.

The Philippine government is selling its 60-percent stake in PNOC-Energy Development Corp to raise funds to meet its budget deficit target for the year.

Peso at 7-year high of 43.275 to $1

The Philippines’ foreign exchange reserves surged to a new record high of $32.4 billion at end-October from $30.9 billion at end-September as the central bank bought more dollars to slow down the peso’s rise.

The peso Wednesday rose to a new seven-year high of 43.275 to the dollar, leading the rally of Asian currencies, as the US credit jitters that spooked global markets earlier this week fizzled out.

The peso closed near the day’s peak of 43.27 to the dollar, strengthening from Tuesday’s finish of 43.61. The volume of trading was $749.2 million.

Banco de Oro-EPCI strategist Jonathan Ravelas said the peso was supported by the onset of the season for strong inflows of overseas Filipino workers’ cash remittances ahead of the Christmas holidays. He added the weakening of the dollar against the euro amid talk that China might diversify its foreign reserves also perked up the peso.

“At this speed, 43 to one [dollar] is just around the corner,” Ravelas said.

On the gross international reserves (GIR), Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pilipinas (BSP), attributed the increase of $1.5 billion or 4.9 percent month-on-month to the central bank’s “foreign exchange operations due in turn to the continued strong inflows of foreign exchange as well as receipt of income from the BSP’s investment abroad.”

“In addition, the PSALM [the privatization agency Power Sector Asset and Liabilities Management Corp.] deposited with BSP of proceeds from the sale of some of its assets following the implementation of its privatization program also contributed to the increase in the GIR level,” Tetangco said.

When the government auctioned its 600-megawatt coal-fired power plant in Calaca town, south of Manila, last month, the winning European bidder was required to put up a performance bond of about $300 million.

The GIR buildup last month was even curbed by debt service payments on the national government’s maturing foreign obligations.

The GIR is a key indicator of a country’s ability to cover the foreign exchange requirements of its economy, consisting of the central bank’s gross foreign currency holdings, gold reserves, foreign investments and Special Drawing Rights from the International Monetary Fund.

“At this level, the GIR can cover 5.8 months’ worth of imports of goods and payments of services and income,” Tetangco said.

Bangko Sentral ng Pilipinas (BSP) officials said foreign investors remained optimistic about the country’s economic prospects despite the anticipated slowdown in the US economy in the next few years.

Returning from the annual meeting of the International Monetary Fund and the World Bank (WB) in Washington, BSP Governor Amando M. Tetangco Jr. said the feedback on the country’s economic prospects were positive.

Tetangco said he met with different business and investment groups abroad and even at the time of the Ayala Mall blast, sentiments were optimistic.

“In our meetings, both the IMF and the WB also recognized the positive performance of the Philippine economy,” he said. “Investors remain optimistic and this was expressed in various meetings with different groups.”

Tetangco said this was consistent with the evident and sustained strength of portfolio and direct investments into the country as well as the prevailing optimism even among local investors.

Tetangco cited the results of various surveys conducted by the BSP indicating that for every 10 respondents, those who were confident about the macroeconomy outnumbered those who were not by four.

“The overall business confidence index (Cl) for the third quarter of 40.9 percent was higher by 19.2 index points compared to the year ago level,” he said.

In its World Economic Outlook, however, the IMF said growth is expected to surge this year but the economic momentum would slowdown in 2008.

The Fund noted that growth accelerated in Singapore where consumption and investment strengthened; as well as the Philippines where record remittance inflows boosted consumption while government spending grew strongly.

However, the IMF said the effects of global market volatility would lead to a slowdown in exports to developed economies and against this background, the growth projections for 2008 have been revised.

The IMF expects the Philippines’ gross domestic product (GDP) to rise by 6.3 percent this year but this would slow to 5.8 percent in 2008.

“The newly industrialized Asian economies are expected to be most affected by the weaker US outlook,” the IMF said.

Among the ASEAN economies, the IMF expects some rebound in Thailand but modest slowdowns are expected in Malaysia and the Philippines.
“Large foreign exchange inflows present opportunities to boost investment and growth, but they also create short-term challenges,” the IMF report said.

However, the IMF said current policies have generally steered a path between maintaining external competitiveness, limiting risks of overheating, and preparing for their possible reversals.

The IMF said inflation rate in the Philippines, specifically, remained low despite earlier upward pressures while the pace of credit growth also slowed down.

Declining inflation rate, according to the IMF, has also allowed the BSP to cut interest rates.

“Looking forward, policymakers will need to respond flexibly to future foreign exchange flows,” the IMF said.

The peso is expected to test new territories today with the trading band projected between P43.40 and P43.60, backed by build-up of dollar inflows from overseas Filipino workers (OFWs) over the long weekend.

"There is no argument that our economic fundamentals are good. This plus, of course, OFW remittances, along with other positive factors, will be driving the peso up," said Ramon Lim of Philippine National Bank.

Lim, whose bank was the pioneer in remittance business and once hold the distinction as the biggest handler of OFW remittances, reiterated his earlier opinion that the buildup in remittances over the four-day weekend will be the "driving force" behind the peso rally.

The new level to break is P43.53 recorded on July 4, 2000. On Wednesday, the peso closed at P43.675.

On the other hand, Chinatrust Philippines Executive Vice President Roland Avante said the increase sale of forwards in the offshore market that started last week will, also, boost the peso to trade higher versus the green.

It was learned that before the local currency market ended Wednesday, offshore currency traders have been pricing their forwards "15 to 20 centavos" off the official quote here.

"When the market here is doing P43.95, the forward was already at 15 centavos to 20 centavos discounts. This indicates that the peso will sustain its appreciation," another bank treasury official explained.

Forwards is a simple derivate instrument that allows counter-parties to trade dollars without actually exchange but the gain comes only from the exchange differential.

Locally, it is otherwise known as non-deliverable forwards (NDF).

Although, one banking source pointed out that offshore currency traders have been frontloading the peso appreciation as reflected by their forward price as early as October.

Another bank official, who asked not be named, projected the Bangko Sentral ng Pilipinas (BSP) will be extensively marketing its NDF to corporates, particularly, the exporters, in the wake of the rapid appreciation of the peso visàvis the US dollar.

It was observed there has been lean appetite to avail of the NDFs from the BSP because of the documentary requirements needed to support availments.

Bankers are hoping the BSP will include the easing up of the documentary requirements for NDF access in the reported plan of the monetary authorities to rationalize the ruling on derivative transactions as well as on foreign outflows.

National Government’s fiscal position is still considered "much improved" despite the first half revenue shortfalls of P52 billion.

"Although the momentum of fiscal improvement has recently slowed, we do not believe as this implies the need for a more downbeat view of the fiscal finances," UBS Economist Philip Wyatt.

At the same time, HSBC Treasury chief Arnulfo Veloso said the budget deficit is not "an issue." He said that for an economy to grow it needs to spend more. "(Meeting the deficit target) is just a good grade, what’s important is that the government is productive whatever the (deficit) grade is." HSBC forecasts that the government will have a higher deficit of P80 to P90 billion this year.

The UBS also brushed aside concerns about government missing the full-year deficit since they think fiscal officials will be able to fix or plug loopholes in the fiscal side by selling state assets. "(Government) asset sales (will) limit further shortfalls in the deficit targets allowing the government to meet its planned P63-billion deficit target this year," said Wyatt.

For the first semester, government reported a primary surplus of P88.6 billion. According to Wyatt, "the fiscal picture remains much improved and primary surpluses strong. This implies that the administration will succeed in continuing to pay down government debt and reduce the debt burden upon the financial system."

The Bureau of the Treasury (BTr) said that as of June the primary surplus was 29.9 percent off the program of P118 billion.

For 2007 the DoF is projecting a primary surplus of P259.5 billion or 3.9 percent of gross domestic product. A strong primary surplus implies a government’s improved capacity to pay debts.

The NG fiscal program this year includes collections of total tax revenues of P1.118.8 trillion, or 16.7 percent of GDP. Tax revenues – or taxes that will be collected by the Bureaus of Internal Revenue and Customs are programmed at P1.003.1 trillion.

The BIR will collect P730 billion while the BoC will contribute P228 billion. The rest of taxes will come from non-tax revenues of P115.6 billion this year, which is "expandable" to P175 billion. The 2007 expenditure program is P1.181.8 trillion.

Total gross revenue of industries grew slower by 12.8% in the first quarter this year, compared to 15.1% in the same period of 2006, a statement yesterday of the National Statistical Coordination Board read.

Real estate continued to post the fastest growth at 29.9%, boosted by higher income from rental and leasing operations from the country’s newly opened super malls and the sustained demand for office spaces from the business process outsourcing industry.

This was followed by the Finance sector, which expanded by 15.9%, bolstered by the resurgence of the insurance sector and the higher utilization of financial services.

Favorable performances were also registered in Trade, as well as in Transportation, Communication and Storage which grew by 14.5% and 10.8%, respectively.

Growth of total employment, however, slowed down to 0.6% from 1.1% in the previous year, weighed down by the decline in Manufacturing by 0.4% and the flat growth registered in Electricity and Water.

The rest of the industries recorded positive growths in employment: Mining and Quarrying was up by 6.4 %; Private Services, by 3.9 %; Trade by 1.9 %; and Real estate and Finance with 1.4% and 0.8% growth rates, respectively.

Total compensation at current prices accelerated to 6.6% from 4.8% in 2006. Total compensation of industries represents the salaries and wages paid out by all industries in cash and in kind.

The top performers, which posted double-digit growths were: Transportation, Communication and Storage, up by 16.1 %; Electricity and Water, up by 16%; Finance, up by 15.9 %; Real Estate, up by 10.6 %; and Mining and Quarrying, up by 10.1%.

Increases in both compensation and employment resulted in higher growth in compensation per employee at current prices at 5.3% from 3.6% in the same period last year.

PHILIPPINE industries’ income grew more than a tenth in the first quarter of the year, boosted by the real-estate sector, the National Statistical Coordination Board (NSCB) said.

In a statement, the NSCB said the country’s total gross revenue rose by 12.8 percent in the first quarter from 15.1 percent in the same period last year.

The statistics agency attributed the increase to the real estate sector, which continued to post the fastest growth at 29.9 percent, boosted by higher income from rental and leasing operations from the country’s newly opened super malls and the sustained demand for office spaces from the business processing outsourcing (BPO) industry.

This was followed by the finance sector, which expanded by 15.9 percent, bolstered by the resurgence of the insurance segment and the higher utilization of financial services.

NSCB said the trade and transportation, communication and storage businesses grew by 14.5 percent and 10.8 percent, respectively.

Job generation, however, slowed down to 0.6 percent from 1.1 percent in the previous year, weighed down by the decline in manufacturing by 0.4 percent and the flat growth registered in the electricity and water industries.

Businesses that registered job-generation were the mining and quarrying, up by 6.4 percent; private services, 3.9 percent; trade, 1.9 percent; and real estate, 1.4 percent; and finance, 0.8 percent.

Total compensation at current prices accelerated 6.6 percent from 4.8 percent last year.

Double-digit growth was seen in transportation, communication and storage; electricity and water; finance; real estate; and mining and quarrying.

THE LOCAL stock market will likely continue its bull run into next year with the Philippine Stock Exchange index (PSEi) continuing to post new all-time highs, officials of a major fund management firm said.

BPI Asset Management vice president Adelbert Legasto predicted that the PSEi would hit anywhere between 4,500 and 5,000 by 2008.

At the lower end of the company's forecast, this would give stocks on the PSEi an average upside of 20 percent from the index level of 3,738.28 as of last week's close.

Legasto said his optimism was based on the fact that PSE-listed stocks continued to lag that of neighboring bourses in terms of price-earning multiples.

"The average price-earnings ratio for the Philippines is only 16.2 times, versus 18 times for the US, 22 times for Indonesia and 40 times for China," he said, quoting BPI's own earnings estimates for local firms.

Some conservative analysts, however, put the average price-earnings ratio of the local stock market at 19 times.

Legasto said he expected the stock market to receive a boost from the country's strong economic fundamentals, including robust domestic output which BPI expects to grow by 6.4 percent this year.

Equity raised by listed companies mainly through follow-on offerings and stock rights issuances has surged by 78 percent to P45.4 billion in the first half from P25.5 billion a year ago.

Documents from the Philippine Stock Exchange (PSE) showed a slack in equity from initial public offerings (IPOs) and private placements during the period.

PSE president Francis Lim said that IPOs would pick up dramatically in the coming months with big names in the pipeline. The tally does not yet include proposed offers by GMA Network Inc., Vista Land, Pepsi Cola Philippines, Cebu Pacific and eTelecare, which are either listing this week or sometime during the year.

"As such, we in the PSE remain confident that total proceeds this year from various capital-raising sorties will hit a new all-time high, based on IPOs we have in the pipeline," Lim added.

Based on PSE figures, proceeds from two IPOs in the first half this year amounted to P2.92 billion or 67.8 percent lower than the P9.09 billion a year ago. National Reinsurance Corp. of the Philippines completed a P2.82-billion sale of its primary shares, while Pacific Online Systems Corp. conducted its own sale of P104.78-million worth of primary shares last April.

Proceeds from the follow-on offerings of four companies went up by 158.4 percent to P26.98 billion in the first half from P10.44 billion a year earlier. The follow-on offerings allowed Filinvest Land Inc., to raise P5.92 billion; Rizal Commercial Banking Corp., P5.67 billion; Union Bank, P5.04 billion, and Alliance Global Group Inc. (AGI), P10.35 billion.

The peso continued to gain more ground against the dollar yesterday, helped by foreign fund inflows into share offers by local firms and broad buying of high-yielding assets.

At yesterday’s trading at the Philippine Dealing System (PDS), the peso closed at its intraday high of 44.80, up 20 centavos from Thursday’s close of 45 to the dollar.

Yesterday’s close was the highest since August 2000.

Trading volume amounted to $517 million on an average rate of 44.860 to the dollar.

Analysts said most Asian currencies were up against the dollar as worries over subprime mortgages pinned the dollar near record lows against the euro and weighed on credit markets.

Those worries stayed at the fore after Fed Chairman Ben Bernanke said on Thursday losses on these subprime loans could hi $100 billion and threaten consumer spending.

The peso’s rally this month has primarily been driven by foreign inflows into share offers by local firms, including a $221-million offer by Aboitiz Power Corp, which had its stock market debut this week.

A view that the Bangko Sentral ng Pilipinas (BSP) would tolerate a higher peso and expectations of a widening current account surplus have also helped.

“I guess this will look good for the state-of-the-nation address next week for the President. I have a hunch they won’t intervene,” a trader in Manila said.

MANILA, Philippines -- The peso rose to a new seven-year high, and briefly flirted above a major resistance level, as fund flows into the local stock market ahead of a major stock offering continued.

At the Philippine Dealing System, the peso closed at 45:$1 -- its highest level since August 2000 -- after touching P44.99 during afternoon trading. The closing rate marked a 28-centavo appreciation for the local currency against the US dollar which, in recent weeks, has been taking a beating in foreign exchange markets worldwide.

Nonetheless, the head of one of the most influential treasury operations in the country pointed out that recent developments on the local and international front have yet to make their influence felt on the local currency.

“The foreign exchange play is supply driven and has not factored in internal and external pressures that are building up,” HSBC treasurer Jose Arnulfo Veloso said in a message to the Philippine Daily Inquirer, parent company of INQUIRER.net.

Trading at the PDS was brisk, with $637.5 million changing hands at the end of the session. At its weakest level Thursday, the peso stood at P45.22.

Veloso said the bulk of the inflows were destined for initial public offerings (IPO) on the Philippine Stock Exchange (PSE). The P8.9-billion IPO of broadcaster GMA Network Inc. is ongoing, with its shares expected to be listed on the bourse by month’s end.

The HSBC treasurer pointed out, however, that the peso’s strength may be short-lived, given the unfolding developments abroad.

“The Bear Stearns sub-prime market and its full-blown impact will not support a strong peso,” he said.

A fund manager with a local bank said the peso is set to test the P44 level over the short term, with the major resistance pegged at P44.50.

Apart from inflows into the equity market, the bank official said the rush to convert dollar holdings into pesos is also adding to the rapid appreciation of the local currency.

“There is a tendency now for OFWs (overseas Filipino workers) to send [dollars] as soon as they earn them, instead of holding onto them,” he said. “This creates even more momentum.”

The Japan-based Ratings and Investment Information Inc (R&I) has upgraded its outlook on the country from “stable” to “positive,” indicating the possibility of future credit rating upgrade.

R&I affirmed its a-2 rating on the country’s foreign currency short-term rating and BBB- on foreign currency issuer rating but the rating outlook was changed from “stable” to “positive.”

The upgrade came in the wake of official data that the Arroyo administration had missed its fist semester fiscal targets and is in danger of missing its full-year deficit target of P63 billion.

According to R&I, it is optimistic of continuing economic reforms but it cautioned that the Arroyo administration should concentrate on infrastructure development in order to mobilize foreign and domestic investments for future growth.

“For the government to attract the desired foreign investment in areas such as biotechnology fuel and mining in the future, accelerating development of the investment environment would be essential,” the agency said.

According to R&I, the country’s fiscal situation had improved against a backdrop of higher annual revenues following the increase in the value-added tax rate.

“Capital inflows from foreign countries, in a show of confidence, also are strong,” R&I said in its report, adding that together with remittances from overseas Filipinos, this supported an economic boom.

Even after the Arroyo administration missed its first semester fiscal targets, R&I expects the continuation of the fiscal reconstruction and growth-oriented policies towards 2010.

“Provided favorable economic conditions continue in the future R&I may consider upgrading the rating,” the Tokyo-based credit rating agency said.

R&I said it based its evaluation on the 2006 performance of the government when the National Government deficit dropped to 1.1 percent of gross domestic product (GDP) from 5.3 percent in 2002.

R&I noted that in 2006, the ratio of tax revenues to GDP recovered to 14.3 percent after falling to 12.4 percent in 2004.

“If the government can maintain these robust economic conditions, achieving its plan of reducing the outstanding public sector debt should become realistic,” R&I said.

The agency noted that it is counting on the Arroyo administration’s commitment to reduce the public sector debt from roughly 80 percent of GDP at the end of 2006 to 50 percent in 2010.

The peso is likely to keep rising as long as economic conditions improve, Finance Secretary Margarito Teves said yesterday as the currency hit another seven-year high against the dollar.

“For as long as the macroeconomic fundamentals continue to improve the peso will likely continue to improve,” Teves said.

At yesterday’s trading at the Philippine Dealing System (PDS), the peso broke into the 44 to $1 territory during midday trading to hit 44.990 before closing at 45 to the dollar. Transaction volume amounted to $637.50 million on an average rate of 45.090 to $1.

Yesterday’s closing rate was 28 centavos higher than Wednesday’s close of 45.28 and was the highest since the peso last touched the 44.980 to $1 level in August 2000.

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