GDP growth robust

By LIEZL EILLEN C. ANTONIO, Researcher

The economy grew at a robust pace in the second quarter, fueled mainly by expansion in the services and industry sectors as a result of election-related activities, the National Statistical Coordination Board (NSCB) said yesterday. Real gross domestic product (GDP), or the value of goods and services produced by the country based on 1985 prices, climbed at a faster rate of 6.2% from 4.2% a year ago. In value terms, the figure rose to PhP279.037 billion from PhP262.861 billion last year. At current prices, GDP increased to PhP1.153 trillion from PhP1.025 trillion. Meanwhile, gross national product, or GDP plus net income from abroad, grew by 5.7% in the second quarter to PhP302.276 billion (at constant prices), from PhP286.025 billion a year ago. But neighboring economies outpaced the Philippines during the quarter. Malaysia grew by 8%, Hongkong by 12.1%, Taiwan 7.7%, China by 9.6%, and Singapore by 12.5%. For the first six months of the year, GDP grew by 6.3% to PhP548.742 billion from PhP516.099 billion last year. GNP rose by 6.1% to PhP593.137 billion from PhP559.098 billion

Seasonally adjusted GDP, meanwhile, rose by 0.7% during the second quarter, down from 0.9% last year and 2.2% in the first quarter. Growth in seasonally adjusted GNP likewise softened to 1.7% in the second quarter against 2.2% a year before. Better growth rates were reported for all sectors, particularly services and industry. Socioeconomic Planning Secretary Romulo L. Neri said growth was "largely fueled by both strong foreign and domestic demand as exports rose on the back of demand from the country's trading partners like US, Japan and Asia, including China." He also cited the local expansion of call centers, public construction spending, and expansion in transportation and telecommunication. The services sector, which contributes the bulk or 44% of national economic output, rose by 7.3% in the second quarter, up from 5.7% last year. All subsectors also grew during the period. Transportation, communications and storage (TCS), and trade and private services spurred the sector's growth as election-related activities peaked in the second quarter. TCS led in terms of growth with 13.5%. The industry sector also grew at a faster pace of 5.6% in the second quarter from 3.6% a year ago, with the favorable performance of manufacturing and the recovery of construction. The agriculture, fishery and forestry sector also grew by 4.3%, from 1.6% a year ago, and from 8.1% in the first quarter -- as rising cost of inputs slowed production in the poultry and livestock sectors.

On the expenditure side, consumer spending continued to propel the economy as it grew by 6% in the second quarter from 5.3% a year earlier, on the back of election-related expenses and increased usage of mobile phone services. Investments on capital formation also grew by 8.5%, a turnaround from the 0.8% contraction last year, with the recovery in construction activities. Exports also bounced back, growing by 14.9% from just 1.2% a year ago.

IN PERSPECTIVE

Luz Lorenzo, ATR-Kim Eng Securities, Inc. vice-president and group economist, said GDP growth exceeded her expectations. But she also said there might be a slowdown in coming quarters because of rising oil prices and the end to election spending. "Election-related spending was the stimulus in the second-quarter performance. That would be gone in the second half," she said. Ms. Lorenzo projects GDP to grow around 5.7% this year. Joseph Roxas, president of Eagle Equities, Inc., shares Ms. Lorenzo's view. "The growth was in line with expectations. It would be more important to wait for the third-quarter results because that would not have the extraordinary effect of elections," he said.

For his part, Bienvenido S. Oplas Jr., an economist from private research group Think Tank Inc., said that although it was "good news that the rest of the economy is producing higher than targeted," this was still small given high unemployment and the large public debt. He also said growth might slow in the third quarter because of the negative effects of typhoons on agriculture. Mr. Neri did not give specific growth forecasts for coming quarters. But he added, "Overall, we're still optimistic." The government expects GDP growth to average 4.9% to 5.8% this year. While economic expansion might be dampened by rising oil prices, resulting in lower consumer spending, this is expected to be countered by higher investments due to a more stable political environment. Mr. Neri expressed concerns that the rise in US interest rates could potentially put pressure on local interest rates to rise or for the peso to weaken, which can dampen investments, especially in housing.

Meanwhile, he cited some of the administration's economic priorities, on top of which are the fiscal reforms. "The administration continues to push for legislation that will correct the structural defects in the system that have eroded tax collection even as it improved tax administration, and seeks the support of the legislature and local government units to also practice fiscal prudence," Mr. Neri stated. Another priority is infrastructure, which is intended to boost the productivity of industries by reducing transport costs. Assistance to agriculture and small- and medium-scale enterprises by improving their access to credit, technology, and markets was also mentioned.

Economists say growth not sustainable

By ROULEE JANE F. CALAYAG, Reporter

While economic growth in the second quarter exceeded economists' forecast, investors were unimpressed. In separate interviews with BusinessWorld, market watchers said investors ignored the growth data because it was overshadowed by their concern that the second half would be tough. Astro del Castillo, managing director of First Grade Securities, Inc., said investors were more concerned with the outlook for the rest of the year. "The GDP [gross domestic product] for the second quarter was slightly above expectations due to the phenomenal performance of some sectors such as the telecoms and election-related spending," Mr. Del Castillo said. But while these sectors revived the economy, growth may not be sustained in the second semester. "The second half could be a different story because of the erratic prices of oil in the global market, which could cause ripple effects in the economy and [push up] inflation," said Mr. Del Castillo. He also stressed that first-half results were driven mostly by consumption. Irving I. Ackerman, president of I. Ackerman & Company, Inc., also said the market ignored the GDP data. "Very few investors looked at it. It did not influence the market," he said. But Alfonso Araullo, an analyst at Regina Capital Development Corp., said the market could move up today as it digests the data. "The market has a delayed reaction with regard to the GDP," he said.

But the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) expects the economy to sustain its growth momentum through the second half of the year, even if rising oil prices were to remain a problem. "We expect around 6% growth in the third and fourth quarters," said Diwa C. Guinigundo, managing director of the BSP's Department of Economic Research. He also said BSP would try to keep policy interest rates steady for as long as it could keep prices stable. BSP has maintained its overnight borrowing and lending rates at 6.75% and 9%, respectively, during its monthly policy rate setting last week. These rates had remained unchanged in the last 14 months. "These should help support an environment conducive for more investments for the rest of the year," he said. The BSP official said better fiscal numbers by yearend and the legislation of new taxes should help encourage more investments this year, and effectively spur economic growth. Mr. Guinigundo also said economic growth would be driven by sustained activities in construction, transport, finance, and private services. He noted that construction could be affected by the rainy season in the third quarter and slow the industry sector's growth, but this would be temporary. "The third-quarter growth for construction may be lower than 13.7% in the second quarter year-on-year, but even half of 13.7% would still be good," he said.

MAJOR PROBLEM

But officials also conceded that rising oil prices was a major problem that could affect economic growth. BSP Deputy Governor Amando M. Tetangco, Jr. said Friday night that high oil prices could push this year's inflation target beyond the 4%-5% range. The price of Dubai crude -- the benchmark for local oil prices -- has gone up to $40 per barrel from only $33 in recent months. Asked for comment, Peter Wallace of the Wallace Business Forum attributed the better GDP figures in the second quarter also to increased consumer spending during the election campaign as well as stronger export performance. He also noted that growth in the services sector was propelled by continued investments in call centers and backroom operations, as well as mobile phones. Mr. Wallace also said the growth in industry appeared to have come from higher export receipts, considering that manufacturing was still sluggish. Agriculture, meanwhile, was back "at levels where we expect it to be." But Mr. Wallace said he did not expect the economy to sustain the stronger growth figures in the second quarter. "The Philippine economy is simply not structured to [work that way]," he said. Mr. Wallace explained that higher first and second quarter growth figures, for example, in agriculture were due to a low base, with the country hit by El Niño last year. "The first two quarters were unusual," he added.

Sergio R. Ortiz Luis, Jr., chairman of the Philippine Chamber of Commerce and Industry, also said the business community was "not surprised" that growth targets were sustained or even surpassed in the second quarter. In an interview, Mr. Ortiz Luis pointed to increased importation of raw materials and capital equipment in recent months, which also led to higher export receipts. But he said he found it hard to explain how industry was able to surpass agricultural growth. Mr. Ortiz Luis also said low infrastructure spending could slow down GDP growth in the future. "It would be ideal if the economy is able to sustain 6% to 7% at least for quite some time," he said.

MAIN DRIVER

The National Economic Development Authority (NEDA) yesterday pointed to the strong growth of the services and industry sectors as the main driver of economic growth for the second quarter. Socioeconomic Planning Secretary Romulo L. Neri said in a briefing in Makati City that growth in industry and services was largely fueled by strong foreign and domestic demand. "Despite the political anxiety and the steep increase in global oil prices, we saw industry and services combined performing better in the second quarter, cushioning the deceleration of growth in the agriculture sector," Mr. Neri said. But he also said the government was quite cautious about the prospects of duplicating first-semester growth in the second semester, given rising interest rates in the US as well as higher oil prices. "The fact that the expansion in the first semester was boosted by the recovery in the global economy gives us reason to be concerned and cautious in the second halfrising oil prices are now threatening to slow down growth," Mr. Neri said. He explained that the increase in US interest rates was pressuring local interest rates to rise, or for the peso to weaken, which could dampen investments, especially in housing. "The increase in US policy interest rates to halt inflationary pressures is also expected to soften the ongoing global recovery, thus curbing the growth of merchandise exports," Mr. Neri said. However, he said that the goverment was not revising its earlier projection of a 4.9%-5.8% economic growth for 2004.

Economists, for their part, also believe the government will be hard-pressed to duplicate the 6.3% growth for the first half. University of the Philippines' Dr. Ernesto Pernia said the country was unlikely to sustain the kind of growth it has experienced for the last two quarters. "It is unlikely that the government will be able to sustain this kind of growth because of rising oil prices and the fact that the elections are over," Mr. Pernia said in a telephone interview. He said that economic growth for the first half was boosted by election spending. "Growth was consumption-led, as it has been in previous years. If you notice, growth for the second quarter was largely driven by the services sector. That sector tends to be strongly related to consumption spending," Dr. Pernia said. Rising oil prices are expected to dampen growth for the second half since they can cause inflation to rise for the rest of the year. July inflation was 6%, and year to date inflation is already 4%.

Former NEDA director-general Cielito Habito, now director of Ateneo's Center for Economic Research and Development, said in a telephone interview that he projected a decline in economic growth for the third and fourth quarters. "I think there will be a continuing deceleration in growth for the next half of the year, but we will still be growing," Mr. Habito said. He said that the increase in US interest rates, coupled with the government's huge budget deficit, could make it more difficult for productive business sectors to access capital. "With a huge public deficit, public sector financing is affected. With interest rates increasing, it would be hard for the productive sectors to access capital," Mr. Habito said. He also said that while the growth for the first half looked sound, the government would have done better if not for its fiscal problem. "While the numbers appear somewhat sound, it's a lot less than the growth of our Asian neighbors. Obviously, we can do a lot better if not for the tight fiscal situation," Mr. Habito said. -- with reports from Iris Cecilia C. Gonzales, Jennifer A. Ng and Felipe F. Salvosa II

Finance superbody formed

By JENNEE GRACE U. RUBRICO, Senior Reporter

The government has formed a superbody that will coordinate the regulation and supervision of the financial sector, as well as facilitate consultation and the exchange of information and ideas among regulators. The Financial Sector Forum is composed of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP), Securities and Exchange Commission (SEC), Insurance Commission (IC), and the Philippine Deposit Insurance Corporation (PDIC). It was formed in line with government efforts to establish a unified regulatory body for the financial sector. During the forum's first meeting recently, BSP, SEC, IC, and PDIC tackled their proposed "action agenda." Among others, the forum proposed a joint audit by regulators of firms or entities currently regulated by two or more forum members. That way, BSP and SEC can coordinate in auditing trustee banks and reviewing trust fund accounts of pre-need companies. The action agenda also provides for "harmonized regulation" for certain financial products. It also proposes that health maintenance organizations be regulated by IC. It noted that while HMO products were similar to pension plans of pre-need companies, the Department of Health did not monitor the financial side of HMOs.

The proposed action agenda also looks at the possibility of expanding the risk-based capital adequacy framework that SEC imposes on broker dealers, so it can be required of investment houses as well. The action agenda noted that investment houses were not covered for position or operations risks. And yet banks directly trading in securities were subject to BSP's capital rules for position risks. Investment houses directly trading in securities are also not subject to SEC's net liquid capital test, it noted. Risk-based capital adequacy, as defined under the Securities Regulation Code, refers to the minimum levels of capital that has to be maintained by firms that are licensed, or securing a broker dealer license, taking into consideration the firm's size, complexity, and business risks.

Currently, broker dealers are using the net capital model, which focuses on liquidity risks. SEC is still completing the rules on risk-based capital adequacy for broker dealers. Also under the forum's action agenda, SEC will require investment houses to use risk-based capital adequacy, with adjustments for underwriting and other risks. SEC and BSP will also coordinate in applying the framework to investment houses with quasi-banking licenses. The forum is also looking at proposing legislation for harmonizing regulatory policies. Among others, it wants a law that will allow SEC to subpoena bank records and information on brokers and brokers' clients for fraud investigation. The forum's action agenda also proposes a merger of regulation and supervision powers over common trust funds sold by banks, mutual funds sold by mutual fund companies, and variable insurance sold by insurance companies.

Economic managers, solons disagree on needed fiscal fix

... and the clock ticks

Senators and economic managers of the Executive branch yesterday failed to agree on the means to solve the country's fiscal problems and avert a crisis. While Finance and Budget officials insisted on the necessity of introducing new taxes, members of the ways and means committee chaired by Senator Ralph Recto remain unconvinced. Finance Secretary Juanita D. Amatong and Budget Secretary Emilia T. Boncodin were one in saying that new taxes are "necessary" to reduce the national government and public sector deficits as well as its debts. The national government, Ms. Amatong said, aims to wipe out its deficit by 2009 and at the same time reduce the public sector deficit to 3% of gross domestic product (GDP) from the current 6.7% and public sector debt to GDP to 90% from 130%.

The Finance chief, however, noted that the deficit reduction schedule could extend to 2010 with the assumption of PhP400 billion in National Power Corporation (Napocor) debts. The state-owned utility's debt is expected to be cut to PhP400 billion from PhP600 billion, assuming it is able to privatize its generating assets. Ms. Amatong said the national government cannot simply rely on improved tax collection to raise revenues. She said it is imperative to introduce new taxes that will not only earn the government PhP80 billion annually, but will likewise reform the tax system.

With the eight revenue proposals proposed by President Gloria Macapagal-Arroyo, Ms. Amatong said the government could return collection efficiency to pre-1997 Asian crisis levels, as collected taxes as a percentage of the economy's total value is expected to reach 17.6% by 2010 from the current 12.7%. A one percentage point increase in the tax effort is equivalent to PhP50 billion. If Congress refuses to pass the new taxes, the tax effort is expected to fall short of th target to 15.2% by 2010, she said.

SCRUTINY

Senators, however, called the proposed tax measures as disadvantageous to taxpayers, stressing that revenue-collecting agencies continually fail to collect the right taxes using existing laws. Mr. Recto said the Senate will hold public hearings every week to scrutinize the government's fiscal plan before they even consider the proposed revenue measures. Another public hearing has been set for Tuesday, when Internal Revenue Commissioner Guillermo Parayno Jr. and Customs Commissioner George Jereos are expected to attend. "We have not completed our hearings yet, but at this point in time, their numbers do not add ... Their request for new taxes is not justified at the moment," Mr. Recto told reporters after the hearing. He noted that the debt crisis looming in two to three years could be averted if three actions are undertaken:

• a 10% increase in Customs and Internal Revenue collections which would raise PhP67 billion;
• that legislators forego their pork-barrel funds to save PhP13 billion; and
• that the national government remove PhP19 billion in subsidies to the government-owned and controlled corporations (GOCCs).

The administration lawmaker added that while these solutions will yield only PhP99 billion in additional revenues for the government as against the PhP155 billion from the imposition of new taxes and higher electricity rates, the public will not shoulder the burden. Of the proposed tax measures, Mr. Recto said the tax amnesty and the rationalization of fiscal incentives will likely get the nod of Congress since these will not dig into taxpayers's pockets. "We are talking about a financial crisis. The alarm bells are ringing. But we will be shocking the system if we impose new taxes or raise electricity rates. We can ask the BIR (Bureau of Internal Revenue) and the BoC (Bureau of Customs) to improve significantly," Mr. Recto said.

'TOO SIMPLISTIC'

Ms. Amatong said the senators are entitled to their own opinion but Ms. Boncodin stressed that "our position, is our position." She also described as "too simplistic" the proposed solution of Mr. Recto to swap pork cuts for the withdrawal of Palace-proposed tax bills. The President has urged lawmakers to give up at least 40% of their discretionary funds in next year's PhP907.1-billion proposed budget to help the government solve the fiscal problem. This would mean PhP40 million for each congressman (from the current PhP70 million), and PhP120 million for each senator (from PhP200 million), amounting to total savings of PhP9.7 billion. Bills that have already been filed in Congress include a proposed shift to gross income taxation, rationalization of fiscal incentives, tax amnesty, indexation of sin products, value added tax rate increase, reimposition of franchise tax on telecommunication companies, increase in the excise tax rate on petroleum products and the lateral attrition bill, completing Ms. Arroyo's tax wish list. Ms. Amatong said the only way by which the country could solve its fiscal woes is through the introduction of new taxes which must go hand in hand with the improvement of tax collections. And to help the cash-strapped Napocor reduce its debts, Ms. Boncodin said it should be allowed to increase its rates.

NAPOCOR'S WOES

Napocor's deficit forms a big chunk of the country's consolidated public sector deficit, which, among others, takes into account the government's budget shortfall as well as the financial situation of all GOCCs and other public financial entities. Napocor and the Power Assets and Liabilities Management Corp., filed a joint petition for new generation charges on June 22. The power firm is asking the Energy Regulatory Commission to allow it to increase the rates it charges to power distributors by an average PhP1.87 per kilowatt-hour nationwide. Weighing in on the issue, Socioeconomic Planning Secretary Romulo L. Neri said the proposed tax measures will be beneficial, since they may ease interest rates, given the prudent use of revenues. "In this case, the taxes will be more productively used by the government ... as the government improves its fiscal performance we see interest rates being moderate which in turn helps the private sector," he told reporters in a separate briefing yesterday. -- Karen L. Lema and Carina I. Roncesvalles with a report from Jennifer A. Ng

Biosecurity Australia to revise findings on RP bananas

SYDNEY -- An Australian government agency yesterday said it would issue a revised draft report on politically sensitive banned Philippine bananas, prolonging a long-running dispute over imports. The move, which is likely to incense Philippine banana growers, threatens an earlier February recommendation that gave a green light to imports of bananas. Biosecurity Australia, the food safety watchdog of the Department of Agriculture, has faced strong pressure from Australian banana growers after recommending that bans on Philippine bananas be lifted. The Australian Banana Growers Council said Biosecurity Australia had made statistical mistakes and greatly underestimated the risk posed to Australian bananas by imported Moko and Freckle diseases from the Philippines. "We are pleased," a spokesman for the Australian Banana Growers' Council told Reuters on Monday. A Biosecurity Australia spokesman said a new revised draft report would be issued following preliminary assessments of reactions to past reports, meetings with stakeholders and the discovery of transcription errors in previous reports. The new report would be issued after a current consultation period ends on September 15. The new revised draft report would then be followed by a further 60-day consultation period.

Australia banned imports of Philippine bananas three years ago while authorities assessed the risk of bringing diseases to the small, local crop of 315,000 tons year, half a percent of world output. Manila protested and took the issue to the World Trade Organization (WTO), saying Australia's quarantine laws unfairly barred the fruit at a potential loss of US$300 million a year to the Philippines, the world's fifth biggest banana producer. The WTO challenge is still pending. The challenge is part of long-standing complaints by the Philippines about Australian trade restrictions, especially through quarantine regulations.

In Manila, the Department of Agriculture yesterday said Biosecurity Australia's to-be-released revised draft must be based on "real science" to avert an escalated trade conflict. At the same time, it said the Philippine government would want risk management measures be included in the report if imports allowed. "I hope the Australians' issuance of a new draft would be a different recognition of the real science as we have insisted all along" Agriculture assistant secretary Segfredo R. Serrano said. "Theoretically they may allow the importation of bananas, but then the risk management measures could be strict to make it costly such that it may not be at all profitable to export," Mr. Serrano said. "If our concerns are not adequately addressed to our satisfaction, then we still have the option to continue with the case," he said. -- Reuters

Ecozone investments surge as of August

Investments registered with the Philippine Economic Zone Authority (PEZA) more than doubled to PhP29.4 billion in January to August from PhP13.1 billion in the same period last year. PEZA said in a press release yesterday that the 124% growth could be attributed to a 40% increase in the number of approved projects to 189 from 135. Projected employment was pegged at 34,122 workers, a 26% increase from last year's 27,050 generated jobs. August investments amounted to PhP938 million, up 17% from last year's PhP804 million. Lexmark Research and Development Corp. topped the list of investors for the month. The Swiss-owned firm will allot PhP320.552 million for a laboratory at Cebu Business Park's Innove Plaza in Central Visayas. It will employ 188 people and is expected to generate an average $9.072 million worth of annual exports.

Garments firm Scrap Heap International Corp. will pour in PhP193.780 million. The PEZA said the company would hire 658 employees and would export an average $26.970 million in products annually. Gyeong Woo Garments Co., Inc., meanwhile, committed PhP87.429 million for a plant at the Cavite Economic Zone just south of Metro Manila. Exports are seen at $4.615 million and jobs at 1,169.

Other ecozone investors were Japanese firms Aikawa Philippines, Inc., which will manufacture steel parts at the First Philippine Industrial Park; Luzon Electronics Technology, Inc., which will produce and assemble glide heads at the Gateway Business Park; and Panasonic Communications Imaging Corporation of the Philippines, which will make plain paper copiers at the Carmelray Industrial Park II. The PEZA also approved three new call centers: International Training and Innovation Consulting, Inc.; EnfraUSA Solutions, Inc.; and Orchid Cybertech Services, Inc. -- F. F. Salvosa II

T-bill rates up but bids dip

By IRA P. PEDRASA

Treasury bill rates across all maturities rose yesterday although appetite for short-term debt papers fell short of the government's offering. "The auction committee was talking something about the market having a wait-and-see attitude [at this point]. The speculative reason maybe that they don't want to lock in the interests in their money," Deputy Treasurer Eduardo Mendiola said. "As far as yields are concerned, though increasing because of the fiscal crisis scenario, these are still trailing behind a very large margin. Even at those levels, yields are not so attractive anymore as compared to the four-year bonds last week. The market doesn't want to be burned," a bond trader said. Debt yields tracked last week's rising trend, following the PresidentArroyo's admission that the country was in the midst of a financial crisis. The four-year debt paper sold on Tuesday fetched a rate of 11.75%, up by almost a percentage point over its previous level.

At the auction for short-term debt papers yesterday, the 91-day Treasury bill rate increased by 25.5 basis points to 7.438% from 7.183% two weeks ago. The 182-day debt paper rate also increased by 24.7 basis points to 8.455% from 8.208% while the 365-day debt paper rate was at 9.771%, up by 49 basis points from 9.281% previously. Total tenders for all three papers reached only PhP6.103 billion against a public offering of PhP11 billion. The Treasury awarded all PhP1.185-billion bids for the one-year debt instrument. It accepted only a total of PhP4.348 billion for the other two papers. "We felt [the rates] were still reasonable. It seems that the market is still factoring in the fiscal situation, the inflation and the declining peso, and of course, the expectations that the US Federal Reserve would raise their interest rates again," Mr. Mendiola said, adding that rates were maintained below those of the secondary market. At the secondary market, the 91-day paper was at 7.8536%, the 182-day at 8.6317%, and the 364-day at 10.0217%. "What the President did was really a positive move. Now, we're looking at the inflation scale the country is in as well as the initial pains of the fiscal reforms," another trader said.

At the currency market, the Philippine peso depreciated by six centavos against the US dollar, with traders citing the country's fiscal woes. After sensing the PhP56.25 level of support from the central bank, traders opted to bid below PhP56.20."It seems, though, that the [central bank] bought back dollars after the peso rally," a trader said. Coupled with the month-end dollar obligations of some companies, the trader also said a "gap-trading" offset the local unit's performance yesterday. The trader added that some banks sold to the offshore market and bought at the onshore market. "Technically, their position was 'squarish.' There were no foreign exchange risks," he said, adding that the local unit was now due for correction as "[dollars] were already above the overbought territory." At the Philippine Dealing System, the peso averaged weaker by almost nine centavos to PhP56.216 from PhP56.128 last Friday. Opening at PhP56.165, it strengthened to PhP56.14 per dollar. Slipping to as low as PhP56.25, the peso recovered to close at PhP56.21 against the greenback.

RCBC, HSBC mark first debt settlement deal via new system

By RUBY ANNE M. RUBIO, Reporter

Yuchengco-owned Rizal Commercial Banking Corp. (RCBC) yesterday bought PhP25 million worth of fixed Treasury notes from HSBC under a new settlement system called delivery versus payment or DVP. Bank officials told BusinessWorld this was the first DVP for secondary government securities transaction via the Philippine central bank's real-time payments and settlement systems. "This was the first transaction under the memorandum of agreement signed by the Bangko Sentral ng Pilipinas, the Bureau of the Treasury, and the Money Market Association of the Philippines (MART) last July," said Narciso L. Eraña, RCBC first vice-president and head of fixed income securities. "Under the DVP, settlement risks are eliminated. You won't receive securities unless it is paid. It is done electronically. This allows investors to trade more freely with each other. This system is a big milestone in the financial sector," he said. Through the memorandum of agreement with the central bank, the Treasury and the umbrella organization of government securities eligible dealers, or financial institutions that are allowed to purchase state-issued debt instruments from the Treasury, are now linked to the central bank's Philippine Payments and Settlements System or Philpass. Philpass, a real-time gross settlement payment launched in December 2002 involves transactions of 93 participating banks, which amount to as high as PhP200 billion a day.

In a separate interview, MART treasurer Dino Rudyardo F. Gasmen said the settlement for government securities transaction is more reliable. "This is an important development in the local government securities market. Once your deal is settled, it cannot be reversed. It is final and irrevocable. The deals are settled trade for trade. Because of the DVP system, there are no more settlement lines. The system can check if the seller of securities has enough to sell and whether the buyer has enough funds in his demand deposit accounts to the central bank," said Mr. Gasmen, who is also the chairman for the settlements subcommittee of MART. He said if there are enough securities and cash, these are exchanged simultaneously, thus removing settlement risks. "Through this system, once you release the securities, you immediately receive payment," he said partly in Tagalog. "We have to wait for Moneyline Telerate to finalize certain enhancements for the market need to implement this new settlement system. We need an enhancement to know exactly the status of each transaction whether there is sufficient cash or securities or if the deal is completely settled. Moneyline Telerate has to finish and test those changes," Mr. Gasmen said. Money market investors can now check via Moneyline Telerate if they want to know if the government securities were already debited.

First Pacific, Citra will need PhP12.5B to link Southern Luzon highways

By ANNA BARBARA L. LORENZO, Reporter

HONG KONG -- The consortium behind plans to rehabilitate and connect three major highways in Southern Luzon would need about PhP12.5 billion to finance the project. First Pacific Co. Ltd., the flagship company of the Salim family of Indonesia, has teamed up with with the Citra Group of Indonesia for the project, said the Hong Kong firm's Managing Director and Chief Executive Manuel V. Pangilinan. He said connecting the South Luzon Expressway, (SLEx), the Metro Manila Skyway, and the Southern Tagalog Arterial Road (STAR) in Batangas, just south of Metro Manila, would cost at least PhP12.5 billion. "This is going to be a joint venture between ourselves and the Indonesians," he told Manila-based reporters. He said the firm is already looking for fresh funds to finance the project.

First Pacific has already tapped Japanese consultants to conduct the project study. Mr. Pangilinan said as much as 70% of the funding would be sourced through official development assistance, while the rest would be funded by equity. "There are two major capex for the rationalization of the Southern Luzon highway system. In raw numbers, connecting Alabang to Calamba and Calamba to Sta. Rosa would need about PhP10 billion, while from Lipa to the Batangas Port, it would be about PhP2.5 billion," he said. He said a different budget would be needed for the rehabilitation and upgrading of the SLEx and the Skyway, but he didn't cite figures. Mr. Pangilinan said another board meeting is set on Sept. 15 where First Pacific would present its recommendations for the project.

The Philippines' National Development Co. (NDC) earlier approved "in principle" a plan to rehabilitate and connect the SLEx, Skyway, STAR to cut the travel time from Metro Manila to the Batangas Port. The integrated highway will have a single toll system which would be run by a single operating authority. The NDC said that it would first finance the rehabilitation of the SLEx segment that included the Alabang viaduct. The expressway would then be extended 7.48 kilometers from Calamba, Laguna to Sto. Tomas, Batangas, where it will be connected to STAR. The STAR tollroad would also be repaired and extended 20 kilometers from Lipa to Batangas City. Trade officials had said that connecting the three highways would result in operational and maintenance efficiency. Finance officials had said NDC would sell bonds to finance the highway project. First Pacific is the parent of Manila's Metro Pacific Corp. It also holds a 24.7% stake in Philippine Long Distance Telephone Co., the leading telecom firm in the Philippines.

PSE reforms to boost flagging stock market liquidity

By ROULEE JANE F. CALAYAG

There's a time to stay quiet and time to make noise. For Philippine Stock Exchange (PSE) Chairman Alicia Rita Morales Arroyo the time to make noise has come. In the past two years, Ms. Arroyo rarely talked about what she and her team were doing at the bourse. The soft spoken Ms. Arroyo preferred to keep silent, saying she wanted to focus her attention on pushing reforms that will uplift morale and boost trading. Now that their labor is beginning to yield results, Ms. Arroyo, considered the most powerful woman in an institution perceived to be an old boys' club, believes it is time to show what the bourse has accomplished. The reforms ran from the gamut of forming an independent body that will oversee the bourse's policing unit to setting up a new clearing and settlement system.

Among the latest of the reforms is the creation of a market integrity board which will oversee the operations of the compliance and surveillance group, considered the police unit of the PSE. The compliance and surveillance group was restructured and renamed as the market regulatory office. In an interview with BusinessWorld, Ms. Arroyo said forming the integrity board, which was patterned after the Australian Stock Exchange, reflects the maturity of the members of the board. The measure was still an offshoot of the reforms the bourse adopted following the hullabaloo over the stock-rigging scandal involving BW Resources Corp. in 1998. The Securities and Exchange Commission had required the bourse to demutualize to prevent a repeat of the scandal, which almost led to the collapse of the stock market. But demutualizing the exchange had not been easy, Ms. Arroyo said. "We were demutualized in form but not in substance," she said. She said the situation has improved since the exchange was listed in December and the recent election of the bourse's president. "The election of the right people, such as Francis [Lim, the incoming president], had led to some changes," she said. She credited Mr. Lim for broaching the idea to put up the integrity board.

The bourse hopes forming the integrity board will wipe out perceptions the stock brokerage community is an "old boys' club" that protects the interests of its members at the expense of the investing public. The exchange also redefined the parameters of the police unit's independence and self-regulatory organization (SRO) status in its report to the Securities and Exchange Commission (SEC) on Aug. 25. In a press statement, the PSE said this move tops the list of reforms designed to boost the performance of the market and establish congenial business relations between the surveillance unit, the brokers and the listed firms. Mr. Lim said in a statement the approval of the integrity board shows "the [PSE] board acts as one in introducing genuine reforms for the good of the stock market." "The [integrity board] is a big step that we have undertaken to bring back public trust and confidence in the stock market," he said. "The integrity board is a move forward," Ms. Arroyo concurred, noting that doing away with some processes that hamper trading activities will boost the bourse's performance.

ANALYSTS

In interviews with BusinessWorld, dealers and analysts welcomed the move. Irving Ackerman, president of I. Ackerman & Co., Inc., said the move is commendable. However, he expressed some reservation over the choice of people that will manage the board. "There is nothing wrong with it, but I do not agree with the people [who will run it]. They are intelligent but they must know intimately how the market works," he said. "But it will not hurt the board because that is not a permanent setup. It just shows that the PSE is doing a good job," he added. Alfonso Araullo, analyst at Regina Capital Development Corp., said the move falls in line with good governance. "The [market integrity board] is part of the exchange's ongoing reform to ensure integrity in the market. It should protect the market," he said. The integrity board shall undertake studies to enhance the applicable rules relating to audit, compliance and surveillance, adoption for local conditions of best practices on governance among stockbrokers, adopt measures necessary to strengthen the SRO functions of the exchange, and forcefully impose disciplinary sanctions on the brokers when appropriate.

The integrity board will have a retired Supreme Court or Court of Appeals justice serving as chairman, a former SEC commissioner or a securities law practitioner as vice-chairman plus an independent director of the PSE board and two trading participants of the exchange in good standing. The PSE president shall be a non-voting member. Mr. Lim reportedly wants to recommend retired senior associate Supreme Court Justice Jose C. Vitug as chairman and former SEC commissioner Monico Jacob as vice-chairman. Alongside this, the bourse is also set to implement a new clearing and settlement system, which was installed last March. Ms. Arroyo said the PSE hopes to see the system running by September.

With the new clearing system, the PSE expects to generate more revenues and follow in the footsteps of other Asian bourses such as the Thailand Stock Exchange. The system will allow the fast clearing and settlement of securities, bypassing unnecessary processes that hamper trading activities. The PSE has also increased its stake in the Securities Clearing Corp. of the Philippines (SCCP). Last week, the PSE board approved the full acquisition of the SCCP with the purchase of the entire SCCP shareholdings of Equitable Banking Corp., Rizal Commercial Banking Corp. and Citibank. All these, said Ms. Arroyo, point to a "maturing process" at the PSE. She said more reforms are coming in line with the exchange's vision to become a peer among the region's premier stock exchanges by 2007. She said they are regularly checking the list of reforms to see how far the programs are implemented. She expressed hope these will be achieved according to plan. "We want a better trading environment. We do not want witch-hunting but just to move ahead and be focused," Ms. Arroyo said.

Gov't hoping to sell power grid by Dec.

The government hopes to sell its electricity transmission grid to a private operator by the end of this year, a senior government official said. The government, which is trying to reduce chronic budget deficits, failed twice last year to privatize the assets due to regulatory uncertainty and security concerns after an abortive mutiny by a few hundred soldiers. This time, officials said they would negotiate directly with interested firms, which government rules allow after two unsuccessful bidding rounds. A private operator would be expected to pay around $500 million for the transmission grid of National Power Corp. (Napocor) and assume $1.5 billion in debt, a source close to the deal has said. The government is also selling dozens of power plants. At least five groups have expressed interest in the Napocor grid, which is operated by National Transmission Corp. (Transco), another state agency. "We will soon start discussions and, by December 2004, we expect to appoint a concessionare," Transco President Alan Ortiz said during a townhall meeting on Saturday. A transcript of the meeting, led by President Gloria Macapagal Arroyo, was released on Monday.

Last week, Energy Secretary Vincent Perez, Jr. said Napocor's debts would balloon to PhP600 billion ($10.68 billion) this year from PhP523 billion at the end of 2003 if the government does not make progress in privatizing its power assets. As a consequence of Napocor's debts and operating inefficiencies, Filipinos pay some of the highest power rates in Asia. -- Reuters

GDP report fails to excite market

By ROULEE JANE F. CALAYAG

Trading was lethargic yesterday as excitement over the second-quarter gross domestic product (GDP) data fizzled out and left investors unimpressed. The market ignored the 6.2% GDP growth for the second quarter, a factor expected to bolster investors' optimism. Although market forces were looking to it for inspiration last week, the GDP's slight decline from 6.5% in the first quarter had dampened sentiment.

OIL PRICES

Analysts said investors shied away from the market despite the sustained GDP growth because of overshadowing concerns over the possible implications of oil price increases to the second-semester outlook. This concern has plagued market investors who were worried that a further rise in inflation may wipe out earnings prospects in the second half. The Philippine Stock Exchange composite index (Phisix) slid 1.63 points to 1,580.41 with over one billion shares traded for PhP399.9 million.

But Irving I. Ackerman, president of I. Ackerman & Co., Inc., said this was expected. "More or less, the quiet trading was expected. The market hardly moved," he said. The decline was insignificant, added Mr. Ackerman. He also noted that the market was just "marking time" as it waits for the stock markets in the United States to pick up. But Alfonso Araullo, analyst at Regina Capital Development Securities, said the market was still trying to break the 1,600 level after trading over the past weeks ranged between 1,550 and 1,580. "People were trading the market," said Mr. Araullo, noting strong activities in second- and third-liners. Mr. Araullo was optimistic that the Phisix would move up over time. "The market had a delayed reaction with regard to the GDP but it would probably be up [today]," he added. This may be a possibility, said Astro del Castillo, managing director at First Grade Securities, Inc. "The market is still in a consolidation mode despite the run-up in the shares of the Philippine Long Distance Telephone Co. [PLDT] due to its American Depositary Receipts [ADRs] in New York," said Mr. del Castillo. "It [the market] bounced back from a 30-point jump last week," he added. Mr. del Castillo also noted that the GDP report was ignored as investors focused on other concerns. "They shrugged off the GDP due to concern over the possible implication of the erratic oil prices in the world market on inflation," he explained.

FOREIGN EXCHANGE

Aside from the incessant oil price adjustments, Mr. del Castillo said economic woes were aggravated by the continued weakening of the peso against the greenback and persistent worries that interest rates may rise. "Investors shied away from the market because of all these factors; but moving forward, they will likely stick to companies that perform well despite the economic condition," he said. Benson Te, analyst at MDR Securities, was upbeat. In his daily stock market commentary, Mr. Te said: "Even as the market was in a state of lethargy which is typical during the week's start, market internals emitted mixed signals with slightly bullish undertones." "Obviously, the market awaits a catalyst or a leader for it to resume its climb over a 'wall of worry,'" said Mr. Te.

INDICES

At the stock market, only two indices were able to hold the fort. The commercial-industrial crawled up 0.70 to 2,527.05 while property climbed 3.57 to 520.68. Mining led the indices that were in the red. It lost 51.90 at 1,746.17. The banks and financial services index slumped 3.46 at 456.31. Oil was weak at 1.65, down 0.02. The all shares declined 4.74 at 1,012.89. Advancers outpaced decliners, 40-32, while 39 issues were unchanged. Over all, the market was in a state of inertia as investors stayed on the sidelines. Mr. Te said trading volume was lean because it "incorporated cross transactions to the tune of PhP11.4 million which represents about 28% of the total trade."

BACKLASH

And while economic managers try hard to soften the impact of the statement of President Gloria Macapagal Arroyo that the country is in the midst of a fiscal crisis, foreign sentiment is not spared. There seems to be a backlash even amid denials that this may lead to a flight of foreign capital. In his online commentary, Mr. Te underscored this reality. "Moreover, even as foreign capital registered an inflow worth PhP29.04 million, foreign trades accounted for about only a third of the aggregate peso turnover, suggesting that local investors were at [the] helm of today's activities," wrote Mr. Te. However, he moved on to clarify that "in spite of the crisis talk, foreigners are still infusing capital to the local equity market although on a cautious pace." But as uncertainties linger in the market, more issues may still come and jerk investors. What matters now, it seems, is the persistence of the market to remain above the fray as it moves on in a focused path to recovery and energized trading. If investors transform their worries into actions, good times may not be a far reality for the market.

Japan ready to help with crisis

With the Philippine suffering from a widening budget deficit and high public debt, Japan, its top foreign aid donor, is ready to come to its rescue when it cries for help. Japanese Embassy press officer Shuhei Ogawa told reporters last Friday his goverment would explore all possible options to help the Arroyo administration. But he fell short of specifying the form of assistance it would give, since the Philippine government has yet to officially declare that it was indeed suffering from a fiscal crisis. "We will study the possibilities that we can do if the Philippines asks our government," Mr. Ogawa said. The assurance came after Foreign Affairs Secretary Alberto G. Romulo declared that he would use "economic diplomacy" to address the country's foreign debts.

Last week, President Gloria Macapagal Arroyo publicly announced that the government was in the midst of "fiscal crisis," with debts at PhP3.36 trillion as of end-2003, equivalent to 130% of gross domestic product (GDP), or total economic output within the country's borders. The declaration had her embroiled in a public row with key economic advisers, who stressed that the country has not yet defaulted on its debt repayments -- a key element of a fiscal crisis. "The Philippines has not yet announced that there's a fiscal crisis. But we will continue to closely watch the situation. We will take it seriously if that [crisis] happens, but we cannot comment on that which is not yet happening," Mr. Ogawa said. In May 2003 Japanese Ambassador to Manila Kojiro Takano warned the Philippines of an impending "crisis", given its ballooning budget deficit. That warning was brushed aside, as the government dismissed the ambassador's statement as a result of his "sleepless nights" since he assumed office. "The interdependence of nations in global economy necessitates the need to ensure the economic viability of neighboring states. That is why the economic situation in the Philippines is viewed as very important. The Japanese government, while fully supportive of the Philippine government's fiscal programs, needs to point out a major problem besetting the Philippine economy, the problem of budget deficit," Mr. Takano had said in a speech before the Foreign Correspondents Association of the Philippines last year. He said the "irreducible budget deficit" indicated the country's laxity in basic economic management. "This will, in turn, have a negative influence on the real economy through the rise in interest rates and a fall in the exchange rate. There is also a danger in supporting annual revenue with overseas borrowing since the government may lapse into a crisis caused by international balance-of-payment difficulties. This is a problem that is not limited to being fiscal in nature," Mr. Takano had said.

As of September 2002, Japan accounted for more than one-fourth of about $53 billion in Philippine foreign debts, making it among the country's biggest creditors and aid donors. "Japan, along with the other donors such as the International Monetary Fund and the United States, has officially been pointing to the importance of authorizing an increase in the annual revenue and has been frequently demanding revenue reservation from the viewpoint of the counter-part fund reservation for Official Development Assistance," the Japanese envoy had said further. Mr. Takano had also said that his government's economic aid to the Philippines would be irrelevant if the budget deficit were to cause economic stagnation. But Mr. Ogawa said the Philippines was still on schedule in its payment of Japan loans. He also expressed hope that the Arroyo government would be able to address the fiscal situation and steer the economy to growth. "We hope that President Arroyo will successfully pursue her 10-point program, which will supposedly lead the nation to better development," Mr. Ogawa said. As part of her 10-point program, which was made public during her State of the Nation Address last July 26, the President is pushing Congress to pass several tax measures within the year -- hoping that new taxes will drastically cut the budget deficit in time to avert the crisis looming within two to three years. -- M. E. I. Calderon

House bill to open bank accounts to scrutiny

A bill that will allow examiners from the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) and the Philippine Deposit Insurance Corporation (PDIC) to look into bank accounts and determine the actual financial condition of banks has been filed at the House of Representatives. The bill will also allow examiners from the Bureau of Internal Revenue (BIR) to look into bank deposits and examine the correctness of tax payments withheld by banks. House Bill No. 2403 was filed by Negros Oriental (Central Visayas) Rep. Herminio G. Teves to amend Section 2 of Republic Act 1405 or the Bank Deposits Secrecy Act that was approved on September 9, 1955. Section 2 of RA 1405 specifies that bank deposits are "of an absolutely confidential nature" and may not be examined by anyone except upon written permission of the depositor, in cases of impeachment, upon a court order for cases of bribery or dereliction of duty by public officials, and when the deposit is the subject matter of a litigation.

The Anti-Money Laundering Act, which amended the Bank Deposits Secrecy Act, upholds this provision by specifying that deposits may be examined only with a court order. Mr. Teves said the Bank Deposits Secrecy Act has become outdated, especially in view of bank closures that were brought about by "illegal, unsound and dangerous banking practices." "Some unscrupulous bankers have manipulated the financial reports of their banks, prejudicing the depositing public and, in case of bank closures, destabilizing the country's financial system," Mr. Teves said in his bill's explanatory note. "Sadly, it is only when the BSP's Monetary Board closes an erring bank and examines deposit records that illegal and unsound banking practices come into light." Mr. Teves' bill will allow bank depost examinations by BSP and PDIC for "supervisory purposes," and BIR for "tax audit purposes." Violators will be sanctioned with imprisonment of two to five years, or a fine ranging from PhP50,000 to PhP100,000. -- J. T. Gulane

San Miguel to open new plastic bottles facility

San Miguel Corporation will open a new plastic bottles manufacturing and recycling facility early next year in what may be seen as step towards plastic beer packaging. In its second quarter report to the Securities and Exchange Commission, San Miguel said that Beverage Packaging Specialists Inc. (BPSI) would open in the first quarter of 2005. "At present, BPSI is validating several technology assumptions to meet the stringent specifications of food grade packaging materials," San Miguel said. It added that the retrieval of polyethylene terephthalate (PET) bottles was "in full swing, with a total of more than 1.2 million equivalent of 1.5 liter bottles retrieved" through partnerships with different institutions. Last March 15, San Miguel drew PhP1 billion from a PhP5-billion unsecured syndicated loan to finance the construction of plants and facilities and the acquisition of machinery and equipment for the manufacturing and recycling of PET bottles by BPSI.

It was earlier reported that San Miguel was looking at introducing San Miguel beer in plastic bottles, to follow the lead of major breweries worldwide. A number of beer companies abroad have started using plastic bottles because of the drop in canned beer sales. Milwaukee-based Miller Brewing has started selling Miller Lite, Miller Genuine Draft, and Icehouse in 20-ounce and one-liter plastic bottles. German brewer Holsten was also reportedly planning to follow the lead of Miller. An analyst had noted that the switch to plastic bottles would benefit San Miguel in terms of costs, since glass bottles were more expensive than plastic. He had also noted that plastic bottles were more convenient, especially in places where glass was not an option.

But he had said that San Miguel must make sure that beer taste quality should not suffer. The equipment that San Miguel would use for manufacturing PET bottles could also be used for soft beverages. -- J. G. U. Rubrico

Relaxed investment rules have RP firms eyeing China

By FELIPE F. SALVOSA II, Reporter

More Filipino firms are eyeing the establishment of businesses in China as Beijing has relaxed a number of investment rules in a bid to lure more foreign capital. A visiting Chinese trade promotion group has generated interest from local firms such as soy sauce maker Piñakamasarap Corp. and coffee shop chain Figaro. Tian T. Sy, Jr. said his Piñakamasarap Corp., manufacturer of the Marca Piña soy sauce, is eyeing an investment in China but not necessarily in the food sector. "It can be any business. But nothing's final yet, we're just exploring the possibilities," Mr. Sy said. He noted that Piñakamasarap has been exporting to countries where there is a large Filipino community.

Currently, Marca Piña Soy Sauce, Marca Piña Vinegar and Marca Piña Patis are sold in over 20 countries including the United States, Japan, Germany, Australia and the United Kingdom. Pacita "Chit" Juan, owner of Figaro, said Filipino businessmen could take advantage of the expat population -- 900,000 -- in China's eastern seaboard alone. Given a chance, she said she would like to set up a salon, a business which she said could be lucrative considering beauty parlors there are scarce. Other ideal businesses include day care centers and English schools, said Ms. Juan, who joined a Philippine trade delegation to China recently. "Even in expats alone you can make a living," she added.

Other companies such as novelty item maker Characters Unlimited, food service equipment manufacturer Gomeco Metal Corp., and fast-growing Filipino fast-food franchise Binalot also expressed "interest" in the China market during a dialogue with visiting Chinese officials last weekend at Global Cafe in Greenbelt. Zhang Heng de of Shanghai's Council for the Promotion of International Trade said it was "hard to say" which businesses would work in China but said the "best businesses is the one which is well-done." While the retail sector is still restricted depending on the industry, "We have relaxed a lot of laws. It's easier now to come to China for foreign-owned companies," he said. As a result, foreign-owned companies now make up 80% of registered businesses in China as against only 24% in 1992. Between January and May, Shanghai approved 32 new projects owned by various nationalities, with a combined worth of $57 million, Mr. Zhang said. A typical investor is required to put up $200,000-300,000 in initial capital depending on the sector, with 50% to be used directly for the operation of the business, Mr. Zhang explained. New companies must bring in 10 people, such as managers and engineers, to operate the business. Huang Wen, secretary-general of the China International Economic and Trade Arbitration Commission, said taxes have been reduced for high-technology firms with a big potential for financial returns.

Other advantages for investing in China include low power costs, low-priced labor, low land-use fees, and financial support from the government, he said. For special areas and free trade zones, Mr. Huang said the profit tax was only 15%. Elsewhere, the rate is 35%. Ms. Juan noted that most of the investments are concentrated on the eastern seaboard -- Guangzhou, Shanghai, and Beijing. Some 900 million of China's 1.2 billion population also live in the eastern seaboard, she said. In Shanghai, per capita GDP is $5,000, as against the national per capita of almost $1,000. "Foreign direct investments are really causing the Chinese economy to go up. Because of these foreign investments, new markets have been created, notably the expats," Ms. Juan said. She added that Filipinos in China are flourishing in entertainment and information technology. The Philippines has also earned a lot of respect following Jollibee Foods' acquisition of China's 90-store Yonghe King restaurant chain. Existing Philippine businesses in China include Liwayway Manufacturing, which has 16 factories all over the country churning out Oishi crackers, and Limketkai, producer of the Marca Leon cooking oil, which markets cooking oil in China under the "Twin Dragon" brand.

Ecozone exports increase

Exports from economic zones grew 21.5% to $17.865 billion from January to July versus $14.7 billion in the same period last year, figures from the Philippine Economic Zone Authority (PEZA) released over the weekend showed. Thirty-six privately owned special ecozones reported $13.9 billion in exports, a 26% increase over last year's $11.009 billion, PEZA Director-General Lilia B. de Lima said in a report. Service exporters in fourteen information technology or IT buildings and parks contributed $100.688 million during the seven-month period, a growth of 48.6% from last year's $67.757 million.

Meanwhile, four government-run ecozones logged in $3.864 billion in exports from last year's $3.623 billion, which is equivalent to a 7% increase. The biggest-earning special ecozone, Laguna Technopark in Sta. Rosa, Laguna, increased its exports by 16.5% to $4.817 billion from $4.133 billion. It was followed by Gateway Business Park in General Trias, Cavite, which registered $2.594 billion in exports or almost five times last year's $545.378 million. The rest of the top ten were Amkor Technology ($1.310 billion, up 82%), Carmelray Industrial Park I ($582.967 million, up 43.4%), Lima Technology Center ($466.279 million, up 73%), Carmelray Industrial Park II ($417.161 million, down 79.6%), Light Industry and Science Park II ($384.636 million, up 44.7%), Light Industry and Science Park I ($374.328 million, up 37.6%), Leyte Industrial Development Estate ($368.540 million, up 93.6%), and the People's Technology Complex ($360.245 million, up 27.8%).

RCBC Plaza in Makati topped 13 other IT facilities with $31.016 million in exports or nearly three times last year's $11.906 million. Eastwood City Cyber Park in Libis reported in $24.640 million, but this was down 13% from last year's $28.451 million, followed by Pacific IT ($12.028, down 16%), The Enterprise Center ($8.198 million), and PBCom Tower ($7.581 million, up 44%). Among the publicly owned ecozones, the Baguio City Economic Zone ranked first with $1.649 billion in exports from January to July, up 7% from last year's $1.547 billion. The Cavite Economic Zone reported $1.152 billion in exports, an increase of 8%, followed by Mactan Economic Zone ($883.128 million, up 4%), and Bataan Economic Zone ($179.924 million, up 13.6%). Special ecozones directly employed 246,760 workers during the seven-month period, up 17% from last year's 210,961, Ms. de Lima said.

IT buildings and parks employed 12,623 workers, up 47% from 8,587 workers in January to July 2003. Public ecozones employed 3.6% more workers at 136,975 from 132,180 last year. The PEZA said estimated indirect employment -- which includes employment generated by enterprises providing inputs and services to economic zone export-producers and service exporters such as subcontractors, brokers, cargo handlers and forwarders, canteens and restaurants, banks, utilities, construction, and janitorial and maintenance services -- reached 594,537 from 527,592 last year. Ecozone firms gave jobs to 990,895 workers, up 12.7% from 879,320 last year, the PEZA report said. -- F.F. Salvosa II

Gov't in talks for streamlining loan builders - DTI

The Philippine Government and World Bank are negotiating for a $200-300 million loan to help finance the government's voluntary retirement program, an official from the Department of Finance (DoF) said. Budget Secretary Emilia T. Boncodin, for her part, said in an interview that "we are targeting that amount" but added the terms of the loan could still change. And since it is a program loan, Ms. Boncodin said "it will not increase the government's expenditures." "The loan will result in raising funds to pay [for] the incentive benefits," she said, adding that the loan will be used this year once the Bank gives its approval. Ms. Boncodin said the 2004 budget has set aside PhP10 billion to PhP15 billion to finance the voluntary retirement package. This, the Budget chief earlier said, could be availed of by government workers affected by a streamlining program who opt to leave the government instead of being transferred to other agencies.

Multilateral institutions have been urging the government to trim its bureaucracy so it can cut public expenditures and solve the country's fiscal problems. Almost 32% or PhP289.26 million of next year's PhP907.6-billion national budget will go to the pension and salaries of more than one million state workers alone. The government has already lined up legislative and administrative measures that will reorganize the bureaucracy. These measures are expected to generate some PhP20 billion in annual savings. One is the proposed government re-engineering bill which will grant the President the authority to reorganize the Executive, including government-owned and -controlled corporation, and offer appropriate incentives to those affected by the restructuring, Ms. Boncodin said President Gloria Macapagal Arroyo also intends to issue an administrative order directing a cost-reduction program in utilities, supplies, travel and the like. This will be on top of an executive order that will be issued to implement "function-based rationalization" of the bureaucracy. She said the plan means the deactivation of functions that are no longer relevant, consolidation or rationalization of duplicate functions and strengthening of important functions. The government is aiming to reduce the ratio of personal services spending to gross domestic product to 4.8% in 2010 from 5.7% in 2005.

Chief economic planner insists RP not in fiscal crisis

The country's chief economic planner yesterday insisted that the Philippines is nowhere near a fiscal crisis and that the fiscal situation will soon improve once Congress acts on proposed tax measures. Socioeconomic Planning secretary Romulo L. Neri issued the statement in reaction to statements from University of the Philippines (UP) economists who criticized government economic managers on Friday for claiming the country is not in a fiscal crisis. "I have a very different understanding of a fiscal crisis. I think at this point it would be useless to talk about semantics. Our fiscal situation will improve once Congress acts on the proposed tax measures," Mr. Neri said in a telephone interview. Six of the 11 economists who wrote the UP paper entitled "The Deepening Crisis: the Real Score on Deficits and the Public Debt" had criticized government economic managers led by Mr. Neri, Trade Secretary Cesar Purisima and Finance Secretary Juanita Amatong for denying that the country is already in a fiscal crisis. "Mr. Neri is wrong. He, Mr. Purisima and Ms. Amatong are all wrong in saying that we are not yet in a fiscal crisis. We're already in a fiscal crisis," UP economist Ernesto Pernia claimed.

The UP economists made the pronouncement in reaction to a statement issued by the interagency Development Budget Coordinating Committee (DBCC) that Manila was nowhere near a fiscal crisis. "A fiscal crisis as defined by international financial institutions such as credit rating and multilateral agencies, is being in a state of default, and having a deficit that can no longer be financed due to limited access to capital markets," the DBCC said. But the UP economists said that based on their study, the fiscal figures of the government point to an impending economic collapse if the "painful measures" they have prescribed are not implemented within two to three years. UP economist Benjamin Diokno said interest payments have gone up to PhP42.6 per PhP100 worth of loans last year from PhP26.5 per PhP100 in 1999. Also, Mr. Diokno noted that while interest payments for the country's debts have been going up, the tax collection effort has gone down to 12.3% of gross domestic product (GDP) last year from 17% of GDP in 1997. He also said the current ratio of the national government's debt to GDP now stands at 77% while total public debt has gone up to 126% of GDP. "The reasonable level should have been 30% (of the GDP). So are we in a crisis or not?" Mr. Diokno asked.

UP economist Solita Collas-Monsod, for her part, said the government needs to put its fiscal situation in order if it is to retain the confidence of international creditors. "As long as they have confidence in the country, they will continue lending but that is very psychological. Because the moment they think that we're no longer capable of servicing our debt, and they withdraw, the government will no longer be able to really pay off its debts," Ms. Monsod said. Meanwhile, the UP economists also said it would be ill-advised for the government to undertake further budget cuts in education, health and public infrastructure despite the tight fiscal situation. "In the last five years, the budget allocation for education, health and public infrastructure has declined significantly. While stabilization objectives are important, the current underspending in human and physical capital could put the economy on a lower growth trajectory," Mr. Diokno said. He said government spending for public infrastructure has been slashed from 3.2% of GDP in 1999 to just 1.2% of GDP last year. "Spending for public infrastructure and other capital outlays has shrunk significantly. By sacrificing public capital formation, the economy could end up on a lower growth path in the long run." Mr. Diokno also noted that spending for education as shrunk from 3.4% of GDP in 1999 to 2.8% last year while government spending for health has gone down from 0.5% of GDP in 1999 to a mere 0.3% of GDP in 2003. "Further cuts in these two areas would be ill-advised," he said.

The Education department, which usually gets the biggest share of the budget for social services, got PhP107.5 billion this year. The Health department, however, was allocated only PhP9.75 billion. Under the proposed PhP907.6-billion budget for 2005, both will get slight budget increases. The proposed budget for education is PhP111 billion, while health stands to get PhP10.3 billion. As for public infrastructure, the government has said it is eyeing the creation of an infrastructure firm that will help raise government spending to 5% of GDP. -- J. A. Ng

Aussies to help in RP bid to join Egmont Group

The Philippines has moved a step closer to achieving its aim for a seat at the Egmont Group, an influential anti-money laundering organization, as one of the group's members agreed to sponsor the country's membership. The interagency Anti-Money Laundering Council (AMLC) said its Australian counterpart has offered to support the Philippines' bid to join the international group. AMLC executive director Vicente S. Aquino said the Australian Transactions and Reports Analysis Center (Austrac) acceded after seeing government efforts to fight money laundering. The Sydney-based center works to ensure that financial service providers such as banks identify their customers and reduce the occurrence of false bank accounts. "They agreed to support us for Egmont Group membership," Mr. Aquino told reporters over the weekend.

The Egmont Group, formed in 1995, is named after the Egmont-Arenberg Palace in Brussels, Belgium where financial intelligence units (FIUs) around the world first met. The group aims to provide support to FIUs -- a specialized government agency created to fight money laundering -- on how to improve anti-money laundering programs. This support includes expanding and systematizing the exchange of financial intelligence, improving expertise and capabilities of personnel, and fostering better communication among FIUs through new technologies. FIUs aim to provide the rapid exchange of information between financial institutions and law enforcers as well as between jurisdictions while protecting the interests of innocent individuals.

The Philippines has to meet three requirements to join the Egmont Group: enactment of domestic legislation allowing financial intelligence sharing with other territories, establishment of a fully-functioning FIU, and the effective implementation of the remedial law. Mr. Aquino said Austrac officials have seen specific steps the AMLC has taken to improve its anti-money laundering program, one of which is a new information technology system. He said joining the group will help government regulators track down foreigners engaged in dirty money transactions with the Philippines. "It will also help us in our delisting efforts," he said. The Philippines remains in an international roster of dirty money havens maintained by the Paris-based Financial Action Task Force. Being in the list has subjected financial transactions with the Philippines to heavier scrutiny. -- I. C. C. Gonzales

Rules on forex transactions tightened for thrift banks

The Bangko Sentral ng Pilipinas has tightened the requirements for thrift banks engaged in dollar deposits and remittance operations to ensure that they are able to absorb market risks related to foreign currency transactions. Thrift banks with foreign currency deposit unit (FCDU) licenses -- that allow them to accept dollar deposits and lend out dollar loans -- will be required to infuse cash under the central bank's capital build-up program. Alberto V. Reyes, the central bank deputy governor, said the policy-making Monetary Board wants thrift banks to beef up their capital infusing funds and boosting their income.

Regulators in 2002 allowed thrift banks to apply for FCDU license to service a growing demand from overseas Filipino workers provided that they double their capital base from PhP325 million to PhP650 million by 2007. "The board said there should be a capital build-up program that would have a combination of cash and income," Mr. Reyes said over the weekend. He said the board already approved the circular, which would be issued soon to give thrift banks with FCDU licenses enough time to comply with the new requirements. Deputy Governor Amando M. Tetangco, Jr. said thrift banks that cannot comply with the capital requirements will be required to liquidate their FCDU business and surrender their license to the central bank.

The Chamber of Thrift Banks, an organization of 66 thrift banks nationwide, half of which have FCDU licenses, is optimistic that its members will be able to meet the 2007 capital build-up program. "Thrift banks are already slowly building-up capital. They have been given enough time and they are pretty well aware of the 2007 deadline," said chamber executive director Suzanne L. Felix. The central bank has allowed thrift banks to engage in dollar deposits and remittance operations because of the clamor of some overseas Filipinos whose beneficiaries reside in the provinces, far from the services of larger universal or commercial banks. The regulation, issued in 2002, reversed restrictions imposed to counter the proliferation of banking services in the aftermath of the 1997 East Asian financial crisis. The central bank, however, imposed high barriers to entry for thrift banks applying for FCDU license to ensure that only the most capable ones are allowed to expand into dollar-related transactions. -- Iris Cecilia C. Gonzales

Peso, risk rates seen steady

Still wary after the President's "fiscal crisis" admission, banks do not see a sudden rise in premium risk rates nor a slump of the Philippine peso against the US dollar. "The fiscal situation is already worse before, but there was no real sense of urgency from a lot of people, even from market players," a bond trader said. "At this point, she would just like to use her emergency powers to pass her tax measures in Congress. In the long end, the effect should be positive because a lot of proposals have come in, even from lawmakers to give up their pork barrel. For now, we're just being defensive because there are no immediate solutions," the trader added. Key market rates have faltered after President Gloria Macapagal Arroyo said the country was in a midst of a financial crisis.

At the secondary market, the benchmark rate was up by more than 22 basis points to 7.8268% on Friday from 7.6% on Monday, when the President made the statement on the country's finances. "Expect the rates to go up by 25 to 30 basis points. We are just getting our cue from a lot of lingering economic issues. There are pressures from oil prices, the inflation and the budget deficit. At a time when the Bureau of Internal Revenue [BIR] reportedly did well on their tax collections, we still exceeded the [shortfall]," another trader said. Claiming to have surpassed revenue targets for the second time in the year, the BIR said collections reached PhP38.89 billion in July, or PhP869 million more than the target of PhP38.021 billion.

Meanwhile, the government said the budget deficit reached PhP19.29 billion in July, or PhP4 billion lower than the targeted shortfall for the second quarter. For the seven months to July, the deficit hit PhP99.41 billion. The government is aiming to cap the shortfall at PhP197.8 billion for the rest of the year. "The recent rise in Treasury bill yields was [also] influenced by government's recent announcement that consumer prices in July rose at its fastest pace in almost three years to 6% from a year earlier... This prompted the central bank to say it may raise interest rates if accelerating inflation leads to higher wages. Focusing on the benchmark rate, the recent auction results have tested the 7.25% resistance level. Given the rising inflation scenario at play, expect the benchmark rate to move towards the 7.50-7.75% range in the auction today and test the 8%-8.5% over the medium term," Banco de Oro Universal Bank market strategist Jonathan L. Ravelas said. "I think the Bureau of the Treasury will be realistic. It recognizes the problem that rates are really moving up. If there are spikes on debt yields, you give a signal to the market. If their resolve is still strong that it should not be too high, either they reject fully or partially, but look at what happened," another bond trader said.

The four-year debt paper auctioned last Tuesday fetched a coupon rate of 11.75% or up by 75 basis points on July 27. "The rates have really been moving, so we're just aligning it now at the secondary market," National Treasurer Mina C. Figueroa earlier said. Economic uncertainties have also reflected at the currency market as the peso fell to its two-month low against the dollar on Friday. Expecting a test above the closing of PhP56.15, traders are also wary of the month-end dollar requirements of some corporates. "Trading should now be 'normal' above the PhP56 levels. There are no immediate reasons to support the peso," a currency trader said. "At this time of the year, there is still the influx of imports. Maybe remittances from workers abroad could help cushion the peso in the near future, if there is no good news for the economy," another trader said. -- Ira P. Pedrasa

Auction of SSS shares in Equitable to push through

State-run Social Security System (SSS) will proceed with its plan to sell its 25.84% stake in Equitable PCI Bank to other bidders despite opposition from Henry Sy-owned Banco de Oro Universal Bank. "That will push through as long as there is no injunction," SSS president and chief executive officer Corazon S. de la Paz told reporters Friday night. The state-run private workers' pension fund has decided to auction its stake in Equitable that it earlier agreed to sell to Banco de Oro. It has set an October 20 deadline for interested bidders to submit their price. The SSS board agreed to subject the shares to a "Swiss Challenge" or public auction that gives Banco de Oro the chance to match the highest bid. The Henry-Sy owned universal bank has opposed SSS's decision, saying that its earlier agreement with SSS is a binding contract. "[Banco de Oro] will do all that is necessary to protect its interests," the bank has said.

According to the binding agreement letter dated December 30, 2003 between SSS and Banco de Oro, the pension fund would sell its 25.84% stake in Equitable PCI for PhP8.169 billion or at PhP43.50 per share. The stake is equivalent to four board seats. The deal was supposed to close no later than June 30 but both parties failed to agree on the terms. Last June, Banco de Oro affiliate BDO Capital & Investment Corp. asked the courts to compel SSS to execute the Equitable PCI share sale and purchase agreement and immediately transfer its rights, title and interests in the shares. The total value of the SSS Equitable PCI stake was estimated at PhP13.9 billion, which SSS would fully receive after six-and-a-half years. -- Iris Cecilia C. Gonzales

Visayas, Mindanao users pull up Napocor energy sales in Jan.-June

By BERNARDETTE S. STO. DOMINGO, Reporter

The National Power Corp. (Napocor) yesterday reported that its energy sales rose 2.22% to 17,551.72 gigawatt-hours (GWh) in the first semester from 17,170.68 GWh in the same period last year. In a statement, the state-owned firm said of the three major regions, Visayas registered the highest sales growth at 8.79% to 2,015.60 GWh from 1,852.72 GWh in 2003. This was attributed to robust sales in all customer classes such as cooperatives, power utilities, and industries. Energy sales in Mindanao grew 8.23% year on year to 3,213.53 GWh from 2,969.17 GWh. Sales in Luzon, however, fell 0.13% to 11,554.34 GWh from 11,569.19 GWh due to a 4.17% reduction in the electricity purchases of the Manila Electric Co. (Meralco).

Meralco, the largest power distributor in the country, had consumed less than its contracted demand and sourced a significant portion of its requirements from its independent power producers, Napocor said. Sales to Meralco from January to June stood at 7,470.28 GWh from 7,795 GWh last year. Meralco gets power from Napocor and independent power producers First Gas Power Corp. and Quezon Power Philippines Ltd.

Meanwhile, in the missionary electrification areas being serviced by Napocor's small power utilities group, sales grew 5.76% to 223.16 GWh from 211 GWh. Energy sales under Napocor's one-day power sales scheme fell 4.11% to 545.08 GWh from 568.43 GWh in 2003 due to the scheme's high-selling rates following the steady increase in fuel prices. Napocor is seeking a PhP1.87 per kilowatt-hour increase in generation rates before the Energy Regulatory Commission (ERC). If granted, the proposal will increase Napocor's rates to PhP4.56 per kWh from PhP2.57 in Luzon, to PhP4.59 per kWh from PhP2.82 in the Visayas, and to PhP3.13 per kWh from PhP1.80 in Mindanao. The ERC has until Sept. 2 to issue a provisional authority for Napocor to increase its rates or the rate hike application will automatically become effective.

SEC agrees to loosen safeguards on trading of brokerages

By JENNEE GRACE U. RUBRICO, Senior Reporter

The Securities and Exchange Commission (SEC) has agreed in principle to reduce safeguards to prevent front running by broker dealers in order to provide more liquidity in the market. Deemed illegal, front running occurs when a trader takes a position in an equity in advance of an action which he knows his brokerage will take that will move the equity's price in a predictable fashion. In a talk with reporters, SEC chairman Lilia R. Bautista said the commission is amenable to amending the "customer first policy" such that the existing three-fluctuation requirement be reduced to one fluctuation. Under the customer first policy, priority is given to client orders over dealer accounts. When a trading participant has a preexisting dealer order, and receives client orders at a particular price, the trading participant must surrender priority and give precedence to his client's order. The policy also states that when a trading participant holds an unexecuted preexisting client order, the trading participant that intends to enter an order for his own account can do so at a price equal to or inferior than the best priced-client order. It also has a provision which states that when a trading participant holds an unexecuted preexisting client order and intends to enter an order for his own account to improve the price, he can only do so by at least three fluctuations better than the preexisting best price client order.

AMENDMENT

"We had an informal understanding on this. There will be an amendment," Ms. Bautista said. She said the Philippine Stock Exchange believes the relaxation of the three-fluctuation requirement would allow more liquidity into the market and improve market volume. In a letter to the SEC, the stock exchange said that data show that dealer transactions comprised 10% to 12% of the total transactions in the market prior to the imposition of a provision in the Securities Regulation Code which prohibits brokers to effect transactions for their own account except in certain circumstances. Section 34 of the securities law provides that it shall be unlawful for any member broker of an exchange to effect any transaction on such exchange for its own account, the account of an associated person, or an account with respect to which it or an associated person exercises investment discretion. The rule, however, exempts transactions by member brokers who are acting in the capacity of a market maker; transactions which are "reasonably necessary" to carry on odd lot transactions; and any transaction that would offset a transaction made in error.

Following the imposition of the provision, the PSE said, the share of dealer transactions declined to less than 1% to 2% following the imposition of the rule, the bourse said. It said that notwithstanding the implementation of the customer first policy, the dealer transactions remained "at low levels" of 2% to 3% of total trades. The PSE said even with the relaxation of the three fluctuation rule, there would still be safety nets to protect the public. "The other requirement on the customer first policy on priority of client orders over dealer accounts remains. Likewise, the rules on order ticket, identification of orders in terms of ownership, limit per order, and price freezing and trading band should adequately address concerns on investor protection," the PSE said.

MRT 3 group ruling out another fare hike plea

The operators Metro Rail Transit Line 3 (MRT 3) have ruled out filing another fare hike proposal since this would just delay the implementation of an existing fare hike plea. "We will not file a new petition. It is such a long process," MRT 3 spokesperson Mariano Gui said in an interview. The MRT 3 consortium is still waiting for the approval of a proposed PhP10 rate hike, which would mean passengers would be charged an additional PhP10 in traveling throughout the 13 stations of the Blue Line on EDSA. The proposal had been stalled at the Transportation and Communications department, which is supposed to submit the plan to the Office of the President for approval. The proposal for a fare hike came after the Energy Regulatory Commission (ERC) approved the 13.27-centavo-per-kilowatt-hour pass-on charge to consumers in June.

Starting next month, the MRT is expected to shell out more for its power consumption because of the power rate hike. This is the second increase to take effect in three months. MRT 3 officials said the fare hike is needed so it can pay PhP180 million in monthly dues in maintenance and other expenditures. Despite carrying a maximum of 400,000 passengers daily, the MRT 3 generates just PhP120 million monthly due to the low fare collected by the mass transit. The MRT 3 consortium had also dropped plans to seek a discount in electricity charges. Mr. Gui said the Manila Electric Co. (Meralco) earlier denied MRT 3's request, saying it should ask for a discount from the National Power Corp. (Napocor). "They told us to talk to Napocor, but [MRT 3 General Manager] Mr. [Roberto] Lastimoso said it would just be an exercise in futility since Napocor has a huge debt," he said.

The government earlier assumed an additional burden amounting to PhP300 billion in outstanding obligations of Napocor, a state-owned power firm. The Transportation and Communications department earlier floated the idea of seeking a 15% discount on the power charges on MRT 3. The Transportation department sought the discount from Meralco, which is just a distributor of the power generated by Napocor. The rail operator wanted the discount on its power charges to help cut the government subsidies on the MRT 3. -- Anna Barbara L. Lorenzo

PLDT, Smart set entry to HK market

By ANNA BARBARA L. LORENZO, Reporter

HONG KONG -- After an initial failed attempt, the Salim group's First Pacific Ltd. Co. is banking on replicating the Philippine success of units Philippine Long Distance Telephone Co. (PLDT) and Smart Communications, Inc. in conquering the former British colony's mobile market. The group was to launch yesterday a retail-based cellular service tailored for Filipino workers in Hong Kong. PLDT's international business unit PLDT Global and Philippine-based Smart Communications, Inc. teamed up with HK CSL, the second leading mobile carrier in Hong Kong, to offer Smart 1528, a prepaid mobile phone service. "This is the right approach for a market like this. We have no way to compete with existing players here," said Manuel V. Pangilinan, managing director and chief executive of First Pacific. Mr. Pangilinan is also the chairman of PLDT.

After its soft launch on Aug. 22, Smart 1528 already has 12,000 active subscribers in Hong Kong, and PLDT Global President Al Panlilio said the firm intends to tap some 180,000 Filipinos working here. He added that HK CSL also saw the potential of the business since its current market is focused on class A and the corporate market. With Smart 1528, PLDT Global and Smart offered the first Filipino SIM (subscriber identification module) outside the Philippines. This SIM allows subscribers to avail of basic cellular services such as text messaging and voice calls and other value-added services offered in the Philippines such as download services for foreign exchange rates, Social Security System contributions, music, picture messages, logos, and even celebrity updates. Smart Load in HK$10, HK$20, and HK$30 and Smart PasaLoad in HK$2, HK$5 and HK$7 will also be available. Smart 1528 will also offer Smart Padala, a money remittance system which would allow Smart subscribers to send money to the Philippines.

First Pacific used to operate a telecommunications firm which had to fold up as other players ate up bulk of the market. Early this year, First Pacific said it had earmarked up to $500 million for a possible acquisition of a telecommunications firm in Southeast Asia, particularly in Indonesia, Thailand, Malaysia, and Vietnam.

RCBC okays sale of stake in clearing house to bourse

Yuchengco-led Rizal Commercial Banking Corp. (RCBC) had approved the sale of its stake in the Securities Clearing Corp. of the Philippines (SCCP), Vice-Chairman Cesar E.A. Virata said. "The PSE [Philippine Stock Exchange] wanted a buyout of the two participating banks namely Equitable PCI Bank and RCBC. Inapprove na rin namin (We approved it). We both sold out to PSE," he told reporters. SCCP is the settlement coordinator and risk manager for broker transactions as well as administrator of the trade guaranty fund of the PSE. It is also the clearing and settlement agency for depository eligible trades in the exchange.

In an Aug. 25 report to the Securities and Exchange Commission, the PSE said it fully acquired the SCCP as it had purchased the entire shareholdings of Equitable PCI and RCBC at PhP1 apiece and Citibank's shareholdings at book value as of Dec. 31, 2003. The three banks have a combined 49% stake in SCCP. Equitable PCI holds two seats in the SCCP board, equivalent to a 22% interest. RCBC holds nearly the same amount of shares in the SCCP board. Citibank owns 4% of SCCP. The PSE moved to increase its stake in the SCCP to fast-track the clearing and settlement needs of the exchange. As the SCCP will be wholly owned by the PSE, this would allow the PSE to implement reforms to shorten the settlement and clearing processes of all trades. "The acquisition or enhanced control of the SCCP, together with the implementation of its own clearing and settlement system will enable the inflow of revenues to the exchange for settlement-related services such as stock lending and borrowing, registry services and fund management in addition to clearing fees," the stock exchange had said. -- Ruby Anne M. Rubio

Aboitiz group's plans to build plants hinged on power rates

The Aboitiz group's plan to put up power plants in Cebu and Southern Mindanao will depend on the Energy Regulatory Commission's (ERC) decision on the rate increase petition filed by the National Power Corp. (Napocor). In a talk with reporters, Aboitiz Equity Ventures, Inc. (AEV) President Jon Ramon M. Aboitiz said the group will not invest in power if the government's policy would require them to sell below costs. AEV, the holding company of the Aboitiz group, is involved in power distribution and generation, banking, transport, and food businesses. "Right now, it's all evaluating options, we are waiting to see what the rate of Napocor will be. What is very important is that the issue of power must reflect true cost. If you're going to sell power at a loss, nobody will build a plant. If you're subsidizing power, nobody will build power plants," Mr. Aboitiz said. He said that right now, the price of power is not reflective of the cost of producing it. "People have to realize that if you're not willing to pay for power, you'll have brownouts...Are we going to go back again to 10 years ago when we had no power? Power will have to go up," he said.

Napocor had filed before the ERC a petition to increase its rates by PhP1.87 per kilowatt-hour. The ERC, Mr. Aboitiz said, is set to rule on the petition on Sept. 5. The Aboitiz group is looking at purchasing some Napocor power plants which are up for bidding as well as putting up new power plants in Luzon, Visayas, and Mindanao. Particularly, the group is looking at putting up coal-fired plants in Cebu and hydroelectric power plants in Davao. The size of the power plants would be anywhere between 50 megawatts and 100 megawatts, AEV officials said. Coal-fired power plants, which cost $1.2 million to $1.4 million per megawatt to build, are the most efficient power plants.

Meanwhile, building hydroelectric power plants, which is within the expertise of the Aboitiz group, would be well-suited for Mindanao, Mr. Aboitiz said. He said that Cebu and Southern Mindanao are good places to put up power plants considering the government's assumption that there would be power shortages in the Visayas by 2008 and in Mindanao by 2009. He said if the group pushes through with the plan to build new power capacity in Cebu, it will partner with other companies. "But right now, everything's still in the studying stage. There's nothing definite yet We will be able to firm up our plans by the end of the year," he said. -- Jennee Grace U. Rubrico

Berkley to open 6 branches in bid to boost market share

Pre-need company Berkley International Plans, Inc. plans to open six branches over the next three years as part of its plan to boost market share. President Alan M. Rafe said over the weekend the additional branches would help the company achieve its aim to double its market share over the next three years. The company currently has five branches in Metro Manila, with most of them located inside malls. With 50,000 clients, Berkley enjoys a 14% market share in the educational plans sector. "I'm actually looking to double our production in the next three years. I'm talking here of 100% increase involving six branches over the next three years," he said. He said the branches would cost the company PhP5 million each. He said of the six branches, five will be located in Metro Manila, and one will be opened in SM Cebu. "Cebu is growing quite well. There is a large established mall there that has been there for a while, so the traffic and demographics are very good." He added that with the expansion, the company, which is currently ranked fourth in the sector, aims to be ranked first or second in the next three years. Mr. Rafe said the company is also looking at developing new products. He said he will start talks with Berkley's marketing people on creating a plan that would give overseas Filipino workers more protection. "When I first arrived there was an issue of overseas workers which really concerned me because it shows you how exposed these Filipino workers are so I'm trying to put a product together. I'd like to work with some government officials for a product to provide some additional benefits for the overseas workers, maybe free death by accident insurance or something like that. It would be a unique thing especially for overseas workers," he said.

Berkley is a unit of US companies W. R. Berkley Corp. and Northwestern Mutual Life. Family First, Inc. is Berkley's distribution arm. Unlike other pre-need companies that put their investments in property or stocks, Berkley's investments are all in government securities. The company has a fully funded actuarial reserve liability (ARL), or projected future obligations. Mr. Rafe said that Berkley's ARL is estimated at PhP2 billion, while assets are computed at over PhP2 billion. Treasurer Daniel Villanueva said Berkley even has contingency reserves of PhP50 million. The contingency reserves, he said, covers the difference between Berkley's internal calculation of its reserves and the calculation of an independent external actuary. "There is a difference because of the difference in the methodology that we use. In our case, we use the greater of three variables. In their case they use the greater of two variables. Our computation is more conservative," he said. He said the contingency reserves are also placed under trustee banks, namely, ING, Deutsche Bank, Equitable PCI Bank, and Metropolitan Bank Corp. The seven year-old company will start paying out maturing plans in three years, Berkley officials said. Berkley, however, expects a contraction in profits this year. Mr. Villanueva said the company targets PhP80 million in profits this year from PhP112 million last year. "Interest rates went down drastically compared to the previous years. Because we did not put up new branches, we contracted," he said. -- Jennee Grace U. Rubrico

Philips alloting $250M to boost RP operations

By ROULEE JANE F. CALAYAG

Dutch giant Royal Philips Electronics is allocating about $250 million to boost the operations of its Philippine unit and transform it into a world class hub. ln an interview with BusinessWorld on Friday, Gerard Kleisterlee, president and chief executive, said the investment will be used to fortify the position of Philips Philippines. "For the Philippines, we will continue to invest in the strengthening of our assembly and test operations for semiconductor that we have here," Mr. Kleisterlee said. "It is an operation that we have invested [in] over the past seven years for up to $70 million and at the moment, we are investing about at the rate of $50 million to $60 million a year. We will step that up a little bit in the coming three years. Probably, we are going to spend another $250 million."

Mr. Kleisterlee was in town last week to confer the Philips Business Excellence Silver Award to the Assembly and Test Organization of the Philips Semiconductor Plant in Cabuyao, Laguna. The assembly and test division is the first Philips business unit cited for the award which recognizes continuous improvement in quality and productivity. "We are focusing very much on building and growing our semiconductor and test operation really as a world class hub for our division," he said. The company is also strengthening its local marketing and sales organization in line with a broad-based campaign to reposition its brand. "We have gone into a major transformation in the past few years, positioning Philips as a health care, technology and lifestyle company," he said, noting that this is an element that will help reinforce the opportunity to capitalize on the strength of technology.

As Philips raised the bar for marketing discipline, it also repositioned its brand which is focused on simplicity and built on three pillars: advanced technology, customers' need and ease of use. Mr. Kleisterlee said the campaign, which will kick off in September, "will help further change the image of the company." Philips is also keen on securing a niche in medical systems. "This does not come with a lot of capital investment. It is more of adding people to service the equipment that we have installed," said Mr. Kleisterlee, adding that Philips has "concluded a few large projects that will come to fruition in the coming period."

Bar codes to be replaced with radio technology

Retailers and manufacturers of fast moving consumer goods are set to test a new technology touted to replace bar codes in automatically identifying a product. Radio frequency identification or RFID technology will be demonstrated live in the country by business process outsourcing firm Accenture at the 7th ECR Asia Conference at the Philippine International Convention Center in October, conference organizers said last week. RFID uses radio waves to identify a product remotely unlike bar codes which work on "line-of-sight" technology.

Unlike bar codes which can get ripped, soiled, or lost, the high-tech product tag can be read through paint, grime, snow, fog, ice, and other harsh environmental conditions, at an average speed of less than 100 milliseconds. The tag has an integrated circuit half the size of a rice grain capable of storing up to 128 bits of data. The tag, or transponder, has an antenna and transmits radio signals to "interrogators" or readers which convert them into data. RFIDs can thus contain more data than barcodes, making them ideal for "homes of the future," said Marie C. Franco, overall chairman of the ECR Asia conference. In the US, she said, RFIDs were being tested in pilot homes with "intelligent" appliances such as refrigerators and microwave ovens, which could tell when a particular product needs to be replenished. Ms. Franco admitted that local companies were not yet keen on RFIDs but said the technology could be in widespread use in a matter of two years. US retail giant Wal-Mart is pushing the adoption of RFIDs by next year, she added. The technology is also being used in Korea. RFIDs are part of ECR or Efficient Consumer Response initiatives being pushed by consumer goods manufacturers such as Unilever, Procter and Gamble, San Miguel Corp., Nestlé, Kraft, and Johnson & Johnson. -- F. F. Salvosa II

Cautious trade seen ahead of GDP

By ROULEE JANE F. CALAYAG

Investors will be testing the waters as the government releases a new set of economic data today. Analysts foresee cautious trading early in the week. They are keeping a wary eye on the gross domestic product (GDP) figures expected either to make or break the gradually rising optimism in the market. Dianne Sy, research associate at Unicapital Securities, Inc., said the GDP figures to be released today will be closely watched. "We expect the market to correct especially with the recent buying spree," said Ms. Sy. As the administration rushed to clarify that the Philippines is far from the throes of a fiscal crisis, investors scrambled last week to snap up shares of second- and third-liners as they took advantage of the market's weakness.

LAST WEEK

"Looking back, many negative developments occurred last week," said Ms. Sy. How the GDP data will be received by the market has yet to be seen but dealers were hoping that this would not trigger another round of knee-jerk reactions. "A slower GDP growth may pull down economic recovery with the results likely to extend to financial markets, said Ms. Sy. "We cannot say if the actual figures can sustain positive development due to fiscal worries." Just after the scare of an Argentina-like catastrophe was held off by economic managers, the country was battered by a typhoon that left hundreds of families homeless and thousands stranded in Metro Manila. The stock market clung to its guns despite a tension-filled week but the negative developments almost threatened to affect businesses. As for concerns of share prices reaching oversold and overbought levels, Ms. Sy said these depend on technical indicators.

FLAT?

Grace Cerdeña, senior officer at stocks portal 2tradeasia.com, noted in her weekly online analysis that another flat session could ensue this week with prospective players possibly heeding for "indications [on] how August's inflation figures will fare." Ms. Cerdeña also said the recent decline in world future prices for crude oil might support sentiment over the interim. But she stressed that volatility may persist in the next four months. "Volatility is likely to remain on investors' card for the remaining months this year," she said.

TELECOMS

Telecom stocks, particularly giant Philippine Long Distance Telephone Co. (PLDT) and second largest carrier Globe Telecom propped the stock market last week. PLDT launched its service in Hong Kong recently, which focuses on overseas Filipino workers (OFWs). The move is expected to generate more revenues for PLDT as it caters to thousands of OFWs there, providing them a cheaper alternative to get connected to their families in the Philippines. It is also looking at venturing into a growing market of Filipino entertainers based in Japan. If the plan goes through, PLDT can expect a windfall in revenues which it can use to finance a rumored ambitious plan for regional expansion. For its part, Ayala-led Globe sees an array of appealing prospects that it hopes would catapult it to the top post in the cellular mobile telephone service (CMTS) market, eventually snatching the lead from major rival, Smart Communications, Inc., a unit of PLDT. Globe hopes to corner a sizeable share of the growing mobile phone subscribers market in a short while with product innovation and expansion moves. But Smart may stand in its way, especially now that parent PLDT is painting bold strokes for its future. The clash between the mobile phone leaders may not erupt just yet but it is something that will keep investors glued.

OTHER CHOICES

"Other than our telco [telecommunication companies], energy as well as mining-related choices, [and] selected large-cap property shares might also come into focus," said Ms. Cerde§a. Property shares may prove attractive to long-term investors as they shift part of their funds to assets that appreciate over time. Last week, Highlands Prime, Inc., a property developer related to the Sy's SM Prime Holdings, Inc., said it sold 98 out of over 100 condominium units in Tagaytay, generating close to PhP1billion in pre sales.

Meanwhile, energy stocks are slowly becoming a favorite among investors as prices of oil move erratically. Punters hope to cash in on gains from these temporary price adjustments. As a result of the staggering oil price increases that are blamed on a host of reasons, foremost of which is the armed conflict in Iraq, mining stocks also rocketed to new highs. Investors are confident of hefty returns as demand for gold, in the face of an oil crisis, rises. The government's seeming softness on the issue of allowing foreign investors more participation is also seen as an important boost to the sector. The property sector could soon be a top revenue drawer for the Philippines. Dollars remittances from overseas Filipino workers and the setting up of business process outsourcing and call centers in the country are expected to boost the sector. The growth of the property sector is expected to rev up construction activities in major parts of the Philippines. Investors would do well to position themselves in this sector, noted some market observers. Ms. Cerdeña advised traders to be selective and to "opt for modest gains."

SUPPORT LEVEL

With uncertainties still lingering in the market, investors would do well to heed this advice. The stock portal plots immediate support for the market at 1,570 and resistance between 1,600 and 1,610.