Wednesday, August 25, 2004
RP will not default on debts -- Arroyo
Fiscal crisis declaration weighs on stocks, peso
ERC allows Meralco rate hike in September
High Court paves way for graft case on coco levy use
Gov't moves to cut oil use by 12%
End to deregulation harmful to economy
$60-M World Bank loan to fund gov't project for farmers
GMA take on debt crisis affects peso, T-bond rates
Imports key to '04 BoP tally
Landbank starts idle asset auction
Investors eye Waterfront Insular
South Korean carrier Asiana to open more flights to RP
Highlands Prime hits PhP1B mark in condo project sales
Stocks fall 2% on 'fiscal crisis' talk

Tuesday, August 24, 2004
Palace moves to avert fiscal crisis
Arroyo keeps economic team to see gov't through crisis
Oil prices raised anew by PhP.35/liter
Tan's PhP25-B tax case stays with Marikina court
Napocor rate increase a must
Gov't set to protest higher Thai taxes on RP-made Ford Escapes
BPI Family disputes amount it owes First Metro
Asian currencies steady as lower oil supports yen
Regulators further tighten rules covering bank directors
PBCom auctions bad loans worth 12.5B pesos today
HSBC sees growth in wealth management services
Boiler room scams on the rise anew, says SEC
SEC asked to reconsider Universal Leisure case
Nenaco woes pull Metro Pacific into red
BayanTel sets up Japan, UK offices to tap OFW marts
MRT III consortium pays $3.1-M interests on bonds
Lack of leads pulls down stocks

August 20 - 23
August 18 - 19

August 16 - 17
August 12 - 13
August 10 - 11
August 6 - 9
August 4 - 5
August 2 - 3





RP will not default on debts -- Arroyo

President Gloria Macapagal-Arroyo yesterday vowed that the country would never default on its debt repayments, as she found herself embroiled in a public row with key economic advisers following her declaration that the government was in a "fiscal crisis." "Awareness of the truth is the first step towards action. President Arroyo called a spade a spade to impress upon the people the seriousness of the situation," her spokesman, Ignacio Bunye, said in a statement. "Telling the people the truth was intended to instill greater responsibility for these obligations, not to signal default, which will never happen." The Philippines defaulted on its foreign obligations in 1983 during the Ferdinand Marcos dictatorship, ushering in a decade of economic difficulties and political turmoil. Mr. Marcos was ousted in 1986.

After a group of economists warned of an Argentina-type debt default and social unrest within three years, Ms. Arroyo, an economist, said on Monday that in fact, "We are already in the midst of a fiscal crisis and we have to face it squarely." But central bank deputy governor Amando Tetangco maintained that, "technically", Manila was not yet in a fiscal crisis because it has not defaulted on payments, has not lost access to the international debt market, and has not accumulated a budget deficit of "unmanageable" proportions. The government debt, including obligations by the national government plus those assumed from failing government corporations, rose to PhP3.36 trillion as of end-2003, equivalent to 130% of gross domestic product or total economic output within the country's boundaries. Half the total is denominated in foreign currencies.

The Development Budget and Coordinating Committee, composed of Ms. Arroyo's Cabinet members with economic portfolios, said in a statement that while the fiscal situation required "both painful and urgent measures," Manila was nowhere near a fiscal crisis. "A fiscal crisis as defined by international financial institutions, such as credit rating and multilateral agencies, as being in a state of default, and having a deficit that can no longer be financed due to limited access to the capital markets," the group said. Finance Secretary Juanita Amatong said that "the Philippines was obviously far from this definition. On the contrary, the country has never defaulted on its loans, it continues to pay its creditors on time, and it has raised enough international bonds this year to meet its financing requirements for 2004." Budget Secretary Emilia Boncodin added: "It is important to put the issue in its proper context. We all recognize that there is a fiscal problem. But the solutions to the problems have been clearly laid out by the Arroyo administration in terms of legislating new revenue measures and continuing to institute fiscal discipline measures." Socioeconomic Planning Secretary Romulo L. Neri said Congress' approval of new taxes as well as the implementation of administrative reforms should help the government beat a fiscal crisis. "We're not yet in a fiscal crisis. I think our fiscal problem will be resolved once Congress pass new revenue-raising measures," he said in a telephone interview.


Meanwhile, economists said both the government and the public could no longer be complacent about the possibility that the country was headed towards a fiscal crisis. Former National Economic Development Authority (NEDA) chief Cielito F. Habito, now director of the Ateneo Center for Economic Research and Development, said it was time for both the private and the public sectors to do their part in managing the fiscal deficit. "There is still a way out. Large taxpayers should be more faithful in paying their taxes, corrupt practices in the government should be stopped, and the government should try to find ways to better manage its expenditures," Mr. Habito said in a telephone interview. He said the discussion paper released by 11 economists from the University of the Philippines was a "wake-up call" for the government and the public. "The UP paper is saying we should wake up. I could see the value in raising the alarm as there's still too much complacency," he said. But he expressed concern that the UP paper could become a "self-fulfilling prophecy." "My worry is that it may have hastened the fulfillment of a fiscal crisis," Mr. Habito said. He also said president Gloria Macapagal-Arroyo's announcement of a fiscal crisis was "premature" and could harm the country. "It's premature because we're not yet in a fiscal crisis since we can still service our debt. The President may have made the pronouncement so the government could access local government funds. But its benefit may outweigh the cost," Mr. Habito said. "While the President may be able to save PhP43 billion by withholding part of the internal revenue allotment (IRA) of local government units, the amount may not be enough to compensate for the economic losses we may suffer as a result of a declaration of a fiscal crisis," he stressed.

UP-based think tank Institute for Development and Econometric Analysis Inc. (IDEA) added that there was a way out of the impending fiscal crisis. "There is a way out, but it's a difficult way out. You can't soften the blow. Both the public and private sectors have to make sacrifices," IDEA executive director Marinela Llanto said in an interview. Ms. Llanto said the private sector would have to swallow the bitter pill that was new taxes, while the government should focus its belt-tightening efforts on government-owned and controlled corporations (GOCCs). "For the GOCCs, it's time to make their activities more transparent considering that the government shoulders their debts," she said. Private investment firm Unicapital Group's research adviser Erico Claudio said the government could focus on agriculture as a way to expand tax collection. "It will have a big effect on personal consumption expenditures," he said. "The most important thing is to make people work to improve their household income. If you improve the purchasing power of those in the farm sector, the private sector would have the incentive to produce more," he added.


Mr. Habito, who was NEDA director-general during the time of former president Fidel V. Ramos, said the budget surplus in 1994 to 1997 could be attributed largely to improved tax collection as well as the privatization of government assets. "We had the benefit of non-recurring revenues at that time and our tax effort improved dramatically, reaching as high as 17% of gross domestic product in 1996," he said. Mr. Habito said the increase in tax collection at that time was largely due to a macroeconomic program for achieving a balanced budget, that was implemented under the supervision of the International Monetary Fund (IMF). Other economists said the country could emerge from its fiscal problems so long as the leadership would exercise political will in pushing for administrative and legislative reforms that would increase revenues and improve the way government would spend its money.

Former Finance Secretary Ernest Leung and Former Finance undersecretary Milwida M. Guevara were one in saying that there was still a way out of the economic turmoil. "The very first step in solving the problem is recognizing there is a problem and not deny it," Ms. Guevara said in a telephone interview with BusinessWorld. Unfortunately, Ms. Guevara said, "there are some attempts by some people from the government to tone down the extent of the crisis." "They say they don't want to scare the investors but these investors don't look at how the government defines the crisis, they look at the figures and the figures say it all," Ms. Guevara said. Instead of denying that there exists a fiscal crisis, the government should "accept it to the advantage of country, and use it as a rallying point for support for the measures" that it wants implemented. Ms. Guevara said improving public finances was the country's key economic policy challenge, and the government would do well to reverse its revenue decline.

The consistent decline in the tax effort is one of the reasons the national government has incurred huge deficits in the last 13 years, she said. Having improved consistently from 11.4% in 1988, the tax effort reached a peak of 16.3% in 1997. Since then, it has declined every year to 11.6% in 2002. It slightly improved in 2003 to 12.5%. Tax effort is the ratio of tax revenues to the gross domestic product or GDP, which is the sum of all goods and services produced by the economy at home. Raising the tax effort even by just 1% means PhP32 billion in additional revenues for the government, Ms. Guevara said. And this can be done without introducing new taxes but by just plugging tax leakages.

Citing government data, Ms. Guevara said:

  • at least PhP6.3 billion was lost to tax leakages in the collection of tax on interest income;
  • PhP2 billion in documentary stamp tax;
  • PhP1.5 billion in gross receipt tax;
  • PhP3 billion to PhP6 billion in excise tax on tobacco products;
  • PhP1 billion from petroleum products;
  • PhP47.5 billion in value added tax;
  • PhP60.4 billion in individual income tax; and
  • PhP57.8 billion in corporate income tax.

She added that tax credit certificates have become a major source of tax leakages as criminal syndicates have exploited the incentive program. "We should be able to support the BIR to be able to arrest the leakage. The BIR must get the support of its personnel," she said.


But Ms. Guevara believes an improvement in tax collection should be accompanied by the introduction of new taxes. She also said that if the government would like to prove to the international community that it was serious in addressing its financial woes, it must pass at least one tax law this year. Indexation of sin taxes is a good start, she said. "The problem with the present government is that its took the decline in the tax effort lightly," Ms. Guevera said. Instead of raising the tax effort to finance its operations, it "went to the credit market and borrowed a lot and this has worsened our credit profile." Mr. Leung said the government must "avoid borrowing" because it "aggravates the problem." He said more than half of the national government's budget already goes to non-discretionary items like debt servicing and salaries of employees, thus little is left for social services. Fixing the country's fiscal problem, he said, calls for raising revenues, improving government expenditures, and pushing for what he calls the "one-fund concept," which will require the consolidation of public sector funds to improve its use.

On the revenue side, Mr. Leung said the government could start by taking "remedial measures" and tapping other potential sources. The government can start with the Land Transportation Office (LTO), which can raise additional income by auctioning so-called vanity plates, thus "transferring the resources of the affluent" to those who are in need, he said. Before any meaningful economic reform could take place, Mr. Leung said the government has to overhaul its tax collection system. The government should cut the "cycle of fiscal blowout" through radical tax reforms, he said. "Our tax system is somewhat flawed beyond the point that the government is not able to collect and is having difficulties in collecting taxes," he said in a telephone interview with BusinessWorld. Something must be done, for instance, in the proliferation of laws that grant tax exemption, he said. Mr. Leung said all exemptions must be lifted, and the grant of new exemptions prohibited. "Don't give exemption at all," he said.

If the tax system will be simplified, then there will be no more need for "crook watchers" because the people understand the system and they will be able to pay easily and guard themselves against crooked collectors, he said. Aside from revenues, Mr. Leung said the government "should do more quality expenditures anchored on social growth." Mr. Leung also floated the "one-fund concept," where funds of the public sector would be consolidated and put under the national government. This way, "revenues will be used for the benefit of state and not for vested interests as the funds will be allocated based on the priority of public interest." "Money is being squandered left and right and there is no political will to address that forcefully. Now we have to borrow to close the gap," Mr. Leung said. Mr. Leung also said he did not share economic managers' optimism that the government would erase the budget deficit by 2009. "When you have 30% of your budget going to interest payments, and deficit is kept at an average of PhP200 billion, I don't think so," he said. Ms. Guevera said the government should not benchmark its performance on meeting deficit targets but on exceeding revenues goals. -- Jennifer A. Ng and Karen L. Lema with Agence France Presse and inputs from J. O. Valisno




Fiscal crisis declaration weighs on stocks, peso

President Gloria Macapagal-Arroyo's declaration that the Philippines was in a fiscal crisis drove markets sharply lower, but analysts said yesterday the remark was probably a ploy to win support for new taxes. Economic ministers scrambled to play down the alarm sounded by Ms. Arroyo on Monday, stressing that the country's finances were not technically in crisis because it was having no difficulty funding its $3.5-billion annual budget deficit. "We are not in a fiscal crisis," said Trade and Industry Secretary Cesar Purisima. "The President used the term rhetorically and not technically." Analysts said Ms. Arroyo's statement may have been a shock tactic aimed at piling pressure on Congress to pass a series of new tax steps that are the centerpiece of her plans to wipe out the deficit within the six-year term she won in May elections. "I think it's really tainted with political color," said Astro del Castillo, managing director of First Grade Holdings. "Before the elections, she was saying that the economy was doing well -- revenues were getting better, foreign direct investments are flowing in and so forth."

The government only just missed its deficit target for the first half of the year and foreign investors have snapped up its debt, which offers yields around 4.2 percentage points higher than US Treasuries, with little apparent fear of a default. But economists have warned that the deficit, which adds to a government debt pile of $60 billion, could lead to a fiscal crisis within a few years and say the government needs to take steps quickly to raise one of Asia's lowest tax takes. They also warn that international ratings agencies could downgrade the Philippines, whose sovereign debt is already two notches below investment grade, if tax reforms are not passed.


Markets seemed to take Ms. Arroyo's comment seriously. Stocks tumbled more than 2% to a one-month low on Tuesday and the peso eased 0.3% against the dollar to PhP55.935, its lowest since early August. Philippine sovereign bonds held steady, but the coupon rate on a new offering of 4-year bonds jumped to 11.75% from 11% as local banks demanded a higher premium in the wake of Ms. Arroyo's statement. National Treasurer Mina Figueroa said banks had asked her for clarification. "We are not yet in a fiscal crisis," she told reporters. "If those [tax] measures are not passed, we will get into a fiscal crisis." Ms. Arroyo, a US-trained economist, wants Congress to approve eight measures aimed at reversing a slide in tax revenue to around 12% of gross domestic product from around 17% in 1997. Her officials have said the steps would raise an extra PhP80 billion in revenues a year while creating annual savings of PhP20 billion. Without a higher tax take, her policy goals such as putting a computer in every school and creating a million jobs a year to ease chronic poverty could prove unfeasible since they would risk raising the country's already heavy dependence on debt.


Despite the ruling party mustering a majority in both houses of Congress, however, her plans are unlikely to get a smooth ride. Opposition to tax hikes by vested interests have stymied previous attempts at reform and even some of Arroyo's allies have said she should first patch up the country's leaky collection system before imposing new taxes. But Elena Ponceca, research head at Unicapital Securities, Inc., admitted that the country was "certainly facing difficult times." However, she also said the President' statement was ill-timed since the country was trying to entice investors -- now that political uncertainties have settled. "Her pronouncement at this point might be too premature. Maybe she is frustrated as some legislators tasked to create better measures to curb the balooning budget deficit have yet to do more," she told BusinessWorld. "Ms. Arroyo's declaration may have good intentions behind them. Maybe she wants her people to do the job in addressing the budget deficit. In this case, she is showing greater transparency," she added. "But it is ill-timed since we need more investors. Also, this scares the public. If the lay people don't understand this much, this may generate massive panic," she stressed. One market trader, however, said Ms. Arroyo was trying "to bully the approval of new taxes." The government has run deficits in nine of the last 13 years because of poor tax collection, tax evasion, corruption, and rising debt service costs.


The government cannot afford to ignore the widening budget deficit as well as the increase in public debt, economist Rosario G. Manasan said in a recent discussion paper. To improve its fiscal position, the government should undertake reforms in both tax policy and administration, she said. The economist, of state-run Philippine Institute for Development Studies (PIDS), said the government should address structural problems that weaken the tax system. "The need for additional revenues is immediate, but the requirement is by no means short-term in nature. The downward trend in tax effort in 1998 to 2002 indicates that government cannot rely solely on measures such as privatization, that result in a one-off increase in government revenues," she said. Tax effort or the ratio of tax collections to the gross domestic (GDP), the total economic output within the country's borders, dipped from a high of 17% in 1997 to a low of 13.9% in 2000. It further went down to 12.3% in 2002. Two-thirds of the reduction was due to the contraction in the tax effort of the Bureau of Internal Revenue (BIR), while the remainder was due to the contraction in the tax effort of the Bureau of Customs (BOC). "It is important that government adopt tax policy changes that will not hinder the attainment of the longer-term goals of tax reform and those that will yield some permanent improvement in the tax-to-GDP ratio," Mr. Manasan said. He added that the government's proposed revenue-generating measures should be evaluated on the basis of four criteria:

  • one, their ability to raise revenues;
  • two, their ease of administration;
  • three, tax neutrality or horizontal equity; and
  • four, vertical equity.

Horizontal equity means that those who earn the same will be taxed at the same level. Vertical equity means that those who earn more will be taxed more, and vice-versa.


Regarding vertical equity, Ms. Manasan noted that in countries were tax administration was poor, less weight was given to vertical equity considerations. "The shift in emphasis comes from a recognition of the fact that well-designed progressive taxes may not be worth much when they are not evenly enforced," she said. "In these countries, it is argued that government's redistribution function may be better served by a progressive expenditure program that is ably financed by a not-so progressive tax system," she said. Based on these criteria, Ms. Manasan said the proposed indexation to inflation of the excise taxes on tobacco, alcohol and petroleum products; rationalization of fiscal incentives; imposition of an across-the-board import surcharge; imposition of an excise tax on text messaging; and increase in the value-added tax (VAT) rate "rank high" among revenue-generating measures proposed by the government and other sectors. "All these measures yield substantial revenues with low downside risks. Needless to say, all will be painful and none will be popular," she said. "In the final analysis, choosing which of these measures to pursue will be decided essentially on political grounds. However, because the magnitude of the fiscal consolidation that is needed is not small, it is inescapable that tax policy reform, regardless of the specific measures that will be implemented, will necessarily have to cost the [Arroyo] administration a considerable amount of political capital," she added. Ms. Manasan also said the indexation of sin products was a "must-do" and justifiable given its social costs in the form of additional expenditures on health care services. The same arguments apply to the indexation of petroleum products. But given the hikes in world prices, Ms. Manasan said its imposition must be timed with softening of world market prices of crude oil. To mitigate the wage and price increases its imposition could set off, Ms. Manasan suggested coupling the tax increase with tax rebates to the public transport sector.

Regarding the rationalization of fiscal incentives, Ms. Manasan said limiting the coverage of the Investment Priorities Plan of the Board of Investments by administrative action would "go a long way in generating additional revenues." But the better approach, she said, was to harmonize the incentives provided under various tax incentives laws through legislative action. An across-the-board import surcharge, Ms. Manasan also said, would not affect relative protection across industries, although it could be inflationary. This can be imposed through administrative action. A tax on text messaging has the advantage of being easy to collect. An increase in the VAT rate, meanwhile, may be hard to justify given the high rate of evasion. But Ms. Manasan said an increase was guaranteed to generate revenues. To improve tax administration, Ms. Manasan suggested the use of a lateral attrition scheme for employees of tax collection agencies, creation of an autonomous revenue authority, and imposition of control systems to curb tax scams. Reforms that have been started at the BIR must also be instituted, she said. Among these reforms are the use of third parties, which are useful in identifying discrepancies in taxpayers' records, particularly underdeclaration of sales; rationalization of the audit process through "no contact audit" scheme; tax mapping of business establishments; e-filing and e-payment; and Text-BIR Campaign that encourages consumers to demand receipts.


Meanwhile, labor groups said the government was just looking for an excuse to get the public to support cost-cutting and tax reform measures. "Unless the people see changes in the attitude and the way the political elite and the rich people conduct their affairs, it would be hard to convince the middle class and the poorer sectors of society of the need to raise new taxes," said Trade Union Congress of the Philippines (TUCP) in a statement. Workers acknowledge the need to sacrifice by paying more taxes, it said, but "there is no apparent effort on the part of prominent sectors of society to also make sacrifices." TUCP said that a recent study it conducted showed that about 80% of taxes raised by the government came from ordinary workers and poor sectors either through direct or indirect taxes. COURAGE, a left-leaning group of government workers, said the government was just using the fiscal crisis as an excuse to downsize the bureaucracy and stay an increase in wages. Last month, the 300,000-strong government employees union rejected the retirement plan that aimed to lay off about 400,000 state workers. The plans involves about PhP15 billion in retirement benefits. -- Beverly T. Natividad, Judy T. Gulane, Ruby Anne M. Rubio and Reuters



ERC allows Meralco rate hike in September

Manila Electric Company (Meralco), the electricity distributor partly owned by the government, will charge its customers an additional 17 centavos per kilowatt-hour starting next month. The Energy Regulatory Commission (ERC) has approved its petition for a price adjustment, to cover the higher cost of electricity it buys from state-owned National Power Corporation (Napocor) and from privately owned power companies. "It will be reflected in the September billing," Meralco vice-president Ivanna G. dela Peņa said of the price increase. ERC has approved all three applications of Meralco for generation rate adjustments for the year. "Meralco is merely collecting from its customers the reasonable costs imposed upon it by its power suppliers. This does not give Meralco additional income," ERC chairman Rodolfo B. Albano, Jr. said in a statement. "The viability and continued supply of safe, adequate and reliable, and quality electric service for the people is of the essence." Last June, ERC approved Meralco's application for an increase of 13.27 centavo/kWh, to cover electricity cost increases from November 2003 to January 2004. Under the law, changes in generation charges can be effected only every three months. -- Bernadette S. Sto. Domingo



High Court paves way for graft case on coco levy use

The Supreme Court yesterday paved the way for the investigation for graft of San Miguel Corporation chairman Eduardo Cojuangco Jr., Senator Juan Ponce Enrile, and several others accused of using coconut levy funds to buy coconut oil mills during the Marcos years. The court dismissed the motions for reconsideration filed by Mr. Cojuangco and his fellow respondents that questioned a September 2002 order for the Office of the Ombusdman to investigate them for graft. Aside from Messrs. Cojuangco and Enrile, also ordered investigated were former members of the board of directors of the United Coconut Planters Bank (UCPB) and United Coconut Mills (Unicom). The were accused of using coconut levy funds so Unicom could buy 16 oil mills in the 1980s. But the charge against former Zamboanga City mayor Ma. Clara Lobregat was dropped since she has passed away. Also excluded from the investigation were lawyers Jose C. Concepcion and Teodora A. Regala, former members of the UCPB and Unicom boards, who just rendered legal services to the other respondents.

On March 2, 1990, the Presidential Commission on Good Government (PCGG) filed a graft case against the respondents. But in September 1997, Ombudsman Aniano Desierto dismissed it, saying there was "no sufficient evidence to engender the well-founded belief that violation of the anti-graft law was committed." He also said the charges were filed too late. In questioning the court's first reversal of the Ombudsman dismissal, Mr. Cojuangco said "no evidentiary basis exists for the court's finding that the offense had not prescribed". But in a 10-page resolution issued yesterday, associate justices Ma. Alicia Austria-Martinez, Leonardo A. Quisumbing, and Romeo J. Callejo, Sr. said the PCGG complaint "was well within the prescriptive period." They also said that while Unicom's acquisition of the 16 oil mills was sanctioned by two presidential decrees (on the coconut levy), this did "not detract from the fact that such acquisition caused undue prejudice, disadvantage, and injury to the government." They added that the respondents' purchase of the oil mills could be defined as a corrupt practice as "they had a material and personal interest" in it. The court also criticized Mr. Cojuangco's insistence on finishing the case soonest. It noted that between 1991 and 1997, Mr. Cojuangco "did nothing" to assert his right to swift resolution. "The respondent's right to a speedy disposition of his case should not work against and preclude the people's equally important right to public justice considering that the funds used to acquire the 16 mothballed oil mills came from the coconut levy funds, which are not only affected with public interest, but are, in fact, prima facie public funds," the court said. -- Kristine L. Alave



Gov't moves to cut oil use by 12%

No new vehicles for gov't officials; private sector urged to help


President Gloria Macapagal-Arroyo yesterday launched a public sector-led National Energy Efficiency and Conservation Program aimed at cushioning the impact of rising oil prices, reducing fuel and energy expenditures, and at the same time, protecting the environment. In a statement released after the 99th meeting of the Legislative Executive Development Advisory Council (LEDAC), the President said making energy conservation a way of life for Filipinos would lead to annual energy savings of 23 million barrels of imported oil, or a 12% reduction in the country's oil importation. "What we need to do is to let us work together and be united as we face ahead in these hard times. I am calling on the public to throw in full support in our energy and conservation program," Mrs. Arroyo said. "This would yield annual savings of $784 million in our foreign exchange," she added. Energy independence and savings is part of the President's five-point reform package, which she presented before the joint session of Congress in her State-of-the-Nation Address last month. The others in the agenda are social justice and basic needs, anticorruption, job creation and economic opportunity, and education and youth opportunity. Based on the principle of "leadership by example," Mrs. Arroyo's plans to start the conservation program within the national government, asking all government agencies to strictly impose the mandatory 10% reduction in fuel and electricity consumption. "Any savings from these expenditures will correspondingly mean a cut in the budget allocation, however small it may seem. Pooled together, it would be enough resources to finance our other basic services," the President said.

Energy Secretary Vincent S. Perez, who is spearheading the government energy conservation program, explained that the government was spending PhP2 billion annually on fuel expenses, and another PhP2 billion every year for electricity costs. "With the President's order, we can easily save around PhP400 million per year," he told reporters in a briefing. Aside from this, the President yesterday ordered a moratorium on the purchase of new government vehicles on all government agencies. "Increased purchases of vehicles only mean increased usage of fuel," she said. Mrs. Arroyo also directed all government agencies to strictly monitor government car pools, particularly on the allocation and issuance of gasoline. "We will not compromise our productivity through this conservation. Instead we will strictly implement the trip ticket rule on the use of government vehicles," the President said. "We will impose severe penalties on the use of government vehicles for unofficial or non-approved purposes. These rules will apply to misuse of government ambulances," she added. Mr. Perez said among the energy conservation measures the government planned to implement on all agencies include the use of more energy-efficient lighting fixtures. Aside from this, the government would also ask agencies to turn off their lights during lunch break, and their air-conditioning units at 4 p.m., an hour before government offices close for the day.

Meanwhile, the President also called for the active participation of the public in the conservation program by joining the "car-less day campaign." Mr. Perez explained that under the campaign, car owners would be leaving their car at home once a week. This would be on top of the "color-coding" scheme, which prevent certain vehicles from plying major routes once a week. Aside from this, the President also encouraged private car owners to organize car pools among their relatives, and friends to save on fuel expenses. Mr. Perez added the government would also enlist the support of the private sector to help in the conservation programs on a voluntary basis. He said he was talking with business groups recommending shorter operating hours for shopping malls, and some gasoline stations. He said the department has also signed agreements with fast-food chains to include energy saving tips on their paper placemats. He also said the Energy department would require appliance and car makers to put energy efficiency labels, which indicates how much electricity or fuel it needs. "This empowers the consumer in choosing the more energy efficient brand or model," he said. Mr. Perez said the Energy department would also conduct massive information campaigns and seminars aimed at teaching drivers fuel saving tips. This includes encouraging motorists to turn off their engines while waiting for more than 30 seconds. The Energy Secretary added other suggestions were made during the LEDAC meeting regarding the efficiency, including implementing better dispatching system for public buses, studying the applicability of daylight saving time, imposing lower tariffs for hybrid cars, creating bike lines in Metro Manila, and implementing a 12-hour, four-four day workweek. Mr. Perez however clarified these were suggestions, and further studies would be conducted before the government could implement the proposals. He also denied reports the government would also implement a gas-rationing program together with the energy conservation campaign. "We do not have an oil supply crisis. We only have an oil price crisis," Mr. Perez said.



End to deregulation harmful to economy


Going back to a regulated oil industry could cause more harm to the country's finances, Energy Secretary Vincent S. Perez yesterday warned. Under fire for allegedly having failed to address the impact of oil price hikes on domestic fuel prices, the Energy chief also called for sobriety after oil firms increased prices anew. "The government is sensitive to the adverse effects of rising fuel prices but any call to regulate prices or any proposal to bring in [a] subsidy will only create further financial harm," he said. Indonesia and Thailand, he said, are already bleeding from the fuel subsidies they have been shouldering. "With fuel prices hitting high levels, these countries [have] now realized that the subsidies have proven to be too costly for them," he said. Industry sources said the government has no money for subsidies and that going back to subsidy schemes could turn off investors. China, India, Indonesia and Thailand have claimed that their subsidy schemes will cushion the impact of record oil prices, but economists have said the current price levels have made subsidizing too costly. Mr. Perez stressed that the high local pump prices are driven by the soaring world prices given that the Philippines import almost 100% of its oil. "This only means that we are not sheltered from the escalating world oil prices. High fuel prices are not our making nor can we control its continued upward trend. Even OPEC (Organization of Petroleum Exporting Countries), which controls half of the world's oil exports, is unable to arrest rising prices despite increasing its production," he said.


Think tank Ibon Foundation, meanwhile, urged the government to pursue the centralized procurement of imported crude and refined petroleum products as a means to protect the public from volatile world prices. "Government can shop around the world market to find the cheapest oil, instead of allowing oil firms to source their own imports. This is the only way that President (Gloria Macapagal) Arroyo's promise of linking up with oil-producing countries can bear fruit that is productive to the country," the think tank said. With centralized procurement, the country can also swap commodities with countries such as Libya and Indonesia and reduce foreign currency depletion, Ibon said, adding that it will also allow government to check or at least minimize profiteering among oil companies.


As this developed, an industry source yesterday said there is no need to ration gas since there is no shortage in supplies. "It's not a question of supply but how much is the cost. That [gas rationing] can be done but not now. We don't have scarce supply. It's available but at a higher cost," a source said. The source said the government is more concerned about energy savings and not the limits on fuel use. "That's not what the government has in mind. I think the government is pushing for energy conservation more than rationing," the source said. He added that gas rationing was implemented during the 1970s when supply from the Middle East was curtailed. "But that was before. Now we don't have supply shortage, just high prices," he stressed. Fernando L. Martinez, Independent Philippine Petroleum Companies Association chairman, said there is no need to implement gas rationing unless an extreme supply situation takes place. "That could be a contingency plan ... but I don't see it happening at the moment," he said. Economist Solita Monsod said non-price rationing could lead to corruption and arbitrariness. "We had that before and it didn't work. We used coupons before but some people were exempted, those who had money. That is no good," she said. This was echoed by economist Bienvenido Oplas, Jr., of Think Tank, Inc., saying it would be "nonsense" to implement gas rationing.



$60-M World Bank loan to fund gov't project for farmers

The Philippine government and the World Bank yesterday signed a US$60 million loan for a Department of Agriculture (DA) project which seeks to assist farmers. The loan, which will have a government counterpart fund of more than $9 million or 14% of the total, will finance the Diversified Farm Income and Market Development Project which will be implemented from October 2004 to June 2009. The World Bank loan has a maturity of 20 years, including an eight-year grace period. The interest rate is 1.485% per year. The project will initially cover four regions: Northern Mindanao, Central Visayas, Western Visayas, and the Cordillera Administrative Region. It will eventually be implemented nationwide. The DA described the project as a major flagship undertaking aimed at improving the competitiveness of Philippine agriculture, livestock and fishery products in the domestic and overseas markets. It is primarily focused on improving the marketability of farm and fishery products and increasing and diversifying farmers' income.

Finance Secretary Juanita D. Amatong, who signed the agreement in behalf of the Philippine government, said the loan will help raise and sustain livelihoods and incomes in the agriculture sector. "Since agriculture activity and expansion in the Philippines have been hounded by constraints of low productivity and profitability, there is a need to modernize the sector and make it more market oriented. The World Bank loan for this project will serve this purpose," Ms. Amatong said. World Bank Philippine Country Director Joachim von Amsberg said the US$60-billion loan is the largest since 2002. This, he said, is a testimony of the Bank's continued "confidence" in the government, notwithstanding the fact that it is facing a "challenging fiscal situation." "Its design represents the trend of the Bank's new way of doing business in the country, where support is linked to policy and institutional reforms and to targeted expenditures within the budget to ensure improved performance and efficiency in service delivery within a tight fiscal scenario," Mr. Amsberg said. He added that "the bank is in the process of preparing a new assistance strategy for the Philippines which will guide our program in the next three years. We are considering channeling our assistance through innovative approaches similar to this project which take into account, among others, the challenging fiscal situation of the country."

Of the proposed $60-million loan, $17 million, excluding the counterpart fund, is to be appropriated as support for market development services. The project will allocate $22.3 million for market development investments, while, $17.3 million is programmed for strengthening quality assurance systems for market development. A total of $9.7 million will be for market-linked technology development and dissemination, and another $2.7 million is planned for enhancing DA budget resource allocation and planning. -- K. Lema



GMA take on debt crisis affects peso, T-bond rates


The admission from the most powerful woman in the country that the Philippines is already in the midst of a fiscal crisis brought another burden to an already jittery financial market. Premium risk rates for debt instruments shot up and the Philippine peso slipped further, closing yesterday near the PhP56-per-dollar psychological barrier. "We want to know why the President [Gloria Macapagal Arroyo] made that admission, given that she's also an economist. There might be another overshoot in the budget and they just want to pacify us by letting us wait more," a bond trader said. The government earlier changed the monthly release of the budget deficit data into a quarterly basis. The four-year Treasury bond yesterday fetched a coupon rate of 11.75%, up by 75 basis points, when it was last auctioned on July 27. Market appetite was strong at PhP5.917 billion against a PhP4.5-billion public offering, and interest rates reached as high as 12%. The auction committee accepted PhP3.262 billion worth of bids. "The rates have really been moving, so we're just aligning it now at the secondary market," National Treasurer Mina C. Figueroa said.

At the secondary market, the four-year debt instrument fetched 11.935% or up by more than 20 basis points from 11.73% when the proclamation came out. "I think we're not yet in a fiscal crisis. Well if the [government measures will not take place], we'll be in a painful situation then we'll get into a fiscal crisis," she added. Some traders polled by BusinessWorld also said that the country has yet to enter into a financial crisis. "I think we only have a fiscal deficiency," a currency trader said. Another trader said the admission from President should be good for the country as this would martial lawmakers into upholding its agenda of enhancing the country's revenues. "But coming from the President herself, the impact is really negative on the premium risk rates and the peso," another trader said.


At the Philippine Dealing System, the peso averaged weaker than the US dollar by almost 15 centavos to PhP55.93 from PhP55.782. Opening at PhP55.935, the local unit gained strength toward PhP55.88 but corporate demands primed up the dollar up to PhP55.975. Total volume of transacted dollars almost doubled to $209.4 million from $126.62 million previously. "Most corporate groups have gone to the market to hedge their requirements after the pronouncement, probably because of some maturing obligations and dollar loans that they have to pay. So why wait until the peso is really down?," a trader asked. Hovering within a 9.5 centavo range, the peso settled at its intraday high of PhP55.975. Traders expect the peso to breach the PhP56:$1 psychological barrier with the initial resistance at PhP56.10 in the next few days. Companies are also seen to come in to meet their month-end dollar obligations. "The only solution now is an efficient tax collection amid all those tax measures the government is introducing. At this point, we are still capable of paying our debts," a trader said. Another trader also said "it's a tall order, but the solution really is to eliminate corruption."



Imports key to '04 BoP tally

The Bangko Sentral ng Pilipinas (BSP) expects the country's balance of payments (BoP) position to end the year at a deficit of close to $500 million. Rising imports, however, could result to a lower current account surplus, the central bank said. Latest data showed that merchandise imports rose 7.2% in the first half to $19.938 billion. In June alone, imports grew 18% to $3.45 billion in the same month last year. BSP officer-in-charge Amando M. Tetangco, Jr. said rising imports are not likely to impact on the BoP as the latest import figures are still within government projections of an 11% growth by yearend. "It is still below the projection for the year, so there is still no impact unless imports grow beyond 11%," he said. If import growth exceeds the target, what is going to be affected is the current account surplus. "It's going to be a lower current account surplus, but since these are imports, these will have correspondent financing in capital accounts," he said. The BoP measures the foreign exchange transactions between the local economy and the rest of the world. Its major components are the current account and the capital and financial account. Latest BSP figures showed that the BoP position posted a deficit of $95 million from January to July, owing to foreign exchange outflows to cover debt service repayments by the National Government.



Landbank starts idle asset auction

State-led Land Bank of the Philippines has called on interested parties to apply for pre-qualification and to bid for idle assets worth PhP17.8 billion. In its invitation to pre-qualify and to bid for the acquisition of bad assets, Landbank estimated there are 78 non-performing loans and 16 non-performing assets or those classified as real estate and other properties owned or acquired. "The portfolio will be sold through a sealed-bid auction process. Detailed information regarding the portfolio will be provided to each bidder that qualifies to participate in the transaction," the bank said. A pre-bid conference will be held on Aug. 30 to discuss the details of the transaction. "Interested parties that have duly accomplished the requirements set forth in the bidder registration and pre-qualification documents will be evaluated and pre-qualified for the participation in the transaction," Landbank said.

The planned asset sale will be arranged by KPMG Laya Mananghaya. Ernst & Young is the bank's financial adviser. "Landbank reserves the right to reject any and all interested parties from participating in this transaction," the bank said. Each interested party submitting pre-qualification documents will be required to pay a transaction registration fee of $30,000 which is net of bank wire charges as a condition for pre-qualification. Landbank said the fee is non-refundable. "The only exception shall be in the case where an interested party pays the transaction registration fee and is later deemed at Landbank's sole discretion not to qualify to participate, in which the case the transaction registration fee shall be refunded in its entirety," the bank said. -- Ruby Anne M. Rubio



Investors eye Waterfront Insular


Investors have expressed interest in buying the Waterfront Insular Hotel Davao but the Gatchalian group is not keen on giving up control of any of its hotels, a top official of the Waterfront Hotels and Casinos said yesterday. Patrick C. Gregorio, President of Waterfront Philippines Inc., said that the Gatchalian group is "happy" with the returns from the operations of its hotels. Waterfront Philippines operates the Waterfront Insular Hotel Davao, Waterfront Cebu City Hotel and Casino, and Waterfront Airport Hotel and Casino in Mactan. "They (Gatchalians) are the majority shareholders and they're very happy with their returns," Mr. Gregorio said. "So I don't see any movements in the ownership. As for Davao, we're operating it as professionally as we can. There are inquiries, but these are part of our day-to-day dealings. Nothing really serious at this point." It was earlier reported that there were plans of selling Waterfront Insular Hotel Davao because it reportedly was not bringing in as much returns as the Cebu hotels. Yesterday, Mr. Gregorio said that the Davao branch has enjoyed an occupancy rate of 55%, while the Cebu hotels, 70%. He also said that the occupancy rate of the Cebu hotels is high because "Cebu tourism is booming." "We just hope that the Davao tourism will also pick up so that our property in Davao will improve," he added.


Mr. Gregorio also said that Waterfront is not looking at acquiring more hotels in the near term as it plans to consolidate its resources and rehabilitate the Manila Pavilion Hotel. Recently, the Waterfront group took over Acesite (Philippines) Hotel Corp., the operator of the Manila Pavilion Hotel. "I think our goal is to professionalize the Waterfront group to make it the leader, the number one Filipino owned and managed hotel group not only in the country but eventually in Asia...In the next three to six months, it will be consolidation to make Pavilion better and more profitable," he said. He added that after the renovation of the Pavilion, it will likely be renamed Waterfront, but said that a merger between Acesite and Waterfront would be unlikely. "It's difficult to merge the company because of different set of investors, but branding will definitely happen. The branding will happen as soon as the renovation happens," he said. Waterfront Philippines, Inc. (WPI) is an investment holding company for hotel, leisure and tourism businesses. Its hotels lease space to the Philippine Gaming and Amusement Corp. Mr. Gregorio said that for the first six months of the year, the company saw a 50% increase in gross operating profits. This is way over the standard of 30%, he noted.



South Korean carrier Asiana to open more flights to RP

Korean firm Asiana Airlines expects higher passenger and cargo volumes to increase revenues from its Philippine operations by 10%. The second national carrier of South Korea is also eyeing to open more flights to the Philippines, Asiana Airlines Regional Manager Hyunil Kim said. He added that the airlines would maintain the 25% market share on the inbound and outbound traffic between South Korea and the Philippines. "The Philippine market is expanding now, and we want to expand more," Mr. Kim said. There were 179,071 Korean tourist arrivals in the country in the first half. About 350,000 was recorded in 2003. "We hope we can reach 400,000 this year, and contribute more to the Philippines," Mr. Kim said.

In the first half, Asiana Airlines posted a sales revenue of PhP30 million for its passenger business and PhP19 million for its cargo unit. Asiana Airlines currently flies eight times a week to the Ninoy Aquino International Airport. It has five flights to Clark International Airport in Pampanga, where it also has chartered flights and cargo operations. The airline started with two flights to Busan last week. Asiana Airlines uses 177-seater Airbus 321 for its flights to the Philippines. Load factor of the airlines in the first half stood at 86% versus less than 80% for the same period last year. Mr. Kim said the load factor is expected to drop to between 80% to 85% as September and October are seasonally slow. He added Asiana Airlines is also planning to resume night flights from Manila to the Incheon International Airport in Seoul by October. There are plans to increase the flights between Clark and Incheon to seven times a week from the current five. Mr. Kim said increasing flights may start by December. -- Anna Barbara L. Lorenzo



Highlands Prime hits PhP1B mark in condo project sales

Publicly listed property developer Highlands Prime, Inc. said sales of its Tagaytay Highlands condominium project already reached PhP1 billion. In a statement to the stock exchange, the developer said it has sold 98 of the 138 units of its maiden project, "The Woodridge", an upscale condominium project overlooking the Highlands Golf Course, Laguna de Bay and surrounding mountains. "We have turned over 70% of the units to Woodridge buyers within a period of 12 to 15 months," said Highlands Prime president Antonio A. Henson. The SM Group owns majority of the shares of the property developer. Highlands Prime chairman Henry Sy, Sr. said the company, which owns 500 hectares of prime properties in the exclusive Tagaytay Highlands and Tagaytay Midlands complex, has more projects in the offing. The developer is slated to launch soon its next landmark project --The Horizon at the Tagaytay Midlands. Phase one of The Horizon will feature 14 clusters of three-bedroom condominium units with an average floor area of 136 square meters each. There will be a total of 214 units for Phase one.

The Horizon offers a panoramic view of the Midlands Golf Course, the Taal Lake and Mt. Makiling. Architects Recio-Casas designed The Horizon which takes on a contemporary Asian design. Landscaping will include pocket Japanese gardens and a picnic area with an infinity pool as its centerpiece. Highlands Prime is engaged in buying, developing, owning, managing, investing, leasing, selling and improving real estate properties in the country with primary focus on the high-end of the property market. It was initially organized by Belle Corporation (Belle) as a minimally capitalized entity. But Belle eventually transferred to Higlands Prime property assets with market value estimated at approximately PhP7.7 billion. With Belle's transfer of its assets, Highland Prime's assets now consist of close to 534 hectares of undeveloped land, 25 finished residential units and 70 developed subdivision lots. -- R. J. F. Calayag



Stocks fall 2% on 'fiscal crisis' talk


For a time, investors were waiting for fresh developments to come and perk up trading. But the news that hit the stock market on Monday left investors shaken. Dealt with tsunami-like proportion, share prices yesterday plunged to their lowest in four weeks. The Philippine Stock Exchange composite index (Phisix) fell by 34.17 points, or 2.17%, at 1,542.01 with only 1.5 billion shares traded for PhP630.4 million. This further dashed hopes that the market would breach the elusive 1,600 level. Traders said the steep decline in the Phisix was in reaction to the statement of President Gloria Macapagal Arroyo on Monday that the country is in the midst of a fiscal crisis. Investors reacted cautiously to Mrs. Arroyo's statement, triggering share prices to fluctuate erratically, although some analysts insisted that this had been factored in already by the market.


As the market tried to get out of the doldrums, the news caused it to swerve and lose its momentum. The change of gears was sudden. From a dearth of news over the past days, investors were taken aback as they reeled from the conflicting statements of various groups. After Mrs. Arroyo issued the statement, her economic managers refuted this and clarified that technically, the Philippines is not facing a crisis. They also shrugged off the possibility of a crisis, stressing that the government is still able to meet its obligations. Political and economic observers said the admission by the President would help the country manage its burgeoning budget deficit. They said this tells the international community that the government is seriously looking at ways to cut its dependence on foreign borrowing and it is recognizing its precarious status. But Rommel Macapagal, chairman of Westlink Global Equities, Inc., said the news and the conflicting statements that followed had accelerated the selling pressure on the market. "[The news] that the country is in the middle of a fiscal crisis rattled investor sentiment," said Mr. Macapagal. He explained that although the impending fiscal crisis was discounted in the stock market for some time, it still triggered a sell down. Support levels, Mr. Macapagal said, were also broken because of the remark on the country's fiscal health. Despite an earlier rosy trading outlook, the Phisix failed to break the 1,580 support level on Monday. Instead of recovering yesterday, it sank further and failed to breach 1,560. "We are looking at 1,520 now. If the market had to rebound, the level should be above 1,550 and selling accelerated," added Mr. Macapagal.


Even foreign investors toed a cautious line after Mrs. Arroyo delivered the statement. Mr. Macapagal said some foreign selling were observed but he dismissed this as just immediate reaction. Foreign selling hit PhP330.8 million. "We will see [today] if foreign selling will stabilize," he said, noting that the news had caused a snowball effect on the market that caused support levels to break. "The support levels were broken, not only in the index but also on other issues. It was across the board," he added.


At the stock market, all indices were in the red. The commercial-industrial lost 60.27 at 2,453.53. Mining also slumped 51.18 to 1,760.65. Banks and financial services dropped 8.46 at 449.89. Property shed 2.39 at 511.41 while oil dropped 0.01 at 1.74. The all shares went down 6.34 to 998.46. There were 34 unchanged issues but decliners overturned advancers, 73-9.


Talk of a fiscal crisis may cause a shockwave to market watchers but Mr. Macapagal said this does not signify a meltdown. "It is not yet time to panic," he assured. Asked if he sees the situation growing worse, he said the market will "take stock of what happened." Compared to the volume turnover on Monday which reached over three billion shares, yesterday's -- which was reduced to barely half -- was a far cry. Mr. Macapagal said this showed that even third-liners, which propped up the volume turnover the other day, was also affected. He expressed hope that selling will taper off in the coming sessions. But at this time, he sees different scenarios that may likely happen. If selling goes deep, there may be some opportunities for bargain hunting. "Investors may take profits. Or they may liquidate to get some cash as they take new positions and be clear, while they take stock of what happened," he said. As a result of this, a realignment of some portfolios may be in the offing.


While things are expected to turn for the better, it seems that the market is about to face another hurdle after Pilipinas Shell Petroleum Corp., Caltex Philippines, Inc. and two small oil industry players said they would raise anew pump prices of gasoline and other petroleum products by an average of PhP0.35 per liter. They made the announcement less than a week after oil prices were increased by PhP0.30 per liter. Mr. Macapagal said the news about the country's fiscal status has already hit raw nerves among investors so any hint of uncertainty would cause them to be more cautious. "Investors hate uncertainties. We hope for the best and for selling to taper off. We will be on a wait-and-see [position] as investors remain cautious," he added.



Palace moves to avert fiscal crisis

'We are already in the midst of a fiscal crisis and we have to face it squarely, wielding our courage, resourcefulness, and solidarity as a people and nation.' -- President Gloria Macapagal-Arroyo

President Gloria Macapagal-Arroyo yesterday admitted that the Philippines was "already in the midst of a fiscal crisis" because of the runaway budget deficit. During the turnover ceremony for incoming national police chief Edgardo B. Aglipay at the Palace, the President confessed that the government needed help, and that all must sacrifice to solve the deficit problem. "We do not deceive the people on the economy. We tell it like it is, because the solution cannot begin unless the problem is recognized. We are already in the midst of a fiscal crisis and we have to face it squarely, wielding our courage, resourcefulness, and solidarity as a people and nation," the President said. The President began yesterday the process of formally declaring a state of fiscal crisis, holding an emergency meeting with her economic team.

When sought for comment, economist Mario Lamberte said such a declaration would mean the country could no longer pay its debts, domestic or foreign. But Mr. Lamberte, president of state-run think tank Philippine Institute for Development Studies, also said such a declaration might be premature. "We are still able to service our debts at the moment," he said, although noting that the country's outstanding debts were huge. However, he also said that if nothing significant would be done soon to address the situation, these large debts could "possibly lead to a crisis." Philippine debts in 2003 reached an equivalent of 77% of the total economic output or gross domestic product (GDP). Including contingent liabilities, debts total about 93% of GDP, Mr. Lamberte said. As a result, the government has been spending roughly a third of its budget on debt servicing, he said. And this has restricted the government's ability to finance economic growth, he added. Erico C. Claudio, professor at the University of Asia and the Pacific, said the government has acknowledged the need to fix the deficit and debt problems, noting that it could not forever spend beyond its financial capacity. "There is a concern to fix it, we cannot forever spend beyond our income," Mr. Claudio said.


But former National Economic and Development Authority chief Solita C. Monsod said the government should declare a state of fiscal crisis. "It is important that everybody knows where we are now, we cannot dance around it anymore. It should be discussed more seriously to let people know we mean business,"she said. Declaring a fiscal crisis, Ms. Monsod said, would improve the government's "stock" and credibility in the international market, as well as investor confidence. "Investors have become anxious, already we are paying higher premiums. Higher spreads mean more difficulty in borrowing and more difficulty in paying, so we end up borrowing more," she said. Ms. Monsod added a study by economists at the University of the Philippines has "fleshed out" the problem for the government to get a grip on it. She said the economy no longer has the luxury of time. "We are not looking at it in a gloom-and-doom scenario, we just do not want to say 'I told you so' later on when we should have done something to address it in the first place," Ms. Monsod said. "There are already implications but are not just recognized, it is already showing in the market through payments of higher premiums," she added. But Mr. Claudio said the Philippines was not another Argentina for several reasns: the stable peso, the recovering economy, and the government's awareness of the consequences of a budget deficit-debt problem."The currency continues to remain afloat and this is a reflection of the good and bad points of the economy, how our economy is doing," he said.

Albay (southern Luzon) Rep. Joey S. Salceda, chairman of the House of Representatives committee on economic affairs, earlier proposed the declaration of the state of fiscal crisis -- to help address the government's budget deficit and public sector debt. He said this would allow the government to reduce the share of local government units (LGUs) in national taxes or their internal revenue allotments for the next three years. Mr. Salceda said this was done previously by deposed president Joseph E. Estrada, and during the early part of the Arroyo administration. The President has directed Budget Secretary Emilia T. Boncodin to evaluate Mr. Salceda's proposal, and to submit a recommendation "as soon as possible." Once the Development and Budget Coordination Committee (DBCC) will have made a recommendation, the President can issue an executive order formally declaring a state of fiscal crisis. "I appreciate the concern and suggestion being put forth by well-meaning quarters to resolve the crisis and I take this as a sign of sincere concern that must be translated into deeper public awareness and action," the President said in an official statement yesterday.


The President also said that whatever the DBCC would recommend, the burden of solving the budget deficit -- including the imposition of new taxes -- would be shared by all. She added that the government would do its share through cost cutting and bureaucratic streamlining. "Average Filipinos are already taking the brunt of sacrifices, but we have to gather round again as one national community to take stock of the future. This government will not exact sacrifices that we ourselves are not willing to take, and are not willing to enforce among those who can most afford it," the President said. "The pain is imminent but it will be shared fairly and without putting one over the other," she added. The President also said she was closely working with Congress on ways of getting the national budget approved soon, so the government could overcome the fiscal crisis with the support of the people. "I am working with Congress on the strategies to get the budget in place and we are hoping to work this out with public support and openness to sacrifice," Ms. Arroyo said in the same statement. Ms. Boncodin said the proposed 2005 national budget, estimated to reach PhP901 billion, would be submitted to Congress tomorrow. She hinted that the President, in her budget message on Wednesday, would ask the help of Congress with the declaration of the state of fiscal crisis. But the reduction of revenue allotments for local governments was not included in the budget bill, Ms. Boncodin said.

The Budget secretary said the government was considering declaring the state of fiscal crisis as a "fiscal pre-emptive measure," since this would legally allow the administration to limit fund releases to local governments. She said the national government should give PhP141 billion to local governments as their revenue allotments for this year, and PhP151 billion next year, as required by the 1991 Local Government Code. But with the formal declaration of the state of fiscal crisis, Ms. Boncodin said the government could freeze as much as 25% or PhP35 billion of the revenue allotments. "This [the reduction of revenue allotments] would prove that there are no sacred cows in this government. We are all in this together, including local government units," the Budget chief said in a briefing before the DBCC meeting. She also said the Arroyo administration was prepared to suffer the political backlash of limiting the allotments, including the loss of support from some local governments. The government is also ready to take negative feedback from international observers, as well as foreign investors, should the government pursue the crisis declaration, she added. The government is also prepared to go to court, she said. The Supreme Court earlier declared as illegal the decision of the Estrada government to limit the allotments of local governments in 1998.


But Trade Secretary Cesar A.V. Purisima clarified that "we are not in a fiscal crisis." He said the President "used the term rhetorically, and not technically. Proof of this is the venue and audience where the speech was given -- the PNP turnover ceremony -- not before the financial and business community." Mr. Purisima, who is also the Arroyo administration's economic spokesman, said the International Monetary Fund and credit ratings agencies defined a fiscal crisis as when:

  • a country is in default;
  • a country's deficit is "unfinanciable;" and
  • a country does not have access to the capital markets.

"Clearly, this is not the case for the Philippines," Mr. Purisima said.

Also yesterday, Finance Secretary Juanita D. Amatong said there was no need for the President to declare a state of fiscal crisis because the country was not in that kind of situation. Proof of this is that the government "is still able to pay its debts," she said. Ms. Amatong nevertheless admitted that the government's precarious financial situation called for immediate action not only from the Executive and Congress, but most of all from people. "Unless everyone realizes there is a problem and help in solving the problem...these legislators helping us and the bureaucracy collecting more taxes and people paying taxes earnestly...we will be in a crisis definitely in a few years," she told a gathering of American and Canadian business groups in Makati City. Under DBCC Resolution No. 2001-03, necessary adjustments in interal revenue allotments can be done only after a declaration of an "unmanageable public sector deficit" by the President. The resolution, which provides for the "Trigger Event and Mechanisms for the Declaration of Unmanageable Public Sector Deficit Necessitating the Adjustment in the Internal Revenue Allotment," states that DBCC must inform the Department of Interior and Local Government Secretary about an emerging unmanageable public sector deficit "when the actual public sector deficit has exceeded the target deficit indicated in the Budget of Expenditures and Source of Financing submitted by the President to Congress pursuant to Section 22, Article VII of the 1987 Constitution, provided, that the national government and government corporate sector have already undertaken revenue and expenditure measures."

Under the resolution, DBCC, which sets the government's economic targets, will assess the economic and fiscal environment based on established indicators. And then the secretaries of Finance, Interior and Local Government, and Budget will consult with the presiding officers of both Houses of Congress and presidents of League of LGUs. DBCC will also send invitations for consultations including all pertinent materials and information explaining the need to declare an unmanageable deficit. Only after these things have been done can the President authorize the declaration of an unmanageable deficit, and make necessary adjustments in internal revenue allotments. Should the fiscal situation improve after the declaration, the resolution states the President can restore a portion of allotments cut, such that restoration can sustain improvement of the public sector deficit, which among others, takes into account the government's budget shortfall as well as the financial situation of all government-owned and -controlled corporations and other public financial entities.


Ms. Amatong said the government recognized the fiscal problem and this was precisely the reason why it has come out with a package of policy reforms aimed at addressing the country's fiscal needs and ensuring that the government would balance the budget by 2009 -- through a combination of tax measures, rationalization of expenditures, and reduction of the deficits of government-owned and -controlled corporations. Ms. Amatong said the government must take advantage of its mandate to implement bold reforms. Efforts must be concentrated on how to increase revenues to help the government balance the budget in five years, she added. "We need to do something with our budget, with our revenues, with our expenditure, and with our debt so that we will not reach that stage where we will be in a fiscal crisis," she said.

Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) officials and government economic managers said the only way to avert a fiscal crisis was to pass tax measures that would add PhP80 billion yearly to government coffers. "We are in a situation where we need to come up with measures that would address the fiscal problem in a sustainable basis," BSP officer-in-charge Amando M. Tetangco, Jr. told reporters. He stressed, however, that technically, the Philippines was not yet in a fiscal crisis -- which happens only when a country defaults on its debt payments, is unable to manage its budget deficit, and has lost access to the debt market. "We are not in that situation," he said. For one, he said, the government is able to pay its maturing obligations on time. He also said the government has a clear plan to balance the budget by 2009, and has not lost access to the debt market, as was seen in its move to borrow some $300 million last June for its refinancing needs. "But if we don't act, we will have a crisis," he said.


In less than a month, a government economic team is scheduled to go on an road show in Asia, Europe and the United States to explain to foreign investors its plan for the next six years. BSP Investor Relations Office executive director Corazon Guidote assured that the fiscal problem was manageable. "It's a mountain, but it is not a volcano," she said in an interview. She remains confident that the road show, scheduled on September 20, will be successful, and that the government will convince enough investors and fund managers to invest in the country. BSP officials are also optimistic that credit rating agencies will look at government's fiscal situation and economic program before adjusting sovereign credit ratings, which at present vary from investment grade to stable. Mr. Tetangco said some foreign fund managers have also been assured that the fiscal situation was manageable.


A ranking government official, however, told BusinessWorld that Congress should also do its part and pass new tax measures. The government has proposed several tax measures that include higher taxes on petroleum products, franchise tax on telecommunication firms, and higher excise taxes on alcohol products and cigarettes. Without new tax measures, the government will be forced to borrow another $700 million to $1 billion by yearend before it can absorb the debts of state-owned National Power Corpoation (Napocor). Government's absorption of Napocor debts is one of the measures the Department of Finance is looking at to consolidate government finances. The official, however, said the government could not do this without having new tax measures first. The Napocor debt absorption would increase the budget deficit by some PhP50 billion a year, the official said. "With additional debt, the budget deficit will grow bigger," the official said. Finance is targeting to keep the budget deficit at PhP198 billion this year, but absorption of Napocor's debts could raise this to PhP250 billion. The Philippines, Asia's largest debt issuer, has a total external debt of $56.6 billion as of end-March, with the national government accounting for some $37 billion.


Meanwhile, senators said the government was on the brink of a fiscal crisis and that the government was not taking the problem lightly. Senate President Franklin M. Drilon said the government was fully aware of its volatile fiscal position, and that several ways were being explored to avert a crisis. "There should be no crisis of confidence in so far as the Philippine economy is concerned. We already brought out the need for us to address the budget deficit and the national debt. We pointed out the need to tighten our belt and better tax collection efficiency," Mr. Drilon said. Senators Manuel A. Roxas II and Ramon B. Magsaysay Jr. also said the government was standing firm in its resolve to prevent a fiscal crisis. Mr. Roxas noted that the best solution was to boost business activities. "It is clear that the country faces a very difficult time. There is a fiscal and debt crisis that needs to be addressed. There is lack of velocity and momentum in the economy because the factors of production are essentially flat," Mr. Roxas said. "We have a unanimity that we are in trouble. The questions are: How do we move forward? And what will be the prioritization? Not one recommendation will be enough. We need to overhaul the system. It will require burden-sharing, cutting expenses, prioritization on the government, possibly additional taxes on the citizens, a review of the way we source our debt. There is no single bullet that will cure all of these. It will require hard work on all sectors," he added. Mr. Magsaysay also urged President Arroyo to lead belt-tightening measures to plug the PhP200-billion budget deficit. "It is time for the President to be like a prudent head of the family. The president is called upon to tighten the belt and eliminate the numerous, unnecessary expenses," Mr. Magsaysay said in a statement. He added that sustainable reform and anti-corruption programs should be made stronger. "Sustained reforms and anti-graft corruption measures should encourage the entry of private capital into our shores to strengthen the economy. We should do away with unprofitable and unjustified projects," Mr. Magsaysay said.

Senator Juan Ponce Enrile, for his part, said the government should start by conducting a thorough study of the economic and fiscal situation. "We have to accept that there is a problem so we will apply the correct remedy. We should not let the country sink," he said. Senator Edgardo J. Angara noted that the fiscal crisis could be prevented if the government would exercise political will. "We should now act over and beyond partisan politics and confront issues, otherwise the coming crisis will engulf us all and drown everybody," he said.


Consumer and Oil Price watch chairman Raul Concepcion also said the fiscal crisis warranted an end to too much politicking. "Let us just go to work. Let us forget politics. Everybody wants a strong leader. This is the problem and this is want we have to do," Mr. Concepcion told reporters after a Senate consultation on the prices of basic commodities. The businessman added that Congress should consider giving Ms. Arroyo special powers to maintain the prices of basic commodities. "The state of the economy is very crucial and we want to give the President special powers, very definite on how we can control prices and not legislate price reduction, to ensure that the prices are manageable, especially in energy," Mr. Concepcion said. He added that the business community would be amenable to new taxes, provided that revenue collection agencies would show political will in increasing tax collection until the end of the year. "They have to improve the collection between now and the end of the year. If that is not enough to prevent the fiscal crisis, then we will be in favor of new taxes. The ball is in the hands of the government," Mr. Concepcion said.

At the House, Tarlac (Central Luzon) Rep. Jesli A. Lapus, the chairman of the House Committee on Ways and Means, stressed the need to raise revenues now. Mr. Lapus also defined a fiscal crisis as when the country was in default, when it could no longer service its borrowings. The country is not in a fiscal crisis yet, he said, since it still enjoys access to international and local credit. He also said increasing revenue collections would take time, because it would entail installing new equipment, changing the culture in revenue-generating agencies, marketing among the taxpayers, among others. What the public needs now, Mr. Lapus said, is a demonstration that the government is "taking the bull by its horns" or is directly acting on the problem of a large deficit and a ballooning public sector debt. "The newspapers in the past weeks were full of statistics. It has been impressed on us that the fiscal problem is both serious and urgent," he said. "What we need to do right now is to rush the revenue measures and make a good impression on international and domestic creditors. We need more marketing [for the Philippines] than a scary analysis." Mr. Lapus also said an economic collapse in the next two years was likely, especially if inflation would worsen and the economy's growth rate would start to lag.


Meanwhile, Paul Joseph M. Garcia, chief investment officer of ING Investment Management, said a declaration of fiscal crisis "should be welcomed by investors and followed by real and concrete reforms." "I think we are concerned about the fiscal situation. In fact, one of the solutions is acknowledging the problem, which the government is trying to do. I guess, the pressure is on policymakers, particularly legislators to implement real and meaningful tax reform measures. Hopefully, that will enable the government to collect more taxes to plug the budget deficit. If you don't you might lose investor confidence. You try to solve it way ahead of the problem," he told BusinessWorld. "Right now, it is not yet a full-blown fiscal crisis. For one, government is still able to finance its operations, pay interest payments on time. At the same time, fund operational expenses. I think, it is good to acknowledge a problem as early as now so government and policymakers are able to veer away in a dire situation by the time no amount of whatever policy will be effective." Meanwhile, an analyst from said the country was in a situation where "we are not earning in terms of revenue collection to meet our short-term needs and obligations." "You'll know you are in a fiscal crisis if your ability to service debt is impaired already," he said. -- Jeffrey O. Valisno, Rommer M. Balaba, Karen L. Lema and Iris Cecilia C. Gonzales with reports from Carina I. Roncesvalles, Judy T. Gulane, Felipe F. Salvosa II and Ruby Anne M. Rubio



Arroyo keeps economic team to see gov't through crisis

President Gloria Macapagal-Arroyo wants four Cabinet officials in her "economic team" to stay on to help her fix the government's finances. Presidential Spokesman Ignacio R. Bunye said the President would reappoint Budget Secretary Emilia T. Boncodin, Socioeconomic Planning Secretary Romulo L. Neri, Finance Secretary Juanita D. Amatong, and Trade and Industry Secretary Cesar V. Purisima. Mr. Bunye declined to say if Energy Secretary Vincent S. Perez Jr., also part of the current economic team, would be on the list of officials to be reappointed. Asked for an explanation, Mr. Bunye said: "We just make the announcements as we are authorized to make them. So those are the Cabinet officials that the President has mentioned as staying on in the Cabinet."

It was earlier reported that the President was considering Mr. Perez as the next Finance chief. But Mr. Bunye hinted that Mr. Perez could be moved to another post. "The President herself said she would make announcements over the next few days," he told reporters in a press briefing. Yesterday, former Executive Secretary Alberto G. Romulo also took his oath of office as Foreign Affairs secretary. Mr. Romulo vowed to reassess the situation in Iraq, given calls to lift the deployment ban on overseas Filipino workers. -- J. O. Valisno



Oil prices raised anew by PhP.35/liter


Oil companies yesterday increased their prices for gasoline, diesel and kerosene anew by 35 centavos per liter, citing the continued upswing of fuel prices in the international market. The new price adjustments were implemented by oil giant Pilipinas Shell Petroleum, Corp., and Total Philippines, Corp., the fourth largest petroleum company in the Philippines. Small firm Seaoil is also increasing its prices effective 12:01 a.m. today. For their part, Eastern Petroleum Corp., and Flying V said they might increase prices today. Caltex Philippines, Inc. has reportedly raised its prices too but has not made a confirmation on this as of press time. There were no announcements yet from major oil firm Petron Corp. and small company Unioil Philippines. "International prices are terrible. We cannot afford not to raise at the rate things are going," Independent Philippine Petroleum Companies Association (IPPCA) chairman Fernando L. Martinez said.

The country's top three oil companies -- Petron, Shell and Caltex -- have an estimated 80% market share with small players dividing the remaining 15%-20%. Mr. Martinez said escalating prices of oil in the world market had become "too problematic" on the part of consumers but more so from the point of view of oil companies. He added oil companies were left with no choice but to pass on any increase to consumers, noting smaller firms would need to get back at least PhP4 in under-recoveries since January 2002.

World oil prices maintained all-time highs with Dubai crude closing at $41.26 per barrel yesterday, posting an August average of $38.74 compared to $34.65 a month ago. Mean of Platts Singapore (MOPS) unleaded gasoline jumped to $55.18 per barrel spot price. The month-to-date average is now $51.90 per barrel from $46.52 in July. Diesel, on the other hand, increased to $55.26, posting an average of $51.57 from $46.25 last month. MOPS is the benchmark being used by small oil companies or importers, while oil refiners such as Petron Corp. and Shell use Dubai as basis for pricing their products.

Instability in major oil-producing countries such as Iraq, Russia and Venezuela has sent crude prices to surge to all time highs. In addition, the constant threat of terrorism continues to cast doubt on how the world will meet its future energy needs. The increase came on the heels of a 30-centavo increase in gasoline, diesel and kerosene prices imposed last week by the big three oil players and IPPCA members Eastern Petroleum Corp., Flying V, Seaoil and Unioil. The price adjustment was also a confirmation of a statement made by Consumer and Oil Price Watch chairman Raul Concepcion at a Senate consultation yesterday that consumers could expect another 30 centavos increase in local pump prices this week. "There is an agreement between the Energy Secretary Vincent Perez and private sector groups, including President Gloria Macapagal-Arroyo, that the increases will be done weekly on a staggered basis instead of one blow at the end of the month," he told reporters. He added that at the end of the month, the Energy department and the oil firms would compare the July and August pump prices to determine the reasonable oil price adjustment. "We will have a reckoning period. We will compare the prices on August from July. The difference will be basis for the increase, less the deductions given to them and the under-recovery and over-recovery that they have with us," Mr. Concepcion said. "Hopefully, we can thresh this matter. Otherwise, we will have to adjust prices every month," he added.



Tan's PhP25-B tax case stays with Marikina court

By MA. ELISA P. OSORIO, Reporter

The Supreme Court denied with finality the motion of Solicitor-General Alfredo L. Benipayo asking that the PhP25-billion tax case of wealthy Chinese tycoon Lucio Tan be transferred to the Court of Tax Appeals from the Marikina Metropolitan Trial Court (MeTC). In a one-page en banc resolution promulgated Aug. 17, 2004, the Supreme Court denied the motion for partial modification as "no substantial arguments were presented to warrant the modification of the questioned decision." In a motion for partial modification dated July 26, 2004 submitted before the High Tribunal, Mr. Benipayo said "although the Informations were filed with the MeTC, the Court of Tax Appeals (CTA) can take cognizance of the instant criminal cases because the MeTC has not fully acquired jurisdiction over the instant cases." According to the motion, a court can only hear and try a case if the court has jurisdiction over the issue to be resolved, jurisdiction over the territory and jurisdiction over the accused.

In this case, the motion stated that Mr. Tan has not yet been arrested or has he posted bail before the Marikina MeTC regarding the informations for nine counts of tax evasion. "The third element is indubitably absent. Thus, jurisdiction has not fully attached, jurisdiction over the person is acquired upon his arrest or upon his voluntary appearance," the motion said. With the implementation of Republic Act (RA) No. 9282 on March 30, 2004, the CTA has been given "exclusive original jurisdiction" over violations of the National International Revenue Code. Based on RA 9282, the Court of Tax Appeals has "exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue." With the passage of RA 9282, the Congress has recognized that it is the CTA which has the "proper technical competence" to try the subject cases. As such, given that the Marikina MeTC has not yet acquired in full the jurisdiction over the cases, there is no impediment to transfer the case to the CTA in accordance with RA 9282.

The Supreme Court justices in en banc session last July 13, unanimously voted for the reinstatement of the case against Mr. Tan and nine "dummy" firms as the MeTC failed to make an independent finding on the merits of the case. Instead, the court said, MeTC anchored the dismissal on the position of the Bureau of Internal Revenue (BIR). "By relying on the manifestation and motion of the BIR alone, it ignored the positive findings of the panel of prosecutors, which had themselves, painstakingly conducted the preliminary investigation on the subject criminal liability of the respondents (Fortune Tobacco)," the court said. According to the Department of Justice (DoJ) panel, Fortune Tobacco and its nine "dummy" corporations defrauded the government in undeclared ad valorem taxes. The case stemmed from a complaint filed by the BIR on Sept. 7, 1993 before the DoJ alleging fraudulent tax evasion for the company's nonpayment of the correct ad valorem, income and value added taxes for 1992. The nine "dummy" corporations are Townsman Commercial, Inc.; Landmark Sales and Marketing Inc.; Crimson Croker Distributors, Inc.; Dagupan Combined Commodities Inc.; First Union Trading Corp.; Carlsburg & Sons, Inc.; Omar Ali Distributors, Inc.; Oriel & Co. Inc.; and Mt. Matutum Marketing Corp.



Napocor rate increase a must

By KAREN L. LEMA, Reporter

The National Power Corp. (Napocor) should be allowed to increase its rates to help the cash-strapped power utility reduce its burgeoning debt, Finance Secretary Juanita D. Amatong yesterday said. Ms. Amatong stressed that this one of the things the government must do to "restore the financial health" of the state-owned firm and fulfill its commitment to restructure the energy sector. "The most urgent thing for Napocor is ... [for it to] be back in health and reduce its deficit. There must be some allowance ... it should be allowed to increase rates on generation," Ms. Amatong said in a presentation to a gathering of the American Chamber of Commerce and Canadian Chamber of Commerce in Makati City. Ms. Amatong warned that Napocor's deficit would top PhP100 billion this year, from PhP66 billion in 2003, "unless rates are increased." Napocor's deficit forms a big chunk of the country's consolidated public sector deficit (CPSD), which, among others, takes into account the government's budget shortfall as well as the financial situation of all government-owned and -controlled corporations (GOCCs) and other public financial entities. Napocor and the Power Assets and Liabilities Management Corp., (PSALM) filed a joint petition for new generation charges on June 22. They want the Energy Regulatory Commission (ERC) to allow it to increase rates charged to distributors by an average PhP1.87 per kilowatt-hour (kWh) nationwide. Napocor said the increase will prevent a repeat of the '90s power crisis by attracting investors who will build new capacity. The petition also seeks to implement the time of use (TOU) concept for billing customers, which will replace the current flat rate.

For Luzon, Napocor's proposed rate is PhP4.56 per kWh from the current PhP2.57 per kWh. Customers in the Visayas will have to pay PhP4.59 per kWh from PhP2.82 per kWh while customers in Mindanao will have to shoulder PhP3.13 per kWh from the current PhP1.80 per kWh. If approved, the rates will allow the firm to achieve a return on rate base of 8%. Ms. Amatong explained that the government's failure to provide Napocor with sufficient "capitalization" could be blamed in part for the continued rise in its debts. She earlier said the government will shoulder PhP500 billion in Napocor debts as part of the Electric Power Industry Reform Act's implementation. This, she said is expected to boost the participation of the private sector in the country's energy industry. The debt transfer is one of the commitments made by the government to Napocor's major creditors to help facilitate the privatization of the energy sector. Following the signing of the EPIRA into law in 2001, the government has been aiming to privatize Napocor's assets. PSALM was created by the law to dispose of all the assets of Napocor, which include 35 power plants as well as several non-power assets and real estate. PSALM is also mandated to privatize the National Transmission Corp., a spin-off firm created under the EPIRA to take over Napocor's transmission functions. Transferring the assets and management of Napocor to private entities is expected to unburden the government and will also help ensure adequate and reliable power. The government has estimated it can earn up to PhP136.5 billion from the sale of all the generating assets.



Gov't set to protest higher Thai taxes on RP-made Ford Escapes

The Philippines will file a complaint against Thailand before the World Trade Organization (WTO) over Bangkok's decision to impose higher taxes on sport utility vehicle (SUV) exports of Ford Philippines ahead of domestically manufactured vehicles. "Yes, we are prepared to lodge our own protest with the WTO," Trade Secretary Cesar A.V. Purisima told reporters. He did not provide other details aside from Ford's request for it to handle the "Thailand side" of the problem. Board of Investments managing head Elmer C. Hernandez said Thailand's move amounted to "discrimination" against imported goods in favor of domestic goods. "There should be equal treatment. You should not make a distinction between foreign goods and local goods. You can impose as many taxes as you want but you should treat foreign goods and local goods equally," Mr. Hernandez said. Thai Cabinet ministers overhauled the automobile excise tax scheme in July to favor fuel-efficient vehicles and encourage the use of alternative fuels such as natural gas.

As a result, the category of "off-road purpose vehicle" or OPV, under which SUVs are classified, will be abolished. In Thailand, OPVs enjoy lower taxes at 29% as against passenger cars which are taxed 35% to 48% depending on engine displacement. This scheme will be replaced by a single four-tiered system that will tax all vehicles regardless of type, also on the basis of engine displacement, with small cars enjoying the lowest rate of 30%. Ford Escape compact SUVs manufactured in the Philippines will be hardest hit, with new rates of as much as 40% set to take effect next month, an industry source said. Escape's 2.3-liter version falls on the second tier, for vehicles with 2,100 cc to 2,500 cc engines, which will be taxed 35%. The 3.0-liter version falls on the third tier, for vehicles with 2,500 cc to 3,000 cc engines, which has a corresponding rate of 40%. The source said Thailand will implement the new excise taxes some time in September, ahead of domestically produced vehicles which will not be covered until Jan. 1, 2005. The source said as much as 7,000 Ford Escapes would be affected, citing preliminary estimates. The "unfair" treatment has raised speculation that Thailand is aiming to snatch Ford's Philippine operations, the source said.



BPI Family disputes amount it owes First Metro

By Ma. ELISA P. OSORIO, Reporter

BPI Family Savings Bank, Inc. said First Metro Investment Corp. is entitled to an interest rate of only 6% and not 17% as claimed by the investment house in a case involving units of the country's largest lenders. In an eight-page reply, BPI Family Bank said First Metro is not entitled to a full-year interest rate of 17% since the money was not deposited to BPI Family for a full year. First Metro earlier asked the Supreme Court to compel BPI Family Bank to pay it PhP387.24 million -- arrived at by computing a 12% interest on a 17% interest on principal for each year the bank failed to pay what was due to the investment house. The case stemmed from the transfer of PhP80 million on August 29, 1989 by BPI Family Bank from the current account of First Metro to the savings account of Tevesteco. The transfer was deemed "fraudulent and unauthorized." First Metro withdrew the remaining PhP20 million in its account a month later. First Metro is the investment house of the country's biggest lender, Metropolitan Bank and Trust Co., while BPI Family Bank is the savings bank unit of second largest lender Bank of the Philippine Islands.

In its reply, the savings bank said the "depositor-depository relationship between BPI Family and First Metro Investment ended on September 28, 1989 when the latter withdrew its remaining deposit of PhP20 million." It said the applicable law in this case is Article 2209 of the New Civil Code as it concerns "loss of property," not loan. Thus, if the court finds that an interest must be paid, it is only 6% per annum from "the date of the trial court's decision." On the interest on interest, BPI Family Bank said First Metro is not entitled to one because Article 2212 of the Civil Code does not apply, thus it can't be held liable for quasi-delict with the stipulated interest deemed ineffective upon the termination of the depositor-depository relationship. In an August 12 filing of a comment, First Metro said a 12% interest on the 17% interest remain unpaid for each year up to the point when it is fully paid. Therefore, it should earn interest during those years. "The 12% interest on the 17% interest shall be computed on a yearly basis, and then the interest, with the total of these yearly 12% interests being multiplied by the number of years that the total accumulated interest remains unpaid," the comment said.

Based on the May 21, 2004 court decision, First Metro said the base amount for the computation of interest is "from October 4, 1989 until fully paid." However, BPI Family Bank, in its motion for reconsideration said the 17% interest shall only earn the legal interest of 12% from the time of the extrajudicial demand until the date of the judicial demand. In this case, it would be from August 29, 1989 to October 4 of the same year. This translates to a mere 36 days 12% interest on the 17%. First Metro disagrees. "All that a debtor would do is avoid or delay paying an obligation," the comment said. The comment further alleged that in the letter of BPI Family Bank to First Metro dated June 16, 2004 or a day before the bank filed a motion for reconsideration, it admitted liability for the 17% per annum interest up to the date of payment and was merely proposing an alternative formula for computing the interest on interest. If the computation of the bank were to be followed, it would pay only a total amount of PhP231.67 million. According to the letter, the interest amounted to PhP164.41 million and the interest on interest was PhP1.93 million. The First Metro comment stated that the allegation of the bank that the principal amount should earn the 17% interest for a limited time only is without merit. In the letter-guaranty given by the bank to the investment house on August 15, 1989, it said a 17% interest per annum would be imposed on the amount deposited. "Petitioner [BPI Family Bank] has delayed payment for 15 long years and now would like to ask this Court to reward the delay by decreeing a lower rate of 12% p.a. instead of the clear stipulation of 17% p.a.," the comment said.



Asian currencies steady as lower oil supports yen

SINGAPORE -- Asian currencies were barely changed yesterday morning, with the Singapore dollar and Korean won near one-month highs, as lower oil prices and rising equity markets propped up the Japanese yen. The US dollar trod water as markets waited for US GDP and Japanese economic data due later this week, with the yen just off one-month highs near 109 a dollar. NYMEX crude oil prices for the October contract traded under $47 a barrel. The September contract had hit a record high of $49.4 a barrel on Friday amid escalating violence in Iraq, its 15th record in 17 sessions, before easing to settle under $48. Asian currencies did little last week, and traders said a listless yen would continue to dampen the regionals this week. Still, oil remained the dominant factor. Seasonal interest payments on overseas investments and short-covering supported the yen, as did the modest drop in oil prices. Japan imports all its oil needs. The Singapore dollar was quoted at 1.7040/50 at 2:00 a.m. GMT, its highest levels in a month, and the Korean won near 1,152 a dollar, also its highest since July 15.

Analysts said even if the surge in oil prices seen in the past couple of months proved to be short-lived, Asian currencies would not be able to sustain any strength. "Maybe the move down in oil that we saw on Friday will provide a little bit more support for these currencies in the short term," said James Malcolm, currency strategist with Deutsche Bank. "But we certainly can't get too bullish on the regionals in the medium term." "Even if oil retraces back from here, the impact that is going to be felt on current accounts, on growth and on inflation in the second half of the year will be considerable and I think markets are underestimating that," Malcolm said. To some extent that impact was beginning to be felt in South Korea, Malcolm said, where dearer oil and the worry that domestic demand had not recovered were causing foreigners to sell equities. Korea and Thailand rank among those in the region with the highest proportion of oil in their imports, next to Japan. But analysts said Thailand's stock markets had underperformed this year and foreigners had been selling Thai equities persistently. The baht was quoted around 41.40/45, its highest in 10 days, and is expected to find support heading into Wednesday's central bank policy meeting when rates are expected to be raised. The baht is however down about two percent in a month. Deutsche's Malcolm said there seemed to be reallocation in foreign portfolio flows into the region. "We are getting a new trend in terms of foreign equity flows in the last 4-5 days. Foreigners are selling in Korea and buying in Thailand and buying more aggressively in Taiwan," he said. The Taiwan dollar was on the weaker side of 34 per dollar, yet within striking distance of a one-week high of 33.99. -- Reuters



Regulators further tighten rules covering bank directors

The Bangko Sentral ng Pilipinas (central bank) has tightened further the rules on interlocking bank directorships in a bid to strengthen banks through better management. The regulator's policy-making Monetary Board approved last week a new circular, expected to be issued soon, that would detail new rules on interlocking directorships to make sure that there are no conflicts of interests. "The board has already approved the new rules," a central bank official said yesterday. The source said the new circular aims to provide clearer rules on which positions banking officials can hold. "This is part of continuous efforts to improve the financial system. We want to deter conflict of interest." Based on existing rules, interlocking directorships are prohibited but there are certain exemptions. The official said regulators will still allow some of the exemptions but some of the provisions will be clarified in the circular to make sure there are really no conflict of interests.

According to another circular issued last March, the Monetary Board allows interlocking directorships between a bank and not more than two of its subsidiary financial institutions or between two banks and one of their subsidiary non-bank financial intermediaries. The regulator also allows bank executives to occupy multiple officer positions between banks or between a bank and a non-bank financial intermediary, other than an investment house. This, however, is subject to a condition that at least 20%, but less than majority of the equity of each of the banks or intermediaries, is owned by a holding company. "Interlocking arrangement must be necessary for the holding company or the bank to provide technical expertise or managerial assistance to its affiliates," the circular said. Another condition for this is that the positions to be held by an officer should not involve any functional conflict of interests. Bangko Sentral Deputy Governor Alberto V. Reyes earlier said the board did not want the financial health of banks compromised by directors with conflicting interests. He said directors should act as true fiscalizers and champion the interest of stakeholders. -- Iris Cecilia C. Gonzales



PBCom auctions bad loans worth 12.5B pesos today

Philippine Bank of Communications (PBCom) will auction off today PhP12.5 billion worth of foreclosed properties and bad loans as scheduled, a top bank official said yesterday. "It is all systems go. The bidding will be in the afternoon. We will look at the bids and record them. The bidding rules have been sent out. The winning bidder will be known after the evaluation," PBCom president Isidro C. Alcantara, Jr. said in a phone interview. The publicly listed bank earlier told the stock exchange 14 local and foreign investors led by Bank of America, Deutsche Bank, Ayala Corp. and Robinsons Land Corp. were keen on its idle assets. Among the entities already conducting due diligence on PBCom are the Bank of America, Deutsche Bank, Sovereign Fund, and Marathon Fund.

Out of the total asset portfolio that will be put on the auction block, 50% will be composed of nonperforming loans while the remaining half will be nonperforming assets or those classified as real estate and other properties owned or acquired. Sources said the winning bidders can be named two to three days after the bidding. PBCom is confident that it can meet the September deadline set by the central bank for local banks to sell their bad assets to a special purpose vehicle that can avail of tax perks. -- R. A. M. Rubio



HSBC sees growth in wealth management services


HONG KONG -- Financial institutions in the Philippines are upgrading their wealth management services as they recognize the potentials of addressing the affluent's increasingly sophisticated needs, London-based Hongkong and Shanghai Banking Corp. (HSBC) said. "There are more banks offering wealth management. That is an increasing trend. They have recognized there is an emerging class who need to be serviced in a different way," HSBC (Philippines) senior vice-president Patrick D. Cheng said in a media briefing at the bank's Hong Kong headquarters at Queen's Road Central. Mr. Cheng, who heads HSBC's global wealth management proposition called Premier, said the market "is not yet mature" and "continues to grow." "There is room for improvement. There are people in different financial institutions. If they consolidate, they will be able to avail of the services. The market by no means is fully saturated," he added. Described as a comprehensive practice of providing financial products and advisory services, wealth management uses a consultative relationship to assist clients, their families and businesses in the accumulation, preservation and transfer of wealth. Combining expertise in international finance markets and local knowledge to bring innovative products and services, HSBC has acknowledged the customer's affluent lifestyle, personal interests and aspirations through Premier banking.

HSBC Premier clients have access to a personal portfolio manager who provides information on market developments, new products and overall portfolio management. "Recognizing these people have certain needs, Premier is not just in the Philippines but an international standard HSBC has done for the affluent clients. The level of service is different. It is one-on-one personalized service provided by a dedicated portfolio manager. In regular banking, you can speak to anyone. Premier portfolio managers take time and effort to know their customers and tailor-fit solutions according to client's needs. It is the level of service," Mr. Cheng said. Redefining financial lifestyle, Premier banking builds a relationship by treating customers as individuals and anticipating their needs. "This has been developed to acknowledged a client's lifestyle. When they have reached a certain lifestyle, where they have certain interests, we need to improve financial service delivery and capability to meet their expectations and wants," he said. "While some categorize banking as a lot of numbers, it transcends to mere financial figures. We keep ourselves continuously very close to our clients. We need to incorporate lifestyle banking through three Rs: recognition, relationship and reward."

Aside from having a personal portfolio manager who assists in selecting appropriate investment opportunities based on financial goals, clients also have access to a wide range of high-yielding investment instruments and offshore and insurance referral services. There is a wide choice of currencies and deposit tenors, too. "One of the mandates of HSBC for Premier is to keep expanding the product range. While these may be good for now, in the next couple of months, we will try to offer more products and services so people can diversify," he said. HSBC noted banking becomes relevant, convenient and attuned to customer's lifestyle because of level of services and range of perks of the service. A client has access to 11 exclusive Premier centers in the Philippines and in 32 countries and territories worldwide. A Premier Center is an exclusive banking center designed according to global standards where the prime customer can perform all his banking transactions with the help of a portfolio manager in the privacy of his own meeting room. Aside from 24-hour access to internet banking and mobile banking services, there is instant recognition at any HSBC office worldwide. "Premier customers either travel a lot or have overseas banking needs so they value that HSBC, as the world's largest local bank, is able to connect them to our global network of offices," he said.



Boiler room scams on the rise anew, says SEC


The Securities and Exchange Commission (SEC) has sounded alarm bells over the possible resurgence of boiler rooms. SEC Commissioner Joselia J. Poblador said the commission is looking into reported boiler room operations in Cebu, Pampanga, Davao and Pasig. A boiler room is an operation out of a low-rent office that uses high-pressure sales tactics or false or misleading information to sell securities to potential investors. The modus operandi of boiler rooms involves the setup of a corporation without the necessary licenses required under the Securities Regulation Code to deal in securities which are either nonexistent or unlicensed. "They [boiler rooms] may be testing the waters again. Right now, they're just suspicions," Ms. Poblador said. She said the SEC had been tipped off on the possible resurgence of boiler rooms by a complaint filed by an Australian national through e-mail. The letter, she said, contained the same complaint that the commission had received three to four years earlier. She said the boiler rooms are apparently victimizing foreigners, which could be bad for the Philippines' international reputation. She said the perpetrators pretend to be call center agents. "But we are not running after call centers," Ms. Poblador said.

Outgoing SEC Chairman Lilia R. Bautista said the SEC has already told the call center organization "to do something about it because it gives them a bad name." In 2002, the SEC issued a cease and desist order against alleged boiler room operator United Capital Management, Inc. (Unicap). The SEC initiated its probe on Unicap in response to numerous complaints from foreign investors and clients who claimed to had been defrauded of their investments in foreign securities. SEC records showed that Unicap has no license to engage in the buying or selling of securities.



SEC asked to reconsider Universal Leisure case

Universal Rightfield Property Holdings, Inc. is asking the Securities and Exchange Commission (SEC) to reconsider an order which revoked the registration of securities of unit Universal Leisure Club, Inc. It also asked for a reconsideration of an order for the leisure club to refund investors their payments for club shares. Universal Rightfield said the leisure club is also filing a motion for reconsideration relating to the orders, a disclosure at the Philippine Stock Exchange said. The SEC had revoked the leisure club's registration to sell securities and permit to sell securities after the regulator's compliance and enforcement department found the leisure club completed only two of five projects it had promised to undertake. The SEC had also said the club failed to disclose that some properties acquired for the projects were mortgaged prior to the issuance of the company's prospectus. Separately, the SEC ordered the leisure club to refund its investors. Rule 13 of the Securities Regulation Code states that if the SEC revokes a registration statement, or suspends the registration of a company, the firm "has the duty" to refund all investors.

Universal Rightfield said "The Club has filed a motion for reconsideration and supplement thereto questioning the jurisdiction of the SEC in issuing said orders." Universal Rightfield also said it is completing the requirements and conditions necessary for the lifting of a separate SEC order suspending its registration of securities and permit to sell securities to the public for failing to submit its 2003 annual report and first-quarter report. The commission had said it "shall proceed with the revocation of the company's registration of securities," if Universal Rightfield fails to submit the required corporate reports. Universal Rightfield said it is "taking legal steps" regarding allegations of massive fraud against its leisure club unit. The company also clarified that it was not ordered closed by the SEC and denied having ties with Consunji firm DMCI, Inc. "Corporate records will show that the company was a result of a merger between Rightfield Property Ventures, Inc. and Universal Petroleum Exploration Inc.," it said. This, after the minority stakeholders of the leisure club, the investors who filed the fraud complaints against the company and Universal Rightfield, said they would go after the assets of the Consunji group in relation to the SEC's order for the leisure club to refund investors. Maricel Lopez, lawyer of the minority group, alleged the Consunji group had pocketed the investments made by her clients in the leisure club and must be made to return the money. She said that one of Universal Rightfield's founders, Rightfield Property Ventures, Inc., is owned by DMCI. -- Jennee Grace U. Rubrico



Nenaco woes pull Metro Pacific into red


Metro Pacific Corp. registered an unaudited net loss of PhP5.9 milion in the first half, a reversal from PhP93.9 million in profit in the year-ago period. In a disclosure to the stock exchange, the local unit of Hong Kong-listed First Pacific Co. Ltd. said it was mainly dragged by the losses of shipping arm Negros Navigation Co. (Nenaco) in the first six months despite higher profits of real estate arm Landco Pacific Corp. (Landco). "While we were disappointed with the extent of the problems at Nenaco, in which substantial provisions have been made, we have been heartened by its prospects for recovery under a court-approved rehabilitation program," said Metro Pacific President and Chief Executive Jose Ma. K. Lim. "Setting that aside, prospects of our core property business are increasingly favorable. Landco continues to expand, and interest in our property portfolio is healthy. Our work continues and our efforts redoubled, as we strive to rebuild Metro Pacific," Mr. Lim added. Notably, Metro Pacific booked a PhP3.9-million profit from January to March from a PhP59-million loss in the same period last year. This was attributed to the improving profitability of Landco and Pacific Plaza Towers, and lower financing charges resulting from debt reduction exercises. But Nenaco, 97% owned by Metro Pacific, proved too much of a burden in the second quarter. Nenaco had sought court-mandated rehabilitation program in March due to its inability to pay some PhP2.4 billion in bank and trade loans.

For the first six months, Nenaco alone reported a net loss of PhP335 million versus a PhP62.7-million profit in 2003 due to the reduction of vessels in service and extended drydocking of other ships. Consolidated net revenues from January to June was at PhP1.6 billion, 20% lower than the PhP2 billion it earned previously. However, operating expenses were reduced by 16% to PhP311.7 million while financing charged declined by 29% to PhP313.4 million. Pacific Plaza also failed to sustain its financial performance for the second quarter, ending the first half with a net loss of PhP16.4 million as against the PhP7.9 million reported in 2003. The reversal, Metro Pacific said, was due to lower net values realized from exchange or sale of various units for the retirement of certain obligations. To neutralize Pacific Plaza's losses, Landco reported a net profit of PhP32.9 million for the first half, a 133.3% improvement over a PhP14.1-million profit previously. Landco cashed in on brisk sales of its residential farming projects.


BayanTel sets up Japan, UK offices to tap OFW marts

Lopez-led Bayan Telecommunications, Inc. (BayanTel) opened satellite offices in Japan and the United Kingdom to tap the market of overseas Filipino workers based there. BayanTel recently opened BTI Global Communications, Inc., in Tokyo and BTI Global Communications Ltd. in Hampshire. The firm aims to tap the market of more than 300,000 Filipinos in Japan. Vice-president for international business Sherry Ann Supelana said more than 355 million minutes of Japan's international outgoing calls go to the Philippines annually. "The Philippines is the third top destination of voice calls emanating from Japan. There are more than 300,000 Filipinos living in Japan and most of them are high-income earners," Ms. Supelana said in a statement. "By giving them access to affordable and reliable telecommunication services, we also help build stronger connections with their families in the Philippines," she added. BayanTel said it will open business opportunities for the distribution and reselling of its international prepaid cards in Japan. It also intends to serve more than 250,000 Filipinos working in Europe. BayanTel did not disclose how much its international operations would contribute to growth this year. Chief consultant Tunde Fafunwa said the firm targets revenues of PhP5.7 billion this year. -- A. B. L. Lorenzo



MRT III consortium pays $3.1-M interests on bonds

The Metro Rail Transit III (MRT) consortium has paid $3.1 million in interests due on its bonds this month. Philippine Ratings Services Corp. (PhilRatings), in a statement, said the Bank of New York has notified it that the note interest due on Aug. 10 was paid on schedule. "Information on bank balances show a total of about $10.2 million in the collection, liquidity reserve, and reserve accounts, also as of Aug. 10. This amount is sufficient to cover coupon payments falling due in February 2005, August 2005, and February 2006," the local ratings agency said. PhilRatings could not immediately confirm whether the Transportation department met its payment deadline to Japanese creditor, Sumitomo Corp., on July 31. Sumitomo ensures the rail network runs efficiently. The Transportation department and Sumitomo have an existing restructuring agreement for millions in unpaid maintenance rental fees. "No official written confirmation has been received by PhilRatings to date, although verbally, PentaCapital Investment Corp., issue manager for the notes, has stated that payment has been effected," PhilRatings noted. -- Cecille S. Visto



Lack of leads pulls down stocks


An absence of fresh developments yesterday dogged the stock market, which closed lower after investors scurried to the sidelines. Just after heaving a sigh of relief over the easing of oil price increases, share prices plunged anew, challenging the upbeat outlook for the week.


Trading was mixed as the Philippine Stock Exchange composite index (Phisix) tumbled 6.66 points lower at 1,576.18 on profit-taking. Roberto Cano, senior analyst at BPI Securities, Inc., said it was not the warning of a group of economists that the Philippines is on the brink of financial collapse that drove share prices downward. "It was more of profit-taking on a mixed trading session," said Mr. Cano, adding this was notable in the prices of "A" shares of San Miguel Corp., SM Prime Holdings, Inc., Petron Corp., and Manila Electric Co. (Meralco). He added that the lack of news pushed investors more to cash in on gains while they took positions in some stocks.


Luminaries from the University of the Philippines such as former economic planning secretaries Felipe Medalla and Solita Monsod, former budget secretary Benjamin Diokno, and economists Emmanuel De Dios Emmanuel Esguerra, Raul Fabella, Ma. Socorro Gochoco-Bautista, Ernesto Pernia, Renato Reside, Gerado Sicat and Editha Tan had published a report that sounded an alarm over the country's financial status. The authors warned that the country may experience a crisis similar to that faced by Argentina and Turkey because of its growing dependence on borrowing. To avert an impending crisis, the economists said, the government must launch an intensive campaign to convince investors that it is not slack in averting bankruptcy. Mr. Cano said the warning may have stirred some sentiment but the market's lackluster performance yesterday could not be "attributed" entirely to it.

Another analyst had earlier dismissed the warning as just another revived issue which the country is already aware of. The issue that matters, some traders said, would be how the government could present ways to curb its borrowings and stop the budget deficit from further ballooning. At a time when the economy is beginning to move out of the shadows of uncertainties, investors are looking for assurance from the government that it can manage the situation. In response to the alarm sounded by the group, President Gloria Macapagal Arroyo asked her economic managers to stay on her team. Mrs. Arroyo made the appeal after an initial Cabinet revamp last week. She also urged people to brace for more uncertainties as the country traverses a sensitive path to recovery.


Except for the oil counter, all the indices were down. Mining suffered the biggest decline of 73.57 to 1,811.83. Commercial-industrial slid 9.61 to 2,513.80. Property shed 2.65 at 513.80 while banks and financial services lost 1.52 at 458.35. The all shares index was down by 6.08 to 1,004.80. The market generated PhP441.4 million from trading total shares of 3.3 billion. There were 2,851 transactions for 105 traded issues. Advancers lost to decliners, 27-35, while 43 stuck to their previous levels.


Telecom giant Philippine Long Distance Telephone Co. continued to be on top of the most actively traded stocks list, rising fives pesos to PhP1,275 on 86,380 shares traded. A report that its mobile phone unit, Smart Communications, Inc., is eyeing Hong Kong as a site to launch a mobile phone service outside the country generated interest among investors. Smart will launch in Hong Kong in the next few days to tap thousands of Filipino workers there. It will be offering wireless services through prepaid phone cards. The company will capitalize on its ability to offer call and text services through 1528 Smart which is 50% cheaper than those offered by other Hong Kong operators. Smart will later expand to Japan in partnership with NTT, a telecom leader there. Mr. Cano said the plan is brilliant because with it, Smart can tap another "specific" segment of the growing Filipino market which could push the company's earnings. While this may not be the regional expansion plan that the mobile phone firm talked about some time ago, it signifies Smart's initiatives to start spreading its wings in Asia.


Meanwhile, some good news come to the Philippine Stock Exchange which stands to gain from a review of registered companies at the Board of Investments. Trade and Industry Secretary Cesar Purisima has said the listing of the 5,000 companies registered with the agency was "a great opportunity to help develop the capital market." Under the Omnibus Investments Code of 1987 or Executive Order No. 226, firms listed with the investment agency must sell at least 10% of their shares to the public within 10 years upon registration.


In other corporate news, Ayala-led Bank of the Philippine Islands Bank of the Philippine Islands (BPI) reported that the Bangko Sentral accredited it to serve as a securities custodian. This makes BPI responsible for the safekeeping of securities which are sold, borrowed, purchased, traded, held under custody or transacted in the Philippines where at least one of the parties involved is a bank or nonbank financial intermediary under the central bank supervision. BPI said it is the only local bank to be accredited as an independent custodian.