Saturday, July 10, 2004
Profit-taking continue to drag share prices down
BIR wants to scrap some VAT exemptions
Tax bills to go first before charter change
Philippines leads in SMS technology
'Deeper understanding' between RP, Japan after latest trade talks
Davao Customs collections up by 21% in first half
PSE suspends trading of Pryce Corp. shares
Peso recovers slightly, closes at PhP55.79 to the dollar
Port project bidding more transparent with e-procurement
Sagittarius Mines exploration work in Mindanao yield positive results
Satisfaction ratings

Friday, July 09, 2004
Gov't not doing enough -- IMF
Legislative fate of new taxes uncertain
Palace seeks PhP100B more for 2005 gov't budget
Economic planners clueless on Palace advisory group
Manila may ink free trade pact with Tokyo this year
Proposal to create state-run infrastructure firm bucked
Rice production target for 2004 likely to be met
San Miguel Corp. opens Indonesia beverage plant
Bourse lifts Union Cement trading halt
Peso barely moves against dollar
Citibank expands reach to mid-income market
DBP loan OK'd by central bank

Stocks dip as investors take profit

July 7 - 8
July 5 - 6
July 1 - 2




Profit-taking continue to drag share prices down


Profit-taking continued through the end of the week, pushing share prices to close a little lower on Friday. Analysts said the market was still in consolidation mode with most share prices unchanged. Chelsea Dipasupil, Research Head at RCBC Securities, Inc., told BusinessWorld that only few blue chip stocks moved to positive territory. These included Ayala Corp., Jollibee Foods Corp., Meralco B and San Miguel Corp. "Majority of the stocks were unchanged. Movement was seen generally in second-liners," Ms. Dipasupil said. She said this was due to continued profit-taking and expectation of good earnings reports. "Most investors took profits from other issues while the rest took a slow positioning in anticipation of corporate reports," she added.

Companies will be releasing second quarter results beginning July 15 to August. The benchmark Philippine composite index (Phisix) closed down 3.01 points, or 0.19%, at 1,592.46 on 761.56 million shares worth PhP498.3 million. It traded between 1,587.93 and 1,595.87. Contrary to projections, the Phisix failed to break the psychological resistance level of 1,600 due to a lack of fresh leads and as the market awaits the first-half earnings results. The all-shares index fell 15.92 points to 1,005.00. The commercial-industrial index rose 0.49 to 2,503.18. Property shed 5.09 to 540.01. Mining gained 23.78 to 1,529.47 as oil stocks retreated 0.20 to 1.61. Banking and finance slid 1.98 to 463.44. Philippine Long Distance Telephone Company (PLDT) shares prices, however, improved.

Jojo Gonzales, Research Head of Philippine Equity Partners, Inc. attributed the sustained interest on PLDT on speculations that it has good second quarter results. This, after the telecom giant disclosed that subscribers of its mobile phone units Smart Communications, Inc. and Pilipino Telephone Corp. (Piltel) exceeded 16 million in June. PLDT said it hopes to increase the number of its mobile subscribers to 18 million within the year. The company claims it has a 58% market share in the country's wireless phone market with Smart accounting for 45% and Piltel, 13%. Shares of PLDT were unchanged at PhP1,235 on 70,750 shares after a session of seesawing trade. The company will release its quarterly report on Aug. 3.

Ayala Land, meanwhile was top-traded and unchanged at PhP5.60 on 29.6 million shares. This as the company said it expects higher profits this year. Ms. Dipasupil said Ayala Land was actively traded because of net foreign selling which encouraged local investors to pocket profits. Globe Telecom was steady at PhP835 on 72,590 shares.

SM Prime Holdings was down PhP0.10 at PhP6.10. Even Union Cement Corp. was down PhP0.18 at PhP2.12 with profit-taking on gains from the sale of Bacnotan Consolidated's 51% equity in Union Cement Holdings Corp., a shareholder of the cement firm. Ayala Corp gained PhPhP0.10 at PhP5.60. Jollibee rose PhPhP0.25 at PhP23.75. Filinvest Land was down PhP0.02 at PhP1.00. San Miguel B, which is open to foreigners, declined PhP1.00 to PhP69, while San Miguel A was unchanged at PhP58.50. The Philippines' largest food and beverage conglomerate is expanding its presence in the region. It recently opened a beverage manufacturing facility in Indonesia.


BIR wants to scrap some VAT exemptions

The Bureau of Internal Revenue (BIR) wants to review the possibility of scrapping some exemptions in the value-added tax (VAT) system to plug loopholes. The move is seen to widen the base of VAT payers and raise more revenues to help narrow the widening budget deficit, which was projected at PhP197.8 billion. The government wants to eventually wipe out the deficit by 2009. "The government is not able to maximize expected VAT collections because of too many exemptions," BIR Deputy Commissioner Kim J. Henares told reporters in an interview.

VAT collection, computed at 10% of each sale transaction, fell to PhP82.44 billion in 2003 from PhP85.92 billion in 2002. The Tax Reform Act of 1997 exempted more than 20 transactions from VAT. These include the sale or importation of non-food agricultural products, cotton, copra, marine and forest products, the sale or importation of agricultural marine food products in their original state, livestock, breeding stock and genetic materials, the sale or importation of fertilizers, seeds, seedlings, fish, prawn, livestock and poultry feeds, coal and natural gas, petroleum products subject to excise tax, importation of passenger or cargo vessels of more than 5,000 tons, importation of professional instruments, wearing apparel, and domestic animals.

Services rendered by the following are also exempted from VAT: persons subject to percentage tax, agricultural contract growers, those engaged in medical, dental, hospital, veterinary and educational services, sale by the artist of his art, literary works, and musical compositions. Also covered by the exemptions are services rendered by the regional or area headquarters of multinational corporations in the country which act as supervisory, communications and coordinating centers for their branches in Asia Pacific and do not earn income locally. Ms. Henares said an estimate of how much collections would increase by scrapping selected items from the exemptions list could not be determined as yet.

VAT comprises as much as 20% of the BIRís collection. It was first adopted in 1988, replacing 12 different kinds of indirect taxes such as annual fixed taxes and sales tax from manufacturers. It initially covered only the domestic sale and importation of goods, but in 1996 it was expanded to include most types of services. Ms. Henares said it is not enough that the government raise VAT since the attendant increase in collection would still be offset by the number of exemptions. "The government must tighten the provisions of the National Internal Revenue Code that prevent us from collecting (taxes)," Ms. Henares said.

The government said it is open to raising VAT to 11%-12% from 10%, but not as high as 15% as proposed by the International Monetary Fund (IMF). A higher VAT is being studied for possible inclusion in the new administrationís economic agenda. A change in VAT needs congressional approval. The IMF reportedly wants the government to raise VAT to 15%, resulting in an estimated increase in collection to PhP10 billion. The BIR expects to collect PhP477 billion in taxes this year. -- Karen L. Lema


Tax bills to go first before charter change

Pangasinan Rep. Jose C. de Venecia, Jr., who will likely be reelected Speaker of the 13th Congress, has proposed to shelve all talks of constitutional change for 100 days from the start of sessions, during which time the Senate and House of Representatives will work on approving revenue-generating measures. Mr. de Venecia suggested this yesterday after the Lakas-Christian-Muslim Democrats, of which he is president, and President Gloria Macapagal-Arroyo, party chairman, held a national party caucus on Thursday night.

The 250 regional and national party members, he said, all agreed to support Ms. Arroyoís 10-point agenda and the proposed shift from a bicameral presidential form of government to a unicameral parliamentary federal form of government within Ms. Arroyoís term. In acquiescence to the Senate position that revenue-generating measures be tackled first before moves to change the Constitution, Mr. de Venecia said the both chambers should try to approve all revenue-generating measures within 100 days. "All it takes is political will, it can be done."


Meanwhile, the proposed new taxes are expected to face rough sailing in the Senate as some lawmakers rejected the idea. Opposition Sen. Panfilo M. Lacson said the minority bloc is almost with the consensus that tax leakage should be plugged first before imposing new measures. "There is a lot to collect from the existing tax laws." He added, "Our tax base is too narrow. We have 14 million potential taxpayers but only three million people are paying the right taxes."

During the recent minority caucus attended by Senators Aquilino Q. Pimentel, Jr., Juan Ponce Enrile, Jose E. Estrada, Ma. Consuelo S. Madrigal, Sergio R. Osmeña III and Alfredo S. Lim, the bloc vowed to push for the collection of the right taxes before imposing new measures. Senate President Franklin M. Drilon, meanwhile, earlier announced that the senators will attend a series of discussions on the fiscal situation to determine the urgency of writing new tax laws.

Malacañang's economic advisers are proposing the imposition of new taxes on some items to include oil and on the sale of goods, indexation to inflation of the excise tax on tobacco and alcoholic drinks, shift to gross from net income taxation, tax amnesty for individuals and corporations, franchise tax for telecommunication companies (instead of tax on short message service), increase in the expanded value added tax to 12% from 10%; use of a performance-related attrition system in the government, extension of motor vehicles users charge for four more years, and rationalization of fiscal incentives.


After the 100 days, the two chambers can convene into a constituent assembly to write charter amendments. The lawmakers, however, are divided on the mode of changing the Constitution -- whether by constituent assembly or a constitutional convention. The Lower House approved a resolution in 2003 allowing it to convene into a constituent assembly, but this was rejected by the Senate, which preferred a constitutional convention. They are as equally divided this year. Mr. de Venecia noted that more than 95% congressmen who signed the resolution and conformed with the draft amendments to the constitution last year are expected to renew their support to moves to change the constitution.


In the same national party caucus, Mr. de Venecia and Ms. Arroyo formally announced the merger of Lakas and the Kabalikat ng Mamayang Pilipino (Kampi). Kampi was Ms. Arroyoís political party when she ran for vice-president -- then as Mr. de Veneciaís running mate -- in the 1998 election. Kampi was revived this year, with Ms. Arroyoís son, Juan Miguel V. Arroyo and brother-in-law Ignacio T. Arroyo, among its prominent members.

Lakas and Kampi were embroiled in conflict in recent weeks over the speakership and chairmanship of committees in the Lower House. Kampi, with its 72 members who are also affiliated with other political parties, posed a threat to Lakas, which has over 100 members. Mr. de Venecia said the merger will be formalized on July 25, the eve of Ms. Arroyoís State of the Nation Address. Lakas will remain as the surviving party while Kampi will be dissolved.

With Kampi merged with Lakas, and with the other political parties -- Nationalist Peopleís Coalition, Liberal Party, Partido Demokratiko Sosyalita ng Pilipinas and most of the party-list groups -- aligned with Lakas, Mr. de Venecia is now free to create the so-called Rainbow Coalition 4. Rainbow Coalition 4, Mr. de Venecia said, will be instrumental in passing legislation supportive of Ms. Arroyoís 10-point agenda, and her proposal to shift to a parliamentary form of government.

In the future, Mr. de Venecia hopes to mold Lakas into a "disciplined, reformist party with full emphasis on subsidiarity and Christian humanism." The party will not be unlike the UNO coalition in Malaysia, he added, which allowed that country to "create its own economic miracle." -- Judy T. Gulane and Carina I. Roncesvalles


Philippines leads in SMS technology

The country continues to be the leader in short messaging service (SMS or text) technology in Asia, the Department of Trade and Industry (DTI) yesterday said. In a statement, the DTI said the Philippines was cited as "Asiaís leader" in SMS at CommunicAsia 2004 in Singapore last month, aside from winning other awards. "The Philippines bested the other countries due to its existing automated information on demand via SMS available to its subscribers over the other countriesí basic send-and-receive SMS," the DTI said. Aside from this, the Philippines was honored for being a "reliable provider of export products in electronics as well as an emerging leader in telecommunications, both for mobile communications and fixed line[s]," DTI said.

The Philippines also won the Mobile News Award for Most Innovative Service for Paysetter Internationalís "share a load," TelecomAsia Magazineís Best GSM Carrier for Globe Telecom, TelecomAsia Magazineís Best Telecom CEO for Gerardo Ablaza Jr. of Globe Telecom; and TelecomAsia Magazineís Best Emerging Markets Carrier for Philippine Long Distance Telephone Co. The achievements show that "the Philippines is an integral part of IT and telecommunications development in Asia," Trade and Industry Secretary Cesar A. V. Purisima said.

Undersecretary for International Trade Thomas G. Aquino noted that the Philippines was "very much ahead of [its] ASEAN [Association of Southeast Asian Nations] counterparts" particularly in SMS gateway technology, messaging, gaming, location-based services, and mobile commerce applications. Because of this, Philippine developers "can find niches in satisfying the need for mobile solutions that can also address the Japan and USí CDMA [code division multiple access] markets," he said.

Active mobile subscribers have reached 23 million due to affordability and accessibility of mobile phone services. Text messages outnumber voice calls by a ratio of 8:1, and this is expected to go up in the coming years. DTI said progressive information and communications technology infrastructure and competitive rates have resulted in a "very active mobile market," with an estimated 25% penetration rate in Metro Manila alone. "We see a growing trend towards third generation (3G) applications and mobile commerce and this presents an opportunity to Philippine developers in the telecommunications industry," Mr. Aquino said.

With 3G applications, users will be able to send and receive video, short film clips and even hold conduct videoconferences at a speed of 128 to 265 mbps (megabytes per second). Mobile commerce will make it possible for users to settle bills, buy grocery, and pay for cab or bus rides through a mobile phone. -- Felipe F. Salvosa II


'Deeper understanding' between RP, Japan after latest trade talks

The recently concluded third round of talks on free trade between the Philippines and Japan brought the two trading partners to a deeper understanding of each other's demands -- an indication that a pact may be reached soon, a Japanese official said yesterday. Embassy spokesperson Shuhei Ogawa said the 12 working groups held during the three-day bilateral talks that ended on Wednesday led his government to understand better the Filipino side. "The session went very smoothly and on a very friendly atmosphere. We exchanged views and had a deeper mutual understanding on each other's sides. Now the Japanese side understands what the Filipinos want," Mr. Ogawa told BusinessWorld.

Although he declined to give details of the negotiations, he said among the issues discussed was the movement of persons with the Philippines pressing for the entry of caregivers and nurses to Japan. Some groups of Japanese nurses have been reportedly opposing this. "We've been explaining that among the areas to be considered is the kind of law we have in Japan. We're asking the Filipinos to understand our stand. At the same time, the Filipinos shared their side and views on this movement of persons," Mr. Ogawa said. He said during the recent courtesy call on President Gloria Macapagal Arroyo by Japanese Prime Minister Junichiro Koizumi when he attended the inauguration of the new president, Ms. Arroyo expressed the desire to have the agreement signed soon. Mr. Ogawa said the Japanese government also wanted a "speedy conclusion to the negotiation."

The next round of talks will be in Tokyo either next month or in early September. Trade Undersecretary Thomas G. Aquino, who led the Philippine panel, earlier said both sides are optimistic that an agreement can be reached before yearend. Two or three sessions are expected to be held before the agreement is finalized. The trade deal, first raised by Mr. Koizumi and Ms. Arroyo in last year's Association of Southeast Asian Nations-Japan summit, is seen to improve the gross domestic product to between 1.7% and 3%. -- Maria Eloisa I. Calderon


Davao Customs collections up by 21% in first half

DAVAO CITY (southern Mindanao) -- Customs collection at the Port of Davao exceeded the 21% target for the first half. Data from the Bureau of Customs, based on a semestral report of district officeís chief Aniceto Q. Sanchez, Jr., indicated a total income of PhP421 million as against a PhP349-million target for the period. The district Customs office is targeting an PhP804-million collection this year, and officials are optimistic they would easily meet this considering the rising exports of agricultural products from the region.

The Port of Davao exports about $500 million worth of fresh banana, pineapple, mango, and asparagus, as well as coconut products annually. While it exports roughly $700 million worth of merchandise annually, it imports only about $200 million worth of products from foreign ports, sources said.

The Customs report also noted that the increase in collection came amid a drop in auction sales for confiscated items from PhP1.5 million in last yearís first half to only PhP1.2 million in the same period, this year. The district Customs office here also covers the ports of Gen. Santos City in South Cotabato, Mati in Davao Oriental and Parang in Maguindanao. Customs records show the first half targets for these ports are as follows: PhP349 million for Davao, PhP9 million for Mati, PhP9 million for Parang, and PhP86 million for Gen. Santos. Only Davao and Gen. Santos ports hit their target collections, or increases of 21%, while Parang and Mati ports showed major shortfalls in collections, way below the targeted figures.


PSE suspends trading of Pryce Corp. shares

The Philippine Stock Exchange (PSE) has suspended indefinitely the trading of Pryce Corp. shares after the firm said it would file a petition for corporate rehabilitation. Pryce had informed the exchange that the corporation, its shareholders and other creditors may be prejudiced with the likely foreclosure or attachment of the assets it had mortgaged. The company, still reeling from the 1997 Asian financial crisis which left it incapable of servicing and paying its debts, will ask the court for permission to suspend debt payments. "The corporation is left without any other recourse, but to file a petition for corporate rehabilitation with prayer for suspension of payments in order to protect and preserve itself," Pryce said.

The filing of the petition for corporate rehabilitation, approved by Pryce's stockholders, may involve the settlement of obligations through dacion en pago of its properties or payment-in-kind arrangements with creditors, a loan restructuring, and a debt-to-equity conversion. Pryce Corp., formerly Pryce Properties Corp., was incorporated as a property holding and real estate development company. It operates primarily in Mindanao, particularly in cities like Cagayan de Oro, Davao and Iligan for its real estate development projects.

The company changed its name and primary purpose from that of a property company to a manufacturing company when LPG and industrial gases became its dominant operation in 1997. Pryce has a subsidiary, Pryce Gases Inc., which manufactures and distributes oxygen and acetylene in the Visayas and Mindanao and trades in other gases such as argon, carbon dioxide and nitrogen. -- Roulee Jane F. Calayag


Peso recovers slightly, closes at PhP55.79 to the dollar

The peso rebounded for the second time this week as it shed off almost 15 centavos yesterday. "That's the peso's trend, it strengthens by a little bit, then the next day, it's weak again," a trader said. The same trader added that the market "just squared-off. They sold their dollars for a long time but bought it back for covering ahead of the weekend." He said that the closing at PhP55.79 to the dollar is only a range-trading mode from the peso as it looks for fresh leads to develop its appreciation.

At the Philippine Dealing System, the country's electronic currencies exchange, the peso averaged stronger by over 10 centavos to PhP55.836 from PhP55.937 previously. It hit its lowest value for the day at its opening at PhP55.92. Hovering at a 14 centavo range, it went to as high as PhP55.78 but later settled at PhP55.79 per greenback. "It's not all about the peso this week but about the dollar getting weaker," the trader added.

A few weeks ago, inflationary measures from the United States pushed the dollar to extend its bullish trend which in turn, affected the regional currencies' rally. However, recent economic figures in the US including its lower-than expected jobs data, turned-off market players as they "now question if there will really be an economic recovery there," the trader said. There was also minimal corporate demand, which also allowed the peso to recover. Firms, particularly oil and telecommunication companies buy dollars heavily to cover their import obligations. "Banks only ride on these commercial transactions [when they see that the dollar is getting stronger], but they were little [yesterday]," the trader said. -- Ira P. Pedrasa


Port project bidding more transparent with e-procurement

The Philippine Ports of Authority said bidding for contracts would be more transparent following yesterdayís launching of the e-procurement system.The PPA, one of the highest revenue contributors for the government, said it does not expect higher yields from the PhP18-million investment in the computer system. "This is not really for revenue-generation. We will be satisfied by the impact of the system with improved transparency," said Aida Dizon, PPA head for finance and administration.

The PPA will initially use the system for contractors who want to register and file their application for eligibility. Bidders need to file basic information about their eligibility only once, and will receive via electronic correspondence every time their services suit PPA contracts up for bidding. In August, the PPA will enter the second phase of its procurement computerization, which would by then show the evaluation results of the electronic bidding.

After the e-procurement system takes off, the PPA will also undertake the e-payment system, which will allow online payment for the port regulator. PPA strategic development manager Amy Aquino said there is as yet no timetable for this project due to the lack of development in other ports. "There has to be a coordination with banks, but itís difficult because a lot of ports in the provinces do not have the communication facilities," Ms. Aquino said. The computerization program is in compliance to Republic Act No. 1894 or the government procurement reform law. -- Anna Barbara M. Lorenzo


Sagittarius Mines exploration work in Mindanao yield positive results

KORONADAL, South Cotabato (central Mindanao) -- The exploration work of Sagittarius Mines, Inc., which took over the mineral rights of Western Mining Corp. in the provinces of South Cotabato, Sultan Kudarat and Davao del Sur, have yielded positive results boosting the possibility of a full-scale exploration in the area. "Our ongoing exploratory studies in the towns of Tampakan [South Cotabato], Columbio [Sultan Kudarat] and Kiblawan [Davao del Sur] indicate positive results," Allan Buenavista, project manager of Sagittarius Mines said. Mr. Buenavista said the company's Australian partners are expected to arrive early next year for the feasibility study of the project after ore samples found were reported as 'world-class'.

Sagittarius Mines is a joint Filipino-Australian venture that operates through a financial and technical assistance agreement (FTAA) it inherited from Western Mining when it took over the mines from its previous rights holder three years ago. But the Supreme Court in a ruling last January declared FTAAs as unconstitutional for violating a Charter provision limiting to 40% ownership of foreign investors in a company, including those engaged in mining. The government, through the Department of Environment and Natural Resources has, however, appealed the Supreme Court's ruling.

Sagittarius' legal department head Al Lagunzad also noted that if the Supreme Court will not reverse its decision, the firm could still operate using it's approved mining claims under the mineral production sharing agreement approved by the government in 1994. -- Roel P. Osano


Satisfaction ratings

The polling outfit Social Weather Survey (SWS) yesterday released its June 4-29, 2004 poll that found 57% of respondents satisfied with the performance of President Gloria Macapagal Arroyo and only 31% dissatisfied, or a net rating of +26. This is close to the March 21-29 SWS survey that showed a 55% satisfaction rating with 25% dissatisfied, or net +30. Small increases in public satisfaction with Ms. Arroyo in the National Capital Region and Visayas were offset by small declines elsewhere. SWS also said the survey also asked about the public satisfaction with the Arroyo administration over the past three years, and found 61% satisfied and 27% dissatisfied with its performance. The ratings are relatively higher in the Visayas (72% satisfied) and Mindanao (66%). Respondents were predominantly satisfied with the 2001-04 Arroyo administration in the following issues: helping the poor (67% satisfied), setting a good example of morality in public office (62%, promoting foreign investments (60%, strengthening democracy (57%), and reconciling with rebel groups (49%).


Gov't not doing enough -- IMF

The government has not done enough to improve its finances and reduce poverty in the country, the International Monetary Fund (IMF) said last night.An IMF team, which arrived in Manila last month to review the economy's performance, said President Gloria Macapagal Arroyo must take advantage of her new mandate to do bold reforms in tax collection, job creation, and poverty reduction. "A renewed political mandate provides the administration with a clear opportunity to press ahead with much needed reforms to ensure macroeconomic stability while creating new opportunities to reduce unemployment and poverty," the IMF team said in a statement.

IMF mission head Masahiko Takeda said the government should focus on three areas -- strengthen fiscal performance, restore financial soundness in the power sector, and reinvigorate the financial sector. "What is needed is a bold reform package," the IMF mission chief told a press conference. Concluding its assessment of macroeconomic developments and policy priorities, the IMF mission said a major stumbling block to economic growth was the sustained decline in government revenues. Mr. Takeda said reducing government debt over the medium term would create more room for development expenditure such as infrastructure.

The Washington-based IMF team also said it was concerned by some of the tax measures being proposed by Palace advisers. For one, it bucked their proposal for a tax amnesty for individuals and corporations, saying this would just make the government poorer. "It will also be important to resist proposals for new tax amnesties, given the harmful impact that repeated amnesties have on incentives for taxpayer compliance," the IMF mission said. But the mission supports the plan to raise tobacco and alcohol taxes based on their price increases. When asked on the IMF team's stand on other proposed measures such as raising the value-added tax rate and shifting to gross from net income taxation, Mr. Takeda was tight-lipped. He said what was important was to introduce significant tax policy measures. Mr. Takeda also stressed the need for the government to sell cash-strapped National Power Corporation (Napocor) to private investors. "Addressing the Napocor problem is a very important element to improve the government's financial condition," he said, adding that government's absorption of Napocor's PhP500-billion debt was necessary for privatization.

On banking, the IMF team reiterated earlier statements that there was a need to strengthen regulators, particularly the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) and the Philippine Deposit Insurance Corporation (PDIC). "It continues to remain critical to strengthen the legal powers of the BSP and PDIC in line with best international practice," the IMF team said in a statement. IMF officials arrived in Manila last month to discuss policies with government and monetary officials under the IMF's post-program monitoring program framework.

When asked about possible revisions to IMF's economic growth forecast for the Philippines for this year, Mr. Takeda said the economy, as measured by the gross domestic product, would likely expand by 5% -- within the government's growth target of 4.9%-5.8%. Looking beyond 2004, Mr. Takeda also said the government must detail a credible program to balance the budget by 2009. Mr. Takeda, who is also IMF's senior adviser for Asia and the Pacific, added IMF would respond to any request for new loans. But Bangko Sentral Governor Rafael B. Buenaventura said in a separate interview that the country had no plans. However, he also said financial help from IMF was an option available to the government.


Meanwhile, the Malacañan presidential palace is bent on pushing for a shift to gross from net income taxation system despite the objection of the IMF. Emerging from a Cabinet meeting, Socioeconomic Planning Secretary Romulo L. Neri said the IMF was not fully aware of the tax scheme planned by the government. "The IMF has been a useful source of inputs, and we always take their suggestion seriously, but it is possible also that they are just giving their opinion without really looking at the details that we intend to go into for this measure," Mr. Neri told reporters. Taxes are presently based on net income, or gross income minus allowable deductions. President Gloria Macapagal Arroyo proposes to limit allowable business deductions to cost of sales only. It expects to raise at least PhP30 billion in additional revenues from this measure.

The IMF reportedly warned the government that a shift to gross income taxation would be risky, and would not likely generate additional revenues. But Mr. Neri explained, "What is important is to reduce discretion" in determining taxes to be paid. "In the end, it will be us who will decide, not the IMF," he added. Meanwhile, the IMF review team expressed dissatisfaction over the government's deficit target for next year and asked the Arroyo administration to further control spending. A government source said the IMF mission was "concerned" that the Arroyo administration planned to trim the budget deficit to 3.6% of GDP next year from 4.2% this year. "They questioned why the reduction was too small. Their perception was that the government would be spending more," the source said. The IMF mission wanted the 2005 deficit at only 2.5% of GDP, the official added. "They would like to see a program or a plan that would require more deficit reduction," he said.

The government hopes to reduce the budget deficit to PhP187.5 billion next year from this year's projected PhP197.8 billion. The 2003 budget was PhP199.8 billion, while GDP was PhP4.3 trillion. The government has already adopted one of IMF's recommendations to reduce debt figures, which is to exclude intra-government holdings of securities and bonds in computing outstanding public sector debt. The source also said IMF representatives were impressed with the proposal to introduce new petroleum taxes, although they still had reservations. "They like the idea but they think it is difficult to introduce, given the high prices of oil," the source said. -- with reports from Jeffrey O. Valisno and Felipe F. Salvosa II


Legislative fate of new taxes uncertain

The fate of 10 new taxes being pushed by advisers of President Gloria Macapagal Arroyo hangs as the Palace decides which of them will be included in the government's legislative agenda. Finance Secretary Juanita D. Amatong said the 10 tax proposals would be presented to the President on Monday, as well as measures to reform the power and financial sectors and ensure macroeconomic stability. Albay (southern Luzon) Rep. Jose Salceda, member of the so-called Palace advisory body Economic Managers Group, earlier said all 10 tax proposals were as good as approved. But Finance undersecretary Eric O. Recto clarified, "that decision has not been made yet", although new taxes are all "under consideration." This early, however, the Department of Finance (DoF) and the International Monetary Fund (IMF) had already bucked the proposed tax amnesty for individuals and corporations.

A Finance official, who requested anonymity, said Congress passed 15 tax amnesty laws in the last 13 years, yet the "tax effort has gone down." Ms. Amatong also confirmed that the IMF disapproved of the government's plan to shift to gross from net income taxation. "IMF told us it might end up being complicated," she said. But Ms. Amatong and Mr. Recto were one in saying that it was too premature to tell whether the shift would work. "It would be a needless exercise to discuss the apprehensions because the actual provisions of the law have not been put together yet. Masyado pa maaga para tirahin [It is too early to criticize this proposal]," Mr. Recto said. Ms. Amatong said she preferred the shift because it would simplify tax administration.

Aside from gross income taxation and a new tax amnesty, Palace advisers are also pushing:

  • the indexation to inflation of the excise tax on tobacco and alcoholic drinks;
  • a franchise tax for telecommunication companies (instead of tax on text messaging);
  • increase in the expanded value added tax (EVAT) rate to 12% from 10%;
  • use of a performance-related attrition system in government;
  • extension of motor vehicles users charge for four more years; and
  • rationalization of fiscal incentives.

All of these measures need the approval of Congress.

Meanwhile, congressmen said they would want to first review the tax bills to be filed before commenting on them. "The provisions of the bills on taxes should be studied carefully," Cebu (Central Visayas) Rep. Nerissa Corazon Soon-Ruiz said at a breakfast forum in Quezon City. "We will not give premature signals. The bills should be heard first," added Tarlac (Central Luzon) Rep. Jesli A. Lapus, who has been endorsed to chair the House of Representatives ways and means committee, which has jurisdiction over tax bills. Mr. Lapus, who was one of the vice-chairmen of the committee in the previous Congress, also said the proposed tax bills would have to go through the legislative mill. "By the time they are done, it could be 2005," he said. "Let us think of what we can do now -- the doables and the must-dos." Mr. Lapus suggested maximizing the revenue-generating capacities of various departments like Transportation and Communication, Environment and Natural Resources, Agriculture, Agrarian Reform and others, which have been mandated by law to turn over all the proceeds from permits, licenses, fees and other services to the Treasury.

Other doables that Mr. Lapus suggested were compromise agreements on the Bureau of Internal Revenue's accounts receivables, which are estimated at PhP90 billion; plugging the leakages in expanded valued added tax (EVAT) collections; and implementation of an executive order on an amnesty on customs duties for imported second-hand cars. Mr. Lapus said the government must be run like a corporation, with all its departments and agencies required to produce revenues. And if they meet their revenue targets, then incentives may be given, which will be used to augment their budgets. Mr. Lapus noted that a monitoring body, called: Government Corporation Monitoring and Coordinating Council (GCMCC), was formed through a grant from the World Bank in 1989 to appraise the performance of government-owned and -controlled corporations (GOCCs) with respect to their revenue goals. GCMCC was placed under the Department of Finance, "but the last time I checked, the office had only two clerks," Mr. Lapus said.

Meanwhile, the consolidated public sector debt, which is the combined budget deficits of the government, GOCCs and other public financial entities, climbed to PhP244.6 billion last year. The CPSD is used by international creditors to gauge the government's ability to generate funds to finance spending and repay borrowings.

Three tax bills (and not four as reported by BusinessWorld on Wednesday) suggested by the Economic Managers' Group have already been filed at the House of Representatives by Quezon (southern Luzon) Rep. Danilo E. Suarez. These are the bills:

  • providing for a tax amnesty (with required submission of statement of assets, liabilities and net worth) for delinquent individual and corporate taxpayers;
  • optimum performance of revenue-generating agencies through the grant of incentives and rewards, and lateral attrition if they do not meet their revenue targets; and
  • a 7% computer education tax (separate from income and value added tax) on receipts from cellular phone calls.

Mr. Suarez said the computer education tax would refer to the franchise tax to be levied on telecommunications firms. The 7% tax will be directed to a special computer literacy fund for elementary and secondary public schools. -- Karen L. Lema with a report from Judy T. Gulane


Palace seeks PhP100B more for 2005 gov't budget

The Malacañan presidential palace plans to ask Congress for almost PhP100 billion in additional budget for next year to cover government expenses, including PhP270 billion in interest charges for its local and foreign debt. Budget Secretary Emilia T. Boncodin said the Palace would submit a PhP901-billion budget bill for 2005 when Congress reopens later this month. This is 12% higher than this year's PhP804-billion budget, which was covered by the reenacted 2003 budget law. It is also higher than the PhP865-billion budget mentioned earlier by Albay (southern Luzon) Rep. Joey Salceda, a member of the Palace advisory body known as the Economic Managers Group or EMG. While Ms. Boncodin refused to further detail next year's budget plan, she confirmed that PhP270 billion would pay for interest charges on domestic and foreign borrowings.

Data from the Department of Finance showed that PhP265.845 billion was budgeted for interest payments for this year. The Department of Budget and Management also said each government agency's proposed budget for next year would reflect the "government's intent to widen the revenue base and strengthen its expenditure focus." And as stated under the 2005 National Budget Call, next year's budget would abide by the administration's goal of "progressively" reducing the deficit, to sustain a healthier fiscal position that would support economic and revenue growth targets.

New tax laws will also be proposed to Congress to remedy deficiencies and weaknesses in the present tax system and fund anti-poverty programs, the Budget department said. It added that the 2005 budget would also support programs that "promote and complement private sector and local government productive efforts for greater synergy and multiplier effect." The government aims to keep next year's budget deficit at below PhP180 billion, and eventually balance the budget by 2009. Several lawmakers have also called on the government to revise its deficit reduction schedule, to keep the economy afloat. But Finance undersecretary Eric O. Recto insists 2009 is a more "realistic" target date. "Our analysis shows that if we want to meet economic growth targets we have set out for ourselves we have to carefully balance additional revenue measures and expenditure control measures," he said. Mr. Salceda earlier said the proposed 2005 budget might not be enough to fund the 10-point priority program that President Gloria Macapagal-Arroyo detailed in her inaugural speech last June 30. The President also promised to create 10 million jobs and provide education for all. -- Karen L. Lema


Economic planners clueless on Palace advisory group

Bangko Sentral (Central Bank) and Finance officials appear clueless on the exact role and nature of the so-called Palace advisory body known as the Economic Managers Group (EMG). In fact, as far as Finance Secretary Juanita D. Amatong is concerned, President Gloria Macapagal-Arroyo has only one economic management team -- with members all from the Cabinet. "Wala naman talagang ganyan [There is really no such advisory group]," she said, referring to the EMG. She also said that name was just coined by Albay (southern Luzon) Rep. Joey Salceda, who is a member of the group. "We have an economic management team, which is us," Ms. Amatong told reporters yesterday.

Members of the economic management team include the secretaries of Finance, Trade and Industry, and Budget; the National Economic and Development Authority director-general, and the governor of the Bangko Sentral ng Pilipinas. Referring to the apparently anomalous existence of the Economic Managers Group, one central bank official said, "Why is Joey Salceda the only one talking about it?" Another official said Mr. Salceda was making his presence felt because he would be vying for the chairmanship of the House of Representatives Committee on Appropriations when Congress reopens later this month.

In reaction, Mr. Salceda said, "I am a member of the EMG and how is that connected? I called for the realigning of the pork barrel to anti-poverty projects. Will that make me popular among the congressmen?" he asked. Finance undersecretary Eric O. Recto, also a member of EMG, said the Palace advisory group could be considered a "think tank." Mr. Salceda said the EMG was an initiative of Executive Secretary Alberto Romulo. He said it was not a super finance body, contrary to earlier reports. It is a mere "input generating body and has no decision making powers," he said. "We simply recommend to the President," Mr. Salceda said in a telephone interview. He also said the group has been asked to help study the "feasibility of revenue measures that would help in formulating a credible deficit reduction program."

The government aims to balance the budget by 2009. It hopes to convince Congress to pass additional tax laws that can generate a minimum of PhP50 billion in additional revenues yearly. -- Karen L. Lema


Manila may ink free trade pact with Tokyo this year

New round of meetings set next month as Cebu talks end

By MARITESS S. VILLAMOR, Cebu Bureau Chief

MACTAN ISLAND, Cebu (central Visayas) -- Japanese and Philippine trade and economic officials concluded late Wednesday afternoon the third negotiating session for the proposed Japan-Philippines Economic Partnership Agreement (JPEPA) with the promise of hammering out an agreement before the year ends. Trade Undersecretary Thomas G. Aquino, who led the Philippine negotiating team, said progress in the talks was made in terms of acquiring additional information on each country's economy, and rules and regulations. "It's not something measurable. But it has qualitative value for decision-making later on," he told a press conference Wednesday evening.

Both Japan and the Philippines are optimistic that an agreement can be hammered out before the end of the year. Two or three more negotiating sessions are expected to be held before the agreement is finalized. The agreement will also have to undergo legal review. Mr. Aquino said Japanese officials have declared that they wanted a speedy conclusion to the negotiations. President Gloria Macapagal Arroyo, who proposed the talks during her state visit to Japan, is also "looking forward to the outcome," he added. Both sides will meet again, probably in Tokyo, in late August or early September. The fourth session is expected to cover the same areas covered in the just concluded talks. Mr. Aquino declined to give details on what transpired during the three-day meeting, but said they looked at all goods that will likely be covered in the proposedfree trade pact. "All goods have been looked at. But until there's an agreement on the trade of these goods, I can't share with you any information," he told reporters. He also said they will continue to discuss the issue of movement of natural persons but declined to elaborate. "Until the specifics are laid out, defined and agreed, it's better for parties of either side to refrain from interpreting it any way they want to. Considering that this requires movement, immigration issues will have to be addressed," he said.

The Philippines is pushing for the entry of Filipino health workers in Japan although some groups of Japanese health workers are said to be opposed to this. Mr. Aquino, however, downplayed this. "I don't think that's accurate. We have to give a lot of importance to each and everyone. We have to look at the total picture of an economic partnership agreement. Certainly, each one will have its own demands," he said. Other areas covered in the negotiations are mutual recognition, and standards and conformance, intellectual property, government procurement and dispute avoidance and settlement. Mr. Aquino also said holding the meeting here brought the negotiations down to the local government level. Both sides were "extremely pleased" with the local government support for the negotiations. "The third meeting took place in an extremely favorable and pleasant environment. As you know, the local government here was fully aware [of the talks] and shared in the hosting of the JPEPA," he said.


Proposal to create state-run infrastructure firm bucked

Creating a state-run corporation to oversee infrastructure projects will benefit the goverment if it will be limited to making studies and preparing the terms of reference for build-operate-transfer (BOT) projects prior to bidding them out, former National Economic Development Authority (NEDA) chief Felipe Medalla said. "[The proposed corporation] should have a focused mandate," Mr. Medalla said. He noted that the government could not bid out a number of BOT projects due to its inability to prepare the necessary the documents. "Their excuse is that [no entity] will draft the terms of reference and study the feasibility." Mr. Medalla said the government should just junk the idea of an infrastructure corporation if it will be directly involved in infrastructure projects. "If the [proposed] corporation will be involved directly in the projects, then the government should just forget it," he said.

Bienvenido S. Oplas Jr., an economist from private research group Think Tank, Inc. said he is opposed to the infrastructure corporation as it will only contribute to the tightness in the government's fiscal situation. "[The corporation] will surely need capitalization so obviously the government will be using taxpayers' money for it," Mr. Oplas said. He also expressed apprehension that the proposed corporation will further bloat the current bureaucracy. There were earlier reports the government is finalizing plans to create an infrastructure corporation to aid its infrastructure-building projects. -- Jennifer A. Ng


Rice production target for 2004 likely to be met

The country is assured of a 97% rice self-sufficiency if the 2.57 million metric ton (MMT) expected harvest for the April to June crop season is sustained, an official from the Agriculture department said yesterday. "Barring any major calamity, there is no doubt rice production would reach this year's target," Ginintuang Masaganang Ani (GMA) rice program director Frisco M. Malabanan said. Rice production this year is estimated at 9.75 MMT growing to 10.26 MMT next year, although current supply is not enough to satisfy the local requirement of 10.02 MMT hence the need to import rice.

The April to June crop season last year yielded 2.3 MMT with around 680,000 hectares of farmlands cultivated with rice. For this year's crop period, government estimates the rice production area at 706,000 hectares or 3.9% higher a year before. Agriculture Secretary Luis P. Lorenzo, Jr. also said the government is on track with its rice production target with more areas planted to hybrid and certified rice seeds. Around 600,000 hectares would be planted with hybrid rice this crop year.


San Miguel Corp. opens Indonesia beverage plant

Food and beverage giant San Miguel Corp. has opened a new beverage manufacturing facility in Indonesia to further expand its reach in the Asia-Pacific region. In a statement, San Miguel said the Indonesian venture involves manufacturing and distribution of ready-to-drink soft beverages. "This new business reflects San Miguel's full confidence in Indonesia as a fast-growing economy and manifests our continuing commitment to promote the best interests of consumers in this country," Chairman Eduardo M. Cojuangco, Jr. said during the groundbreaking ceremonies. The new multi-beverage plant is located at the MM2100 Industrial City in Bekasi Province, West Java, San Miguel said. The site of the new facility is about 25 kilometers from Jakarta.

The new company, to be known as PT San Miguel Indonesia Foods and Beverages, is 85% owned by San Miguel and 15% by PT Delta Djakarta Tbk, San Miguel's brewery in Indonesia. The firm said the new investment "presents a growth opportunity for San Miguel and its domestic business partners" in Indonesia's huge beverage market. This market, San Miguel said, has been growing at an average of 20% over the past five years. As of 2003, the per capita consumption of nonalcoholic beverages in Indonesia is 46 liters, which is comparable to Thailand's 44.2 liters and the Philippines' 70.2 liters, the firm said. "With the establishment of its newest manufacturing facility, San Miguel expects to be able to offer Indonesian consumers a wide range of choice in beverage products," it added. San Miguel declined to disclose how much the newly opened plant cost.

The new facility boosts San Miguel's presence in Indonesia. In 1976, the company secured a licensing arrangement to brew beer. The firm began its brewery operations in 1993 when it bought into PT Delta Djakarta, one of Indonesia's largest breweries. Its Anker Bir and Anker Stout brands have significant market share in the Indonesian market, the firm said. San Miguel also manufactures and markets processed meats through PT Purefoods Subah Indah, a joint venture with the Hero Group of Indonesia. Its Farmhouse and Vida hotdogs and sausages, cold cuts, burgers and other processed meats are major product lines in Indonesia's fast-growing processed meats industry. The company also has a plastics plant in Indonesia through PT San Miguel Sampoerna Packaging Industries, which produces and markets plastic crates and pallets.

The groundbreaking ceremony for the Indonesian plant came less than three months after San Miguel acquired brewery assets in Thailand. The firm said that "more activities" are scheduled within the year in Australia, Vietnam, China and Malaysia. San Miguel is the largest publicly listed food, beverage and packaging firm in the country. It has more than 100 major manufacturing facilities in the Philippines, China, Hong Kong, Indonesia, Vietnam and Australia. The company's products are exported to over 40 countries.

For the first five months, the firm posted a 32% growth in its net income at PhP3.29 billion. San Miguel said it posted 39% growth in its consolidated operating income for the first five months with PhP6.65 billion. Consolidated sales revenue, meanwhile, grew 15% to PhP68 billion from January to May. -- Jennee Grace U. Rubrico


Bourse lifts Union Cement trading halt

The Philippine Stock Exchange (PSE) yesterday lifted the suspension order on the trading of Union Cement Corp. after the company clarified its ownership structure. The exchange immediately lifted the ban after Union Cement said the ownership structure was unchanged despite Bacnotan Consolidated Industries, Inc.'s sale of its 51% stake in Union Cement Holdings Corp. to Cemco Holdings, Inc. Union Cement Holdings still holds a 60.47% stake in Union Cement, while Cemco directly owns 17.02%.

Japan's Sumitomo Osaka Cement Co. Ltd. owns a 9.22% stake in Union Cement, non-Filipino minority shareholders have a combined 4.22% interest, while Filipino minority shareholders own a combined 2.77%. Bacnotan said it gained the "fairest value" for its investment in selling the stake to Cemco, 40% owned by Holderfin B.V. Bacnotan and unit Atlas Cement Corp. have agreed to sell their respective 21.3% and 29.7% interests in Union Cement Holdings for a total of $214 million.


Peso barely moves against dollar

The Philippine peso barely moved versus the greenback yesterday as it strengthened by less than two centavos in the absence of fresh leads, traders said. During trading, the peso went to as low as PhP55.97 against the US dollar, following the depreciation of the Japanese yen. The peso's major mover slipped to 109.10 yen but "corrected in the afternoon" to around 108.85, one trader said. The peso followed suit, he added. "The trading was almost boring [yesterday]," another trader said. He also said there were small demands from oil and telecommunication companies leading to a range-trading mode for the peso. In the last few days, heavy dollar demands from private entities caused the peso to slip. "However, the weak side for the peso's range-trading is that it might fall again any time," another trader said, citing lingering market concerns over the budget deficit and other issues.

The other day, the central bank reported that the country's gross international reserves, a measure against sudden exchange rate movements, fell by 2.3% in June. At the Philippine Dealing System, the country's electronic currencies exchange, the peso averaged stronger by less than a centavo to PhP55.937 from PhP55.943. It traded within a range of 6.5 centavos, hitting a high of PhP55.905. The local unit closed at PhP55.935. -- Ira P. Pedrasa


Citibank expands reach to mid-income market

Citibank N.A., the largest foreign bank in the country, is extending its market reach to the middle-income segment with liquid assets of PhP100,000 to PhP2 million. The bank launched yesterday its latest service called Citibanking which will provide comprehensive professional financial advice for this market. Citibanking clients can look forward to access to extensive and up-to-date information on global markets plus a diverse array of investment tools, research and strategies. A Citibanking relationship begins with the prospective client joining a personal banker for a Citipro Financial Check-up. Citipro is a proprietary software that can help individuals assess their financial health, evaluate their needs and understand their risk profile. "We are introducing Citibanking to meet the needs of a segment that are not being as well-served as they could be. This is about listening to our customers and helping them manage their money better. This is a proprietary money management tool being introduced by Citigroup that allows us to understand our customer and enable us to help establish their financial goals more effectively," said Les Matheson, division executive for the Asia-Pacific region. "We are trying to cover a much broader cross section. Some of the tools we have developed, and some of the areas we make applicable to other segments as well. We are leveraging the experience and knowledge of Citibank around the world," he added.

Believing customers' needs have become more sophisticated, Nina D. Aguas, the global consumer bank's country business manager, said current trends have shown people would like their wealth to be managed more professionally. "We all aspire for a comfortable life and work very hard to get it. But along the way, we need professional advice to help us set our financial goals. Citibanking will provide our clients with the appropriate financial management tools to do just that. It bridges the gap between wishful thinking and realizing your goals," she said.

Normally conducted over 30 minutes, Citipro Financial Check-up is a complimentary exercise that requires no commitment to invest. Aileen Litonjua, Citibank retail banking director, said this can help draw up a financial plan suited to a particular goal based on an assessment of investible assets, investment objectives, and risk profile. "Your plan becomes a roadmap to better manage your finances and determine the feasibility of your goals in life. The Citipro session is a step-by-step process comprising of several form fields that a client fills up with various information," Ms. Litonjua said. "It starts with one's professional profile such as name, age, birth date, savings or deposit accounts, assets and loans, expenses and the like. Then Citipro considers the short- and long-term needs. Afterwards it assesses one's risk profile before computing how much one should adjust his or her savings-income-spending habits to achieve this goals. The last stage is when it gives ideas on the types of investment and other financial tools one should go into based on all the data gathered," she added. -- Ruby Anne M. Rubio


DBP loan OK'd by central bank

The Philippine central bank's policy-making Monetary Board approved yesterday the planned 25-million-euro foreign borrowing of the state-owned Development Bank of the Philippines (DBP), an official said yesterday. Amando M. Tetangco, Jr., deputy governor of the Bangko Sentral, said the board has approved in principle the borrowing plan which is part of the bank's financial assistance program for small and medium enterprises (SMEs) in the country. The Arroyo administration wants to develop the country's SMEs, which comprise about 99% of business establishments in the country. Local SMEs have lagged behind their counterparts in Thailand and China because of the lack of government financial support. Mr. Tetangco said DBP intends to use the fund for SME's relending needs, agro-industrial projects, infrastructure programs and urban development projects.

Based on its application with the Monetary Board, DBP will borrow the loan from the European Investment Bank, which is the financing institution of the European Union. -- Iris Cecilia C. Gonzales


Stocks dip as investors take profit


After reaching a 10-week high, share prices closed lower yesterday as investors pocketed recent gains on selected blue chips, particularly the Philippine Long Distance Telephone Co. (PLDT). The Philippine Stock Exchange composite index (Phisix) shed 2.92 points or 0.18% at 1,595.47, involving transactions worth PhP684.5 million. PLDT's drop -- by PhP15 at PhP1,235 on 165,880 shares -- was offset by gains in small-capitalized stocks, thus preventing a steep decline in the Phisix. Analysts, however, said the market was performing well despite yesterday's marginal drop.


Robert Cano, analyst at BPI Securities, told BusinessWorld the slight decline was due to consolidation. "The market was moving within a range. On a technical basis, it is still on its upward trend despite the drop," said Mr. Cano. Earlier in the week, analysts had projected that the Phisix would break the 1,600 level today and would try treading 1,620 on Monday. But investors, said Mr. Cano, would be hunting for cues to anchor their positions. "Investors are waiting for new corporate developments, earnings performance reports and guidance as they embrace changes," he added.

Trading is projected to reach new highs by next week until the middle of August as corporations release their earnings reports for the second quarter and the first semester. Astro del Castillo, managing director of First Grade Securities, Inc., also cited consolidation as the factor behind the market's weakness. He told BusinessWorld that the absence of new leads pushed the market lower. "There was consolidation because there were no fresh leads to pull the market. Technically, the market was nearing an overbought position," said Mr. del Castillo.


Another factor that might have dampened investor sentiment was the reported kidnapping of a Filipino by Iraqi insurgents, Mr. del Castillo said. "The kidnapping has no direct effect on the market but a deeper look into it could trouble investors. This was the first time that the Iraqis attacked Filipinos directly," he said. The incident was reminiscent of the terror insurgents had wreaked in Spain last March where at least 131 people and more than 400 people were injured after packed trains in Madrid, Spain were simultaneously bombed. The bombings, considered to be the most violent and bloodiest in three decades of Basque separatism, were blamed on the Spanish government's support of the US-led Iraq war. This eventually forced Spain's Prime Minister Jose Luis Rodriguez Zapatero to announce that he would probably pull Madrid's troops out of a "disastrous" occupation of Iraq. Mr. del Castillo said the kidnapping of the Filipino in Iraq strikes at the core of national security. "There may be a possibility that this will happen to us. What could be the next action of the Iraqis toward Filipinos after they knowingly kidnapped one in Iraq? Will their next action directly affect us?," he said. He said the kidnapping incident should not affect the financial market but warned that this could create fear among fund managers. "They may think that international terrorists can reach us here," he added, noting that such possibilities should be factored in when mopping a forward-looking national security plan. "I do not want to paint a bleak picture but hopefully, there would be no further repercussions to the local business community. Terrorists and insurgents are unpredictable but history has shown that they always take the matter to the heart of the nation," added Mr. del Castillo.

Malacanang responded to the incident in Iraq by ordering the Labor department to stop the processing of papers of Filipinos bound for Iraq. The Philippines, a known ally of the United States, sent troops to Iraq in support of US President George W. Bush's campaign to end global terrorism. The Iraqis' action may be interpreted as a means to force the Arroyo administration to cater to their demands which include recalling Filipino soldiers detailed in the country and ending government support of US policies.


At the stock market, losers toppled gainers 38 to 21, with 43 stocks unchanged. PLDT led the list of actively traded stocks, followed by Globe Telecom, SM Prime Holdings, Meralco B, Ayala Land, Inc., Ayala Corp., Bank of Philippine Islands, Union Cement Corp., Petron Corp. and First Philippine Holdings. Profit-taking is expected to continue as the market consolidates following recent gains. But Mr. del Castillo said consolidation helps propel the market. "The market will move upward after a confirmation that earnings growth are sustained in the first semester," he added.

Corporate earnings, which will begin coming in by next week, will also set the tone for the market. "Corporate earnings reports are being monitored. Players are waiting for their release. The market is more sensitive to these," he said. Worries over inflation are also seen weighing down on market sentiment. "Pressure on domestic trade due to inflation will affect the market," added Mr. del Castillo. Despite the temporary decline, the market is projected to recover today and keep its gains until the end of August.