Factories cut imports

By RIZZARENE S. MANRIQUE, Researcher

The country's spending on foreign-made goods fell slightly in May, the first time for the year, as local demand for imported capital goods, raw materials, mineral fuels and lubricant, and consumer goods waned. The National Statistics Office (NSO) reported yesterday that the May import bill slid by 1.6% year on year to $3.277 billion from $3.332 billion. In a telephone interview, economist Bienvenido S. Oplas, Jr. said many factories were still stuck with raw material inventory since they imported more than usual in four months to April, in anticipation of a possible crisis after the May 10 presidential election. "Prior to the elections, there were a lot of political uncertainties. During campaign periods, businessmen import more than their normal needs. The levels of importation were higher than the usual, so if something undesirable happens in May onwards, businesses have enough stock to cover their requirements for May, June and July," he said. "Importation will relatively decline during these months."

AB Capital and Investment Corp. vice-president Francisco M. Varela added, "Timing-wise, there could have been some inventory adjustments during that month. For instance, with regard to oil prices, it is possible that oil companies tried to limit their purchases because of surging costs. Hence, lesser inventory is being carried. The same goes true for other manufacturing corporations." "However, it is important to note that there is volatility in [import] growth rates. I believe this does not signal any significant change in the trend," he said.

NSO reported that "payments for raw materials and intermediate goods accounted for 38.8% as importation [in May] went down by 1.7% to $1.271 billion from last year's reported figure of $1.293 billion... Capital goods comprising 37.7% of the total imports fell by 2% year-on-year to $1.235 billion from $1.260 billion." NSO figures showed that payments for imports of mineral fuels, lubricants and related materials dropped by 9.1% year on year to $364.38 million from $400.77 million. Purchases of imported consumer goods also fell by 11.8% to $236.99 million from $268.75 million. Yet, special transactions, including articles temporarily imported and exported, rose by 54.6% to $169.69 million from $109.78 million. Electronics and components, which accounted for 43.1% of total imports, were the top import items in May. But their purchase declined by 7.5% year on year to $1.412 billion from $1.526 billion.

Mineral fuels, lubricants and related materials came in second, and industrial machinery and equipment in third. Fourth top import category was iron and steel, which climbed by 28.8% to $108.17 million from the prior $84 million. Fifth top import category was transport equipment, which fell by 15.4% to $92.4 million from $109.29 million.

Rounding up the list of top imports in May were textile yarn, fabrics, made-up articles and related products ($89.84 million); plastics in primary and non-primary forms ($80.80 million); telecommunication equipment and electrical machinery ($69.74 million); cereals and cereal preparations ($56.04 million); and organic and inorganic chemicals ($53.84 million). Mr. Oplas said the imports decline probably lasted until June. But contraction would be offset by the expected surge in coming months.

'BACK IN BUSINESS'

"I believe it would go back to its normal level before the year ends. The political 'wait and see' game has already ceased. We're now back to business," Mr. Oplas said. "Importation is directly proportional to the country's level of income growth. Full-year GDP forecast for the Philippines is within the 4.2%-5.2% range, thus, there would be a corresponding increase in importation soon," he added. Mr. Varela also believed the underlying performance of the economy was still positive.

"What needs to be monitored is the performance in the next few months, to see if there has been a reversal in the trend. This may be just a one-time dip," he added. Export earnings grew for the sixth straight month in May. It went up by 15.3% that month to $3.259 billion. As a result, the May trade deficit narrowed to $18 million year on year from $504 million. "This has to do with the general economic recovery in the United States and Japan. US GDP growth is projected at 4.6% while [that of] Japan [is projected] at 4.4%. There is logic in the growth of exports, considering our trade partners are advancing relatively faster than their usual growths," Mr. Oplas said.

The US and Japan buy almost 40% of the total Philippine exports. Total merchandise trade -- imports plus exports -- for May went up by 6.1% year on year to $6.536 billion. Japan was the country's top trading partner that month with total transactions worth $1.18 billion.

Exports to Japan totaled $630.98 million, while imports reached $549.17 million -- for a trade surplus of $81.82 million in favor of the Philippines. Total trade with the US was $1.149 billion. It cornered 16.9% of the May import bill at $552.70 million. Exports totaled $596.29 million, for a trade surplus of $43.59 million again in favor of the Philippines.

Trade transactions with Singapore, Taiwan and People's Republic of China hit $501.61 million, $449.71 million, and $426.83 million, respectively.

Socioeconomic Planning Secretary Romulo L. Neri said the increasing cost of fuel and higher world commodity prices were the main factors behind the import slowdown. He noted that the decline in imports was led by fuel and consumer goods. "Despite higher fuel prices in the world market, the value of the country's fuel imports such as crude and coal declined as inventory normalized compared to last year's high inventory levels during the US-Iraq war," Mr. Neri said in a statement.

University of Asia and the Pacific (UA&P) economist Erico Claudio added that people were less aggressive in importing also because of political uncertainty. "The elections may have prevented some people from importing a lot. When you're uncertain of the political scenario, you tend to be less agressive in investing in the future," he said in an interview. But he also said he expected imports to pick up in the coming months as the political climate improved. "We wouldn't be surprised if the trade deficit expands in the coming months," he added.

Also yesterday, the Department of Trade and Industry said it was "delighted" that export earnings were catching up with import expenses, which meant fewer dollars were leaving the country. "However, we have noted a slowdown in some major import components that are used for the country's major export products, specifically electronics and textiles and fabrics," it said in a statement. It noted a "softening in the international market" for wireless products. Still, it said key industrial players were optimistic export targets for the year would me met. "[The department] will meet with stakeholders to determine how it can help the industry increase its export capability," it added.

The garments industry adjusted purchases of textile yarns and fabrics because it was rationalizing inventories for the seasonal change in product lines and styles. "We expect the industry to increase its exports in the coming months," the Trade department said. It also said it expected more machinery purchases in the next few months as a result of Executive Order No. 313, which reduced the import tax on capital equipment to 1%. "With the introduction of new [machinery] in the country, industries will gain greater efficiency and manufacturing capabilities, thus, improving [their] production for the domestic and export markets in the months to come," the Trade department said. -- with reports from Jennifer A. Ng and Felipe F. Salvosa II

Filipino hostage released, in 'excellent health'

By JEFFREY O. VALISNO, Reporter

A Filipino truck driver taken hostage in Iraq and threatened with beheading was released yesterday a day after the Philippine government bowed to the kidnappers' demands and pulled all its troops out of the country. Angelo de la Cruz, a father of eight, was brought to the Philippines embassy in Baghdad after being released near the United Arab Emirates (UAE) mission, officials said. "He is in excellent health," an embassy spokesman told AFP at the compound, which was swarming with reporters and television cameras as the world waited for their first glimpse of the freed man after his two-week ordeal.

After the news of his release was reported, Philippine government emerged from its self-imposed news blackout and breathed a sigh of relief. President Gloria Macapagal-Arroyo expressed jubilation after talking to Mr. De la Cruz himself over the telephone just minutes after the Philippine officials in Iraq confirmed the news. "I am happy to announce to the nation that our long national vigil involving Angelo de la Cruz is over. I thank the Lord Almighty for his blessings," Mrs. Arroyo told reporters yesterday afternoon. Mr. De la Cruz was dropped off on a street corner outside the UAE embassy at 10:30 a.m. (0630 GMT) and told to walk towards the building, the embassy spokesman said. "We were surprised this morning when the Philippine hostage Angelo de la Cruz was set free in our embassy," UAE Charge d'Affaires Hamed al-Shamisi said in a statement. He said legal custody of Mr. De la Cruz was handed to Mr. Seguis, and Philippine Charge d'Affaires in Baghdad Ricardo Andaya. Mr. Shamisi said the UAE had agreed to transport the 46-year-old driver to Dubai where he would undergo medical checkups.

GRATEFUL WIFE

The wife of Mr. De la Cruz thanked her husband's kidnappers for not harming him and said she had prayed constantly for his safe return. "I am very, very happy. His health is okay. His family is waiting for him," a tearful Arsenia de la Cruz told reporters at her country's embassy in the Jordanian capital, minutes after talking by telephone to her husband in Baghdad. "I thank his captors for not harming him. I prayed for him," she said. The release of Mr. De la Cruz came a day after the last batch of the 51-member Philippine humanitarian contingent left Iraq.

The pullout was done in three batches in a period of less than a week -- eight police members of the Philippine humanitarian contingent left Iraq Wednesday last week, 11 others, including contingent head Brig. Gen. Jovito Palparan left Friday midnight, while the remaining 32 peacekeepers were flown to Kuwait Monday evening. Mr. Palparan arrived in the country Monday morning while the rest of his men are expected to come home too any time soon. The Philippine government gave into the hostage takers' demand to pull out its troops ahead of the Aug. 20 deadline to the dismay of the United States and the Iraqi interim government. The Philippine government has ignored the criticisms, saying its actions were consistent with its national interest. The United States Embassy in Manila released a statement later saying: "Our thoughts and prayers have been with Angelo de la Cruz, his family, and the Philippines throughout this ordeal. We condemn the targeting of innocent civilians such as Angelo de la Cruz."

NO REGRETS

Yesterday, the President expressed satisfaction for the safe release of Mr. De la Cruz. "I made a decision to bring our troops home a few days early in order to spare the life of Angelo (Mr. De la Cruz). I do not regret that decision. Every life is important. Angelo was spared, and we rejoice. We are all rewarded for it," Mrs. Arroyo said. The President expressed gratitude to those who worked silently for the safe release of Mr. De la Cruz. Mrs. Arroyo also thanked the Filipino people for their forbearance and prayers.

Amidst the euphoria, Mrs. Arroyo called for sobriety, saying that innocents will always come into harms way, and circumstances may not allow the same successful outcome like the case of Mr. De la Cruz. "We must rejoice at the good news, but our happiness must be tempered by the awareness that we live in dangerous times, and that we must work to create a more peaceful world," she said. The President declined to confirm reports that Mr. De la Cruz would be her special guest for her State-of-the-Nation Address on Monday. She however said that she would invite the truck driver to attend a mass to the Our Lady of Rosales Shrine in Pangasinan. Mrs. Arroyo said she prayed to Our Lady of Rosales for the safety of Mr. De la Cruz.

Before the President spoke to the members of the media, she talked to Mr. De la Cruz himself over the telephone. During their conversation, Mr. De la Cruz personally thanked the President for working for his well-being. "Maraming pong salamat sa lahat ng tulong na ginawa ninyo sa akin (Thank you very much for all the help that you did for me.)" Mr. De la Cruz told the President. For her part, Mrs. Arroyo asked if Mr. De la Cruz was fine and healthy, and if he was happy that he was now free from his hostage-takers.

After talking to Mr. De la Cruz, the President congratulated the government officials who negotiated for the safe release of the Filipino truck driver including Ambassador Rafael Seguis, who fetched Mr. De la Cruz from the UAE embassy in Iraq after the hostage-takers dropped him there. Malacañang has yet to announce the details on when would Mr. De la Cruz would fly back to the Philippines. Even without the government's tacit confirmation that Mr. De la Cruz was indeed expected to come home in the next few days, sources said the government was already choosing among options as to how his reception would be done. Sources said the government committee tasked to oversee Mr. De la Cruz's arrival was mulling on having Mrs. Arroyo herself welcoming him either in the President's native town of Pampanga or in Malacañang. The details, however, were yet to be finalized.

In any case, Mr. De la Cruz would surely have his hands full upon his return, Acting Labor Secretary Manuel G. Imson said in an earlier interview. Since his abduction in Fallujah, Iraq last July 5, Mr. De la Cruz has become the face of the thousands of overseas Filipino workers who have flocked to the Middle East in search for work. His arrival has become much anticipated not only by his family but also by many Filipinos who have fervently prayed for his safe release.

Analysts say Mrs. Arroyo, who began a six-year term less than three weeks ago after a bitterly-disputed May 10 election, feared massive street protests which could topple her government if the hostage was executed. The government has been under a virtual state of siege since the hostage crisis broke with Mrs. Arroyo refusing to meet the press and state agencies imposing a strict news blackout on efforts to free Mr. De la Cruz. The kidnapped Filipino was employed by a Saudi company working with US troops based in Iraq. He was taken by the militants and paraded on the Arabic satellite television Al-Jazeera television on July 7.

HOUSE COMMITTEE

In a related development, Anakpawis Rep. Crispin B. Beltran yesterday asked Speaker Jose C. de Venecia, Jr. to create a separate Congressional Committee on Migrant Concerns at the House of Representatives. While Congress has a subcommittee on migrant concerns under the Labor Committee, "the concerns of OFWs (overseas Filipino workers) are serious and numerous, and they deserve to be heard by a committee all their own, our overseas workers as a special sector of the Philippine society should be given direct participation in the policy-making process, said Mr. Beltran. Mr. Beltran, former Bayan Muna party-list lawmaker and labor leader, also expressed interest to head the committee. According to him, Committee on Labor chairman Roseller L. Barinaga of the First District of Zamboanga del Norte, supported his proposal. The Philippines have been a leading source of workers for abroad, whose remittances augment the government's income. Before the Iraq hostage crisis, the government have been receiving numerous reports of Filipino workers in distress and being maltreated by their foreign employers. -- with AFP, Reuters, Ma. Eloisa I. Calderon and Beverly T. Calderon

BSP to keep rates despite region-wide pressures

While rising inflation worries central banks in East Asia and the Pacific, including the Philippines, Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) is still not inclined to raise interest rates. Philippine inflation had already hit 5.1% in June, its highest in 32 months, but Bangko Sentral Governor Rafael B. Buenaventura said he would probably leave key interest rates at 12-year lows until year-end, since he expected inflation to keep below the bank's 5% ceiling. However, his counterparts in East Asia and the Pacific are worried by the faster rise in prices, and are more inclined to raise borrowing costs through higher interest rates. "They all agreed that inflation is on the rise, and they will be watching that," said Bangko Sentral Deputy Governor Amando M. Tetangco, Jr. Mr. Tetangco attended a meeting last week of central bank officials from 11 countries and territories in the East Asia and the Pacific.

Inflation, or the increase in consumer prices, sometimes results from having too much money in circulation. Higher interest rates help mop up this execess liquidity. Last July 1, local monetary authorities kept the central bank overnight lending rate at 9%, and borrowing rate at 6.75%. These rates have been unchanged since July 23 last year. But Mr. Tetangco said most East Asian central banks could hike their rates, as they expected the US Federal Reserve to again raise its interest rates to head off rising inflation in the United States. "We all agreed that we need to monitor what the US will do," Mr. Tetangco said.

The US Fed recently raised US interest rates to 1.25% from 1% -- its lowest since 1958 -- to curtail inflation as the US economy continued to grow. It was the first rate hike in nearly four years. The move was welcomed by analysts and investors in the US and the United Kingdom, but worried Asian markets that feared an exodus of investors. Mr. Tetangco said Asian central banks were also one in saying that a higher-than-expected US rate hike could prompt a similar move in Asia. At last week's meeting were central bank officials from the Philippines, Malaysia, Singapore, Thailand, Indonesia, China, Japan, South Korea, Australia, New Zealand, and Hong Kong. -- I. C. C. Gonzales

Gov't overspends PhP80.1B in six months to June

The government spent about PhP80.1 billion more than it earned in six months to June, and exceeded by PhP544 million the period's budget deficit ceiling of PhP79.6 billion set under its medium-term fiscal program. Nonetheless, Budget Secretary Emilia T. Boncodin remained "confident" the full-year budget deficit would fall below the PhP197.8 billion cap for 2004. "Definitely, we will meet this year's target. After the PhP80.1-billion deficit in the first half, we still have a leeway of PhP110 billion for the rest of the year," she told reporters during a press conference at the Department of Finance.

Finance Secretary Juanita D. Amatong, meanwhile, said the six-month deficit would have been higher had it not been for better tax collection and spending controls. The government's fiscal position -- a reflection of how much it earned and spent in a given period -- is a closely watched indicator given its effect on interest rates or cost of borrowing as well as inflation or the rise in prices of goods, among others.

For June alone, the deficit was PhP2.8 billion, down from PhP12.7 billion in May. Ms. Boncodin said the May deficit was substantially high because of election-related spending, interest payments on sovereign loans, and retirement pay for uniformed personnel of the Department of Interior and Local Government. The deficit in five months to May was PhP77.3 billion, just PhP2.3 billion below the six-month ceiling.

POLL SPENDING IN CHECK

Government revenues totaled PhP343.3 billion as of end-June, or just 3.1% above targetted earnings of PhP332.8 billion for the first semester. Expenditures totaled PhP423.4 billion, above the six-month expense cap of PhP412.4 billion. "We continue to keep a close tab on both our revenues and expenditures. The first-half results puts to rest speculations about misusing government funds for election-related spending," Ms. Amatong told the press conference. "We made sure that election spending did not go beyond what was mandated for election paraphernalia, logistics, and services. I am, therefore, confident that with the continued cooperation and increased coordination of our fiscal agencies, we will be able to achieve our full-year fiscal [deficit] target of 4.2% of GDP. This administration is serious in its commitment to achieve a balanced budget in the medium term," she added.

Bureau of Customs revenues for June totaled PhP10.4 billion, up by 11.9% year on year. The Bureau of Internal Revenue collected PhP35.9 billion, up by 12.2% year on year. Government spending hit PhP57.3 billion, up by 8.1% year on year. Net borrowings in June totaled PhP22.9 billion as the government amortized foreign and local loans worth PhP34.6 billion. First-semester borrowings hit PhP79.1 billion, below the PhP126.1-billion ceiling.

The government aims for a balanced budget by 2009, but economists say this looks difficult without big cuts in the deficit ceiling. President Arroyo hopes to get the nod of Congress for new taxes expected to earn the government some PhP100 billion in additional revenues yearly. The country has run budget deficits in 10 of the last 14 years, largely due to poor tax collection and corruption. Meanwhile, Socioeconomic Planning Secretary Romulo L. Neri also expressed confidence that the government was well within its target of limiting the budget deficit to PhP197.8 billion this year. "That [PhP80.1 billion] is not bad, we're projecting [a deficit of] lower than PhP200 billion [for 2004], so we're within target. Even if we incur the same deficit for the next half of the year, we're still within range," Mr. Neri said in an interview.

PLUGGING THE LOOPHOLES

The government needs PhP274 million a day, or PhP100 billion a year, over the next five years to plug the budget deficit and balance its budget by 2009, Camarines Sur (southern Luzon) Rep. Rolando G. Andaya said yesterday. The lawmaker based his computation on figures submitted last year by the national government to the House of Representatives appropriations committee, which he chaired. Mr. Andaya also said the tax system should first be reviewed before any new tax was passed by Congress. "For as long as tax collection is inefficient and loopholes in our tax system are unplugged, no amount of new taxes will be enough," he said. To ensure new taxes would go directly to public initiatives, Mr. Andaya proposed that specific tax revenues should be earmarked for specific programs. "The people would like to be assured that the new taxes the government will impose go to services and programs that will benefit them. For example, if taxes on SMS [short message service] will be collected, maybe the government can earmark the money to build classrooms until we reach a zero backlog status," he said. -- Karen L. Lema, Jennifer A. Ng and K. L. Alave

Power firm readies for new plants

By CECILLE S. VISTO, Sub-Editor

Mirant Philippines, one of the biggest power firms in the country, is reportedly having its assets appraised, possibly in line with its plan to get investors for its projects. A BusinessWorld source said the company was quietly undergoing a business enterprise valuation, possibly to get investors for Avon River Power Holdings Corp. Avon River Power, a 100%-owned subsidiary, was put up recently to directly oversee the construction, and later on the operation, of a 7.5-megawatt diesel-fired power plant in Nabas, Aklan, and a five-megawatt plant in New Washington town. The plants are expected to open this year. "Mirant may not have the money to invest considering that its parent firm in Atlanta is bankrupt. That is why it needs fresh capital from new investors, and it has to have its assets appraised to get these investors to come in," the source said.

Mirant Philippines is the local subsidiary of US-listed Mirant Corp. arlier estimates placed the project cost for its Aklan plants at PhP600 million. Both will also be built in joint venture with Global Business Holdings, Inc., a unit of Metropolitan Bank and Trust Co., under a 20-year build-operate-own agreement with the Aklan Electric Cooperative, Inc. The Nabas plant will supply electricity to Boracay, while the New Washington plant will service Kalibo and other Aklan towns. Last year, Georgia-based Mirant Corp. filed for bankruptcy protection. It was the 10^th largest bankruptcy by assets in US history. Court papers filed in the US Bankruptcy Court of the Northern District of Texas showed the company had $20.6 billion in assets and $11.4 billion in debts.

In a business enterprise valuation, a company's fixed and intangible assets are appraised. Intangible assets include the company's "good will." Future earnings are also usually included. The examination of Mirant Philippines and its books started not more than two months ago. The source declined to name the company's appraiser. The source added Mirant Corp. could use the appraisal to get investors for a coal power plant it would put up in Puerto Princesa, Palawan with First Metro Investment Corp., another Metrobank unit.

The Palawan plant will service areas not directly connected to the power grid operated by state-run National Power Corp. Mirant Philippines also recently announced that it would build two 75-megawatt coal-fired power plants in Toledo City, Cebu. The province wants to attain full power capacity before 2008. But Allan Paul M. Flake, Mirant Philippines vice-president for external affairs, denied that his company has commissioned an appraiser. "We have not engaged anybody, any entity to do a business enterprise evaluation. We are not selling any of our assets or shares either partially or wholly. We have no plans to sell any of our projects," he said. "It's a market rumor, there is no such thing." Mr. Flake noted that Mirant Philippines, as well as its debt-saddled parent firm in Atlanta, were "very happy" with local operations and that "there is no reason" to seek independent appraisal. But another source confirmed that Mirant was undergoing audit. However, the source clarified that the audit focused on process flows and internal audit controls, for the Sarbanes-Oxley Act, as required by the US Securities and Exchange Commission. Mirant Philippines is a wholly owned subsidiary of Mirant Corp. It owns more than 2,000 megawatts of installed generating capacity nationwide, including a stake in the natural-gas fired 1,200-megawatt Ilijan power plant.

Napocor asks for removal of ceiling on power rates

By BENNET S. STO. DOMINGO, Reporter

State-owned National Power Corp. (Napocor) yesterday said it is in talks with the Energy Regulatory Commission (ERC) to lift the 40-centavos per kilowatt-hour ceiling on purchased power cost adjustment (PPCA). If the ceiling was removed it could mean higher power rate hikes as the cap limits to mere 40 centavos the costs Napocor could pass on to distribution utilities and other customers. The cap resulted in artificially low rates charged by Napocor to customers. Napocor President Rogelio M. Murga said the board has come up with a resolution to remove the 40-centavo cap imposed by President Gloria Macapagal Arroyo in 2002. "[There was] a board resolution to remove the cap. That's our position. But the ERC said no, so we are still discussing with the ERC," Mr. Murga said. He said the removal of the ceiling will require a presidential order. "[The president] is still busy [with her duties] in Malacañang," Mr. Murga said. Ms. Arroyo imposed the cap almost two years ago during her Labor Day speech despite protests over the high purchased power adjustment, a component of the cost of electricity paid by consumers.

The controversial PPCA was collected by Napocor from distribution utilities which, in turn, is passed on to consumers through the purchased power adjustment. Since power rates have been unbundled, however, the PPCA no longer appears as a component of the bill, but this has been incorporated in the generation rates of Napocor. Power Sector Assets and Liabilities Management Corp. (PSALM) President Raphael Perpetuo M. Lotilla said the Napocor board resolution is undergoing review by the ERC. "It [board resolution] gives the ERC an opportunity to revisit that particular issue." PSALM, the holding firm of Napocor, was created to sell all the assets of Napocor and to assume its debts. The transfer of the assets and debts of Napocor to PSALM is mandated under the Electric Power Industry Reform Act.

Reports earlier quoted Energy Secretary Vincent S. Perez, Jr., as saying the lifting of the PPCA cap would help Napocor cut its losses, which rose to PhP73.1 billion last year. Mr. Lotilla said a rate hike petition filed by Napocor and PSALM on June 22 was meant to make Napocor's rates more competitive. In the joint petition, the ERC was asked to increase the rates being charged to power distributors by an average of PhP1.87 per kilowatt-hour nationwide. Napocor said the proposed increase is aimed at preventing a repeat of the power crisis in the 1990s and to attract investors who will build new capacity to forestall an energy crisis in 2008.

Napocor projects further losses if rates not hiked

The National Power Corp. (Napocor) will continue to see losses in the next four years unless it is allowed to recover its actual costs, President Rogelio M. Murga yesterday said. In 2003, Napocor saw net losses rise to PhP113.23 billion from PhP24.66 billion 2002. This year, the firm projects a net loss of PhP114.60 billion, the biggest loss projected until 2007, Mr. Murga said. "Napocor will continue to incur an operating loss unless Napocor is allowed reasonable recovery of its actual costs," he said. Napocor is counting on its proposed rate increase with the Energy Regulatory Commission, among others, to recover its actual costs.

In 2005, the state-owned firm anticipates a net loss of PhP85.92 billion. Officials, however, did not elaborate on the sudden drop from PhP114.60 billion in the previous year. In 2006, losses are projected to surge to PhP102.26 billion and to PhP111.78 billion in 2007. Mr. Murga said until the end of 1997, Napocor's operations and financial condition was viable. It started incurring losses as interest expenses ballooned due to the Asian financial crisis. -- B. S. Sto. Domingo

Epixtar putting up call center facility in Clark

Call center company Epixtar Corp. is opening a call center facility at the Clark Special Economic Zone in the first quarter of 2005. In a statement, the company said the call center facility will have 800 seats and will occupy 3,696 square meters in the BerthaPhil Business Park in Clark. Harry Fozzard, chief marketing officer, told BusinessWorld the facility will cost $2.8 million to $2.9 million, of which BerthaPhil would put in $1.4 million and Epixtar between $1.3 million and $1.4 million. Epixtar, the statement said, had signed a five-year lease contract for the property. Once completed, the call center facility will be called Epixtar Plaza. "Epixtar Plaza represents our intelligent approach to site selection. With Clark's modern infrastructure, associated government incentives, and access to an ample talent pool we have made a great choice locating in an area familiar to most US executives," David Srour, president and chief executive, said.

The company, meanwhile, said in the statement that Epixtar Plaza will be the largest voice-based contact center in the zone and will be a "significant regional employer." It noted that Clark has "world-class infrastructure" developed by the US Air Force, and supplemented by new and upgraded communications and utilities. These include an international airport, high-capacity fiber-optic communication and data transfer systems, a newly constructed power plant, and modern water treatment systems. The area, which has three Philippine universities and sixteen institutions of higher learning, also has a "robust" English-speaking work force, the company said.

It said other contact center facilities operate in the economic zone, including America Online. It also noted that Clark provides "substantial incentives" to locators such as tax and duty exclusions on certain imports and exemption from all local and national Philippine taxes. In lieu of the taxes, a fixed 5% tax on gross income earned is imposed. Epixtar said it plans to expand in other areas and is "exploring" other sites in the Philippines. The firm hopes to operate at least 5,000 seats in the country by the end of 2005. "Epixtar's strategy of fast growth in the Philippines is in response to global demand for quality outsourcing solutions. Many US businesses, particularly in the telecommunications and financial services sectors, are rapidly increasing the size of their offshore outsourcing campaigns, Gerald Dunne, executive vice-president and head of sales for Epixtar, said.

Epixtar Plaza will be the fifth contact center site of the company in the country. The company has completed 350 seats of its 1,600 seat flagship facility, Epixtar House, in the Eastwood City Cyber Park in Libis, Quezon City. It also operates a 250-seat call center in Alabang, Muntinlupa, and is finalizing plans for 200 seats in Dumaguete in the Visayas. Last week, the firm said it is acquiring Innovative Marketing Strategies, Inc. and its 150-seat call center in Makati. With the acquisition, Epixtar will have 3,000 seats of capacity in the Philippines, the firm said. Epixtar Corp. is the parent of Epixtar International Contact Center Group, Ltd, Epixtar Communications Corp. and the NOL Group, Inc. -- Jennee Grace U. Rubrico

IFC raises investments in RP to $90M from $67M

By IRIS CECILIA C. GONZALES, Reporter

The International Finance Corp. (IFC), the World Bank's private sector investment arm, has increased its investment in the Philippines to about $90 million for fiscal year 2004 from $67 million the previous year. IFC expects to increase its investments in infrastructure and development projects next year if private sector activities will increase on expectations that President Gloria Macapagal Arroyo will deliver on her economic program for the next six years.

Country Manager Vipul Bhagat said IFC will particularly closely watch how the government addresses the budget deficit and the power sector. "Everybody is watching the budget deficit and for important reasons," he told BusinessWorld yesterday. He said investment companies like IFC are satisfied with Mrs. Arroyo's 10-point agenda, which comprises of tax measures and legislative reforms to create jobs and fight poverty in the next six years. The final reckoning, however, will depend on the program's implementation, he said. He said if the economic program is implemented well, the investment climate is likely to improve, paving the way for more investments from companies like IFC. IFC's $90-million investment figure reflects a 35% increase from last year, bringing IFC's committed portfolio to $530 million as of June 30 or the end of its 2004 fiscal year. "These investments are significant," Mr. Bhagat said.

The $90 million, however, is much lower than IFC's committed investments in 2002 of some $230 million. But Mr. Bhagat explained the $230 million included a $50-million loan to Philippine International Air Terminals Co., Inc. for the construction of an airport terminal. IFC, however, cancelled the loan because the proponents failed to use it within the allowable time. IFC's investments this year went to three private companies, two of which belong to the Ayala Group. The company provided a total of $45 million in loan and equity investment to Ayala-led Manila Water Co. for the company's general financing needs. Another project is a $20-million financial assistance to Ayala-led Globe Telecom, Inc. The loan allows Globe to avail of hedging instruments that would convert its dollar liabilities into peso. "These companies need access to capital. To do this, they need to be able to access instruments in the market," Mr. Bhagat said.

Finally, IFC also provided a $22-million loan to the Land Registration Systems, a private company that would computerize and connect the 160 offices of the Land Registration Authority, an agency of the Department of Justice. The agency is tasked to protect the sanctity of land titles. Mr. Bhagat said IFC will continue its investments in similar projects next year, particularly on the transportation, power and telecommunication sectors.

BayanTel says rehab plan to keep telco on track to recovery

Bayan Telecommunications, Inc. (BayanTel) said its court-approved rehabilitation plan would keep the telco on track and maintain its position as one of the major telecommunications player in the industry. "While the court-approved plan is not the plan BayanTel submitted, BayanTel believes that it has a rehabilitation plan that allows it to meet its long-term growth and profitability goal while continuing to provide excellent service to all its customers," the Lopez-led firm said in a statement. BayanTel said its fixed-line subscriber base now stands at 270,000, almost 50% higher over the past two years.

In April, BayanTel said it expected its revenues to climb 8% to PhP5.5 billion this year on growth from its landline and data businesses. BayanTel's shift to data led to a 17% revenue growth in its data unit in 2003 as against the previous year. The firm also rolled out internet-based services such as virtual private network and other internet products like the digital subscriber line, which contributed to revenues. "With the rehabilitation plan now in place, BayanTel hopes to sustain its momentum as a major player in the telecommunications industry," the firm said.

Branch 158 of the Pasig regional trial court earlier approved BayanTel's rehabilitation plan, and appointed Remigio A. Noval as receiver. The plan covered payment terms for a $325-million debt which was made payable over 19 years. The court said debts, which would not be covered by the restructuring, should be converted into "an appropriate instrument that shall not be a financial burden" to the company. BayanTel's secured creditors hold 52.6% of the debt, and the balance by unsecured creditors.

Secured creditors are Asian Finance and Investment Corp., Bayerische Landesbank (Singapore Branch), Clearwater Capital Partners Singapore Pte. Ltd., Deutsche Bank AG, Express Investments III Private Ltd., Export Development Canada, J.P. Morgan Chase Bank, P.T. Bank Negara Indonesia (Hong Kong Branch), Standard Chartered Bank, Metropolitan Bank and Trust Co., Rizal Commercial Banking Corp., Chemical Bank Tokyo Branch, Northern Telecom International Finance BV, Chase Manhattan Bank NA, and Siemens, Inc. -- Anna Barbara L. Lorenzo

Analysts rally behind First Resources on GSIS stock deals

By ROULEE JANE F. CALAYAG

There was nothing unusual in the transaction of First Resources Management & Securities Corp. when it bought shares of Manila Electric Co. (Meralco) for the Government Service Insurance System (GSIS), analysts said. The analysts, who asked not to be identified, told BusinessWorld that a closer look on the deals would show that allegations of anomalies had no basis at all. They believe the text message accusing Philippine Stock Exchange (PSE) director Vivian Yuchengco, the owner of First Resources, of conspiracy with GSIS chief Winston Garcia in cornering huge deals for the state insurer was unfounded. The text message had prompted the Securities and Exchange Commission (SEC) to investigate First Resources' deal on behalf of GSIS. The probe came after GSIS informed the PSE last week of its intention to return its 9.1% stake. "Several brokers may have been unhappy because they were not getting enough volume from the deal," the first analyst said.

Data culled from the SEC show that First Resources bought 5.74% of the Meralco shares from Nov. 1 to 30 last year and 33.48% the following month, bringing GSIS' ownership of Meralco shares to slightly over 5%. First Resources bought the shares on a staggered basis instead of buying them at one go. She said the staggered transaction was likely done in a deliberate manner to protect the client. "As a trader, First Resources is expected to act prudently and that means waiting for a while to check on market sentiment," the source said. "It has to spot the best price for its client, which in this case, is GSIS," she added.

The source said the fund managers of First Resources may have just acted upon the orders of GSIS. The other source, however, said First Resources may have resorted to a staggered transaction to prevent slippage, an instance where market orders get filled at disadvantageous higher or lower prices. "If First Resources did not stagger its purchase, the price of the share may have risen or fallen disadvantageously due to the volume, which was either too big or too small for the transaction," added the second analyst. He explained that this is also due to the handling of orders. "Small and big orders are handled differently," the source said. Amid the allegation, GSIS reiterated that it would return its stake and that it was waiting for the approval of the PSE. The bourse, on the other hand, said it was not possible for GSIS to return its stake to the PSE. It said the state insurer should look for a third party to buy its stake.

Long-term interest rate down

By IRA P. PEDRASA

Going against market expectations, long-term debt yields dropped yesterday on news that the government's budget deficit target for the year is still attainable. "It's still relatively a good news, we have even projected an PhP85 billion cap," a trader said. The government yesterday released the latest figures on the country's fiscal position. it reported that budget deficit was at PhP80.1 billion, which is only 0.6% off the PhP79.58-billion target. The better-than-expected figure favored the Treasury's auction yesterday of seven-year bonds. The new issuance fetched a 12% coupon rate after a full award of bids reaching PhP7.436 billion against a PhP4.5-billion offering.

Traders said the market was renewing its optimism on the government's revenue enhancement measures, a reversal of their pessimistic view early in the year following political and economic uncertainties. "And even if they [government] have assumed the National Power Corp.'s debt, the budget deficit is still a bit on track. Sumobra lang ng konti, okay na [It was just a bit off-target -- it's okay]," a trader said. The recent retail Treasury bond offer boosted government coffers. It was the government's first issuance of such paper for the year where it got a new value of PhP11 billion. The trader said the government needs a strong cash position to cover its budget shortfall, which is expected to hit PhP197.8 billion by the end of the year.

In the secondary market, the rate was also down at 12.223%, compared to the yield-to-maturity rate of 12.422% on June 22, the paper's last auction. The Treasury said the rate for the seven-year debt paper last hit 12% on April 13. The rate had since gone up steadily. The other day, the government also fully awarded bids for the 91- and 182-day Treasury bills at lower rates. Traders assumed that the downtrend for interest rates was only temporary. The 91-day T-bill rate went down to 7.443% from 7.714%; the 182-day paper's rate dropped to 8.472% from 8.631%; and for the 364-day T-bill, the yield dropped to 9.315% from 9.416%, following a partial award of bids.

PESO

In the currency market, the Philippine peso tracked the overall positive sentiment on the country's fiscal position. At the Philippine Dealing System, the country's electronic currencies exchange, the peso appreciated by almost four centavos against the US dollar despite a range-bound performance. Opening at PhP55.91 against the dollar, the local unit hovered within a sevem-centavo range to average stronger at PhP55.911 from PhP55.918 previously. It capped its intraday high at PhP55.87 and went to as low as PhP55.94. The peso finally settled at PhP55.90 against the greenback. Regional currencies also traded within their range. Traders polled by BusinessWorld said the money market is now hopeful of a stable fiscal setup. They said the State of the Nation Address (SONA) of President Gloria Macapagal Arroyo on July 26 is expected to present a clearer picture of the government's economic agenda. "The SONA will further provide the roadmap to fiscal balance," said Jonathan Ravelas, Banco de Oro Universal Bank's market strategist, adding that the President, being an economist, should first enhance revenues. "[I am assuming] that she will have a moratorium on the charter change and provide first the space necessary for economic stability," he added.

Central bank chief to settle for partial lawsuit immunity

By IRIS CECILIA C. GONZALES, Reporter

The central bank will ask the 13th Congress to pass amendments to its charter that would grant the bank regulator immunity from lawsuits and effectively strengthen its charter. A partial immunity will do, said Bangko Sentral ng Pilipinas Governor Rafael B. Buenaventura late Monday as he conceded that lawmakers are wary of granting regulators full protection from lawsuits. "We are not asking for full immunity. If clearly a mistake was made, the institution must be held liable," Mr. Buenaventura said in a briefing. He stressed the need to strengthen the regulatory environment to help develop the country's "primitive" capital market.

Bangko Sentral, along with the interagency Capital Markets Development Council has drawn up a list of measures which it deemed necessary to develop the local capital market. Mr. Buenaventura is hoping government will include these proposed measures in the list of priority bills it will endorse to Congress. He reiterated the need to strengthen the different regulators -- central bank, the Securities and Exchange Commission and the Insurance Commission.

The central bank has been pushing for amendments to its charter that would grant the bank regulator immunity from lawsuits. But some legislators have rejected the idea of full immunity. Mr. Buenaventura said Bangko Sentral is not asking for full immunity but only enough protection for its examiners and officers who are doing their job in good faith. The central bank has faced a number of lawsuits in the past, mostly from bankers, whose banks it either closed or placed under receivership. He said aside from strengthening the country's regulatory environment, Congress should also pass other measures that would improve the capital markets.

Another bill the capital market sector will push in the next Congress is the proposed Corporate Recovery Act, which aims to hasten the recovery of ailing companies either through rehabilitation or liquidation. Under the bill, rehabilitation or liquidation may be voluntarily initiated by a debtor in court. Also to be revived is the proposed Personal Equity Retirement Account Act, which will create a savings and retirement fund for public and private sector employees. It also aims to hasten capital market development by contributing to the sale of government securities and stocks. Mr. Buenaventura said without these measures, the Philippine capital market will continue to lag behind its counterparts in other countries. "We must put our standards consistent with the rest of the world. Otherwise, they will pass us by in the process," he said. He added that the development of the capital markets will help the Philippines attract investments locally. "It will be another source of funding for the National Government," he said.

Meanwhile, the International Finance Corp. (IFC), the World Bank's investment arm, said yesterday the Philippines needs to put some infrastructure in place that would help develop the capital market. IFC country manager Vipul Bhagat said IFC has been providing technical assistance to the Philippine Stock Exchange to make it at par with other bourses.

Philippine dollar bonds firm; regional market steady

HONG KONG -- Philippine sovereign dollar bonds traded firmer yesterday after the country's first-semester budget deficit beat expectations despite overshooting its target, while the broader regional dollar bond market held steady. "They are actually firmer because the first-half deficit was better than market consensus," a Manila-based trader said. "The market was expecting it at PhP85 billion but it came out at PhP80 billion." Finance Secretary Juanita Amatong said yesterday the Philippines' first-half budget deficit reached PhP80.1 billion (US$1.43 billion), overshooting a target of PhP79.6 billion. But she said the government remained on track to meet the full-year deficit goal of PhP197.8 billion. It will be the 10th year in 14 that the country, the most active sovereign debt issuer in Asia, has run a deficit.

Philippine sovereign dollar bonds, due in 2014, tightened by two basis points (bps) to 372 bps over comparable US Treasuries. "The market was aware of the budget deficit number and that it would be larger than the projected government target. It is not really something the market was unprepared for," said Irene Cheung, sovereign debt analyst at ABN AMRO. "I think the market is looking for what kind of measures the President would introduce to trim the budget deficit. A number of measures have been announced by the government but they need to be passed in the Congress." Five-year Philippine credit default swaps -- insurance-like contracts that offer protection against debt default or restructuring -- moved in by five bps to 450/470 bps.

The rest of the Asian dollar bond market was holding steady as investors awaited testimony by US Federal Reserve Chairman Alan Greenspan later this week that could set the tone for future interest rate moves. Mr. Greenspan is scheduled to deliver his twice-yearly testimony about monetary policy on Tuesday to the Senate banking, housing and urban affairs committee. On Wednesday, he will address the House financial services committee. Spreads on conglomerate Hutchison Whampoa Ltd.'s bonds due in 2014 were stable at 200/197 bps over. Newly issued Hong Kong sovereign dollar bonds due in 2014 moved out by one basis point to 74/71 bps. The deal was launched at 74 bps over Treasuries last week. The Export-Import Bank of China and South Korea's LG-Caltex continued on the road to sell a combined US$1.3 billion worth of fresh debt. It will be the Export-Import Bank of China's first issue in five years. -- Reuters

Metrobank income up 11% in first half

Biggest lender Metropolitan Bank and Trust Co. (Metrobank) posted a 10.9% increase in its first-half net income to PhP1.73 billion from PhP1.56 billion in the same period in 2003. In a statement, Metrobank president Antonio Abacan, Jr. said the bank's net interest income grew by 26.6% growth to PhP5.81 billion from PhP4.59 billion as the reason for the bank's better performance. Mr. Abacan said the bank's interest income for the first semester increased by 13.14% to PhP12.76 billion year on year while interest expense rose by only 3.79% to PhP6.94 billion. Additional revenues also came from commissions, service charges, and fees amounting to PhP1.61 billion, up by 11.8% from PhP1.44 billion. Other income from operations -- mainly from the recovery and sale of assets -- increased to PhP566.65 million, nearly three times yearago's PhP197.65 million. Operating expenses rose by 9.44%, the bank said, without providing comparative figures.

Citing its published statement of condition, Metrobank said its total resources amounted to PhP463.88 billion as of June 23, higher by 5.13% than its PhP441.23 billion level in the same period last year. Metrobank's loan portfolio rose by 9.31% to PhP236.05 billion from PhP215.94 billion a year ago. Bank deposits expanded by an additional PhP2.05 billion to PhP344.78 billion. Capital stood at PhP51.96 billion from PhP51.17 billion. In a separate statement, Metrobank said yesterday it registered a 46.7% growth in trust assets for a total portfolio of PhP125.76 billion during the first half from PhP85.70 billion in the same period last year. Josefina E. Sulit, head of the Metrobank trust group, cited newest product Abundance and the bank's common trust funds (CTFs) for the strong showing. Designed for high net worth individuals, Abundance combines the benefits of tax-exemption, estate planning and asset management under a living trust arrangement. The product has an added feature of loyalty travel benefit that allows clients to accumulate points redeemable as travel rewards. Hitting the PhP100-billion mark, Metrobank's assets under management increased by 50.7% to PhP107 billion last year from PhP71 billion previously. -- Ruby Anne M. Rubio

Chinatrust undecided on fund-raising option

By RUBY ANNE M. RUBIO, Reporter

Though it has already announced plans of issuing PhP1 billion worth of negotiable certificates of deposits (NCDs) this year, Chinatrust (Philippines) Commercial Bank Corp. said yesterday it was still evaluating the best funding option to cover its liability position. "There is no specific plan yet although we have disclosed this to the public. There are many ways we can do this either by traditional deposits or we can issue other instruments," Chinatrust president Joey A. Bermudez told BusinessWorld after the bank's annual stockholders' meeting yesterday. Chinatrust Philippines was planning to issue the negotiable deposit certificates after the May elections after moving it from last year, citing unfavorable market conditions. NCDs are instruments issued by a financial institution certifying that a deposit has been made with that institution, which is payable on surrender of the certificate at maturity. The issued NCD can be traded in the secondary money market at a negotiated rate, which reflects the tenor of the paper and the liquidity prevailing in the money market.

For the rest of the year, the bank expects earnings growth to be flat in view of the prevailing political situation and global uncertainties. Earnings for Chinatrust Philippines, a unit of Taiwan's fast-growing private bank, soared 22% last year to PhP503 million against the previous year's PhP410.9 million, fuelled by interest and non-interest revenues, treasury gains and a tight lid on operating expenses. "Your bank is looking at hostile circumstances. We plan to continue to pursue niche-focused strategy. We are a specialist in business that can create and provide real value. Unlike other banks in the Philippines, we are not everything to everyone. We concentrate on those businesses where we have a chance of making a difference in this market and in the long-run, taking a position of leadership and dominance in the various businesses. Despite the fact that conditions have been less than ideal, we continue to make investments today that will ensure sustainable growth in revenues," he told the bank's stockholders.

Chinatrust aims to sustain marketing programs launched in 2002 in support of its core businesses: consumer finance and bond trading. It caters to Taiwanese businesses in the Philippines as well as the middle market. Buoyed by higher net interest margins on loans and lower funding costs, its first-quarter income reached PhP201.5 million, up 2.22% over last year's PhP197.12 million. "The intention of the plan is to optimally exploit every opportunity there was in those occasion. There is still a lot of work to do as far as getting ourselves known in the market. Getting the market to appreciate us for what we offer and the resources we can possibly bring in the market. The effort of enhancing and building the brand and product array will continue. Last year, the personal loans business emerged as a very good flagship business for the consumer finance endeavors of the bank," he said. Its return on equity -- a measure of profitability -- was at 20.61% while return on assets was at 4.25%. The bank also benefited from recoveries from bad loans, gains from foreign exchange trading, profits from the sale of foreclosed assets, prudent spending and reversal of loan loss provisions due to continued improvement in the quality of risk assets.

Phisix down on more profit-taking

By ROULEE JANE F. CALAYAG

Share prices declined further yesterday on the back of extended profit-taking on big capital issues. The Philippine Stock Exchange composite index (Phisix) slipped 11.26 points or 0.73% to 1,533 on yesterday. Despite the continued decline in the Phisix, Grace Cerdeña of 2tradeasia.com said the correction was healthy. "The 11.26 correction was expected. It was good that the Phisix managed to hold above the 1,560 level," said Ms. Cerdeña. The continued selling in large capital stocks accounted for the huge decline.

TELECOMS

There was a selling spree on Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom shares due to the revival of a franchise tax for telecommunication companies [instead of tax on text messaging], said Ms. Cerdeña. "How telcos will survive and what legislative proposals will emanate have yet to be seen while the market is waiting for the selling stigma to cease," she added. Oliver Plana, research head at AsiaSec Equities, Inc., said the market declined as "big-cap issues like PLDT and Globe are still correcting." The slightly weaker performance of the Dow Jones Industrial Average and the continuing saga of the Filipino hostage in Iraq also affected the market. "The descent in the market was also due to Wall Street's mixed performance," said 2tradeasia.com's Ms. Cerdeña.

BUDGET DEFICIT

The government yesterday reported that its budget deficit for the first six months was PhP80.1 billion, exceeding the PhP79.58-billion target. But Budget Secretary Emilia Boncodin said the full-year budget deficit would fall below its target of PhP197.8 billion. The six-month budget deficit still leaves the government a leeway of PhP110 billion for the rest of the year. But Ms. Cerdeña said the deficit, together with the uptrend in crude oil prices, were already factored in by the market. The market's sensitivity, she said, was on inflation, consumer spending and the possibility of interest rate hikes in the near term.

IRAQ

Meanwhile, Angelo de la Cruz, the Filipino truck driver held hostage by Iraqi militants, was reportedly freed by after the 51-member Filipino humanitarian contingent moved out of Iraq as demanded by his captors. The government's decision to pull out its troops may have troubled its international allies but Mr. Plana said the move does not carry a significant impact on the equities market. "Some say the pullout may cause a withdrawal of funds from the Philippines. In terms of equities, the exposure of foreign funds in the market is not significant. Its impact may be felt only on the foreign direct investments," said Mr. Plana.

INDICES

At the stock market, only the all-shares index was up. It advanced 8.06 points or 0.82% at 992.51. The rest of the indices were in negative territory. The commercial-industrial slid 13.09 or 0.54% to 2,408.12. The banks and financial services index also declined 6.07 or 1.30% to 459.61. Mining, which had a run-up last week, continued its decline on Tuesday. It dropped 2.02 or 0.12% to 1,614.05. Oil was also down 0.01 or 0.69% at 1.44. Property retreated 4.20 or 0.80% to 519.03. There were 31 gainers against 40 losers while 39 issues were unchanged. Around 704.7 million shares, valued at PhP294.1 million, exchanged hands.

ACTIVE STOCKS

PLDT was still the leading actively traded stock. It was down to PhP1,165 with 73,000 shares worth PhP86.2 million traded. It cornered a share of 29.32% of total trade. The telecoms giant recently reported that the illegal tapping of its lines cost the company PhP197 million in income and the government some PhP19.7 million in tax revenues. PLDT discovered the anomaly, following complaints from corporations about unauthorized long-distance calls being charged to their lines. The discovery led to the arrest of two Indians, a Bangladeshi and five Filipinos who allegedly hacked into the systems of PLDT corporate subscribers to make the calls.

SM Prime Holdings, Inc. was the second most actively traded stock. It was unchanged at PhP5.80 on over 4 million shares valued at PhP23.9 million. CADP Group Corp., formerly Central Azucarera de la Carlota, came in third. It was down to PhP1.50 on 12.7 million shares. The company told the stock exchange yesterday that it was not aware of any reason behind the 40% decline in its share price on Tuesday. But AsiaSec's Mr. Plana said CADP shares were actively traded because of a block sale.

Meanwhile, investors are advised to trade decisively. "The market would do well to sit awhile at the present level until very good incentives come up. That is the time for them to decide whether to buy or sell," said Ms. Cerdeña of 2tradeasia.com. The fast-tracking of tax measures is also expected to increase participation of investors in the market. Meanwhile, expectations that legislators will clear bills expected to spur economic activity, such as the Electric Power Reform Act, are likely to boost investors' stakes in telecom and energy, said Ms. Cerdeña. She added that since the descent in the market's performance is expected, investors will be betting on energy and telecom stocks.

No takers for GSIS stake in bourse, says senior official

By CECILLE S. VISTO, Sub-Editor

State-run Government Service Insurance System (GSIS) yesterday said it has no plans of selling to third parties its 1.39 million shares in the Philippine Stock Exchange (PSE). In an interview, GSIS Senior Executive Vice-President Reynaldo P. Palmiery said the pension fund will press the PSE to take back its 9.1% stake as treasury shares in lieu of the earlier recommendation of Chairman Alicia Rita M. Arroyo for GSIS to sell them to interested market buyers. "There are no takers and I doubt if there will be," Mr. Palmiery told BusinessWorld.

The Securities and Exchange Commission (SEC) also issued an earlier statement supporting the PSE chief's proposal. Mr. Palmiery said since the PSE is considered a regular corporation after its demutualization, thus, it is legally permitted to buy back its shares as treasury shares. Treasury shares are shares reacquired by the corporation, which could be subsequently resold. Ms. Arroyo said the PSE will likely reject the return offer as the sales transaction has been finalized. Still, the proposal of GSIS has already been endorsed to the PSE board for review.

Moreover, since the sale was consummated only in February, it is unlikely the PSE will take back this early GSIS' 9.1% as treasury shares, which will not earn dividends. Mr. Palmiery clarified the GSIS' proposal last week to return the PSE shares is "not irrevocable." He said the agency is willing to keep the shares if the stock exchange management could soon iron out the much publicized squabble among it board members. The GSIS official said the agency could not afford to be dragged into yet another controversy brought about by its purchase of the shares at a premium price of PhP119.50 as against the PhP185 market price at the time of the sale.

INTRAMURALS

"We don't want to be involved in another case," Mr. Palmiery said. "We don't want the GSIS, as an institution, to get caught in the intramurals at the PSE. The GSIS merely wants to help develop the local equities market," he said in a separate statement. Aside from GSIS, four other institutional investors -- namely the PLDT Beneficial Trust Fund, San Miguel Corp. Retirement Fund, Kim Eng Investment Ltd., and KE Strategic Pte. Ltd -- subscribed to a total of 5.265 million shares of the exchange's 27.6 million unissued authorized stock. The shares were worth PhP629 million and equivalent to 36.4% ownership. But the PSE and the institutional investors are facing a suit from brokers for the sale to be rescinded.

Meanwhile, there are rumors that PSE Director Ma. Vivian Yuchengco's First Resources Group cornered huge GSIS stock market deals in the first quarter allegedly in conspiracy with GSIS President and General Manager Winston Garcia. Mr. Palmiery defended Mr. Garcia, noting the decision to invest in PSE was duly approved by the board upon the recommendation of its investment committee. He said the pension fund is not worried that it might be cited for imprudently investing in PSE shares. "The purpose of demutualization is good, that is, to make the PSE more transparent and not be a Big Boys' Club. That was how it was presented to us and we thought that investing was a good move because we wanted to be part of the reform of the industry. But we're discouraged by the way PSE is being run," Mr. Palmiery said.

Meanwhile, the move of the GSIS signifying its intention to return its shares to the PSE only strengthened the argument of those who opposed the sale of the shares, a source said. The source said GSIS' move only lent more strength to the opposition of brokers against the private placement, which is said to be "unfair to the stockholders." A group of brokers earlier contested in court the sale of PSE shares, claiming that the shares sold were undervalued. The hullabaloo on the GSIS plan to return its shares sparked criticisms from various groups. The source said apart from the state pension fund's plan being a bad publicity to the bourse, it also forms the notion that questionable deals are peddled at the PSE. "That should not be the case," he said. The source said the statement made by GSIS that it wanted out because of the disputes among PSE directors was just a line to get out. "GSIS did not like being sued. Also, it has to do with a personal disagreement between PSE Chairman Alicia Rita Arroyo and GSIS President and General Manager Winston Garcia," the source added. The election of incumbent PSE director Francis Lim as PSE President and Ms. Arroyo's support of his candidacy also apparently irked some groups, including Mr. Garcia. -- with Jennee Grace U. Rubrico and Roulee Jane F. Calayag

Banks' reserve requirement to stay

The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) will keep its reserve requirement for banks at present level because of rising inflation. BSP Deputy Governor Amando M. Tetangco, Jr. said yesterday that commercial bank lending remained sluggish, and that the state of the economy did not permit a cut in banks' reserve requirement. "Right now, we don't need it. We have to look at the demand of the private sector," Mr. Tetangco said. At present, the BSP's reserve requirement -- the percentage of deposits that banks have to set aside in their vaults and invest in government securities -- is pegged at 19%.

Last February, BSP raised the reserve requirement of banks, comprising of liquidity and statutory reserves, by two percentage points from 17% to siphon excess liquidity that could be used by banks to speculate on the peso. Mr. Tetangco said there was still no significant growth in domestic liquidity because of low demand for loans. He also said that while bank lending to the private sector has slightly increased, the growth was still relatively moderate and not enough to warrant a cut in reserves. Bangko Sentral reported yesterday that loans of commercial banks rose by 1.7% year on year to almost PhP1.5 trillion as of end-May. This was a slight improvement over the 0.9% year-on-year increase registered in April.

Loans to the agriculture, fisheries and forestry sectors continued its strong growth from the previous month, rising by 12.5% year-on-year in May. Lending to the manufacturing sector, meanwhile, posted a moderate 2% growth. In terms of borrower profile, community, social and personal services accounted for the bulk. The wholesale and retail trade sectors followed closely. Bangko Sentral admitted that bank lending to other sectors declined, limiting the overall rise in bank lending in May. BSP Governor Rafael B. Buenaventura said the moderate credit demand and investment growth implied that the stance of monetary policy should continue. "Monetary authorities will continue to monitor developments in the real and monetary sectors to ensure that credit conditions remain supportive of the economy's growth path without undermining price stability," Mr. Buenaventura said.

Aside from moderate growth in bank lending, Mr. Tetangco said inflationary pressure continued to hang over the horizon, a factor in maintaining banks' reserve requirement at current level. Inflation has been on the rise since late last year because of higher oil and food prices. The inflation rate hit a 32-month high of 5.1% in June, but this was not enough for government to revise its 4%-5% inflation target for the entire year. -- Iris Cecilia C. Gonzales

Periodic Congress review of state firms' finances proposed

A bill calling for periodic evaluations of state firms' financial stability has been filed at the Senate. Opposition Sen. Sergio R. Osmeña III, who chaired the Senate committee on banks and financial services in the previous Congress, has filed the Senate Bill 487 or the Sunset Act of 2004 which proposes a periodic congressional review of the efficiency and viability of government-owned and -controlled corporations (GOCCs). In the bill's explanatory note, Mr. Osmeña noted that GOCCs have a key role in the country's economic recovery, meaning they should remain financially viable without much interference from the cash-strapped government. "These corporations have assumed an increasingly important role in the national endeavor for accelerated economic and social development. Their continued expansion and growth through the years manifest the magnitude of their impact on the economic recovery of our country... However, most GOCCs have become financial burdens," he said in the proposed legislation.

The bill provides for "systematic review and evaluation of GOCCs" every two years. The examination will be conducted by the Senate committee on government corporations and public enterprises, and the House committee on government enterprises and privatization. The review will focus on the efficient use of investment resources; financial and social investment rate of returns and productivity; duplication or overlap of functions of GOCCs; and the extent of private sector participation in the operations of GOCCs. Once the bill is enacted into law, GOCCs will have to disclose all pertinent information and documents to the congressional committees. Officers and directors of GOCCs who fail to comply face administrative, civil and criminal sanctions. After the review, the Congressional committees will submit consolidated reports to the Senate Committee on Finance and the House Committee on Appropriations. These two committees, in turn, will recommend budgetary allocations, merging of two or more GOCCs with similar or overlapping functions; or the privatization/termination of a GOCC.

Mr. Osmeña said the periodic GOCC review is necessary for the provision of social benefits to the people while preventing undue competition with the private sector. "The state should continuously evaluate and review existing GOCCs to determine whether they satisfy the tests as enshrined in our Constitution. There is a need to improve the operations of the GOCCs in order to promote economy, efficiency and effectiveness in the delivery of public service," he said.

The 1987 Constitution provides for the establishment of GOCCs through special charters "in the interest of common good and subject to the test of economic viability." Last week, the Department of Finance proposed the enhancement of the revenue-generating potential of select GOCCs such as the Public Estates Authority and the Philippine Amusement and Gaming Corp. to maximize dividend payments. -- Carina I. Roncesvalles

First half deficit data out today

The National Government will report today how it fared in terms of managing the budget deficit during the first semester. Finance Secretary Juanita D. Amatong and Budget Secretary Emilia T. Boncodin are scheduled to hold a press conference at the Department of Finance building in Manila this afternoon to release data detailing the government's fiscal performance for the January to June period. Ms. Amatong earlier conceded that the government will miss its fiscal target for the first half because expenditures went beyond the amounts budgeted and that revenue collections were not enough. She, however, has stressed the government is maintaining its year-end deficit ceiling of PhP197.8 billion, adding that keeping the final tally below this cap is achievable.

The government's budget shortfall for January to May was PhP77.4 billion, just PhP2 billion below the government's first-half target of PhP79.6 billion. Consequently, observers and even government officials admitted that there was no way the government would be able to meet the January-June cap given the PhP2-billion leeway. Expenditures for January to May reached PhP366.1 billion against the PhP412.4-billion target for the first six months. Ms. Boncodin said the May deficit was no surprise and that June spending was also expected to be high because of election-related spending and a spill-over of expenses for the reopening of the school year. Revenue generating agencies earned the government PhP288.7 billion for the period. The Bureau of Internal Revenue, Bureau of Customs, Bureau of Treasury and other offices aimed to collect PhP332.8 billion for the first semester.

The government has made a commitment to wipe out the budget deficit by 2009 through a combination of administrative and legislative measures which, economic managers claim, will earn the government PhP126.6 billion annually. The government's fiscal position -- a reflection of how much it has earned and spent in a given period -- is a closely watched indicator given its effect on interest rates or the cost of borrowing as well as inflation or the rise in prices of goods, among others.

BIR to push Tax Code changes at Senate probe

The Bureau of Internal Revenue (BIR) will take advantage of a planned Senate inquiry on tax administration to push for amendments to the National Internal Revenue Code (NIRC). BIR Deputy Commissioner Kim J. Henares said the BIR welcomes Senate President Franklin Drilon's bid to investigate tax collections because it would provide the bureau a venue to point out needed revisions to the 1997 tax code. "We welcome it so they can see how difficult it is to collect taxes," Ms. Henares told reporters yesterday, adding that "there are provisions in the tax law that prevents us from collecting taxes." She said the BIR has prepared a list of amendments which the tax agency hopes Congress will approve to help the BIR raise needed revenues for the government.

Including this year's expected shortfall, the Philippines will have run budget deficits in 10 of the last 14 years, largely due to weak tax collection and corruption. This year's deficit cap has been set at PhP197.8 billion and the government hopes to wipe out the shortfall by 2009. For instance, Ms. Henares said the BIR would like Congress to scrap a provision in the tax code which allows taxpayers to amend their income tax returns within three years. This, she said, has prevented the bureau from filing perjury charges against delinquent taxpayers.

Likewise, the tax agency wants Congress to reduce the number of value added tax (VAT) exemptions provided under the law to plug loopholes in the scheme. The Tax Reform Act of 1997 exempts more than 20 transactions from VAT. Ms. Henares said an estimate of how much collections will increase cannot be determined as of this time. VAT comprises as much as 20% of the BIR's tax collections. It was first adopted locally in 1988, replacing 12 different kinds of indirect taxes such as annual fixed taxes and sales tax from manufacturers. BIR Commissioner Guillermo Parayno has blamed the "defective" tax laws passed by Congress as part of the reasons why tax leakages remain a problem. "They have given us defective tax laws for which we are taken to court by taxpayers. So what has been done to address these legislatively speaking?," he was quoted as saying. -- Karen L. Lema

SEC set to issue new rules on anti-dirty money manuals of regulated companies

By JENNEE GRACE U. RUBRICO, Senior Reporter

The Securities and Exchange Commission (SEC) is set to issue new guidelines in the preparation of the anti-money laundering manuals by firms covered by the law and regulated by the commission. The SEC said the new guidelines would incorporate amendments in the Anti-Money Laundering Law, international best practices and related provisions in the rules of the Securities Regulation Code for broker dealers. The SEC is one of the three government agencies comprising the Anti-Money Laundering Council. Among the institutions covered by the anti-money laundering law and regulated by the corporate watchdog are securities brokers, investment houses, common trust fund companies, and pre-need companies. "The guidelines [have] been drafted to appear as a set of guidelines that would assist the regulated intermediaries in the preparation of their individual statement of policies and procedures and revised anti-money laundering operating manuals," the SEC said in the 19-page draft guidelines.

The guidelines noted three stages of money laundering, namely, placement, or the physical disposal of cash proceeds derived from illegal activities, layering, or separating illegal proceeds from their sources by creating layers of financial transactions to disguise the audit trail, and integration, or providing of apparent legitimacy to illegally derived wealth by placing the laundered proceeds back to the economy. "The business of these regulated intermediaries are most likely to be used at the second stage of money laundering, i.e., the layering process as they provide a potential avenue which may allow a dramatic alteration of the form of funds," the SEC said. Under the draft guidelines, the SEC requires regulated intermediaries to establish, document, and maintain a written customer identification program as part of their anti-money laundering compliance program. "Clients should be made aware of the regulated intermediaries' explicit policy that business transactions will not be conducted with applicants who fail to provide evidence of their identity but without derogating from the regulated intermediaries obligations to report suspicious transactions," the draft guidelines state. They also provide that regulated intermediaries must ensure they know their customers and to keep current and accurate all material information with respect to their customers.

The draft guidelines further prohibit the opening of new accounts without face to face contact. Regulated intermediaries are required to do a company search before establishing a business relationship with firms to ensure that these have not been, or are not, in the process of being dissolved, struck off, wound up or terminated. If significant changes to the company structure or ownership occur, or suspicions arise as a result of a change in the payment profile of a company, regulated intermediaries are required to make further checks in the identities of the owners, the SEC said.

SHELL COMPANIES

For shell companies, the SEC said regulated intermediaries should obtain a board of directors' certification that would detail the purpose of the owners in acquiring the company. "Regulated intermediaries should note that shell companies may be abused by money launderers and therefore be cautious in their dealings with them," the SEC said. Regulated intermediaries are also required to check if the applicant for business relationship is acting on behalf of another person as trustee, nominee or agent. If the intermediary believes the trustee, nominee or agent is being used as a dummy, it is required to make further inquiries to verify the status of the business relationship between parties, the SEC said. It added that for transactions undertaken on behalf of non-account holders, and where the transaction involves significant amounts, customers should be asked to produce "positive evidence of identity including nationality the purposes of transaction, and the sources of funds." The draft guidelines also require regulated intermediaries to designate at least two persons for the safekeeping of all records.

The SEC guidelines also state that regulated intermediaries are required to report before the council transactions in cash or other equivalent monetary instrument which are over PhP500,000 within one banking day. This is following amendments in the law on the threshold amount for reporting transactions, which used to be PhP400,000. The firms are also required to file a suspicious transaction report before the council, regardless of the amount of transaction, if there is no underlying legal or trade obligation, purpose or economic justification; the client is not properly identified; the amount involved is not commensurate with the business or financial capacity of the client; the client's transaction is structured to avoid being the subject of reporting requirements; circumstances relating to the transaction deviate from the profile of the client or its past transactions; or if the transaction is related to unlawful activities. "Covered transaction and suspicious transaction reporting should be done by the regulated intermediary within five working days from occurrence thereof unless the commission prescribes a longer period not exceeding 10 working days," the SEC said. The guidelines also require institutions regulated by the SEC to have internal controls and procedures for preventing and impeding money laundering. It adds that regulated intermediaries should provide education and training for all its staff and personnel.

Nenaco resumes operations of flagship vessel

Debt-saddled shipping company Negros Navigation Co. (Nenaco) said its flagship vessel, Mary, Queen of Peace, resumed operations on July 7 after scheduled dry-docking and quality inspection. This completes the seven-vessel fleet of Nenaco, which is currently facing corporate rehabilitation for debts amounting to PhP2.5 billion. The shipping company is in the midst of a collection case with Japanese-led Tsuneishi Heavy Industries Cebu, Inc., whom it owes PhP130 million for dry-docking and repair services. Tsuneishi Heavy Industries earlier sought the seizure of Nenaco's six other vessels to stand as guarantee for the debts. Nenaco said Mary, Queen of Peace is the fastest interisland vessel in the country, plying the Manila-Iloilo-Cagayan de Oro route. Nenaco did not divulge how much the resumption of its flagship vessel's operation would contribute to the company in terms of revenue. -- A. B. L. Lorenzo

Aussie gov't grants PhP3M for capital market reforms

The Australian government has signed an agreement with the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) for a PhP3.13-million technical assistance grant to strengthen capital markets regulation and reforms. The SEC gets PhP2.157 million of the grant for capability building and convergence of good corporate governance and international accounting standards. The grant came from the Australian government through the Philippines-Australia Governance Facility of the Australian Agency for International Development (AusAID). The program will seek to enhance the organizational effectiveness of the SEC by equipping its officials and employees "with new productivity tools." The program will also promote transparency in the capital market through seminars on international accounting standards and to harmonize the country's financial reporting requirements with international standards.

The PSE, meanwhile, gets PhP975,830 from the total grant. It is meant for capability building program for the listings and disclosure department of the bourse. The program will enhance the knowledge and skills of the listings and disclosure group in financial analysis, and the relevant accounting standards affecting applicant companies or listed companies. AusAID Counsellor Angus Macdonald, in a statement, said the Australian government is "pleased" to support the efforts of the SEC and PSE in the development of the financial sector. -- J. G. U. Rubrico

Stocks close low on lack of trading leads

By ROULEE JANE F. CALAYAG

As expected, the stock market closed lower yesterday marked by profit-taking on big capital issues. Astro del Castillo, managing director of First Grade Securities, Inc., said investors were still searching for more incentives to enter the market ahead of corporate earnings reports.

IMPATIENT

"The market is becoming impatient. Investors want to know who will take the helm of the Department of Finance and what will be [the new chief's] strategies," said Mr. del Castillo. Jose Vistan, Jr., research head at AB Capital Securities, observed that the market's sideways movement was due to investors' growing impatience. "There is no major news in the market which makes investors impatient. Consolidation continues as traders take profits on big cap issues," said Mr. Vistan. Although the market's breadth was positive, with advancers beating decliners, 46-24, and 42 issues were unchanged, the Philippine Stock Exchange composite index (Phisix) was still low at 1,544.26.

PROFIT-TAKING

"This shows that the market is shifting to second-liners and small cap issues because they do not see fundamental basis to keep big cap issues," added Mr. Vistan. Profit-taking was observed in blue chip stocks such as telecom giant Philippine Long Distance Telephone Co., (PLDT), Globe Telecom and Ayala Land, Inc. "The market cannot go up in a straight line. There were spectacular gains which have been already factored into the market," said Mr. Vistan. First Grade's Mr. del Castillo said the consolidation will persist. "The market will continue to consolidate between 1,530 and 1,570 in the next few days," he said.

Chelsea Dipasupil, research head at RCBC Securities, Inc., gave the same reason for the sluggish and cautious trading yesterday. "There is not much support in the market due to some concerns. Investors are waiting for directions especially on the economy," said Ms. Dipasupil. She said market players will be looking forward to the State of the Nation Address of President Gloria Macapagal Arroyo on July 26 as they await news on the government's budget deficit.

Investors are becoming jittery after Finance Secretary Juanita Amatong said the government may have exceeded its budget deficit target for the first semester. Data for the first-semester budget deficit will be out today. The budget deficit in May reached PhP77.4 billion, around PhP2-billion short of the PhP79.58 billion target for the first six months. Ms. Amatong said, however, that the government will meet its full-year goal of PhP197.8 billion by exercising control over expenditures. "Hopefully, the concern on the budget deficit will be addressed. The government is getting on the right track," added RCBC Securities' Ms. Dipasupil. First Grade's Mr. del Castillo said, "The Bureau of Internal Revenue will keep an eye on it [the budget deficit]. A spike in the deficit will cause a pressure on the domestic trade which, in turn, will create ripple effects."

INDICES

At the stock market, the Phisix was down 6.97 or 0.45% to 1,544.26. Most of the indices slid, with mining shedding 30.40 at 1,616.07. The commercial-industrial was down 11.32 at 2,421.21. The all-shares index shed 4.74 at 984.45. Banks and finance slid 4.04 to 465.68. Oil and property were up 0.01 at 1.45 and 1.61 at 523.23, respectively. The sharp decline in the mining index is attributed to a technical correction. A source said the index was just correcting after stock prices soared last week on reports that new investors are keen on acquiring a stake in Manila Mining Co. There were 2,195 trades and a volume of 979.9 million valued at PhP320 million. Mr. del Castillo said trading volume turnover was thin because investors did not see enough reasons to enter the market.

TELECOMS

PLDT was still the most actively traded stock, but its stock price closed lower by PHp10 at PHp1,180 on 56,220 shares worth PhP66.4 million. It tracked the decline of its American Depositary Receipts (ADRs) in New York. Its subsidiary, Pilipino Telephone Corp. (Piltel), extended previous gains. Piltel rose P0.04 to PhP2.34 on 11.86 million shares valued at PhP27.6 million. The mobile operator may end up, according to earlier reports, with 80% to 85% of its net cellular revenue when a new revenue-sharing agreement is finalized with Smart Communications Inc., which acquired a 32.7% stake in Piltel. Smart, also a part of the PLDT group, currently takes half of Piltel's revenue from the Talk N' Text mobile phone service for access to its network.

Jollibee Foods Corp. advanced PhP0.50 to PhP24. SM Prime Holdings slowed down PhP0.10 to PhP5.80. Globe retreated by PhP10 to PhP795. DMCI Holdings was up PhP0.10 at PhP0.83. Ayala Land moved up PhP0.10 to PhP5.40, while parent Ayala Corp was unchanged. Petron Corp. shed PhP0.05 at PhP2.80. First Holdings declined PhP0.50 at PhP27.

Although not much activity is expected due to lack of fresh developments, Ms. Dipasupil said she was optimistic that the market would turn for the best in the coming days. "Along the way, there may be come technical rebounds as investors see a traction in the support levels of stock prices," added Ms. Dipasupil.

Banco de Oro still keen on Equitable PCI shares

By RUBY ANNE M. RUBIO, Reporter

Henry Sy-led Banco de Oro Universal Bank is not looking at other banks to buy as it remains keen on settling its purchase of the 25.8% stake of the Social Security System (SSS) in Equitable PCI Bank. When asked about the status of the deal, Banco de Oro chairman Teresita T. Sy said, "It is something that is up in the air. Nobody knows. [It is] not that we are keeping anything. But nobody knows anything at this time." SSS finds itself in a legal squabble as BDO Capital & Investment Corp. asked Mandaluyong Regional Trial Court to compel the private pension fund to execute the Equitable PCI share sale and purchase agreement and immediately transfer its rights, title and interests in the share.

According to the binding agreement signed by Banco de Oro president Nestor V. Tan and SSS president Corazon S. dela Paz on December 30, 2003, the deal will close no later than June 30, 2004 "unless extended by mutual agreement of the parties." Before the deal's closure, the Philippine Association of Retired Persons sought a temporary restraining order from the Makati Regional Trial Court to prevent SSS and Banco de Oro from consummating the agreement to sell 187.8 million Equitable PCI shares. The retired persons' group said the transaction would provide a bad precedent and would violate public policy on the disposition of assets. Ms. Sy said, "It is not that we don't talk. We do. But it is just we could not put things together. They are not asking for anything."

In its complaint, BDO Capital said SSS "failed and refused to comply with its obligations" under the agreement despite the opinion rendered by the Department of Justice (DoJ) favoring the sale. "As a consequence of SSS unreasonable and unjust refusal to comply with its obligations under the letter agreement including the execution of the share and sale purchase agreement and the transfer of all its rights, title and interests in the shares to BDO Capital, the latter was compelled to engage the services of counsel and incur litigation expenses to protect its interest," BDO Capital said in a 15-page complaint.

Under the deal, Banco de Oro was to pay a downpayment of PhP1 billion for the SSS stake in Equitable PCI. The total value of the shares was estimated at PhP13.9 billion, which SSS would receive after six and a half years. The balance of PhP12.9 billion will be paid through 6-1/2-year zero-coupon, non-amortizing notes. BDO Capital claimed that the price of the shares at PhP43.50 each was "fair and reasonable" since the shares were being traded at a high of PhP34.50. It stated that the sale should be part of the ordinary business operations of SSS since its charter authorizes it to acquire and dispose of its assets for the purpose of attaining its objectives.

The retired persons' group -- along with Audio Dyne Farm Production, Inc., and United Social Security System Members, Inc. -- said in a 22-page opposition to Banco de Oro's motion to dismiss, the bank's reliance upon the opinion issued separately by the Commission on Audit (CoA) and Justice department is "sorely misplaced." "What is unquestionable is that the shares subject of this action are covered under the general policy on public bidding pursuant to CoA Circular No. 89-296. The CoA opinion relied upon in the DoJ opinion and quoted by Banco de Oro, taken as a whole, actually affirmed plaintiffs' position that the shares are subject to the general public requirement of public bidding pursuant to CoA Circular No. 89-296," the association said. The circular states that the disposal of merchandise or inventory held primarily for sale in the regular course of business was exempt from the requirement of disposition primarily through public auction or public bidding. When asked if Banco de Oro will consider joining the bidding if compelled, Ms. Sy said, "I cannot say as of now. But maybe we will see in a short while. Let us see how the case moves first." SSS said the sale of its shareholdings in Equitable PCI will stem further bleeding of the fund's stocks.

T-bill rates decline

Treasury bill rates dropped in yesterday's debt auction. The government is optimistic of a downtrend even as money market traders said that the decline was only temporary. "Yields are already attractive [at this point]," National Treasurer Mina C. Figueroa said. She added that if there will be a confirmation that the issues traders have been raising will ease "and this will be sustained, then we'll see a downtrend." Traders have said that they would continue demanding higher risk premiums for government debt papers, citing, among others, the state's gaping budget deficit.

At the auction yesterday, the 91-day T-bill rate went down to 7.443% from 7.714% on June 7 prior to a couple of rejections. The 182-day rate likewise dropped to 8.472% from 8.631% previously. Tenders for the three-month instrument were oversubscribed at PhP9.515 billion against a PhP4.5-billion public offering. Bids for the 182-day paper reached PhP5.8 billion against a PhP3.5-billion offer. The Treasury fully awarded all bids. Market appetite for the 364-day T-bills was also strong as bids hit PhP4.635 billion against a PhP3-billion offering. The auction committee, however, accepted only PhP2.98 billion at 9.315%, down by 10.1 basis points from 9.416% on June 7.

Coming in from a tight cash flow last week, traders said banks were only looking for a rollover of money for government securities that are maturing weekly. "For them to be able to cover that, they will bid for lower rates so they'll surely win," a trader said. Traders yesterday were worried that the government may reject their bids because it already has a "healthy cash position" following the sale of retail Treasury bonds valued at PhP41 billion. But Ms. Figueroa said, "We only have a net of PhP11 billion" after deducting PhP30 billion worth of small denominated Treasury bonds which matured last Thursday. The trader said the net value "is already worth one auction."

Ignoring government's enthusiasm, another trader said in the near term, the country's fiscal problems will continue to hound financial markets. The government is scheduled to release today its first-semester budget deficit data which many believe would exceed the PhP79.6-billion target. "The basis that yields are really coming off can be seen on the long-term debt papers, if bids will push up," another trader said. The Bureau of the Treasury will auction today seven-year bonds which traders believe would have a lukewarm response from banks. "We can't easily shrug off the deficit problem or any economic problems for that matter. It's a perennial problem," one trader said. -- Ira P. Pedrasa

Peso ends stronger by six centavos ahead of budget data

Tracking most regional currencies, the Philippine peso closed stronger by six centavos yesterday before the scheduled release of the government's first-half budget deficit data today. "It was yen-driven, most likely," a trader said. The local unit's strength came after the US dollar failed to rise even after the release last Friday of the United States' inflation data, which showed June consumer prices rising by only 0.3%, or only half the prior month's rate.

In early trade, the yen's highest value hit 108.12 against recent lows hovering at the 109 yen level. "Other than that, we have not seen corporate demands as can be seen in the volume of trading," another trader said. Total volume of turnover slipped to $108.4 million from $178.08 million previously. The trader said since fiscal problems continue to exist, "we'll just have to wait and see again." Traders polled by BusinessWorld expect the government to breach its PhP79.6-billion budget deficit target.

The Bangko Sentral ng Pilipinas, however, said the peso was still undervalued. Amando M. Tetangco, Jr., the central bank's deputy governor, said yesterday that while the political concerns have subsided, investors are still waiting for the government's economic program. "They are waiting for the deficit figures," Mr. Tetangco said. He added that the market is also waiting for President Gloria Macapagal Arroyo to present her administration's economic program for the next six years on July 26 when she delivers her State of the Nation Address. Mr. Tetangco said the peso is likely to strengthen when the business community gets a better picture of the government's program to raise additional revenues and balance the budget by 2009.

The central bank earlier said the peso should appreciate to PhP54 against the dollar after the proclamation of a new President. At the Philippine Dealing System, the country's electronic currencies exchange, the peso averaged stronger by more than 10 centavos to PhP55.918 from PhP56.024. Opening at PhP55.94 per dollar, the local unit continued appreciating up to PhP55.88. It finally slipped to PhP55.935 against the greenback. -- Ira P. Pedrasa and Iris Cecilia C. Gonzales

Traders complain of overregulation

Money market traders said the central bank should pace the issuance of regulatory circulars as they are having a hard time keeping track of these. "The problem is that it's hard to keep track of these. We have full-time compliance officers, but most of management time is spent on reviewing these [circulars]," said Eduardo V. Francisco, executive vice-president of BDO Capital & Investment Corp., during the recent Money Market Association of the Philippines' second general membership meeting. He also said there should be a move to adjust and simplify these regulations.

Nestor A. Espenilla, Jr., the central bank's assistant governor, admitted that the bank regulator has indeed been issuing too many circulars. But he said this was meant to better oversee the money market. He said in the last three years, the number of "substantive circulars" issued has reached an average of one and a half a month. "More recently, two a month," Mr. Espenilla said during the same meeting. "These [circulars] reflect the situation that, for a long time, many aspects are not covered by appropriate credentials." Mr. Espenilla said, however, there is a need for these regulations as these would enhance the banking system's processes. He cited, for instance, the market's failure to disclose information on some activities. He also said the need for the circulars to "curb anti-competitive behavior."

Traders, however, said there is now a smoother road ahead, requiring simple regulations. "We should loosen the screw, hanker down. During the Asian crisis, it was only normal that regulations came in," said BDO Capital's Mr. Francisco. "For an investment house [like us], owned by a bank, we are automatically audited by two regulatory bodies, the Securities and Exchange Commission and the central bank, sometimes they have different sets of interpretations." BDO Capital is the investment house unit of Banco de Oro. Still, he said the money market applauds the central bank's consistent regulatory moves "which reflects more transparency issues [from the market's side]." -- Ira P. Pedrasa

Tan's Allied Bank readies $50-M Tier 2 private offer

The Bangko Sentral ng Pilipinas is already evaluating Allied Banking Corp.'s plan to raise $50 million in dollar-denominated subordinated debt that qualifies as Tier 2 capital this year to beef up its capital base. In a talk with reporters, Reynaldo A. Maclang, president of the Lucio Tan-led universal bank, said ING Bank N.V., the financial adviser for the planned debt offering, has lined up the investors. "Our application is with the [central bank] already. We have the approval in principle, then we have submitted to them the requirements they asked for. This is just a private placement. We are not going to do a roadshow... If it is not for that amount, which is what we think we need, it is not worth going to the public. The likes of the ING Bank will not be interested since it is a small amount. They said we can do it in private, which we are doing. They are the ones lining up [investors] for us. We are not going to do any public raising of capital," he said. The Tier 2 scheme calls for the issuance of subordinated debt papers with a fixed yield.

Unlike traditional equity infusion, Tier 2 capital is raised via the sale of debt papers that can be converted into shares of stock upon maturity. "I suppose by this time, they have lined up already the investors," Mr. Maclang said, adding that the bank's request with the central bank was "already at the final stages." "As soon as we have the approval, we are expecting it to come this year," he said.

Despite a 33.1% drop in first quarter profits to PhP145.08 million from PhP216.86 million year-on-year, Allied Bank and its subsidiaries is expecting a 30% growth this year from PhP1.12 million in 2003 through technology and systems upgrade, bancassurance, more remittance partnership and tie-ups, extensive marketing strategies and availability of the group's products and services to its clients through expanded and strategic domestic and international network. "It will be a continuation of the businesses we are in now. Probably we will have more elbow room. If you have bigger capital, you have more flexibility for the business we are doing now," he said. Higher revenues are expected from the bank's treasury business after it received recognition from the Bureau of the Treasury as one of the top 10 best performing government securities eligible dealers in the primary market last year. -- Ruby Anne M. Rubio