Tuesday, July 27, 2004
GMA zeroes in on poverty
Businessmen offer support
Economic zone exports up 19.4% in first semester
Legislator sets terms for new taxes
Power to freeze bank accounts sought for AMLC

SEC may ease rules for online stock trade
Meralco first half income doubles
Petron first-half profits up 6% to PhP1.36B
BayanTel says with rehab on stream, public offer to proceed
Gov't starts paying maintenance fees incurred by MRT
TMX Phils. investing $10M for Mactan distribution hub
Stocks dip ahead of Arroyo's speech

Monday, July 26, 2004
Arroyo unveils 'new direction' at Congress opening
DBP to trade small firms' receivables
Capital market reforms urged
Banking regulators need immunity from lawsuits
CoA examination powers expanded under Senate bill
Transco insists on more funding for vital projects
BSP sets tougher rules on common trust funds
Peso to rest on solid ground as GMA delivers SONA
SEC prohibits GSIS from returning shares in bourse
Market to take cue from Arroyo's SONA

July  22 - 23
July  20 - 21
July 15 - 16
July 14
July 12 - 13
July 9 - 10
July 7 - 8
July 5 - 6
July 1 - 2





GMA zeroes in on poverty

Building on her government's gains in the last three years, President Gloria Macapagal-Arroyo yesterday presented to Congress her administration's program for the next six years and asked all sectors to take bolder steps to curb the budget deficit, arrest corruption, and improve the living conditions of the average Filipino.

In her first State of the Nation Address (SONA) as the 14th president of the Philippines, Ms. Arroyo presented a 34-minute to-do list aimed at highlighting the government's commitment to a new direction of putting the Filipino first in all its undertakings, "and finally get things right." And as expected, the president used the recent hostage incident in Iraq of Filipino truck driver Angelo dela Cruz to drive home her point, and to emphasize that her government cared more about people than critics. "You have a government -- indeed, you have a country -- that cares. Your life is held more dearly than international acclaim. And you have a president who is your friend, and I cannot apologize for being a protector of my people," the president said in her speech, which was applauded 36 times. The president used the euphoria over the safe release of Mr. dela Cruz as a rallying point for the Filipinos to unite to "put our economic house back in working order." "Having saved one Filipino from a painful and pointless death, we must seize the unity we attained to improve our government and save our economy," she said.


Ms. Arroyo bared her government's targets in five key areas: job creation and economic growth, energy independence and savings, social justice and basic needs, education improvement and youth opportunity, and the government's anti-corruption campaign. To boost the economy, the president pledged to wipe out the country's chronic budget deficit within her six-year term by running after tax cheats. The president also pledged to cut the country's unwieldy bureaucracy and devote her new term to raising millions out of poverty, although she gave few details on how she would do it. Ms. Arroyo also reiterated plans to introduce new tax steps to raise an extra PhP80 billion a year while saving an extra PhP100 billion a year, but gave no further details on tax. Her Energy secretary yesterday said that she had signed an order to raise tariffs on oil product imports to 5% from 3% to net an extra PhP4.4 billion.

Analysts said Ms. Arroyo needed to show her deficit-cutting plans had teeth within months or risk further damaging downgrades by international ratings agencies, which already rank the country's sovereign debt two notches below investment grade. "We have to see progress on the actual fiscal reforms over the next few months," said Nicholas Bibby, an analyst at Barclays Capital in Singapore, adding that a downgrade by one of the major agencies was possible this year. Ms. Arroyo asked Congress to approve a bill on the privatization of debt-laden state power firm National Power Corporation (Napocor), promising that it would not be a "fire sale," and to pass a bill making the country's anti-corruption ombudsman as strong as that of Hong Kong. She also promised to create a more efficient bureaucracy by cutting staffing and giving the private sector a greater role. "We will downsize the government, motivate excess employees to become entrepreneurs and increase the pay of a lean and mean bureaucracy," she said. After three years overshadowed by legitimacy doubts, Ms. Arroyo had pledged to use her mandate for a fresh six-year term and legislative majorities to wipe out the $3.6 billion annual budget deficit, create six million jobs and put computers in all schools.


It is still far from clear whether politicians are ready to tackle the country's problems with renewed urgency, pushing aside the bickering and bad blood that has lingered since anti-graft protests turfed out Joseph Estrada and installed Ms. Arroyo in 2001. Moves to raise "sin" taxes on tobacco and alcohol have been stymied for years by entrenched opposition. Early proposals to abolish the value-added tax in favor of a new tax on gross income have been criticized as counter to a trend towards VAT-based tax systems in other countries. Tax hikes also promise to be unpopular among the country's 82 million people, a third of whom live in dire poverty, and the Iraq withdrawal has raised doubts over Arroyo's ability to make decisions that run against popular opinion.

The initial reaction to Ms. Arroyo's address by one senator suggested she had failed to win over the doubters. "It reads like a mediocre term paper," administration senator Joker Arroyo said in a statement. "Long in rhetoric, short in substance. The president's advisers have failed her." Ms. Arroyo's decision to withdraw from Iraq won her no respite from left-wing groups strongly critical of her support for US policies and her failure to eradicate poverty. "I don't think the people are about to give Gloria a second chance," said Renato Reyes, one of the leaders of several thousand protesters who set fire to a vulture-like effigy of Ms. Arroyo near the Congress building. In her annual state-of-the-nation address before both houses of Congress, Ms. Arroyo also called on legislators to take up a possible shift from a US-style presidential system to a parliamentary style of government starting next year.


She also said she would work to develop the impoverished nation and spur economic growth, but warned that the country must "take bolder steps forward," in her next six years in office. "Tough decisions will have to be made. It is going to be tough love from here on," she said, warning the upper-classes would feel the brunt of these reforms. "Our most urgent problem is the budget deficit," Ms. Arroyo warned, saying this could drive away investments, hurt job growth, and reduce the government's ability to set up much-needed infrastructure. She thus called on Congress to pass eight revenue measures. She also called for a reduction of the bureaucracy, saying she would personally cut 30 agencies under the Office of the president. Ms. Arroyo received her loudest applause from the legislators when she called for revising the charter to allow for a parliamentary form of government.

Many legislators who favor this move say it will save time and money in getting reforms enacted, make elected officials more accountable to the public, and allow for more continuity in government. But critics charge it is just a ploy for congressmen to entrench themselves in power. In a conciliatory gesture to the opposition, Ms. Arroyo reached out to the opposition, saying "I do not ask for unprincipled support. I do ask for an end of unprincipled obstructionism because that always succeeds in defeating our best efforts." Even before Ms. Arroyo delivered her speech, her critics in Congress had already rejected her new revenue measures. Senator Joker Arroyo remarked "in Congress, it is hard enough for one tax measure to pass, much more eight." "I support her but I will oppose these taxes. She can't expect us to be blind and just agree to everything," said the senator, a nominal ally of the president. Opposition Senate leader Aquilino Pimentel said, "her plan to impose new taxes, we will fight against that." "We are telling them to just collect what they need to collect with enforcement of existing taxes," he stressed. About 3,000 leftist protesters tried to march on the Lower House of Congress during Ms. Arroyo's speech but were pushed back by club-wielding riot police. -- Jeffrey O. Valisno with reports from Reuters and AFP



Businessmen offer support

... but remain wary of the mode of Charter change

'There were so many other issues that deserved a standing ovation. But [lawmakers appeared to be] so eager on [charter change].' -- Jesus L. Arranza, president of the Federation of Philippine Industries

Businessmen were upbeat yesterday following the president's state of the nation address, saying they were ready to support her reform programs and share part of the burden. Jesus L. Arranza, president of the Federation of Philippine Industries (FPI), said the president came across as "sincere," adding that he agreed that businesses should adopt a policy of "tax acceptance" rather than "tax avoidance." "Sincerity is contagious. I hope it filters down to businessmen, government officials, and the common tao [people]," he said in an interview.

Philippine Chamber of Commerce and Industry (PCCI) chairman Sergio R. Ortiz Luis, Jr. said the president's push for "government reengineering" should encourage the private sector to support her initiatives. "I think it's a good signal to businessmen in the sense that it's not only business that is going to sacrifice, [and that] it's [going to be] pain-sharing and burden-sharing," Mr. Ortiz Luis said. Raul T. Concepcion, chairman of the Consumer and Oil Price Watch, likewise said businessmen were more than willing to help. "Let's walk the talk and we will do it," he said in a television interview. His twin brother, Jose S. Concepcion, Jr., who heads the Bishops-Businessmen's Conference and the National Movement for Free Elections, echoed this view and said various sectors would respond to the president's call. "We will be involved in the fight versus corruption because this is something big for our economy. [But we need] small victories, not a confrontation with Congress. We will also monitor [government projects] so the people will know where their money is being spent," he said in a television interview.


On the issue of constitutional amendments, Mr. Ortiz Luis said he hoped the extraordinary applause given by legislators would not necessarily mean there would already be a shift in the form of government through a constituent assembly of both houses of Congress. A constituent assembly is widely perceived as serving the vested interests of incumbent lawmakers in the House of Representatives since they would be the ones forming the body that would amend the Charter -- possibly including provisions that now limit their terms.

The Senate, on the other hand, is aligned with many other groups that back an elected Constitutional Convention -- composed of popularly elected individuals who are supposed provide the widest socioeconomic representation. "It's the most applauded, but I guess she will have to look at it from the view of the crowd she was addressing," the PCCI chairman said. "Let us not preempt kung ano ang magiging [what will be the] result. [There] should be an educated campaign and consultations should be made before a conclusion is arrived at." Mr. Arranza said he was "surprised" that lawmakers gave the president a standing ovation on her charter change stance. "I don't know what signal it will give. Is it because they are involved [in the process]? Will their terms be extended? Will there be a change in the form of government?" he asked. "There were so many other issues that deserved a standing ovation. But [lawmakers appeared to be] so eager on [charter change]," the FPI chief said.

Peter Wallace of the Wallace Business Forum said it was "important to recognize that the problem is not in the system. It's in the culture and the attitude." He added that a parliamentary form of government would not necessarily cure government inefficiency and corruption. Applying the same analysis to taxation, Mr. Wallace said it was "too simplistic to change it because it doesn't work." Mr. Wallace pointed out the Philippines "doesn't have a good record of putting in place new systems." He said "full computerization" of the net income tax system, and value-added tax transactions should do the trick.

Also, changing the tax scheme on telecommunications companies will bring "uncertainty" to the markets and is "quite frightening." "I'm not at all happy with that. That would be penalizing a business for being successful," Mr. Wallace warned. Mr. Ortiz Luis nonetheless praised the president for highlighting the need for more infrastructure. "Another thing that I like as a businessman is the way she spent more time in explaining the need to implement infrastructure programs. In previous [addresses] infrastructure was relegated to the backburner because they were treated as a frivolous expense. Now, she's saying it's a necessary expense," he said. Echoing the president, Trade and Industry Secretary Cesar A.V. Purisima said infrastructure projects would be "fast-tracked" to make the country "a preferred [destination] for doing business." "The department will focus in attracting foreign and domestic investments which will bring in needed capital and technological expertise," he said. Seven industries will be prioritized, the Cabinet official said: manufacturing, information technology, medical tourism, retirement services, tourism, mining, and agribusiness.


Meanwhile, traders said four-year Treasury bonds could be cheaper today at just a few points above 11% in reaction to the president's address. Four-year T-bonds fetched a rate of 11.375% in June. They were trading at 11.3422% at the secondary market yesterday. Debt yields started to drop last week on news that the budget deficit target for the year was attainable. "There was nothing new in her speech, but I think she was serious in implementing her revenue-generating plans. That's still good news for us," a bond trader said Another trader noted, "there is a sense of urgency in her tone," as the president committed new taxes for Congress to approve. "What will matter now is how she will deliver such plans," a trader said.

At the stock market, analysts said the president's speech failed to move stocks because its contents were already anticipated. "It was a non-event. The contents of the president's speech were already anticipated," the analyst said. At the same time, Ms. Arroyo's speech drew mixed reactions from economists.

Bienvenido S. Oplas Jr. of private research group Think Tank Inc. expressed satisfaction with the tax measures proposed by Ms. Arroyo, as well as her plan to maintain a "lean but mean bureacracy." "OK na rin -- the government is looking at reducing the bureaucracy," he said. But he also expressed disappointment over the failure of Ms. Arroyo to detail the eight tax measures she wanted Congress to approve. "The president will surely be met with criticisms if she focused on the eight tax measures. Issues like taxes are very divisive and politically unaccetable," he said. On charter change, he said he favored the lifting of restrictions on foreign ownership of businesses as well as those that relate to the practice of certain professions by foreigners. But he also said key areas of reform pledged by Ms. Arroyo were nothing new. "Those are general programs that have been pledged by past presidents and even losing presidential candidates such as Fernando Poe Jr. and Bro. Eddie Villanueva," Mr. Oplas said.

University of Asia and the Pacific (UA&P) economist Erico Claudio was more cautious. "As a social scientist, the SONA would be very interesting. But as an economist, I'd like to see how [those programs] would be done. There were a lot of good ideas, but at the end of the day, do you have the resources to do them?" Mr. Claudio said. "They are very nice to hear, but let's see how they will be done." He said that having the political will to translate the government's plan into action would be crucial. "The targets are good, but [the government] should be focused in achieving them," he said. As for reengineering the bureaucracy, he said the plan would not come easy. "Reengineering is easier said than done. It would require a lot of changes and, in a democratic institution, it's more difficult because you have all sorts of interest groups, unlike in a private company," he said.


In Davao City in southern Mindanao, traders said the assurance of a constitutional change in the president's speech provided optimism that a federal system of government would get the attention of the legislature in the near term. Top leaders of the Davao City Chamber of Commerce and Industry, as well as the Mindanao Business Council, both lobbying for a shift to a federal form of government, were unavailable for comment on the president's speech, but small- to medium-scale entrepreneurs at the city's Chinese-Filipino business community said it was good enough despite no new statements that specifically addressed Mindanao's problems. Obviously, the president was expecting the island's security situation to improve with the peace process, said trader Bob Te. "But the shift to a more decentralized form of government is something many Mindanaoans want to happen in the medium term, and that she covered in her speech," he added. Others, however, remained wary of the promises and objectives of the president. "The speech was predictable, like her previous addresses before Congress," said Nilo Cabiles, an automotive parts trader. "I was waiting for statements specifically on Mindanao but there were none." "Those were politicians' promises and they do not apply to us," added Lucita Napala, an employee of a private company. "I didn't waste my time watching her speech. I didn't vote for her, anyway, in the last elections." -- Felipe F. Salvosa II with reports from Ira P. Pedrasa, Roulee Jane F. Calayag, Jennifer A. Ng and BusinessWorld's Mindanao bureau



Economic zone exports up 19.4% in first semester


First half exports from economic zones all over the country went up by 19.4% to $15.334 billion from $12.838 billion in the same period last year, data released by the Philippine Economic Zone Authority (PEZA) yesterday showed. In a report, PEZA Director-General Lilia B. de Lima said 36 privately owned special ecozones generated $11.944 billion in exports, a 22.5% increase from last year's $9.750 billion. Service exporters in fourteen information technology or IT buildings and parks logged $85.225 million, a 52% jump over last year's $56.083 million.

Four government-run ecozones contributed $3.305 billion in exports, 9% higher than the $3.032 billion registered in 2003, the PEZA data showed. Laguna Technopark in Sta. Rosa, Laguna, the consistent top earner among the special ecozones, reported a 15.5% growth in exports at $4.177 billion, up from $3.615 billion last year. Gateway Business Park in General Trias, Cavite came in second with $2.254 billion, 369% higher than last year's $480.537 million.

Rounding out the top ten were Amkor Technology ($1.086 billion, up 70%), Carmelray Industrial Park I ($494.196 million, up 49%), Lima Technology Center ($397.476 million, up 65%), Carmelray Industrial Park II ($351.554 million, down 82%), People's Technology Complex ($350.231 million, up 48%), Light Industry and Science Park II ($322.636 million, up 47%), Light Industry and Science Park I ($312.889 million, up 36%), and Leyte Industrial Development Estate ($312.305 million, up 109%).

Among the IT facilities, RCBC Plaza emerged as number one with $25.441 million in revenues, up 163% over last year's $9.673 million. Eastwood City Cyber Park raked in $21.131, down 17.5% from last year's $25.611 million, followed by Pacific IT ($12.028, down 5%), PBCom Tower ($6.458 million, up 139.3%), and The Enterprise Center ($6.284 million). Baguio City Economic Zone ranked first among the public ecozones, reporting a 7.5% increase in exports to $1.398 billion from $1.3 billion in January to June last year.

Cavite Economic Zone registered $988.426 million in exports, a 7% increase, followed by Mactan Economic Zone ($759.767 million, up 7.6%), and Bataan Economic Zone ($158.556 million, up 15.7%). Ms. de Lima said the special ecozones directly employed 245,627 workers during the period, up 18.9% from last year's 206,410. IT buildings and parks had 11,985 workers, almost 50% more than the 8,003 workers in the same period in 2003. Public ecozones employed 4.4% more workers at 136,625 from 130,865 last year. If the estimated indirect employment for 591,355 workers is added, PEZA-registered business generated a total of 985,592 jobs from 863,195 last year for a 14% increase, she said. Indirect employment includes employment generated by enterprises providing inputs and services to economic zone export-producers and service exporters such as subcontractors, brokers, cargo handlers and forwarders, canteens and restaurants, banks, utilities, construction, and janitorial and maintenance services.



Legislator sets terms for new taxes


The 13th Congress yesterday opened its first session with the hope of enacting measures aimed at addressing the country's financial problems. "Our country is besieged with insurmountable problems. We have to set policies and enact laws that would avert a looming fiscal crisis, set the proper stage to create jobs, conquer poverty, eradicate graft and achieve lasting peace," Senate President Franklin M. Drilon said in a speech during the opening of the 13th Congress. He said the Executive and Legislative branches of government need to buckle down to work following the heated elections in May.

The country, the administration lawmaker said, is no longer in "business as usual mode" and needs to go into "survival mode." "In the economic front, a 6.2% economic growth in the first quarter of this year is not sufficient. A fragile economy we remain today. The fiscal crisis is at our doorsteps. With the consolidated public sector deficit (CPSD) now standing at PhP235 billion, we should immediately find measures to narrow the gap between government earning and spending," Mr. Drilon said. He also said the Executive should explain the present revenue collection efficiency before Congress enacts new tax measures, citing poor tax collections with tax revenues representing only 12.3% of gross domestic product (GDP) last year compared to 17% in 1997. "We must examine our tax collection efficiency before we consider new tax measures. We must determine whether a good portion of the revenues under our present laws are indeed being collected. It is not acceptable to impose new taxes especially on those who are already heavily burdened when there appears to be so much revenue leakage and tax evasion going on," he said.

Other conditions that need to be met before the legislature enacts new tax measures, he said, include the reenactment of the Bureau of Internal Revenue (BIR) Lateral Attrition bill to provide rewards for accomplishments and sanctions for failures; reexamination of the spending priorities of the government; and streamlining of the bureaucracy. President Gloria Macapagal Arroyo has announced several measures which she wants passed by Congress: a shift to gross from net income taxation for corporations and self-employed individuals; repeal of the Value-Added Tax (VAT) law; collection of a tax on the windfall income of telecommunications companies; an increase in taxes on tobacco and alcohol products as well as petroleum products; limiting fiscal incentives; a targeted tax amnesty; and the creation of a performance-driven system for government agencies.

The tax proposals have earned criticism from business groups as well as members of Congress. But Mrs. Arroyo insists the new taxes will save the government from a looming fiscal crisis. Mr. Drilon also stressed the need for fiscal responsibility to keep government borrowings at a manageable level. "As a measure to instill fiscal responsibility, let us consider putting a cap on government borrowings. It is rather appalling that for every PhP100 of taxes collected, PhP40 will go to debt servicing. Good sense tells us that the more we borrow, the more we plunge into the debt pit," he said. Mr. Drilon has filed a debt cap bill which provides a threshold level for public debt to assure that payments do not affect expenditures for important social and physical infrastructures. Once enacted into law, the Debt Cap Act mandates that the CPSD -- the combined debts of the national government and the government-owned and controlled corporations -- should not exceed the nominal GDP in five years' time. It also mandates that the outstanding debt not exceed 80% of GDP in the next five years. The budget deficit reached PhP199.9 billion last year. The government hopes to keep it to PhP197.8 billion this year as it works for a balanced budget by 2009.



Power to freeze bank accounts sought for AMLC


Government regulators will ask Congress to restore to the interagency Anti-Money Laundering Council (AMLC) the authority to freeze accounts involving dirty money transactions. This was after the influential Paris-based Financial Action Task Force (FATF) against money laundering said restoring this power to the council would speed up the investigation of suspected dirty money transactions. The Philippines wants to be removed from the international roster of dirty money havens maintained by the FATF. Money laundering, which is illegal in the Philippines after Congress passed an anti-money laundering law in 2001, is the traffic of funds from illegal activities such as drugs and terrorism. Vicente S. Aquino, AMLC executive director, said yesterday FATF's latest recommendation would require an amendment to the country's anti-money laundering law which transferred the authority to freeze accounts to the Court of Appeals.

The council will seek the support of the 13th Congress for the necessary amendments. If AMLC were given the power to freeze bank accounts, "we can freeze the account on the same day," Mr. Aquino told reporters yesterday. In contrast, he said when the Court of Appeals issues the freeze order, this goes through the judicial process and could take time. On the other hand, if it is the council that issues the freeze order, he said the AMLC may have to deal with restraining orders issued by regional courts. But a Court of Appeals order to freeze accounts can only be reversed by the Supreme Court. At present, the Court of Appeals is looking at freezing various accounts amounting to PhP400 million, Mr. Aquino said. He declined to divulge details on the process. The FATF also wants the council to focus its efforts on monitoring cash transactions instead of non-cash transactions. The Paris-based group said this would speed up the council's investigation against money laundering. Mr. Aquino said the AMLC would also seek Congressional support for this particular amendment. He assured that government regulators are exerting all efforts to have the country delisted from the FATF list.

Bangko Sentral Governor Rafael B. Buenaventura, who chairs the council, said the Philippines is likely to stay in FATF list this year. Council officials have said that if the country remains on the list, dollar remittances of overseas Filipino workers, which amount to some $8 billion a year, would go through "heavier scrutiny."



SEC may ease rules for online stock trade


The Securities and Exchange Commission (SEC) may relax provisions in its proposed anti-money laundering rules to allow internet stock trading, provided that a third party can vouch for the identity of the buying or selling parties. SEC Director Jose Aquino told reporters regulated institutions may open accounts or execute orders of clients without first meeting them so long as someone else would meet with the clients on their behalf. He said the corporate regulator may allow this for brokers who engage in internet trading and whose clients are not in Metro Manila.

Under the draft guidelines released by the SEC for the creation of anti-money laundering manuals by institutions that are covered by the dirty money law and are regulated by the commission, the opening of new accounts for clients without face-to-face contact is prohibited. Regulated intermediaries are required to do a company search before establishing business ties 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, SEC said. "How can you execute the order of clients if they are trading with you by way of internet? We are making possible transactions without face-to-face [meetings] on the part of the broker provided that the face-to-face meeting will still be done by a bank. It [transaction] will be coursed through the bank," Mr. Aquino said. For transactions that would involve clients that are outside the country, Mr. Aquino said "special arrangements" will be made. He said the guidelines allow for special arrangements provided that these meet certain conditions. If a broker asks for an arrangement wherein a bank or any other third party will conduct an inquiry and fill out the customer account information form on behalf of the broker, this will have to be approved by the commission, he said. If the commission finds out that the arrangement is abused, or if the third party simply certified the customer account information form without really conducting the inquiry, the SEC will cancel the special arrangement, Mr. Aquino said. "If it will be discovered later on that a bank of another region outside of Metro Manila only gave the certification without asking the questions, we can disallow the arrangement," he said. He said relaxing the draft guidelines would "make the brokers happy, especially those with internet facilities." He also said the SEC may also allow other brokers that do not engage in internet trading to avail of the facility "as long as it is done properly."

SEC is one of three government agencies comprising the Anti-Money Laundering Council, the body tasked to implement the anti-money laundering law. 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. Last month, the SEC released draft guidelines on the preparation of the anti-money laundering manuals of institutions that are covered by the law and are regulated by the commission. The new guidelines would incorporate amendments in the Anti-Money Laundering Law, international best practices and related provisions in Securities Regulation Code for brokers. Mr. Aquino said only the provision on face-to-face meetings with clients was questioned by the institutions that are covered by the law and are regulated by the SEC. Besides requiring face-to-face meetings with clients, the draft guidelines also require these institutions to establish, document, and maintain a written customer identification program as part of their anti-money laundering compliance program.

For shell companies, the guidelines provide that regulated intermediaries should obtain a board of directors' certification that would detail the purpose of the owners in acquiring the company. 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 that 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, SEC said. 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 the designation of at least two persons for the safekeeping of all records. It also mandates regulated intermediaries to report before the council transactions in cash or other equivalent monetary instrument which are over P500,000 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. The guidelines also require institutions regulated by 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.



Meralco first half income doubles

But utility says debts, refund continue to be a burden


Lopez-led Manila Electric Co. (Meralco) yesterday said it posted a net income of PhP1.4 billion for the first half, more than double the year-ago period's PhP66.092 million on better sales. Still, the company said it continues to be burdened by huge debt obligations and an ongoing refund to customers. "At its face value the reported net income of PhP1.4 billion is a pittance compared to our financial obligations. This also includes the heavy burden the ongoing refund has on our financial position," said Meralco Vice-President for corporate communication Elpi O. Cuna, Jr. Estimated cash outlay for customer refunds for the last six months is at PhP2.4 billion and about PhP4.7 billion in 2005, Meralco said.

The firm said it is finalizing a refinancing plan that will help it manage its debt obligations for the next two years which stand at PhP24.2 billion as of June 30. Around PhP8.7 billion of this amount is due in the second half, including short-term debt amounting to PhP4.8 billion, Meralco said. Mr. Cuna said the firm is expected to spend around PhP5.75 billion for its capital expenditure for 2004. "Our capital expenditure program is of primordial importance since this will ensure that our company will be able to provide the level of service expected by our customers," Mr. Cuna said.

During the 1994-2002 period, Meralco invested PhP60 billion in plant and equipment to keep up with the growth in customers and demand. Net income for the same period of about PhP29 billion, however, was "wiped out" by the retroactive rate rollback ordered by the Supreme Court, the firm said. The first-half profit increase is attributed to a 3.8% rise in sales volume, the firm said in a statement. It added the amount represents an annualized return on rate base of 6.9% after tax. During the first semester, Meralco said the commercial sector posted the highest growth rate at 5% over the same period last year, logging 4,226.98 million kilowatt-hour (kWh) followed by the residential class with 4,369.58 million kWh for a 4% growth. The industrial sector showed a 2.3% growth at 3,360.87 million kWh. Streetlights, however, dipped to 5.8% at 69.13 million kWh, Meralco said.



Petron first-half profits up 6% to PhP1.36B

Oil giant Petron Corp. registered a net income of PhP1.36 billion in the first half, up 6% from PhP1.28 billion during the same period last year, officials yesterday said. The firm also reported that total revenues reached PhP66.1 billion in the six months to June, up 19.5% from PhP55.32 billion in the year-ago period. President Khalid D. Al-Faddagh said Petron saw profits of PhP3.1 billion in 2003, a 7% increase from PhP2.9 billion in 2002. The firm attributed the increase to efficient operations and initiatives to generate additional revenue streams. This year, Petron is targeting a net income of PhP3.1 billion to PhP3.3 billion, Mr. Al-Faddagh said. "Considering that results for the first half of the year showed an upward trend, we believe our initiatives will reap benefits. We are hopeful that our initiatives will continue to support a favorable trend in our finances for the rest of the year," he said.

Petron said first-half earnings reflect an increase in year-to-date total sales volumes of 2.3% to 25.8 million barrels. Domestic sales also rose 14.3% to nearly 24 million barrels. Export fell to 1.9 million barrels from 4.2 million barrels last year due to the volumes diverted for local consumption. As of June, state-owned National Power Corp. and industrial sales volumes increased by 20% to 27%, respectively, Petron said. The firm, however, said net income fell for the second quarter to PhP572 million from PhP836 million compared to last year due to a routinary shutdown of its refinery in March and May. Mr. Al-Faddagh said the shutdown resulted in a decrease in Petron's average crude run to 100,000 barrels a day from 125,000 barrels last year. The firm also reported an increase of 37.4% in market share compared to 33.8% in 2003.

Chairman and Chief Executive Nicasio I. Alcantara said the decision of rival Caltex Philippines, Inc. to shut down its refinery in October was a boon to Petron. "We took away 2% to 3% market share from Caltex." Petron is also mulling to build 200 additional stations nationwide over the next five years and put up additional company-owned and -operated service stations in strategic locations. The firm said it has allotted PhP1.3 billion out of PhP1.8 billion in capital expenditure for major projects such as refinery upgrade and new service stations. -- Bennet S. Sto. Domingo



BayanTel says with rehab on stream, public offer to proceed

Lopez-led Bayan Telecommunications, Inc. (BayanTel) said the completion of its debt restructuring agreement with creditors would help the company to build shareholder value and eventually allow it to go public. "We can clearly look at that option now. We look forward to addressing that challenge once the restructuring is behind us," chief consultant, Tunde Fafunwa, said. BayanTel is required to go public under its telecom franchise. Mr. Fafunwa said there will be no conflict when BayanTel lists its shares even if majority of these is held by the Lopez Group since it is not a subsidiary of Benpres Holdings Corp. He added that because of its debt problems, BayanTel needs to build an image that would be attractive to investors. "We have to create equity value for our shareholders. The market as a whole do not understand the quality and success that BayanTel has had," Mr. Fafunwa said.

A Pasig regional trial court last month approved the restructuring of $325 million in BayanTel debt, payable in 19 years. Under the plan, all creditors will be treated on equal footing. The court said debts which would not be covered by BayanTel's restructuring plan should be converted into "an appropriate financial instrument that shall not be a financial burden" to the firm. In the past three and a half years, BayanTel managed to sustain its operations solely through internally generated cash. Following the court's approval of its restructuring plan, BayanTel said it is targetting PhP5.7 billion in full-year revenue on the growth of its voice and data business. In the first half, BayanTel revenues hit PhP2.66 billion, 7% higher than the PhP2.47 billion it posted for the same period last year. BayanTel also said earnings before interest, taxes, depreciation and amortization rose 18% to PhP931 million, as against PhP787 million from January to June 2003. -- Anna Barbara L. Lorenzo



Gov't starts paying maintenance fees incurred by MRT

After a series of defaults, the government has started paying on time the maintenance fees for the Metro Rail Transit III (MRT). The Department of Transportation and Communication has paid Japanese creditor Sumitomo Corp. a total of $4.3 million over the last three weeks, following the provisions of their restructuring agreement. Payment totaling $2.6 million was turned over on July 8 and another $1.7 million was given on July 16. Both amounts were both for unpaid maintenance rental fees. Another installment is due on July 31 and local credit rating agency, Philippine Ratings Services Corp. (PhilRatings), said it will closely watch whether government could consistently meet its obligations to Sumitomo. "PhilRatings shall closely monitor possible sources of payment for these installments, as well as the status of obtaining the consent and waiver of project lenders to the RRFA [Restructuring, Repayment and Forebearance Agreement] which had been extended from the original deadline of June 2, 2004 to July 31," said the local affiliate of Standard & Poor's. "Implementation of a possible rate hike for the MRT in the short term and developments on negotiations for other payables [that is, unpaid collection amount and unpaid value-added tax] as provided for in the RRFA likewise bear close watch," PhilRatings added.

On June 2, the government failed to pay some $4 million it owed the Japanese contractor. The lapse resulted in the downgrade of MRT III's asset-backed securities to PRS A rating from PRS Aa rating. The failure to remit, PhilRatings noted, demonstrated the government's inability to meet payment deadlines it had committed itself to. The June 2 deadline was thereafter extended to July 31. As of June 17, the Bank of New York said a total of $13.3 million is available in the collection, reserve and liquidity accounts that can cover coupon payment on the notes due on Aug. 7, Feb. 2005, Aug. 2005, Feb. 2006 and a portion of the payment due in Aug. 2006. -- Cecille M. Santillan-Visto



TMX Phils. investing $10M for Mactan distribution hub

CEBU CITY in Central Visayas -- TMX Phils., Inc., maker of Timex watches, will invest $10 million in the construction of a distribution center at the Mactan economic zone next year. TMX President and General Manager Robert Oliver said the distribution center will cater to buyers worldwide. At present, the US serves as the company's mayor distribution point. "This [new distribution center] will enable us to go directly to our customers worldwide," he said in a press conference yesterday. With the expansion, Mr. Oliver said they will hire an additional 200 workers. TMX is currently one of the biggest employers at the zone. "This is an additional big operation for the company here in Cebu. It will be a state-of-the-art technology which will be capable of global distribution," he said. He said the company chose to establish the distribution center in Cebu because of the support of the Philippine Economic Zone Authority and the available infrastructure at the zone.

With the added investment, Mr. Oliver urged the Bureau of Customs to implement fully automated operations in order to fast-track transactions with export-import companies. TMX Phils., an affiliate of TIMEX Corp. in Connecticut, is a pioneer at the Mactan ecozone. It set up a watch manufacturing plant at the zone in 1979. From mere assembly of mechanical watches, TMX Phils. expanded to assembly of quartz and digital watches as well as the manufacture of watch dial, lenses, cases and other components. -- Jun P. Tagalog



Stocks dip ahead of Arroyo's speech


Stocks closed weaker yesterday, following slight gains during the last three sessions. From an optimistic outlook over the weekend, the Philippine Stock Exchange composite index (Phisix) languished by 15.96 points to 1,543.26. President Gloria Macapagal Arroyo's two pre-SONA speeches last week had given the market a glimpse of what she would actually talk about. The State of the Nation Address (SONA), delivered by the President in Congress at 4 p.m. yesterday, seems to have been discounted especially as investors tried to discern her administration's stand on the proposed additional taxes. The proposals are heralded as effective measures to increase revenues and wipe out the public sector debt when Mrs. Arroyo's term ends in 2010. But some investors were reportedly cold to the proposals, opting instead for renewed and intensified revenue collection measures.


Worry over these proposed taxes exacerbated an already tense situation at the Philippine Stock Exchange (PSE) which is currently embroiled in a dispute with the Government Service Insurance System (GSIS) over its intention to return its 9.1% stake at the bourse. Irving I. Ackerman, president of I. Ackerman and Co., Inc., said the investing public was jittery over the situation at the bourse as shown by the trading volume that has been thinning for months. "This shows that people are worried over what is happening at the exchange and the whole situation in general," he said. Trading was unimpressive as the market slid more than twice its 6.43 gain on Friday. Value turnover was also slightly lower than last week's close at PhP333 million. The market's weak performance was also due to additional net foreign selling at PhP32 million, Mr. Ackerman said. "Although not disastrous, [yesterday] was another weak trading day. The continued selling situation is a little difficult," remarked Mr. Ackerman, while expressing optimism that the situation would improve shortly. "By next week, we hope that certain moves that are being planned would materialize properly to help the exchange get back on an even keel," he added. But he refused to share details as these may affect the market. "The volume of trading is extremely low due to the problems that the exchange is undergoing. Perhaps things will change in three to four days with the new moves," said Mr. Ackerman.


Jose Vistan, Jr., research head of AB Capital Securities, Inc., said that the market's weakness was due to three factors. "The weakness in major markets abroad affected us," said Mr. Vistan, noting that the local bourse could not be isolated from the effects of the performance of leading exchanges overseas. Wall Street prices dropped on Friday as rising oil prices fuelled concerns taht dampened global market sentiment. An adjustment in earnings expectations was the other culprit for the weakness experienced by the Philippine market. "Fund managers are lightening their loads on equities to adjust expectations on earnings. Disappointed by the first-half reports of some companies, they are making adjustments in their outlooks which were too optimistic," he added. Single-digit growths reported by some companies have dashed grand hopes of double-digit earnings growth.

Listed firm Petron Corp. reported yesterday a 6% year-on-year increase in its net profit which was at PhP1.36 billion for the first half. Its revenue was up 19.5% year-on-year at PhP66.1 billion. The first-half net profit of Manila Electric Co. (Meralco) was also weak at PhP1.4 billion, or higher by only by 3.8% over the yearago level. The power firm said it has PhP8.7 billion debts that will fall due in the second semester. Its capital expenditure for the whole year is at PhP5.75 billion. Metropolitan Bank and Trust Co. was the only one among those that submitted early reports that managed to post a double-digit growth. Its net profit for the first half was PhP1.73 billion, up 10.56% year-on-year. Expectations of continued technical corrections in the short term likewise accounted for the decline in the Phisix. "The market has not yet made a great correction since its significant rallies in May last year and April," said Mr. Vistan. He added that this is basically due to lack of positive leads to steer the market to new highs.


Reversing an earlier trend, oil and mining indices managed to reclaim lost ground. Oil was up 0.07 at 1.48 and mining inched up 5.86 at 1,610.30. Commercial-industrial slid 13.36 to 2,444.73, followed by banks and financial services which declined 10.75 to 454.94. Less than 2,000 trades, involving 414.8 million shares worth PhP313.6 billion, were held. Decliners beat advancers, 39-22 while 40 issues kept to their previous levels. Philippine Long Distance Telephone Co. was the most actively traded, accounting for 21.89% of total turnover. It stayed strong at PhP1,210 on 56,980 shares valued at PhP68.6 million.


Meanwhile, the President rallied a number of causes during her SONA. She promised to focus on job creation and economic growth while intensifying the drive against corruption. Mrs. Arroyo also showed a strong resolve when she stressed the need to pass the eight tax measures expected to raise PhP80 billion, in order to plug the budget deficit which she described as a "most urgent problem." She said power plants and transmission lines will get top priority. Her administration will push for the downsizing of the government. And she asked Congress to reconsider a Constitutional change next year. While these measures all promise a continuity of reforms, the market's reaction to them has yet to be seen.



Arroyo unveils 'new direction' at Congress opening

President Gloria Macapagal-Arroyo will deliver this afternoon her first State of the Nation Address (SONA) as the 14th President of the Republic before the joint session of the 13th Congress. Based on the theme "A New Direction: Putting People First in an Era of Change and National Renewal", Presidential Spokesman Ignacio R. Bunye said the President would ask Congress to craft laws that would focus on five key points. These will be new measures for job creation and economic growth, the government's anti-corruption campaign, social justice and basic needs, education improvement and youth opportunity, and energy independence and savings.

Since the President has already discussed education as well as the economic aspects of her agenda in her two "pre-SONA" speeches last week, Mr. Bunye said Ms. Arroyo would likely discuss in greater detail, the three other components in her speech, which is expected to last for 40 minutes. However, the spokesman did not discount the possibility that the President could pull out some surprises in her SONA speech, her third since she assumed the Presidency in 2001 following the ouster of former President Joseph E. Estrada. Mr. Bunye said the President's speech was "a work in progress." As such, no one could really be sure what the final draft of the speech would be. "As is her habit, our President personally is continually reviewing and revising the draft of the speech based on the inputs of her Cabinet and advisers," Mr. Bunye said in a radio interview. "It is safe to say, however, that the SONA will be very comprehensive as it will cover all six years of her new term, unlike her previous ones which had time frames of one year."

The President earlier bared her plans to ask Congress to make pre-school mandatory in the education ladder instead of requiring another year in the current 10-year public elementary and high school curricula. Last Thursday, the President discussed her economic plans, which included pushing for eight tax bills, before business leaders in Makati City. After the SONA, Mr. Bunye said the President would continue to explain her programs to the Legislative-Executive Development Advisory Council (LEDAC), and also to people in town meetings or pulong bayans. And while new tax proposals will be the economic focal point of SONA, Congress will pass on to the Department of Finance (DoF) the burden of explaining the need for new tax laws even if collection is dismal. Senate Committee on Ways and Means Chairman Ralph G. Recto said that while much has been said about the new tax laws the Executive would want Congress to pass, only general statements have been made so far. "The next Congress will have to hear these proposals of the Executive, especially when they give the exact proposals. I have an open mind with regards to the tax proposals but more importantly, the Executive must be able to explain to Congress why there is a need for new tax measures," Mr. Recto told BusinessWorld.

The administration lawmaker, who also expressed confidence that he would remain as the head of the committee that handled tax measures, noted that revenue-collecting agencies should detail how much they have been collecting through existing tax laws. "They have to explain to us how effective they are today in collecting existing taxes. What is their optimum administrative effectiveness -- are they collecting 50% or 80% of potential? If they are hitting a benchmark of 75% or 80% of potential, maybe there is a need for new tax measures. But if they are collecting only 50%, it does not sound right that we impose new tax measures," Mr. Recto said. The lawmaker also said DoF, along with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BoC), should explain how much revenues could be collected if Congress were to pass the eight new tax measures that the Executive has proposed. He added that DoF should specify the sectors that would be affected by additional taxes.

Ms. Arroyo's tax wish list covers:

  • the shift to gross from net income taxation for corporations and self-employed individuals;
  • the repeal of the Value-Added Tax (VAT) law;
  • collection of a tax on the windfall income of telecommunications companies;
  • an increase in taxes on tobacco, alcohol and petroleum products;
  • limiting fiscal incentives;
  • a targeted tax amnesty; and
  • the creation of a performance-driven system for government agencies.

While these proposals have reaped criticisms from business groups and from members of Congress, Ms. Arroyo noted that new taxes would save the government from a looming fiscal crisis since they could yield over PhP80 billion in additional revenues annually and PhP100 billion in savings.


Mr. Recto, however, said DoF still has a lot of work to do in defining the new tax proposals. "There have been no specific proposals really, with the exception of the 'sin' taxes, more or less we know what the Executive and the Department of Finance wants. They have not submitted a proposed bill. They also have very vague proposal on gross income taxation," he said. Mr. Recto added that the most unclear measure was the proposed shift from value added tax to sales tax, while the proposals for tax amnesty and rationalized fiscal incentives lacked specifics. "These are all general statements and general areas of the economy where they intend to get these new taxes from. We are yet to see their specific proposals," Mr. Recto said.

For his part, Senate President Pro-Tempore Juan M. Flavier said Congress could no longer escape the reality that the fiscal position of the government remained volatile, hence, the need to step up tax collection and at the same time enact new tax laws. "The State of the Nation Address really involves a listing of the legislative thrust of the President for us to act on. It is my impression that majority of these are tax laws because we seem to be in a stage when we are now going to bite the bullet in terms of our financial deficit," Mr. Flavier said in a separate interview. He noted that while all the tax proposals earlier announced by DoF looked feasible, Congress would still scrutinize all measures.

Administration Senator Joker P. Arroyo, meanwhile, said it was "sneaky" for the Chief Executive to focus on new tax proposals in her first SONA after the May 10 elections since she did not mention any new taxes during the campaign period. "We are hearing them for the first time. The President cannot claim that her election is an endorsement of her tax proposals," Mr. Arroyo said in a statement. "She assured us during the campaign that she was doing very well as President, and that she deserved a renewed mandate for another term so she could build on the gains and successes of her first term. Now she sings a different tune: times are bad so we have to bite the bullet," he noted.

Acting Senate Minority Leader Aquilino Q. Pimentel Jr., for his part, said rather than asking Congress to pass new tax laws, Ms. Arroyo should lead a stronger campaign against tax cheats and influence peddlers who have robbed the government of much-needed revenues. "We are going to listen to what the President has to say. But as a general position, we will oppose all intention to impose taxes that will impose additional burden to the people," Mr. Pimentel said in a telephone interview. "There is no need to impose additional taxes to create revenues. It is better for the President to embark on a more determined campaign to collect the right taxes. We would like to suggest that instead of imposing new taxes, we should first collect the right revenues using the existing laws," he added. Mr. Pimentel also cited a recent DoF study which showed that the government has failed to collect 72.7% of individual income taxes, 39.8% of corporate income taxes, and 49.4% of VAT annually.

Opposition Senator Sergio R. Osmeña III said new taxes would face rough-sailing in Congress, which would balance the government's need for additional revenues and the public's objection to additional burden. "We have to examine the proposals and object to those that are unfair and unreasonable," Mr. Osmena toldBusinessWorld. He also expressed objection to the proposed tax amnesty, gross income taxation, shift from VAT to sales tax, and tax on the windfall income of telecommunications companies. "Gross income taxation will make matters worse. The conversion of VAT to sales tax will have a cascading effect since the [prices of] products will eventually rise. For the tax on telecommunications companies, I am not too sure if they can support the increase in taxes; maybe for those who are profitable, but not for those that are losing money," Mr. Osmena said. "We have to see some performance in increasing tax collection and imposing penalties to delinquent tax payers. This should be the first priority. If we are collecting the right taxes, why should we pass new tax laws?" he added.

Another opposition senator, Jose "Jinggoy" E. Estrada, also objected to the plan to impose new taxes. He said Ms. Arroyo should spare the poor from the new round of tax measures. Mr. Estrada also advised BIR to tap the barangays in their revenue collection efforts. He noted that barangay officials could identify business establishments and real estate property owners not been paying the right taxes to the government. "There is no need to impose new taxes on the poor Filipinos, particularly the proposed tax on text messages, which will have an effect on many citizens. The government should only collect all the existing taxes," Mr. Estrada said.


Meanwhile, a report of the House Committee on Oversight has given President Arroyo an 80% accomplishment rate on her 2003 SONA commitments -- an improvement over her 63% and 67% accomplishment rates in 2001 and 2002. But while the report lauded the higher accomplishment rate during Ms. Arroyo's third year in office, it also admitted that the "need" to be elected as president this year could be her "most compelling driver" to meet her 2004 SONA targets. The Committee on Oversight, which was chaired by Albay (southern Luzon) Rep. Jose Clemente S. Salceda in the previous Congress, noted "outstanding achievements" by the Arroyo administration in the distribution of private and public lands and ancestral domains, as well in the provision of housing units to workers. Commitments in land distribution, housing and health -- as well as in education, energy, defense and transportation -- were made in Ms. Arroyo's 2001 SONA, which were carried up to the 2003 SONA.

The Department of Agrarian Reform was able to distribute 351,361 hectares of private agricultural lands or a 117% accomplishment over the target of 300,000 hectares over three years. The Department of Environment and Natural Resources was able to distribute 291,318 hectares of public lands, which translated to a 97.11% accomplishment over the targeted 300,000 hectares over three years. The National Commission on Indigenous Peoples, meanwhile, was able to distribute 23 certificate of ancestral domain titles and 44 certificate of ancestral land titles, equivalent to 547,343.7 hectares of land benefiting 120,359 indigenous peoples. The commitment was to distribute 100 ancestral domain titles or 300,000 hectares over three years.

In housing, 328,877 workers were able to avail of loans from the Social Security System, the Government Service Insurance System, and Home Development Mutual Fund or Pag-IBIG Fund. This was way over the target of 240,000 workers over three years. The Arroyo administration was also able to distribute housing units to 190,787 urban poor households out of the target 210,000 households over three years. The Committee also noted that cheap medicines were made available through the GMA (Gamot na Mabisa at Abot Kaya) 50 program that was implemented by the Department of Health. Forty-two essential drugs, imported from India by the Philippine International Trading Corp., a unit of the Department of Trade and Industry, were made available through DOH-retained hospitals and 129 hospitals that had been devolved to local government units. The Arroyo administration also enjoined the pharmaceuticals industry to develop and sell cheap drugs. United Laboratories and Glaxo Smith Klein, the Committee noted, have agreed to develop a line of medicines that are priced 30% to 50% lower than similar medicines in the market. Botika ng Barangay in around 1,700 barangays all over the country, rolling stores of the National Food Authority, also sold over-the-counter drugs and herbal medicines. Ms. Arroyo's SONA commitment to health had been the reduction by half of the prices of medicines frequently used by the poor.


The Committee, however, noted deficiencies in the SONA promise to construct a schoolbuilding in every barangay. Only 964 schoolbuildings were built out of the targeted 1,612 over three years, with only three constructed during the 2003 SONA period, for a compliance rate of only 61%. The Arroyo administration also failed to reduce power rates, with the purchased power adjustment still making up a substantial part of consumers' electricity bills, combined with higher global prices of fuel especially coal, the depreciation of the peso, and mounting debt of state-run National Power Corporation. Modernization of the Armed Forces of the Philippines and the Philippine National Police were also not undertaken, principally because of budget constraints. Neither were the envisioned additional rail systems built, and of the three of seven that were targeted to be completed by 2004, only the LRT Line 2, which runs from Santolan in Pasig to Legarda (eventually Recto in Manila) has been completed.

In the area of legislation, the Committee noted that only one of 13 bills proposed by Ms. Arroyo in her 2002 SONA was passed into law. This was the Securitization Act, which created the regulatory framework for the sale of assets such as loans, mortgages, receivables, and other debt instruments as new securities to raise capital. Bills that were at various stages of deliberation in the previous Congress included the anti-terrorism bill, the bill making farmland acceptable as collateral, the bill creating a secondary housing mortgage market, the Personal Equity Retirement Act, the Investment Company Act, amendments to the Securities Regulation Code, the law on the shift to gross income taxation, the bills creating the Department of Telecommunications and Information Technology and the Department of Housing, the Transco franchise bill, the bill imposing tariffs on rice importation, and the bill allowing the Ombudsman to accept private prosecutors. Overall, the Committee "finds that on the whole, the Arroyo administration has consistently and substantially complied with its SONA commitments for the past three years." Its analysis was based on 35 quantifiable commitments in the 2001 SONA, 33 in the 2002 SONA, and 25 in the 2003 SONA. The Arroyo administration, the Committee said, accomplished 22 of 2001 SONA commitments, 21 the following SONA period, and 20 during the third SONA period.

For 2004 and succeeding SONAs, the Committee recommended that funding source for SONA commitments be identified, noting that the budget deficit will be a constraint in spending. "The Committee finds that the credibility and efficacy of future SONAs as an instrument of the state for social, economic and other public policy will be determined if the corresponding funding sources are simultaneously identified," it said. -- Jeffrey O. Valisno, Carina I. Roncesvalles and Judy T. Gulane



DBP to trade small firms' receivables

State-run Development Bank of the Philippines (DBP) will soon operate its electronic trading facility for the auction of the "receivables" of small and medium enterprises (SME). "We want to make sure that it works when we roll it out. We are not going to roll it out before it is ready. The first trades will probably be end of July or August. But there are some of the things we need to clearthat is outside of our control," said DBP president and chief executive officer Simon R. Paterno. Aside from issues with the Bureau of Internal Revenue (BIR), DBP is also getting certification from the Securities and Exchange Commission as an alternative trading system. DBP launched last month the Marketplace for SME Receivables (M4SME-RP), which would serve as a clearinghouse where electronic trade documents would be authenticated and digitally signed as securities. Through this competitive auction process participated in by qualified banks, SMEs can get the best price for their receivables, aside from gaining faster access to credit.

SMEs usually encounter difficulties securing formal financing due to lack of credit history and banking relationships, lack of familiarity with financial products, and high cost of authenticating credit information, among others. Also, financing of trade receivables usually come in the form of short-term, secured, high interest-bearing bank loans. With the M4SME-RP, big companies can lower the cost of money borrowed to finance payments to suppliers.

In line with the program, DBP inked an agreement with San Miguel Corporation (SMC), so it could participate in the M4SME-RP. SMETRIX and Commerceworks will provide the software and the document hub services to allow authentication of electronic documents under M4SME-RP. "There are many SMEs dealing with SMC. We have the best starting entities. First will be SMC, afterwards it will be ShoeMart, Inc. whic has agreed already. However, this will not help all SMEs but only those that do business with the 'big brothers'," Mr. Paterno said. Big brothers are large companies included in the BIR's list of large taxpayers, with highly favorable credit ratings from reputable credit ratings agency, that agree to confirm authenticity of trade documents, and to pay the invoice at maturity. He added, "This is an out-of-the-box solution to SMEs. DBP can be better in SMEs lending. Looking at Metropolitan Bank and Trust Co. and Bank of the Philippine Islands each having 10 times the number of branches, we have to find an unusual way to help the SMEs."

DBP has presented the program to Nestlé Philippines, consumer products giant Unilever, and Pilipinas Shell Petroleum Corp. Offering the best source for working capital regardless of the payment term of large company clients, M4SME-RP gives SMEs the lowest possible cost of financing. "With the M4SME-RP's document authentication requirement, the credit liability is transferred from SME to his large company client. The SME is then freed from any liability in the repayment of the financing. Through this facility, we are providing equal practical access to financing for SMEs," Mr. Paterno said. -- Ruby Anne M. Rubio


Capital market reforms urged

The Bangko Sentral ng Pilipinas (BSP) wants the 13th Congress, which opens today, to support reforms needed to spur the growth of the country's "weak" capital market. BSP Governor Rafael B. Buenaventura warned that sectors such as real estate and banking, among others, will remain underdeveloped as long as the capital market remains underdeveloped. He also said dollar inflows to the Philippines, whether foreign direct investment or portfolio investments, will remain "puny" without a full-grown capital market. "The market needs to grow from infancy to adolescence," he told a press briefing on Friday.

Among the economic reform bills the BSP is pushing for are the Corporate Recovery Act, Personal Equity Retirement Act and the Revised Investment Company Act. Mr. Buenaventura said he hopes legislators will pass the proposed legislative measures within the next six months to spur the capital market by next year. "It's a tall order but it has to be done," he said. A weak domestic capital market, he said, will continue to hinder the growth of other sectors. For instance, Mr. Buenaventura said the real estate sector remains untapped because of the lack of financing for end-users.


Under a strong capital market environment, end-users in the property market will have more access to financing rather than depend on the banking system for their credit needs. "There is demand in real estate but access to financing is lacking," he said. Mr. Buenaventura said that at least 70 related industries including cement, tiles and bathroom fixtures, and furniture will benefit once the real estate sector recovers. Aside from the property market, the banking sector also remains vulnerable. Mr. Buenaventura expressed concern that more than 90% of domestic credit is being channeled through the banking system compared to only about 50% in other countries. "This makes the banks vulnerable to downturns," he said.

A strong capital market will address this because the corporate market and even individuals will have access to other means of financing and reduce their dependence on banks. Mr. Buenaventura allayed banks' fears that they would lose their market, saying banks will actually have greater opportunity for profit with less risks. He also said dollar inflows will grow once investors see the market develop. "These inflows are puny because we don't have a strong capital market," he said, adding that the Philippines is already lagging behind Malaysia and Thailand which have investor-friendly markets. "It's where everyone is going," Mr. Buenaventura said.


As this developed, however, a member of the government's economic team warned that the Macapagal-Arroyo administration is considering an ad valorem tax on financial transactions, a move the official described as counterproductive in the aim of developing the capital market. The source said the Department of Finance is considering imposing the ad valorem tax or value-based tax on financial transactions, particularly electronic payments made through banks. "We are trying to remove, as much as possible, friction costs to encourage the development of the capital market," the official said. For one, he said, the move will go against the aim of an earlier move by government to reform the documentary stamp tax system.

Congress earlier approved a documentary stamp tax measure which lowered the tax on stock transactions to PhP1 per PhP200 for primary issuances from PhP2 previously. It also raised taxes to PhP1 per PhP200 for debt instruments from PhP0.30 previously. Another government official said proposals to impose an ad valorem tax is not included in President Gloria Macapagal-Arroyo's 10-point agenda for her fresh six-year term. -- Iris Cecilia C. Gonzales



Banking regulators need immunity from lawsuits

The country's banking regulators should be given enough protection to carry out their mandate more effectively, the International Monetary Fund (IMF) said. In addition, the Washington-based Fund also said regulators should have the power to write-down banks' assets to bring in more capital and in the process encourage mergers. An IMF team was in the country last month for a regular review of the government's economic policies and targets.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said one of the team's key recommendations was for the BSP to be given protection from lawsuits. "The IMF said regulators should be given appropriate protection so they can impose reforms," Mr. Buenaventura told a press briefing on Friday. The 12th Congress failed to pass bills seeking to amend the central bank charter. The changes seek to grant immunity from lawsuits to central bank officials in the course of doing their duties. Mr. Buenaventura said he hopes the 13th Congress will pass the proposed amendments so that the BSP can examine banks more thoroughly and in the process encourage more mergers and consolidations.



CoA examination powers expanded under Senate bill

A bill broadening the examination powers of the Commission on Audit (CoA) over infrastructure projects has been filed in the Senate in a bid to address the corruption issue. Senate Bill 1326, filed by administration Sen. Ralph G. Recto, calls for a mandatory CoA audit of all infrastructure projects. The measure aims to amend Republic Act 6957 which limits the examination powers of Commission to the final stage of infrastructure projects. "At present, under the Implementing Rules and Regulations of RA 6957, the audit is being done only in the collection part and the project implementation," Mr. Recto said. "Our government auditors come into play only after the project has been completed when they are allowed to examine all the revenues and receipts pertaining to such project," the legislator added.

Once the Senate Bill 1326 becomes a law, Mr. Recto said the CoA will be allowed to examine the projects from the "approval of the contract, procurement of materials, commencement of construction, operation of the facility, and transfer of facility to the proper government agency or local government unit." Proponents of the project will also be required to hire private accountants and other professionals to examine implementation as another safeguard against corruption. The CoA, Department of Finance, National Economic Development Authority, and the Department of Public works and Highways will promulgate the implementing rules and regulations of the bill once it is passed by Congress and signed into law. -- Carina I. Roncesvalles



Transco insists on more funding for vital projects

The National Transmission Corp. (Transco) will push for expansion projects in the Visayas and Mindanao despite a planned cut in its capital expenditures over the next six years. Transco President and Chief Executive Alan T. Ortiz said the firm's board will this week be asked to approve a new capex program for key projects. "We still have a lot of expansion to do. That's why we have put forward a transmission development plan asking for at least $1 billion in capex over the next six years," Mr. Ortiz said.

Energy Secretary Vincent S. Perez, Jr., earlier said economic managers have agreed to add $50 million to the proposed $450-million Transco capex for the next six years. He said the 2004-2009 budget was pegged anew at $500 million. The Department of Finance, Department of Budget and Management and the National Economic and Development Authority had proposed to cut Transco's outlay to $450 million from $1.2 billion. Mr. Ortiz earlier said if the cut pushes through, a number of projects in the Visayas and Mindanao grids could be shelved, including the Cebu-Negros-Panay (CNP) grid interconnection and uprating project. "It is not our call. But if we are to decide, we'll ask for the full amount. Since we are in an austerity program, we will have to comply. The amount will have to be reduced somewhat but not too much, I hope," Mr. Ortiz said. He said Transco has prepared a list of about nine expansion projects that the firm wants to push through. "We are ready to defend what we think are the essential projects that will allow us to attain enhanced capability nationwide," Mr. Ortiz said.


BSP sets tougher rules on common trust funds


The Bangko Sentral ng Pilipinas (BSP) is now on the final stages of a plan to overhaul the rules governing banks' common trust funds to rid the system of weaknesses that had led to bank failures. Banks are now amenable to the proposed changes after two years of discussing the draft rules with the central bank, a member of the Trust Officers Association of the Philippines (TOAP) said over the weekend. BSP Assistant Governor Nestor A. Espenilla said the central bank would issue the circular "very soon."

Under the proposed changes, the BSP will require banks to focus on unit investment trust funds (UITF) instead of common trust funds (CTF) which pose more risks compared to unitized investment instruments. The move is in line with global practice. It will also require banks to explain more thoroughly to clients the advantages of a UITF and where investments will be placed. The rules will require the banks to focus their investments on high-grade debt papers such as government securities and commercial papers. Investors have complained in the past that there were some banks marketing the common trust funds as if these were similar to time-deposit placements. CTFs, however, offer higher yields but risks are borne by the clients. Mr. Espenilla said for UITFs, banks will use the mark-to market system for valuation of the assets. This means the use of net asset value serves as the basis for pricing the investments on a daily basis instead of applying pre-determined or fixed interest. He said the move is expected to attract more fund managers and huge investors as the fund's valuation process is market-driven, more transparent and the assets of the fund would be monitored.

A banks' trust operation is supposedly an independent investment function. In reality, however, trust funds are being mixed with funds earmarked for lending. Some banks have also tapped their common trust funds to finance their foreign exchange trading. BSP data show that the banking system's trust departments have total resources of between PhP400 billion and PhP700 billion. For two years now, the central bank has been trying to craft out new rules that would govern banks' trust accounts but industry players have opposed some of the stricter provisions. The BSP's move to reform the system followed a spate of closures of financial institutions whose financial woes were tied to problems faced by their own trust departments.

One trust officer said a change in the valuation of CTFs and its eventual shift to becoming UITFs will require extensive educational campaign for investors and the banks themselves. The officer said initially, banks expect investors to show little interest for such intruments because they always want to know exactly how much their money will earn. Filipino investors are still very conservative and fixed-income-oriented. They want to know how much their money will grow in the fund, the officer said. "But eventually, people will learn. In the long run, the move will attract more investors," the TOAP member said.



Peso to rest on solid ground as GMA delivers SONA

The Philippine peso is expected to stay on solid ground today as President Gloria Macapagal Arroyo delivers her State of the Nation Address (SONA). After falling again to the PhP56 level on Friday, the peso is expected to move sideways as traders mull "how the President will put flesh in her 10-point agenda." A trader said that they would wait for the central bank to support the peso during trading to put on hold issues that affected its performance in recent days. Week on week, the peso fell to 0.10% after the US dollar moved stronger against regional currencies. This was after US Federal Reserve Chairman Alan Greenspan reiterated that there is still room for more interest rate hikes amid an upbeat economy. The better-than-expected fiscal report on Tuesday allowed the peso to hold a four-centavo lead. Currency traders said, however, that the dollar is stronger on positive investor feedback for the US economic outlook.

The peso tracked the overall positive sentiment from the money market. Traders were relieved when the government's budget deficit reached PhP80.1 billion in the first half or higher than its PhP79.6-billion target. They earlier expected the budget gap to reach PhP85 billion. "The near-term resistance at PhP56.10 is at risk. A break above the PhP56.10 levels could call for further tests towards the PhP56.20-PhP56.25 level. Only a move below the PhP55.75 levels would put the peso bulls at play again. Immediate support and resistance is seen at PhP55.75 and PhP56.10, respectively," said Jonathan L. Ravelas, Banco de Oro Universal Bank market strategist. As the President addresses the nation today, the money market's attention will be on her revenue enhancement plan and her take on the economic setup. "We hope that she will finally convince [the market] that she's all business. We want to hear how she will put flesh on her 10-point agenda which was earlier viewed as overly ambitious. There was not much on capital market reform but she might finetune her revenue generation plans, including the proposed taxes which has generated negative reactions," said First Metro Investment Corp. executive vice-president Roberto Juanchito T. Dispo. Another trader said, however, that the SONA is a "non-event, a hype-up extension of what we already know -- which are the proposed taxes."

In a meeting with businessmen on Thursday, the President asked for their support for the proposed tax measures that include the shift to gross from net income taxation, repeal of the Value-Added Tax law, franchise tax on telecommunication companies, among others. "She has a lot to prove but I think adding tax measures is not the solution. The new taxes are just additional costs to consumers," another trader added. -- Ira May Pedrasa



SEC prohibits GSIS from returning shares in bourse


The Securities and Exchange Commission (SEC) has prohibited state insurer Government Service Insurance System (GSIS) from returning shares in the Philippine Stock Exchange (PSE) unless it has the approval of the bourse's stockholders. "But can they get the agreement of all the stockholders? Pumasok na 'yon eh [The deal has already been made]. It will be up to the stockholders," SEC Chairman Lilia R. Bautista said in a press conference. PSE sold a 40% stake to non-brokers in February as part of efforts to demutualize the stock exchange. GSIS bought 9.1% out of the 40%.

Recently, GSIS wrote the PSE to ask if it could return the shares, saying infighting among PSE board members hinders efforts at strengthening the regulatory and policy-making framework of the stock market. The state pension fund also threatened to pull out its other investments in PSE, totaling PhP39 billion, saying if the issues at the PSE "cannot be handled," it will "look somewhere else" for investment opportunities. "Under the trust fund doctrine, once you have made an investment, you cannot give it back unless the stockholders agree, and unless there is something that prejudices you. In this case, nag-away lang sila (they only fought). That's not sufficient. But if all the stockholders agree, GSIS can do this," Ms. Bautista said.

In a statement, the SEC said the outstanding capital stock of a corporation, including unpaid subscriptions, constitutes a trust fund held by the corporation for the benefit of creditors which cannot be returned to the stockholders. Quoting an opinion by lawyer Dionisio DT Garciano, the statement said that the Corporation Code "does not confer upon any stockholder the right to demand refund of investment" based on "the general rule that subscription of capital stock of a corporation constitutes a trust fund for the benefit of the creditors and no valid agreement can be made by which a subscriber can be released therefrom." "A contract of subscription is a contract among several subscribers. For this reason, no one among the several subscribers can withdraw from the contract without the consent of all the others and thereby diminish without the universal consent, the common from which l have acquired interest," the statement said. Ms. Bautista said the GSIS can only exercise its right of appraisal if it had been "prejudiced" in its investment.

The SEC said under the Corporation Code, a stockholder can only demand payment of the fair value of his share on the following grounds: if any amendment in the articles of incorporation would change or restrict the rights of any stockholder, or class of shares, or would authorize preferences which will be superior to those of outstanding shares of any class, or would extend or shorten the term of the corporate existence; in case of sale, lease, exchange, transfer, mortgage, pledge, or other disposition of all or substantially all of the corporate property and assets; and in case of merger or consolidation. "The situation of the GSIS and PSE does not fall within the above said enumerated instances. Thus, GSIS, although a stockholder, cannot exercise its appraisal right," the SEC said.

On GSIS proposal to sell the shares to the PSE, Ms. Bautista said this is not possible because it would defeat the purpose of selling the 40% stake to non-brokers in the first place -- to reduce the control of brokers in the stock exchange. "This will in effect dilute the 40% stake which should be held by non-brokers," she said. She said if the PSE buys back the shares, the stock exchange will have more difficulty unloading its shares to meet the requirements of the Securities Regulation Code. "The PSE will have to unload another 50% instead of just another 40% if it takes back the 9.1% stake of GSIS," she said. She added that a rule on retained earnings may also prevent PSE from buying back the shares as treasury shares. The SEC said the rules governing redeemable and treasury shares provide that no corporation shall redeem, repurchase, or reacquire its own outstanding shares or whatever class unless it has an adequate amount of unrestricted retained earnings to pay for the cost of the shares.

The rule, SEC said, can only be circumvented if the shares are reacquired through redemption of redeemable shares of the corporation, when the shares are reacquired to effect a decrease in the capital stock of the corporation, when the assets of the corporation are liquidated after its dissolution, and when the shares are reacquired by a close corporation. "The PSE cannot merely repurchase the shares of stock bought by the GSIS without the required unrestricted retained earnings or the presence of the enumerated exceptions. In view of the foregoing, it is therefore clear that the return of the shares of stock requires the observance of the Corporation Code as well as the Rules governing such act which the PSE may not be in the position to do," the SEC said. It added that "the only reasonable and lawful way to dispose of the shares of stock" is to offer these in the market. Ms. Bautista said that GSIS can sell the stake to the market on a staggered basis, or at a discount. SEC director Jose Aquino said since the GSIS already received dividends from its shareholdings in PSE "the dividends should be taken into consideration." Also, he said that GSIS is free to withdraw its PhP39-billion investment in the market for as long as share prices are not adversely affected. "If they will unload to the market, they [should] see to it also that they will not drop the other prices. This will be to the disadvantage of other members. They [should] see to it that interest of members is properly protected. [It does not mean that] simply because [GSIS] is angry with PSE that it will have to sell at a low, low price, which will be a disadvantage to the other members," he said.



Market to take cue from Arroyo's SONA


Market sentiment will take its cue from the State of the Nation (SONA) address of President Gloria Macapagal Arroyo today. The SONA will either stem out the selling spree in the past week and move up the market, or continue to dampen the sentiment of investors, analysts said. Although the SONA has been discounted in the market for at least a fortnight, investors will be eagerly looking to Mrs. Arroyo's economic program, especially after the government overshot its budget deficit target at PhP80.1 billion for the first semester. Her ability to marshal her economic team to roll out a massive but effective set of measures to boost the economy and reduce debts without sacrificing the lot of the masses will be a strong indicator for investors to get into action, analysts said. Any sign of weakness or the lack of political backbone to get tough on economic reforms may cause investors to scurry to the sidelines, they added.


Grace C. Cerdeña of said trading will be bullish. "How inflation could be contained is important," she said, noting that it will serve as "moral suasion" from the President to buoy the economy. The President last week sought the support of the business community for what she described as "the most ambitious economic reform agenda in a generation." Businessmen welcomed the reforms but asked Mrs. Arroyo to ensure that these are fair and equitable. With Mrs. Arroyo's assurance that her administration will focus on the needed reforms, the stock market should be moving up, particularly "if the selling stigma of the past seven days is abated," Ms. Cerdeña said. "Bargain hunters may take this opportunity to buy blue chip stocks," she said, adding that the market seems unfazed by the threat of state insurer Government Service Insurance System (GSIS) to withdraw its PhP39-billion investments in the capital market if the alleged dissension among the directors of the Philippine Stock Exchange (PSE) is not addressed. Another factor that will lend credibility to Mrs. Arroyo's focused leadership is the safe release of Filipino truck driver Angelo de la Cruz who was taken hostage in Iraq by militants. Second-quarter earnings results are also expected to pave the way for the stock market's upward trek.


"The outlook for the second quarter earnings is that these will mostly be in the double-digit levels," she said. She sees bright opportunities ahead for telecommunication companies, banks and firms involved in power generation. "For the telco side, the churn rates are gradually reducing. It started with Globe Telecoms' over-the-air reload," Ms. Cerdeña said. "Banks may also be enjoying additional liquidity with the possible extension of the deadline for [the availment] of the Special Purpose Vehicle Act (SPV) which will allow them more time to dispose their non-performing loans (NPLs)." Lopez-owned First Philippine Holdings (FPH) is expected to announce cash dividends soon, an indication that it has significant cashflow. Ms. Cerdeña said the fast-tracking of the Electric Power Reform Act (EPIRA) will benefit FPH especially with the upcoming bidding for the San Lorenzo and Sta. Rita power plants.


But Jojo Gonzales, research head of Philippine Equity Partners, Inc., said everything had already been discounted in the market. "The SONA and the reporting season are not new," he said. Mr. Gonzales, however, sees the market reacting to a set of proposals to raise revenues for the government. "The proposal to raise taxes for the oil sector will affect Petron Corp. SM Prime Holdings Corp. will be affected by the plan of the Bureau of Internal Revenue (BIR) to go after theater owners. These proposals might have certain impact on specific companies. Until the market sees these proposals made concrete, it will remain at a loss," he added. Trade and Industry Secretary Cesar A.V. Purisima, who is designated recently as Mrs. Arroyo's "economic spokesperson," said the new tax measures will generate PhP100 billion in additional revenues annually, eventually reducing public sector debt by 90% within six years. The market's direction will also depend on the numbers that companies will be reporting for the second quarter, Mr. Gonzales said.


A technical rebound and continued bargain hunting generally propped up trading last week. The stock market closed higher on Friday, up 6.43 points to 1,559.22 as it sustained gains for a third consecutive day. Having breached the 1,550 level, the market is expected to trade on a new level, promising a series of bullish sessions for the week. Except for the All Shares and Mining, the rest of the indices were in positive territory. Banks and financial services inched up 0.49 TO 465.69. Commercial-Industrial gained 15.08, the highest at 2,458.09. Oil moved slower at 0.01 to 1.41. Property was also slow at 0.04 to 522.23. All shares shed 0.89 at 996.35 and mining slid 17.59 TO 1,604.44. There were 1,875 trades of over two billion shares worth PhP333 million from 23 gainers, 33 losers and 61 issues that were unchanged. The total value turnover at the end of the week was PhP6 million more than Thursday's PhP327 million which saw almost seven billion shares exchange hands.