Make your own free website on Tripod.com

 

 

NEWS & ADVISORY
ARCHIVE




Home
Beginners
News
Links
Charts
Features
Quotes
Trading
Contact

 


 

Tuesday, October 26, 2004
House body okays 20% hike in liquor, cigarette tax
US economist warns of growth slowdown due to high oil prices
Stock exchange to offer wider variety of profit products
PNOC lights up more homes with PhP20,000 solar unit
Fictitious firms, fake papers used in smuggling
Arroyo asks Filipinos to take 'bitter pill' of economic reforms
AMLC moves to open bank accounts of Garcia
Export growth capped at 10% sans new investments
Consumers asked to accept rising utilities costs
Finance dep't bucks limits to debt servicing
New Japanese envoy bullish on trade pact with RP
Key interest rates rise anew
Asian spreads steady; China bonds tighten
Bank capital ratios down in 2003
Metrobank says no stake hike in PSBank
BIR challenges PhP1-B tax refund of Tan's Fortune
Metro Pacific to provide PhP127-M Nenaco funding
Intel forecasts market for mobile computers to rise on strong demand
PLDT to outpace main rival Globe in financial results
Ayala Land 3Q net seen up, oil risks growing
Filinvest selling Hocheng property unit stake for $1.8M
Market rattled as Phisix falls 1.5%

Monday, October 25, 2004
SEC okays trading of firms' receivables
Semiconductor firm leads BusinessWorld Top 1000 list
Regulator targets insurance firms lacking capital
Philippines kept on dirty money watch list
Parayno wants trial on Tan's multi-billion tax case to begin
Smuggled goods flood malls and markets
Ex-Shell exec not off the hook in tax credit scam cases
Foreign borrowings crucial to managing deficit -- Central Bank chief
Philippines lags in contest for capital
Tax bills key to RP credit ratings rebound
Gov't considers taxing firms based on net income
Oil firms risk losing perks
Subic-Clark-Tarlac tollway construction to start next year
Monetary Board sets new rules for granting quasi-banking nod
PSBank cuts bad loans by 27%
UCPB tops trust banking survey
Tax perks OK'd for 30-MW power project in Negros
Atlanta's Mirant seen to exit Chapter 11 next year
Manila Water set to file papers for public offer
Two steel firms face PhP63-M claims from gov't
PSE deepens effort to promote stock market
Trading seen uneventful this week


October 21- 22
October 19- 20
October 15- 18
October 13- 14
October 11- 12
October 7 - 8
October 5 - 6

 


 

House body okays 20% hike in liquor, cigarette tax

By JUDY T. GULANE, Reporter

The House of Representatives ways and means committee yesterday voted for a 20% across-the-board increase in taxes on liquor and cigarettes starting next year, to the apparent disappointment of the Finance department. The committee, headed by Tarlac Rep. Jesli A. Lapus, also decided to keep the multi-tier tax structure for these products. He also said specific excise taxes on alcohol, cigarette and tobacco products would be raised by 20% next year, by 3% in 2006, and by another 3% in 2007.

But Finance undersecretary Emmanuel Bonoan told BusinessWorld in an interview that what the committee approved was not what his department had pushed. "We are not quite happy, this was not exactly what we had proposed. We don't know how they got the 3% rate. We requested a permanent mechanism for the periodic adjustment of the tax rates, and to adjust the rates according to inflation," he said. "This means that we have a long way to go in asking for a more sensible formula [for increasing taxes on alcohol, cigarette, and tobacco products]," he added.

In the substitute bill that was used by ways and means committee members in their executive meeting yesterday -- a copy of which was obtained by BusinessWorld -- there was a provision on raising taxes on alcohol, cigarette, and tobacco products every two years after 2007, by the amount of cumulative inflation of these products as determined by the National Statistics Office. The provision also requires the Finance department to publish the new tax on or before January 15 of each year. Mr. Lapus also said some committee members insisted that the taxing powers of Congress could not be delegated to the Executive through the Finance department. Thus, the provision on this was removed from the substitute bill. With the higher tax, Mr. Lapus said the government could expect PhP7.6 billion in additional taxes in 2005, PhP8.9 billion with the 3% increase in 2006; and PhP9 billion with the 3% in 2007, or a total of PhP25.5 billion over three years. Finance department figures showed the government got PhP13.9 billion in taxes on alcohol products and PhP20 billion in taxes on cigarettes and tobacco products last year.

Last week, Finance officials submitted a revised proposal to the ways and means committee. It lowered its proposed rate by which the tax on alcohol, cigarette, and tobacco products would be increased, to 20% from 30.1%. It also proposed raising taxes every two years thereafter, using the cumulative inflation for these products of the two immediately preceding years. A third proposal was to use a single tax for distilled spirits instead of two, but to maintain the existing multi-tier tax structures for cigars and cigarettes, and fermented liquor. Mr. Lapus said the cumulative inflation for alcohol, cigarette and tobacco products for 2001 to 2003 was 11.3%, so the 20% increase in tax next year was adequate. He also said the 3% increase was based on estimated annual inflation for alcohol, cigarette, and tobacco products. The 3% increase in 2006 and in 2007 are also meant to ensure that taxes to be collected on these also rise during these years, considering that Finance officials originally asked for a 30.1% increase.

A 20% increase in taxes will increase the tax on cigars from PhP1.12 per cigar to PhP1.34 per cigar, and cigarettes packed by hand, from 40 centavos per pack to 48 centavos per pack. For tobacco twisted by hand, the tax will increase to 90 centavos from 75 centavos per kilogram. For tobacco specially prepared for chewing, the tax will increase to 72 centavos from 60 centavos per kilogram. For cigarettes packed by machine, if the net retail price (NRP) per pack is higher than PhP10, the tax will increase from PhP13.44 per pack to PhP16.13 per pack. If the NRP is between PhP6.50 and PhP10, the tax will increase from PhP8.96 per pack to PhP10.75 per pack; to PhP6.72 per pack from PhP5.60 per pack if the NRP is between PhP5 and PhP6.50; and to PhP1.34 per pack from PhP1.12 per pack if the NRP is below PhP5. For fermented liquor, the tax will increase to PhP8.27 from PhP6.89 per liter for brands with an NRP of lower than PhP14.50 per liter; to PhP12.30 from PhP10.25 for those belonging to the PhP14.50 to PhP22.50 bracket; and to PhP16.33 from PhP13.61 for those belonging to the PhP22 and above bracket. For distilled spirits produced from nipa, coconut, cassava, camote, buri palm and sugar cane, and other locally sourced raw materials, the tax will increase to PhP10.75 from PhP8.96 per proof liter. For brands produced from other raw materials, the tax will increase to PhP5.38 from PhP4.48 per proof liter. For sparkling wines and champagne with NRP of PhP500 or lower, the tax will increase to PhP134.40 from PhP112 per liter, and to PhP403.20 from PhP336 per liter for sparkling wines with NRP of higher than PhP500. Tax on still wines with 14% alcohol or lower will increase from PhP13.44 to PhP16.13 per liter, while the tax on still wines with higher than 14% to 25% alcohol content will increase to PhP32.26 from PhP26.88 per liter.

Meanwhile, Bayan Muna party-list Rep. Teodoro A. Casino decried the bill approved by the ways and means committee as "half-baked and a result of a compromise with industry players and pressures from the country's international creditors." Mr. Casino, a member of the committee, noted that the approved bill would not index the tax to inflation nor would it set aside a portion of the revenues to be generated from the higher tax to the Department of Health for its anti-tobacco and anti-alcohol advocacy, and treatment and care of alcohol and tobacco users. A provision in the bill originally earmarked PhP500 million to the Health department every year, which would go to its advocacy against alcohol and tobacco use, and treatment and care of alcohol and tobacco users in all government health facilities. This provision was removed from the substitute bill before it was approved by committee members.

The Finance department, in its presentations to the House appropriations committee, said the taxes that would be generated from new revenue measures would be used to pay the debts of the National Power Corporation and of the national government. "Congress defaulted on the most crucial issues because no one wanted to go against any of the industry players. I think the lobbies of the various vested groups were too strong to ignore, and so the members decided on [an across-the-board increase and not to change the system]," Mr. Casino said in a statement. "They wanted a bill to please everybody, and so what we have is essentially a stop-gap measure, a quick-fix bill that will raise a mere fraction of the bill's original revenue target [of PhP14 billion]," he added. Mr. Lapus told BusinessWorld last week that the "least disruptive option" in raising the taxes on alcohol, cigarette, and tobacco products would be chosen given that time was running out and the country's international creditors were pressuring the government to pass new tax bills to avert a credit downgrade. The ways and means committee will present to the House rules committee its report on the measure increasing the tax rates on alcohol, cigarette and tobacco products today. House Majority Leader Prospero C. Nograles of Davao City, chairman of the rules committee, said the measure would be calendared for second reading approval this week.

 

 

US economist warns of growth slowdown due to high oil prices

By JENNIFER A. NG, Reporter

The sustained increase in the prices of oil in the world market can cut the economy's growth to just 1.7% to 2.7% next year, said a senior economist from s Washington, DC-based think tank. In a discussion paper, Institute for International Economics senior fellow Philip K. Verleger Jr. said his assumption of 3.6-percentage points cut in the economy's growth rate was based on a $45-per barrel scenario. "It may be noted that prices today are already above the $45-per-barrel level assumed in the high-priced case," Mr. Verleger said. The government is targetting an economic growth rate of 5.3% to 6.3% for next year. But University of Asia and the Pacific (UA&P) economist Victor Abola said this projection was "unlikely." "Even at a $60-per barrel level scenario, I don't think our growth will slow down by as much. If you look closely at our imports bill, oil makes up only about 10%," Mr. Abola said in an interview.Mr. Verleger said, however, that if oil prices would moderate to a $35-per-barrel level by next year, the cut in the country's economic growth rate would only be 1.6 percentage points. "The 1.6% reduction at $35 per barrel level may be more believable. The 3.6% projection is just too high," Mr. Abola said.

Currently, the price of Dubai crude is already hovering at the $50-per-barrel level. Mr. Verleger also said the economy's growth in 2006 could be reduced by 1.3 percentage ppoints at a $35 per barrel, and 5.1 percentage points if oil prices would continue to breach $50 per barrel. Aside from the Philippines, the US economist projected a decline in economic growth in other oil-importing Asian countries such as Thailand, Malaysia, and India. Mr. Verleger also said crude prises could rise to $60 per barrel by mid-2005 and as high as $80 per barrel in 2006 should "shortage conditions" be experienced in those years. Shortage conditions, he said, refer to periods when global demand cannot be satisfied at current prices. "This does not imply, though, that an upsurge will occur in 2004 or 2006," he said. Mr. Verleger noted that the current situation in the world oil markets bore a semblance to that of the late 1960s that led to the oil crisis of 1973-1974. "The foundations of the 1973-1974 oil crisis and subsequent recession were laid between 1960 and 1970," he said. At that time, Mr. Verleger said, economic growth in Europe and Japan stimulated increased oil consumption while surplus productive capacity caused the world's multinational companies to limit investment in production facilities. "Today, the emergence of China and India as principal players on the global energy scene is having the same effect," he said.

Mr. Verleger noted that in 1990, consumption in these two countries amounted to no more than 3.5 million barrels per day or about 5% of global petroleum use. But in 2003 or 13 years later, usage in the two countries more than doubled and now accounted for more than 10% of global oil consumption. Aside from this and the turbulent political situation in key-oil exporting countries, the US economist also noted other factors such as the failure of key players in the global energy industry to anticipate the increase in demand. To counter or avoid an impending energy crisis, Mr. Verleger said that in the short run, the United States and other consumer countries must remove barriers that artificially increased prices. "These steps include changes in short-term regulations, promotion of seasonal inventory management practices, development of measures that assure better overall inventory management, aggressive advocacy of conservation, promotion of greater flexibility in environmental standards, and action to encourage counterseasonal inventory accumulation," he said. In the long term, Mr. Verleger said, consuming and producing countries must promote oil price stabilization within an acceptable range by establishing a mechanism to keep prices in that range and to support needed refinery expansion.

 

 

Stock exchange to offer wider variety of profit products

The Philippine Stock Exchange (PSE) plans to make more investment opportunities available to the public once regulators approve the rules for its new facilities. These facilities will allow PSE to provide markets not only for stocks or coporate equities but also for government debt papers or Treasury bills, Exchange Traded Funds, Real Estate Investment Trusts, and offer a Securities Borrowing and Lending Facility. In its latest Listings 101 brochure, PSE said the proposed rules for offering Exchange Traded Funds was still being evaluated by the Securities and Exchange Commission (SEC).

Meanwhile, the draft rules on listing Real Estate Investment Trusts were being reviewed by the PSE's new products committee. PSE chairman Alicia Rita M. Arroyo told reporters the offer of Exchange Traded Funds would be very timely "because of the prospects for the stock market." Exchange Traded Funds or ETFs are similar to the Philippine Index Fund of the Bank of the Philippine Islands. A sponsor, like banks, will set up the fund while PSE will provide the facility for their trading. "Interested parties can buy a basket of stocks at a minimum price. They get to diversify risks and monitor stocks on a macrolevel. They need not follow each stock," Ms. Arroyo explained.

Only last June PSE also revised its rules for listing corporate equities to attract more companies to offer their stocks in the exchange, ensure better shareholder protection, and promote the stock exchange as an effective and efficient venue for capital mobilization. The new rules are also expected to increase the menu of stocks available to the investing public, with different risk-reward preferences based on full disclosure of information. The revised rules, which took effect last June 24, are expected to reduce the processing time for applications for listing to 20 from 45 trading days (exclusive of the number of trading days the issuer takes to comply with additional requirements). And for the small and medium enterprise (SME) board, the rule on track record requirement of two years with positive operating income has been relaxed to one year. The fixed initial listing fee under that board has also been cut to PhP50,000 from PhP200,000. The two-year lock-up period for has also been reduced to a year. As for the main board, the requirement for financial projections to adhere to international practice on financial reporting has been lifted. -- R. J. F. Calayag

 

 

PNOC lights up more homes with PhP20,000 solar unit

State-run Philippine National Oil Company (PNOC) plans to make electricity available to more rural households by installing solar power cells on some 15,000 houses in remote areas in Regions 1 to 7 (from northern Luzon to central Visayas), including the Cordillera Administrative Region and Negros Island, over the next five years. In a statement, the firm said this would add to about PhP70 million worth of solar home systems that have been installed in over 3,500 households in 475 barangays nationwide that were previously not connected to any electric grid. PNOC's solar home system package each costs around PhP20,000, and includes a solar panel, battery, wiring, lights, and other fixtures. Installation is free, as well as four maintenance visits within the first year of installation. "With the PNOC Solar Home System Distribution Project, these households are now enjoying the benefits of electricity, and are getting connected as the solar panels can provide power supply to radio and television. The solar panels have a lifespan of 20 years," the firm said.

Homes powered by PNOC solar cells generate enough electricity to run small electrical appliances like small fans, radio, and television, as well as lights. But it cannot power bigger appliances like refrigerators. PNOC president Eduardo V. Mañalac said his firm would start installations on Negros island soon. "We are proud that we have reached the most remote of the barangays, and with this initiative, we know that these communities are now becoming productive and economically active, given the extended daylight they are now experiencing," he said. The solar project, which earned the prestigious Energy Globe Award in November last year, was made possible through a 5.591 million Euro grant from The Netherlands, and subsidies from PNOC. Households can pay the PhP20,000 through financing from local cooperatives or other financial intermediaries that provide soft loans of one to five years. PNOC said the PhP400 monthly amortization for the solar unit was equivalent to the cost of dry cell batteries or small gas lamps popularly called "kinkimax." "This [system] provides them with efficient and continuous source of light and simple forms of entertainment, whenever and wherever needed," PNOC said. It added that households in areas with electric grids can also buy the solar unit, but priority would be given to houses in remote areas. Mr. Mañalac said the benefits of the solar project would have long-term positive impact. "This encourages us to explore ways, source other means, and develop other energy resources so we can reach those impossibly hard-to-connect-to- grid areas," he said. -- B. S. Sto. Domingo

 

 

PCIJ Report

Fictitious firms, fake papers used in smuggling

By TESS B. BACALLA
Philippine Center for Investigative Journalism

Second of four parts

When new Customs Commissioner George Jereos appeared before a Senate committee hearing on smuggling last September, he made no mention of technical smuggling, which the agricultural and industry sectors say is fast killing them. Instead, Mr. Jereos talked about traditional or pure smuggling, in which imported goods do not pass through the Bureau of Customs and enter the country illegally via private ports. Mr. Jereos said Customs did not have the necessary manpower or "even a motorized banca to run after the smugglers in the open seas or the sea around the Philippines." He added, "Without stressing the obvious, of course, we all know that the coastline of the Philippines is longer than that of the United States. So that is really our problem area." Mr. Jereos is a veteran at Customs. But representatives of several industry organizations, brokers, and Customs insiders alike say his assessment of the country's smuggling problem was inaccurate. Technical smuggling, or the use of fraud to bring in goods through legitimate ports, has always existed side by side with pure or outright smuggling, they point out. But in recent years, this has intensified due to a combination of persistent laxity and corruption in state agencies and the growing inventiveness of wily businessmen who come up with newer ways to hoodwink the government. For Mr. Jereos not to mention technical smuggling at the Senate hearing was therefore a gross oversight -- and that is putting it kindly, they say.

Customs insiders and industry organizations say catching some technical smugglers is actually easy since all one has to do is to check official records to see if they are registered importers or not. Routine checks are also all that are needed to ascertain if all the information on submitted documents -- such as names and addresses -- are real. The evidence shows that many fictitious firms without proper import papers are able to ship in goods without much trouble. Indeed, Mr. Jereos himself was, wittingly or unwittingly, a tool in the perpetuation of technical smuggling by a company found by the Association of Petrochemical Manufacturers of the Philippines (APMP) to have been illegally importing resins, the ingredient for making plastics.

On January 30, 2003, the Customs Bonded Warehouse Committee, then headed by Mr. Jereos, approved the application of Travel Master for renewal of a license to operate Customs Bonded Warehouse no. 1656. The approval was given even if Securities and Exchange Commission records showed that Travel Master had been dissolved six months before, on July 15, 2002. The APMP, which had already been monitoring the firm, says that even after it had informed Customs of the violation on February 9, 2004, Travel Master continued to be allowed to import goods. The bureau itself had given the APMP a list of Customs-certified importers that did not include Travel Master, but the company was apparently still importing resin and using its customs-bonded warehouse between March and April 2004, based on import entries obtained by the APMP. Armed with these data, the APMP on April 2, 2004 wrote a letter to then Customs Commissioner Antonio Bernardo, pleading action on the matter. "This continued operation of this dissolved company is contrary to law, is against the interest of the Bureau, and is injurious to domestic producers of the commodities being imported," said Jess Aranza in the letter in his capacity as president of the Federation of Philippine Industries (FPI), of which the APMP is a member.

Today, Travel Master has ceased importing, but not without defrauding the government of its lawful revenue and causing undue damage to the local resin industry. The petrochemical industry reports that some P1.6 billion in duties and taxes for imported resins could be lost to technical smuggling every year. That a company could pull off such a scheme is not unusual in Customs. Furious over the proliferation of cheap imported tiles in the market, the Ceramic Tile Manufacturers Association (CTMA) has been doing its own spadework in tracking down importers who do not have the proper papers or may have used fraudulent means to bring in tiles from abroad. The ceramic tile industry says some P446 million in potential taxes was lost to smuggling last year. It arrived at this figure by using an estimated 4.33 million square meters of ceramic tiles that were supposed to have been shipped to the Philippines from other countries, but mostly from China, according to the July 4, 2004 issue of the Asian Ceramics Trade Magazine. Of this reported volume, only 397,345 square meters were accounted for by the Bureau of Customs. "Where did the 90% of Chinese tiles go?" asked the CTMA in its presentation in one of the sessions of the Cabinet Oversight Committee for Anti-Smuggling that was under the now defunct National Anti-Smuggling Task Force (Nastaf). That, however, was a rhetorical question, since the CTMA believes it knows where many of the tiles from China eventually landed: in Floor Center stores, which usually have banners proclaiming, "No one can beat our price!"

Floor Center has branches all over the country and is acknowledged by industry insiders as having retail prices that are lower by P2 to P3 per tile compared to the locally manufactured ones. "These guys are moving 400 containers a month!" says a ceramic industry insider. The CTMA says that Floor Center was not a registered importer until the association pointed that out to the stores' lawyer. Its mother company registered it the next day, says CTMA. Before that happened, the association had requested Customs to conduct inventories of some Floor Center stores. Not one of the five stores visited by Customs in Metro Manila and Cavite last June could show proof of payment of duties and taxes when asked to do so in the presence of a CTMA representative. Instead, they all claimed that they were sourcing from local suppliers, even if many of the tiles were marked with names like Valentino and Karen, known Chinese tile brands. The stores also failed to show any documentary proof that they had local sources. Floor Center counsel Lito Mondragon denies that his client is involved in smuggling. He says the only reason his client was included in the list of ceramic-tile importers investigated by Customs was because it was importing from China and carrying the same Chinese brands the other companies are selling. Anyone can import from China, says Mr. Mondragon. He adds that the complaint against Floor Center came from Mariwasa, a local manufacturer whose tiles are priced higher than those sold by his client's stores.

The CTMA, meanwhile, hints that companies that are not registered importers but are able to do so could only have had help from inside Customs. Most likely, it says, fictitious names were used, including fake consignees and brokers, although some firms have also resorted to illegally using registered names. The scheme, which some industry organizations and government officials have taken to calling "identity theft," is not confined to spurious tile imports. For instance, JMD International Trading Corp., a registered importer of computer peripherals, was made to appear as the consignee of 11x40 container vans containing tires from China that arrived at the Batangas port on September 13, 2003. Based on its investigation, the Anti-Smuggling, Intelligence, and Investigation Center (ASIIC) -- actually the Nastaf secretariat -- found that JMD had never imported tires. The company's counsel also said so in a September 22, 2003 letter to ASIIC, and denied having authorized anyone to import tires on its behalf. The tire shipment was issued a warrant of seizure and alert order on September 26, 2003, upon the recommendation of ASIIC, effectively preventing the cargo's release. Hearings were subsequently conducted by Customs on the motion of ASIIC to forfeit the goods in favor of the government. The case was still unresolved when on June 21, 2004, someone claiming to be JMD president Jovita de Guia wrote to District Collector Napoleon Morales of the Port of Batangas, saying the company was endorsing the cargo to the "ultimate consignee," New Century City Marketing Corp., whose name did not appear on the import entry filed. The same letter was faxed to ASIIC by Atty. Willy Sarmiento, a Customs employee.

When ASIIC referred the letter to JMD, the company's counsel denied that Ms. de Guia had sent the letter or authorized anyone to do so on her behalf. JMD's lawyers said they intended to file the appropriate criminal charges against the broker and her "cohorts" -- that is, if Customs could help them identify who that was. When ASIIC requested a certified true copy of the letter from Mr. Morales's office, it was told that Customs could not oblige "as the copy given to us was a mere xerox copy." But the bureau said the person "who brought the said document promised to bring the original during the scheduled hearingscheduled (for) 04 August 2004." But Customs never disclosed who that person was; ASIIC, which is still functioning even if Nastaf has already been dissolved, is still waiting to see whether the BoC will file charges against the importer and broker.

Accredited companies, however, are not the only ones whose identities are used without their knowledge. Licensed broker Ivy Sarad, for example, was surprised to find that she was made to appear as the broker for the illegal shipment initially declared as "frozen foodstuff" and amended to "general goods"of Von Way Trading at the Port of Batangas that arrived sometime between December 2003 and January 2004. Ms. Sarad says she did not renew her accreditation in that port during that year. (Per BoC rules, brokers are required to renew their accreditation with Customs every year, specifically in every port where they do business.) A Customs employee says the use of spurious import documents has become all too common since "nobody's doing the verification." The bureau "has its own mechanism to check," says the employee, but it seems it has been lax about this duty. "They have all the information," says one observer. "The question is what are they doing about it?" Customs said that its "first line of defense" in dealing with identity theft and fake importation documents "is the accreditation process conducted by our Accreditation Unit." It also says the Unit continuously reengineers itself to discern the ever-changing schemes of technical smuggling. Part of its "cleansing process," says the bureau, is random verification of even accredited importers, of which there are more than 16,000, to determine if these are still in their listed addresses. Customs may want to check out the work already done by private investigators commissioned by the CTMA. The association had some registered importers it suspected of technical smuggling investigated and found all the addresses to be fictitious.

Columbia Sports was among these companies. Its address, based on records filed with the Securities and Exchange Commission (with registry number 164566) is 5 Miller Street, San Francisco Del Monte, Quezon City. The investigators found that no such street exists in that part of Quezon City. Its accredited address with the customs bureau's Central Intelligence and Investigation Service, Jenny's Avenue, Pasig City, bore no postal number. Flame Inc., meanwhile, listed its address as 65 Marcos Sumulong Highway, Mambugan, Quezon City in its registration papers filed at Customs. But the investigators found no such postal address; no company by that name was also doing business in the area. Official documents show Mitsuko Phils. Corp.'s address as 304 Santolan Pawnshop Bldg., Manggahan, Pasig City, with telephone numbers 895-1362 and 896-1432. The team that conducted the investigation called this office and was told the numbers were those of Mercedes International Export. Whoever replied refused to talk any further to the team. Nitoka Industrial Corp. was also nowhere to be found in its listed address at Customs: 29 F. Sumulong Highway, Antipolo. Even the SEC-registered address -- 38K A. Florentino St., Sta. Mesa Heights, Quezon City -- of one of the incorporators/stockholders/directors, Jimmy Ang, does not exist. "What exists is P. Florentino Street that adjoins Talayan Road, which is being inhabited mostly by squatters," says the investigation report.

Based on these findings, the hired private investigators concluded that the firms "deliberately were set up to engage in technical smuggling." They also said that aside from the dubious addresses the firms were using, the capital stock of some of the companies was not commensurate with their volumes of importation while the others were engaged in businesses different from what was declared in their registration papers with the SEC. Industry groups have identified these companies, based on documented cases, as among the biggest importers of petrochemicals and ceramic tiles using illegal means. They are all reportedly owned by one businessman who has also been said as being behind companies illegally importing textiles.

 

 

Arroyo asks Filipinos to take 'bitter pill' of economic reforms

By JEFFREY O. VALISNO, Reporter

President Gloria Macapagal-Arroyo again asked Filipinos to take the "bitter pill" and prepare to suffer from higher power rates, additional taxes, and rising inflation to help the country get through the economic crisis. In a speech during the breakfast forum with the Foreign Correspondents Association of the Philippines yesterday, the President said she was prepared to become unpopular as the government undertook long-term economic reforms amidst rising costs for the public. "The price for me will be stiff. My [popularity] ratings will continue to slump as we suffer transient constraints, and take the bitter bill to cure structural poverty and clean up the fiscal, economic, and political mess we inherited," the President said. "But, I am prepared to suffer the consequences of unpopular decisions needed to finance our development from our own resources to strengthen our bureaucracy, and to demand fair and legitimate sacrifices so early in my term," she added.

Mrs. Arroyo said the public should bear the "short-term sacrifices" needed for the "long-term gain" of the economy since the "government is not everybody's fairy godmother." She assured that the government would do everything to ensure that the Philippines would be able to overcome its economic obstacles, including the budget deficit, as well as the country's domestic and foreign debts. "Mark my words. At the outset, the prognosis of doomsayers for the Philippines will not happen, not under my watch," Mrs. Arroyo said. "We will prevail in the end, as we push hard on change and reform rather than to surrender to the status quo, as we meet our challenges headstrong rather than sweep this under the rug," the President added. Mrs. Arroyo has been pushing a series of economic reforms aimed at curbing the budget deficit, and avoiding a fiscal crisis similar to what happened to Argentina.

Among these reforms include eight revenue measures pending before Congress aimed at generating an estimated PhP80 billion in revenues, and PhP20 billion in savings for the cash-strapped government. These bills are: the PhP2 per liter hike in excise tax on oil products; indexation of taxes on cigarettes and alcohol; revising the value-added tax; shift from net to gross income taxation; a tax amnesty; a lateral attrition system for government agencies; imposition of franchise tax on telecommunication firms, and rationalization of fiscal incentives. The revenue bills, however, have met stiff opposition from lawmakers who said the government should first fix its collection problems before asking for new revenue measures. A nationwide survey last month of research group Pulse Asia also showed that as many as 78% of Filipinos saw "no need to impose new taxes," and that the national government should instead improve tax collection to boost revenues. The third quarter survey last month of the Social Weather Stations (SWS) showed a 14 percentage point drop in the President's net satisfaction ratings to 12% in September from 26% last June due to the perceived cheating in the last elections, as well as the government's reform measures.

International credit ratings agencies earlier warned of a possible downgrade on the country's ratings if Congress fails to approve at least one of the eight proposed revenue measures. The House of Representatives has already pledged to approve four of the eight bills before the year-end, including the proposed tax amnesty, the lateral attrition system, the increase in sin taxes, and the rationalization of fiscal incentives. The Senate, for its part, recently promised to approve three from Malacañang's list of eight bills, including the proposed sin taxes, the lateral attrition system, and the rationalization of fiscal incentives. The President yesterday expressed confidence that the assurances of Congress to immediately act on the Palace-backed revenue measures would pave the way for greater confidence on the country's growth prospects.

In return, Mrs. Arroyo vowed to prosecute smugglers and tax evaders and plug the revenue leaks in the Bureau of Internal Revenue and the Bureau of Customs. The Chief Executive also pledged to keep the government's austerity measures, and vowed an all out campaign against graft and corruption in the government. Meanwhile, Mrs. Arroyo reiterated her Medium Term Philippine Development Plan goals of achieving gross domestic product (GDP) growth of seven percent, a balanced budget and bringing the poverty incidence down to less than 20% of the population by the time her term ends in 2010. For this year, the government aims to keep GDP growth at 4.9-5.8% compared with 4.5% last year. The government also targets to keep the budget deficit PhP198 billion this year from PhP199.9 billion last year. "These are clearly defined and attainable goals. It can be done," the President said.

 

 

AMLC moves to open bank accounts of Garcia

By KRISTINE L. ALAVE, Reporter

The Anti-Money Laundering Council (AMLC) has filed a petition at the Manila Regional Trial Court on Friday seeking permission to open and investigate the 76 bank accounts registered under the names of former military comptroller Maj. Gen. Carlos F. Garcia and his immediate family from nine commercial banks. According to the ex parte application signed by AMLC Executive Director Vicente S. Aquino, there was sufficient evidence that the money inside these accounts came from illegal means. If ever granted, the application would compel the banks to submit relevant materials and information on the transactions made by the Garcia family, which could be used to nail Mr. Garcia for plunder and graft and corruption charges. Mr. Garcia, the former comptroller of the Armed Forces of the Philippines, is being investigated by the House of Representatives and the Office of the Ombudsman for his unexplained wealth. He is scheduled to face court martial this week.

Initial investigations of the AMLC's Compliance and Investigation Staff showed that the Garcia family moved a total of PhP185.54 million in eight banks from 2003 until this year. The money, according to AMLC, were deposited in regular Philippine peso accounts and US dollar savings and time deposits accounts. Excluded from the amount are the values of the Garcia's condominium unit in New York, residence in Ohio, and cars registered under the names of family members, AMLC said. The government's financial intelligence agency noted there was a "blatant discrepancy too mind-boggling for any logical mind to comprehend" between the amount of the said transaction and with Mr. Garcia's declared net worth of PhP1,253,413.81. AMLC sad that since there was a huge discrepancy between Mr. Garcia's declared net worth and his transactions, it concluded that Mr. Garcia's accounts and investments were "related to unlawful activities and/or money laundering offenses."

In particular, AMLC asked the court to allow them to open seven accounts in Land Bank of the Philippines, 22 accounts and related accounts in Allied Banking Corp., 10 accounts and related accounts in the Armed Forces of the Philippines Savings and Loans Association, Inc., four accounts and related accounts in Banco de Oro-Universal Bank, six accounts and related accounts in the Bank of the Philippines Islands, 16 accounts and related accounts in United Coconut Planters Banks, eight accounts and related accounts in Planters Development Bank, two accounts in Export and Industry Bank, and one account in Centennial Bank. The accounts belonged to Mr. Garcia's wife Clarita, and his sons Ian Carl, Timothy Mark, and Juan Paolo, AMLC said. Of the 76 accounts, 13 were identified to be US dollar accounts. and will expire on Nov. 5.

 

 

Export growth capped at 10% sans new investments

Philippine exports are likely to grow no more than 10% yearly until the country becomes more conducive to new investments, the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) said yesterday. Emerging from a meeting with the country's exporters, BSP Deputy Governor Amando M. Tetangco, Jr. said there was a need to attract more investors to help boost exports. He stressed that export growth is likely to improve only when there are "more investments and if infrastructure improves." On top of this, the government needs to implement the proposed revenue raising measures and address the budget deficit to be able to allot more funds for infrastructure, he said.

The Macapagal-Arroyo administration is asking Congress to pass eight tax measures that would raise PhP83 billion yearly. It also aims to balance the budget by 2010. "We need to solve the fiscal deficit so we can spend more for infrastructure and increase the attractiveness of the Philippines' as an investment site," he said. The BSP and the country's exporters project a 10% export growth for 2004 and 2005. Last year, exports receipts amounted to $36.231 billion. Latest data showed that from January to August 2004, exports grew $25.255 billion. During the meeting, exporters raised concerns on expensive power costs and unreliable power supply, poor infrastructure such as roads, high costs of labor and slow improvement in the local textile industry. Export groups and companies present during the meeting included the Semiconductor Industry Association, the Confederation of Garment Exporters of the Philippines (CONGEP) and the Fil-Pacific Apparel Corp.

By groups, each sector cited specific problems and gave its own projection but agreed that the same concerns continue to hinder export growth. Local textile millers, for instance, urged the government to study the possibility of granting ample incentives to millers. The Guild of Philippine Jewellers, in a position paper, continued to seek the BSP's help amid the volatile movement in the price of gold and silver. The group said that gold purchases from the BSP are subject to a service charge and 10% value added tax which makes jewelers less competitive than counterparts in the region. Mr. Tetangco said the BSP is already discussing with the Bureau of Internal Revenue (BIR) a measure that would allow jewelers to qualify for zero-rated VAT scheme.

Under the proposal, the foreign buyer would remit payment to the BSP for gold purchased from the central bank to be processed by the local jeweler into finished product and eventually exported. Likewise, CONGEP zeroed in on the need to reduce the costs of power, saying that the garments sector continued to lag behind other Asian countries. "The basic problems are still there. These are the same problems such as high power and labor costs," CONGEP president Donald G. Dee said yesterday. He said that while the sector sees garment exports to grow 5% in 2005 from $2 billion this year, the sector is still behind its counterparts in the region. The BSP's Mr. Tetangco conceded, however, that the power problem would take a while before it is finally resolved. The Energy department, in the same forum, said that the schedule of privatization of at least 70% of the total capacity of generating assets of Napocor in Luzon and Visayas is on track by 2005. -- Iris Cecilia C. Gonzales

 

 

Consumers asked to accept rising utilities costs

Consumers have no other choice but to accept increases in the cost of utilities; otherwise, the deficit problem will worsen as the government will be forced to absorb the obligations, businessman Raul T. Concepcion yesterday said. In a press briefing, the head of the Consumer and Oil Price Watch (COPW) cited an "urgency" to avoid a fiscal crisis, or else a situation similar to Argentina's experience will come "sooner than later." "[W]e have to accept pending petitions for increases in the cost of basic services in order to reflect their true costs," Mr. Concepcion told reporters.

Consumers should expect rate increases in electricity with the planned privatization of the National Power Corporation's (Napocor) assets, and water with the takeover of Maynilad Water Services, Inc. by the state-owned Metropolitan Waterworks and Services System. Similar increases can be expected in domestic shipping rates, toll fees in the North and South Luzon expressways, and fares in the Light Rail and Metro Rail transit systems. Mr. Concepcion attributed the country's huge debts to a number of major projects entered into by past administrations and approved by the National Economic and Development Authority's (NEDA) Investment Coordinating Committee without a clear explanation to the public. The consumer watchdog chief said the government must make sure it would not absorb debts incurred by losing ventures. "The rationale for a sovereign guarantee should only be acceptable when the projects have passed the litmus test of project viability with true costs being reflected, and no debt is absorbed by the Government from start to the completion of the project," Mr. Concepcion said. He said COPW would seek information from the Napocor, the Manila Electric Company, the Power Sector Assets and Liabilities Management Corp., the Energy Regulatory Commission, and the Department of Energy on the breakdown of the cost of each power plant that are paid even if the electricity is not consumed, and when they would be fully utilized. Mr. Concepcion said COPW has come up with a work schedule for the last quarter of the year to ensure that all new infrastructure projects and public utilities affecting the consumers will be closely monitored. He said they expect to work closely with the NEDA, the economic managers, the regulatory agencies, as well as the House and Senate committees on Ways and Means, the House committee on Appropriations and the Senate Finance Committee, and the House Oversight Committee.

COPW will focus on the electric power industry, the privatization efforts of the government, planned government takeover of Lopez-led Manila Water Services Inc. (Maynilad), domestic shipping rates, and several transportation projects. He said he is also in talks with PSALM to ensure that the privatization of spin-off firm National Transmission Corp. is transparent. Likewise, these agencies should explain the "cause of the sins of the past" that led to Napocor's PhP598.58-billion debt, as well as the interest charges resulting from the postponement of the increases in tariff rates due to exchange rate depreciation and subsidies. COPW is also concerned that the government would absorb the obligations of Maynilad's west zone concession considering it is now "de facto" owned by MWSS. "Should the government decide to completely absorb the PhP8.5 billion worth of concession fees unpaid by Maynilad and the $800 million MWSS debt assumed by Maynilad, the west zone customers would be penalized in the form of higher water rates," Mr. Concepcion argued.

COPW, meanwhile, has met with the Tollway Regulatory Board (TRB) and the operator of the North Luzon Expressway regarding the higher toll rates that will take effect in December. Mr. Concepcion said his group would also hold dialogues with the operator of the Metro Manila Skyway and the South Luzon Expressway, as well as Department of Transportation and Communications which sets MRT and LRT fares. On domestic shipping rates, Mr. Concepcion said COPW is supporting the unbundling of shipping and freight rates "to ensure transparency to consumers." -- Felipe F. Salvosa II and Bernardette S. Sto Domingo

 

 

Finance dep't bucks limits to debt servicing

The Department of Finance (DoF) practically thumbed down a new proposal to impose a cap on the debts of the National Government. In a position paper, the DoF said that it would be better for the executive branch and the legislature to simply enhance existing similar measures. At the same time, it also defended its borrowing activities, saying that it merely maximizes "low interest rates" prevailing in the international credit markets. "Further, there may be some point that borrowing may be resorted to achieve a desired economic goal like the need to pump prime the economy to counteract recessionary movements such as a slump in business activity. These are decisions better left with the Executive Branch," it said.

The Philippines' debt mountain -- comprising of the debts of the National Government and those incurred by government-owned and -controlled corporations -- stood at PhP5.9 trillion as of end-2003. The DoF said it supports Congress' intention to establish measures that seek to limit public sector debt for fiscal and macroeconomic reasons. It, however, noted that there are already existing measures in place. "Legislative and administrative measures are already in place for such a purpose. It is suggested that closer coordination and consultation between the executive and legislature for more effective policy-making and enforcement under such existing measures be pursued," the DoF said in its paper. It also called for a "careful study...on defining the threshold at which debt becomes unsustainable or unmanageable." "What level of debt is sustainable should consider realistic assumptions about future revenue and expenditure flows, as well as interest rates, economic growth, exchange rates and foreign exchang inflows to service foreign exchange-denominated debt," it said. At least three debt cap measures are pending at the Senate, all of which seek to plug the National Government's (NG) debts.

A bill filed by Sen. Manuel Villar Jr. proposes to keep the NG debt stock below 75% of total economic output or gross domestic product. A similar bill by Senate President Franklin Drilon seeks to limit the debt of NG and the government-owned or -controlled corporations to no more than the country's total economic output. The DoF said that existing laws putting a cap on the country's debt stock included Republic Act 4960 which sets limits to debt stock and debt service. Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura has warned that the government's foreign borrowings should not be a substitute to raising taxes. He said that continuous reliance on borrowings to finance the budget deficit was not a "sustainable option." But he also said that until the government is able to balance the budget, the central bank needs to ensure that the country has sufficient foreign exchange to pay for the government's maturing obligations. -- Iris Cecilia C. Gonzales

 

 

New Japanese envoy bullish on trade pact with RP

Japan's new ambassador to Manila is upbeat there will be a successful conclusion of the Japan Philippine Economic Partnership Agreement (JPEPA) that will allow, among others, the entry of more Filipino health workers to Tokyo. Japanese Ambassador Ryuichiro Yamazuki, who arrived in the country Sunday night to begin his tour-of-duty, expressed confidence that the trade pact would move forward as both parties went back to the negotiating table yesterday for the fifth round of talks. "The negotiations started this morning and will last for the whole week. I look forward for a mutually satisfactory conclusion. There is no time and date yet for the signing of the agreement but I am aware that both sides seek a mutually satisfactory conclusion," Mr. Yamazuki said in a chance interview after he paid a courtesy call on Foreign Affairs Secretary Alberto G. Romulo. Before he was named ambassador to Manila, Mr. Yamazuki was part of Japan's negotiating team for the bilateral free trade negotiations.

The Philippines wants the entry of its nurses and caregivers to Japan and the immediate reduction of tariff rates to as much as zero percent for all agricultural and fisheries shipments on both directions. The Japanese panel, meanwhile, had been lobbying for trade liberalization including the opening up of the Philippine's industrial sector. The liberalization of labor markets is said to be a focal point in Japan's negotiations with the Philippines on concluding a free trade agreement but Japan's local nursing groups have strongly opposed this, claiming they would lose their revenues to migrant health workers. Earlier, the Japanese health and labor ministry drafted a plan requiring Filipino nurses and caregivers to pass a national qualifying exam that would include Japanese language and culture before they can be accepted to work in Japan.

Japanese embassy press officer Shuhei Ogawa clarified that the proposal is still being deliberated on. He said that Japan remains committed to bolstering trade and security cooperation with the Philippines. "We will continue to do our utmost in helping the Philippines in its nation building endeavors and that is the basic platform from which I will be working," Mr. Yamazuki said. "As part of that, I look forward to keeping in close touch with the Department of Foreign Affairs in the very active foreign policy that the Philippines and Japan can pursue together." Japan tops the Philippine's list of foreign investors and is the country's largest source of official development assistance. -- Ma. Eloisa Calderon

 

 

Key interest rates rise anew

By IRA P. PEDRASA, Reporter

Benchmark interest rates rose further in yesterday's auction despite the market's mixed appetite for government debt papers. The 91-day Treasury bill fetched a rate of 7.869%, or up by 9.7 basis points two weeks ago. Total tenders reached PhP5.4486 billion against a public offering of PhP4.5 billion. The auction committee sold only PhP4.0236 billion. The 182-day rate increased by 10.6 basis points to 8.951%. Indicating weak market appetite, total tenders reached only PhP2.91 billion against a PhP3.5-billion public offering. The committee partially awarded PhP1.88 billion.

Meanwhile, banks' cash mostly went to the one-year paper at PhP8.3 billion against the public offering of only PhP3 billion. The interest rate went up by only 2.2 basis points to 9.926% as the committee fully awarded all bids. "For the 91-day [debt instrument], we accepted what's most reasonable. It was still about the same level as the secondary market. The six-month [paper] was an awkward tenor; there is a difficulty for traders to price... We don't get good rates, so we accepted what's good. The one-year paper, meanwhile, was very good. Although the market is still speculating, maybe they're showing confidence that the Congress will soon pass appropriate revenue-generating measures," Deputy Treasurer Eduardo S. Mendiola said. He added that liquidity still tempered a sudden increase in rates as banks tried to lock-in their money on the longer tenor "thinking that rates may still go down in the future."

Bond traders polled by BusinessWorld, however, reiterated that banks will not calm down soon amid fiscal worries. "Inflation is still there and we need to give value to our money. Our President [Arroyo] even said that the looming electricity rate increase will cause accelerated inflation," a trader at a local bank said. Government sources said the October inflation may hit 7% to 7.5% because of the runaway oil prices. In September, inflation hit 6.9% -- the highest in three years. The government's inflation target for the rest of the year is 5.4%. "But such reasons are already overdone. The one-year paper, though liquidity-driven is nearly hitting the support level at 10%. Surprisingly, the three-month paper continues to weaken. The government banks usually put in their bids at this instrument, but they were not able to inject their money lately. Maybe there's a problem in their internal liquidity," a trader at a local bank said. The trader speculated that the problem would partly come from the recent move by the Government Service Insurance System to transfer some PhP19 billion from the state-run Land Bank of the Philippines to Aboitiz-led Union Bank of the Philippines for its eCard project."Technically, the month paper is in limbo because the two other papers' yield was too steep. There is no pull either way (for the 182-day T-bill). Decisions become polarized. When you want to go short term, you might as well go to the 91-day paper. When you want to go long term, you might as well move in at the one-year paper," the trader added. Another trader said banks may have a large requirement for the 364-day T-bill. "While fiscal jitters along with the issues attached to it are already overdone, the market is also testing the Treasury while no one is still at the helm," the trader at the foreign bank said, referring to the bureau's top post which remains vacant after Mina Figueroa's resignation.

PESO

At the currency market, the peso moved within its usual range and closed two centavos stronger at PhP56.295 against the US dollar from PhP56.315 previously. "Trading was still above the PhP56.25 support. While there were demands from oil companies, the trading range was offset by significant dollar inflows led by remittances from Filipinos working overseas," a currency trader said. Total volume of transacted dollar dropped to $109.8 million from $140.5 million. The significant level support for the peso was also driven by the "trend globally for a weak dollar," a market source said. Net fund inflows to US markets decreased to $59 billion in August, barely above the level needed to cover its trade deficit. US Federal Reserve officials have reiterated that the economic expansion of the United States was right on track despite jitters ahead of their presidential elections on November 2.

At the Philippine Dealing System, the country's electronic currencies exchange, the peso rallied by more than four centavos to PhP56.279 from PhP56.322. It opened at PhP56.265, hitting its intraday high a half-centavo higher at PhP56.260. After hovering within a 3.5-centavo range, the local unit closed at its intraday low of PhP56.295. Today, the peso is expected to further appreciate in the absence of dollar requirements from oil companies, and trade between PhP56.25 and PhP56.30 per greenback.

 

Asian spreads steady; China bonds tighten

HONG KONG -- Asian dollar bonds spreads were mostly unchanged yesterday as the market prepared to swallow fresh issuance from the Export Import Bank of Korea and Chohung Bank, but China's new sovereign bonds tightened on good demand. "Sentiment is pretty good, but there's little market activity as investors are retaining cash to buy into new issues," said a trader at a European bank in Hong Kong. "There's not much change from last Thursday and Friday in both the cash market and the CDS," the trader added. However, China's new sovereign bonds were finding good support from both mainland banks and European buyers. The one billion euro bond due in 2014 tightened about four bps to trade at 49/45 basis points (bps) over comparable bunds, compared with an initial launch spread of 52.8 bps over bunds when the bond priced on Thursday. The $500 million, five-year bond due in 2009 was trading at 59/56 bps over Treasuries compared to the launch price of 60 bps over. "There's decent onshore demand from the Chinese banks and we also saw European accounts coming in for this stuff in the secondary market, I guess they didn't get their fill in the primary," said another trader in Hong Kong.

Hutchison Whampoa Ltd.'s bonds due in 2013 were trading roughly unchanged to a touch tighter from Friday's close at 160/155 basis points over comparable Treasuries, while Hutch '14s were quoted at 180/175 bps over. PCCW '13s, which usually trade in tandem with Hutch paper, were also steady at 180/175 bps over. Chohung Bank, a unit of South Korea's second-biggest financial services conglomerate, Shinhan Financial Group, is expected to price its US$400 million dual-tranche bond issue later on Monday. Chohung has lowered the yield on the 10-year subordinated bond, which comprises US$200 million each in upper tier 2 and lower tier 2 securities, on the back of huge demand, a market source said on Monday, adding that the deal had been 10 times over subscribed. Both tranches have call options after five years. The price guidance on the Baa2/BB-plus rated upper tier 2 tranche was tightened to 108 bps over mid-swaps, equivalent to 150 bps over five-year US Treasuries, the source said. The guidance on the lower tier 2 deal, rated Baa2/BBB-minus, was tightened to 93 bps over mid-swaps, or 134 bps over five-year Treasuries.

Citigroup and UBS are the lead managers for the offering. State-run Export-Import Bank of Korea (Kexim) is also on the brink of issuing a 300 million euro, 5-year floating rate note, a market source said on Monday. Kexim is set to launch marketing of the deal in Helsinki and Copenhagen on Monday, and Dublin and London on Tuesday, the source said. Kexim is expected to close the book on Tuesday and is likely to price the deal soon afterwards, the source said. ABN AMRO and Deutsche Bank are the lead managers for the issue. Despite the new issuance, traders said benchmark Korean spreads were "rock solid at current levels," continuing to benefit from strong onshore demand. South Korean sovereign bonds due in 2014 were trading unchanged at 80/76 bps over Treasuries. -- Reuters

 

 

Bank capital ratios down in 2003

The Philippine banking system's average capital adequacy ratios (CARs) as of end-December 2003 stood at 16.03% on solo basis and 17.47% on consolidated basis, the Bangko Sentral ng Pilipinas reported yesterday. The CAR is the ratio of a bank's capital to its total assets and is required by regulators to be above a minimum level so that there is little risk of the bank going bust. The central bank said the latest ratios were way above the required minimum of 10%. These, however, were lower by 27 basis points and 30 basis points, respectively, compared to their end-June 2003 ratios. Ratios as of end-June 2003 stood at 16.30% on solo basis and 17.77% on consolidated basis.

Bangko Sentral attributed the reduction in the banking system's CARs to the introduction of capital charge on market risk in the capital adequacy framework for banks, which took effect in July last year. Prior to this, only capital charge on credit risk was included in the computation of CAR for all types of banks. Data further showed that universal and commercial banks, which accounted for 90.1% of the banking system's total assets, reported an overall CAR of 15.71% on solo basis and 17.35% on consolidated basis as of end-2003. Overall CAR refers to combined credit and market risks. The overall CARS of the thrift banking industry, covering solely credit risk, stood at 18.94% on both solo and consolidated basis. This reflected a decline of one basis point and two basis points from the end-June 2003 CARs of 18.95% on solo basis and 18.96% on a consolidated basis. The overall CAR of the rural and cooperative banking industry, based solely on credit risk and solo basis stood at 17.54%, up by 106 basis points from the end-June ratios of 16.48%. -- Iris Cecilia C. Gonzales

 

 

Metrobank says no stake hike in PSBank

Largest local lender Metropolitan Bank and Trust Co. (Metrobank) has not increased its stockholdings in its thrift bank arm Philippine Savings Bank (PSBank). Clarifying its previous disclosure, Metrobank told the exchange that its transaction with First Metro Investment Corp., the investment banking arm of the Metrobank Group, has not yet been consummated due to certain internal requirements. Antonio V. Viray, Metrobank assistant corporate secretary, earlier told the Philippine Stock Exchange that the bank purchased 18,360,686 shares from First Metro which will increase its stockholdings in the thrift bank to 74.237% from 64.008%.

BusinessWorld tried to reach officials from Metrobank and First Metro but they were not available for comment. In an earlier interview, PSBank president Pascual M. Garcia III said Metrobank's intention to increase its stake was a good indication of confidence in its subsidiary and the prospects of the thrift bank.

"There will be no change in our business strategy and program. There is no significant change in the ownership structure," he said. PSBank, the country's second largest savings bank in terms of assets, posted an 11% growth in net income to PhP197.2 million during the first semester due to higher loan and deposits volumes and higher average rates. As a result, earnings per share improved to PhP1.10 from PhP0.99 for the same period last year. -- Ruby Anne M. Rubio

 

 

BIR challenges PhP1-B tax refund of Tan's Fortune

The Bureau of Internal Revenue (BIR) yesterday questioned the Court of Appeals decision, granting the Lucio Tan-owned Fortune Tobacco Corp. a PhP1.03-billion tax refund. In a 19-page motion for reconsideration at the appeals court, the BIR said from 2000 until August 2004, it has even foregone more than PhP12 billion in taxes from Fortune because it maintained excise tax rates based on Oct. 1, 1996 and not the current net retail price. Sec. 145 of the tax code has several interpretations and may be even be considered "ambiguous."

According to the BIR, the National Internal Revenue Code of 1997 states, "tax exemptions are construed strictly against the claimant, and that in order for a claim of exemption to survive, it must be based on clear and unambiguous provision of law." It was very clear that Sec. 145, the BIR said, did not expressly stipulate the lowering of tax rates of Salem M 100, Salem King Size, Salem Lights KS, Winston F K, Winston Lights, Camel F King, Came Lights, Camel Filters, Salem M King and Champion M100. In fact, BIR said the intent of the law to increase the rate of excise tax is clear when it based the tax on current retail price which in effect will increase the bracket as the retail price of the brand increases. The appeals court ruled in favor of Fortune, saying the BIR erred in interpreting Republic Act 8240, specifically in mandating that specific tax payments should be higher than what cigarette companies were paying before 2000. The law mandated a 12% increase in excise taxes on cigarettes packed by machines by Jan. 1, 2000 after a shift from the ad valorem (computed as a percentage of the price) to the specific tax (a fixed amount per unit of the product) system.

BIR said in the case of Salem M 100, prior to Oct. 1, 1996 it paid a PhP5 tax rate. Because of the implementation of Sec. 145, the tax scheme was changed and instead it was charged PhP6.96. The PhP6.96 would only be charged for three years, preparatory to the 12% increase on Jan. 1, 2000. However, the BIR did not collect the 12% increase and the tax remained at PhP6.96. Therefore, BIR said Fortune is not entitled to a refund. Instead, the tobacco company should be assessed for deficiency in excise taxes. Also according to Sec. 145, the "classification of each brand based on average net retail price as of Oct. 1, 1996 shall remain in force until revised by Congress." The BIR said that unless amended by Congress, the tax payable comes from the net retail price, the price brackets and the corresponding tax rate.

Congress used the average net retail price as of Oct. 1, 1996 in setting the tax brackets based on price, but the price cannot be fixed by legislation because as the BIR explained, it is driven by market forces. "To legislate that the average [net retail price] be fixed is like outlawing the law of supply and demand," the BIR said. It said Sec. 145 states the net retail price must first be determined. "If this was done in the determination of tax payable starting Jan. 1, 2000, the tax payable should have clearly gone up contrary to the claims of the respondent [Fortune] that it should be lower than what it has paid."

 

 

Metro Pacific to provide PhP127-M Nenaco funding

By CECILLE S. VISTO, Sub-Editor

Metro Pacific Corp. yesterday said it will provide the PhP127-million funding shipping unit Negros Navigation Co. Ltd. (Nenaco) needs to return to profit. In a disclosure, Metro Pacific Vice-President David Nugent belied the claim of Nenaco Corporate Information Officer Willard G. Mosquito the shipper is scouting for third parties to provide the PhP127 million. Mr. Nugent told the Philippine Stock Exchange (PSE) the parent company will shoulder the amount. In fact, half of the needed financing has been turned over to Nenaco, with the balance to be given next month. "Metro Pacific has already begun providing such funding to Nenaco. As of last week, Metro Pacific had already provided PhP63.5 million to Nenaco and is on schedule to provide a second tranche of an additional PhP63.5 million to Nenaco in November," he said. He said the money was given as an "inter-company advance," and will be repaid under commercial terms and in line with Nenaco's rehabilitation program. The PhP127 million, Mr. Nugent said, will be sourced from funds obtained from the sale of Metro Pacific shares by parent, Hong Kong-listed First Pacific Co. Ltd.

First Pacific recently sold approximately 5% of the total issued common share capital of Metro Pacific to, among others, support the corporate recovery blueprint of debt-saddled Nenaco. Metro Pacific had earlier loaned PhP123 million to Nenaco to settle back taxes due the Bureau of Internal Revenues. Nenaco, which will soon be delisted, earlier said it was looking for investors to complete the amount needed for its rehabilitation plan. Based on the court-approved recommendation of Nenaco's rehabilitation receiver, Monico V. Jacob, Nenaco needs new money of about PhP250 million to keep shipping vessels in good running condition. This will be infused into Nenaco periodically beginning this year until mid-2005 to pay the shipping firm's tax liabilities, repair M/V St. Ezekiel Moreno, and for drydocking costs of two shipping vessels scheduled for upkeep this time. The shipping firm's 10-year rehabilitation plan was approved by the Manila Regional Trial Court on Oct. 4. It will pay its creditors, both secured and unsecured, under equal terms and conditions to eliminate preferential treatment. Nenaco, the country's second largest shipping firm, has unpaid debts totaling PhP2.5 billion. In seeking a rehabilitation, the company said its financial woes could be traced to a decrease in passenger volume and to the 1997 Asian financial crisis, which increased interest rates and operating costs. It currently operates nine vessels versus the 20 vessels run by leading shipping firm Aboitiz Transport Services Co.

 

Intel forecasts market for mobile computers to rise on strong demand

By JENNEE GRACE U. RUBRICO, Senior Reporter

TAIPEI, Taiwan -- Chip maker Intel Corp. expects the market for mobile computers to continue increasing as demand is expected to double over the next three years. Anand Chandrasekher, vice-president and general manager for Intel's mobile platforms group, said in a media briefing here the growth in the demand for mobile personal computers (PCs) will come from markets all over the world. Intel, the world's largest chip maker, manufactures the Centrino branded chips for mobile PCs. It also manufactures computer, networking, and communications products. "Over the last three years, the notebook market has doubled. We believe that it will double again from 2005 to 2008," he said.

MATURE MARKETS

He said while the growth in the demand for mobile PCs will be coming from markets all over the world, it will be higher in mature markets than in emerging markets. Mr. Chandrasekher said the penetration rate of mobile PCs will average at 30% by 2008, from 25% currently, with penetration rate in the mature markets hitting 50% and that in emerging markets averaging 20%. Mr. Chandrasekher said the growth in the demand for mobile personal computers will be driven by "innovation." He added that extended battery life of notebooks will play an imporant role in this growth expectation, "There is a strong desire to [prolong] battery life. It has become the number one dissatisfier for notebooks," he said, as he noted that battery life is now being lengthened. The growth in the demand for mobile PCs, however, is not expected to eat up on the market share of desktop PCs, Intel officials said. The officials said that demand for desktop PCs will continue to increase, and will be driven by the need for "day-to-day" computers as well as by the growing market for desktop computers that are used for entertainment. But growth in the demand for desktop computers will not be as fast as that for mobile computers, Intel officials said. Intel officials are in Taiwan for the two-day Intel Developer Forum for the Asia Pacific Region. The forum, which is held in multiple locations around the world, aims to serve the systems and solutions communities. Each conference is tailored to provide region-specific technical content and includes a technology showcase that features participants from local, regional, and multinational companies.

 

 

PLDT to outpace main rival Globe in financial results

The Philippine Long Distance Telephone Co. (PLDT) is expected to report quarterly profits rose as much as 50% after attracting mobile users with innovative products, but rival Globe Telecom, Inc. may post flat earnings after failing to launch new products. Analysts said the fourth quarter should be better for both companies as people buy new mobiles with their Christmas bonuses. Number-one operator PLDT is expected to have performed strongly after it launched in July a service for transferring money via text messaging and hooked up with Hong Kong's CSL to offer cheaper mobile services to overseas Filipino workers. Globe, jointly controlled by conglomerate Ayala Corp. and Singapore Telecommunications, failed to match PLDT's aggressive wireless products expansion, but may have captured new users in the low-end market after heavily promoting its cheap pre-paid services. Globe is due to announce its quarterly results on Thursday. PLDT, the nation's biggest listed company, with a market capitalization of $4.25 billion, reports on Nov. 4.

Three brokerages polled by Reuters forecast PLDT's profits for July to September would range from PhP5.2 billion to PhP6 billion ($92.4 million to $106.6 million), up from PhP4.01 billion in the third quarter of last year. PLDT is a quarter owned by Hong Kong's First Pacific Co. Ltd. Globe was expected to post third-quarter profits of PhP3 billion to PhP3.6 billion, compared with PhP3.2 billion a year earlier, because it did not launch any mobile services during the period. At least one third of the country's 82 million people owns a mobile thanks to cheap text messaging and low-cost, pre-paid cards. PLDT, through its banner mobile firm Smart Communications, Inc. and smaller unit Piltel, has 59% of the mobile phone market, followed by Globe with 40%.

Meanwhile, PLDT is teaming up with Avaya, Inc. to take advantage of the growing contact center market by providing business solution services. PLDT On-Call is the end-to-end solution that aims to cover contact service components wherein PLDT will provide the telecom facilities, while Avaya will cover the business solution, software and hardware side. The service also includes the provision of trained customer service representatives. -- Reuters with Anna Barbara L. Lorenzo

 

Ayala Land 3Q net seen up, oil risks growing

Ayala Land, Inc., the country's largest property firm, is expected to post a healthy rise in third-quarter profits this week on buoyant demand for residential and office space. But analysts said investors may find better value in other property firms as Ayala Land's shares are trading at a hefty premium compared to many regional peers. They also see risks rising for the sector as record oil prices put pressure on interest rates and construction costs. Ayala Land, 65% owned by conglomerate Ayala Corp. and famous for its upscale malls, towering condominiums and quaint residential communities, will announce its third-quarter results tomorrow.

Two analysts polled by Reuters forecast Ayala Land's net profit in the third quarter grew 8%-10% from last year's PhP604 million ($10.7 million). Its net profit rose 7.9% in the previous quarter. "Ayala Land successfully opened its first bargain mall in the third quarter," said First Grade Holdings Managing Director Astro del Castillo. "This is a major boost to revenues, since any Ayala mall attracts droves of shoppers." Market! Market!, Ayala's first low-income mall, brings together food hawkers, low-priced boutiques, and movie cinemas in a four-storey shopping center located at the 150-hectare Bonifacio development in the capital. Ayala and others have gained from rising demand from the millions of Filipinos working overseas for property back home and a ballooning industry in call centers and back office operations serving American and Europeans companies. But the prospects for recovery in an industry still suffering from the 1997 Asian financial crisis have been clouded by rising inflation, driven by the spiralling cost of oil. "A sharp rise in domestic interest rates, possibly hitting double-digit level on the 91-day T-bill rates, could dampen demand," said Carolle Kabigting, research headat ABN Amro Asia Securities (Phils) Inc. The rate on the benchmark 91-day bill rose to 7.87% in an auction on Monday, up from 6.25% in January. -- Reuters

 

 

Filinvest selling Hocheng property unit stake for $1.8M

Property developer Filinvest Development Corp. yesterday said Triple S Holdings Corp. will buy its 17.2 million common "A" shares in Hocheng Philippines Property Holding, Inc. for $1.8 million. Abner C. Gener, Filinvest's corporate information officer, said in a disclosure that Triple S is still in the process of being incorporated. The shares are priced PhP1 each. The deal will be inked on Nov. 10, Mr. Gener said. He said the deal is subject to certain conditions. Last week, Filinvest said it will sell 100 million of its common shares in Hocheng, a bathroom fixture maker, to Ritiboon for $4.6 million. It also agreed to sell over 17 million of its common "A" shares in Hocheng Philippines Property for $1.8 million.

Gotianun-led Filinvest said in an earlier disclosure to the exchange that it just concluded with partner Ritiboon the terms of the proposed acquisition of its stakes in the two companies. Mr. Gener said Filinvest intends to divest itself of its shares in Hocheng Philippine Property since its equity investment there does not form part of its core business. "Such divestment is consistent with its plan to sell non-core assets, and also logically follows from the divestment of Filinvest Development of its interest in Hocheng Philippines whose manufacturing facilities are found on real property titled in the name of Hocheng Philippines Property." Earlier reports said the shares to be sold represent Filinvest's 25% stake in Hocheng and 60% in Hocheng Philippines Property. -- R. Jane. F. Calayag

 

 

Market rattled as Phisix falls 1.5%

By ROULEE JANE F. CALAYAG, Reporter

Investors have still not recovered from last week's lackluster performance as shown by the market's weak close yesterday. Share prices went down. All indices, except for the banks and financial services, bled. The main index rattled the market as it dipped 26.45 or 1.5% to 1,735.69. Only Metropolitan Bank and Trust Co. showed some spark among the actively traded stocks as it finished higher at PhP28 on 335,000 shares worth PhP9.2 million. The benchmark Philippine Stock Exchange composite index (Phisix) surprised the market when it slumped by 18.33 points on Thursday. Its losses yesterday may be indicative of more reservations among investors. Traded shares reached only 1.6 million at PhP731.8 million. Losers left behind gainers by a stretch, 65-14, with the number of unchanged issues at 35. The all-shares dipped 3.44 or 0.31% at 1,102.19. The commercial-industrial lost 58.25 or 2.10% at 2,717.71. Mining shed 34.37 or 1.7% at 1,984.33. Property lost 3.19 or 0.49% at 645.97. Oil dropped 0.03 or 1.75% at 1.68. Only the banks and financial services moved forward by 1.06 or 0.22 at 492.84.

REASONS

Dealers could not pinpoint the major cause for the market's weakness triggered by massive selling. Some said most investors felt the need to tread cautiously given the coming long weekend (November 1 is a holiday) and decided instead to hold on to cash. But Benson Te, analyst at MDR Securities, said local investors have been moving out of the market for various reasons. "Locals who have been stampeding out of the market for vacuous reasons once again plagued the Philippine market with excuses for a sell-off. Oil, inflation, Metro Pacific Corp. [insider trading issue], [sofening of] United States markets have prompted locals to take profits after the Phisix's sensational run-up in September," wrote Mr. Te in his daily analysis. He noted that more than anything, this weakness should be seen in view of the so-called "October effect," a period when the market tends to be soft. "The 'October effect'... has been reinforced by the fact that in the past 10 years, October has produced seven years of losses against only three years of gains," said Mr. Te. "This indicates that October presents a statistical probability of 70% that the market will head lower, even as the recent October started at a high of 1,865. This phenomenon could be what is now unfolding right before our very eyes."

The Bank of the Philippine Islands (BPI), the banking arm of the Ayala group which boasts of massive resources to back up its operations, snatched the top place from telecommunications leader Philippine Long Distance Telephone Co. (PLDT) among actively traded stocks. BPI was unchanged at PhP46 with 4.4 million shares worth PhP201.4 million. Its market share was 27.52%. PLDT slid to the second slot, raking in a 16.02% share of the market. Its price was down to PhP1,340. Telecom rival Globe Telecom, Inc., a sister company of BPI, followed PLDT. It closed lower at PhP985.

BIGGEST LOSER

The decline of the two top telecommunications issues apparently pulled down the commercial-industrial index. "The commercial-industrial was the day's biggest loser, down on the country's duopoly -- PLDT's [-3.24%] and Globe's [-3.43%] price declines," said Mr. Te. Another Ayala subsidiary, Ayala Land, Inc., emerged as one of the most actively traded stocks as it settled in fourth place, but its price was unchanged at PhP6.90. The Gokongweis' Digital Telecommunications Philippines, Inc. (Digitel) followed, although its price dropped to PhP1.22. Digitel has been rocking the telecommunications boat since it launched its 24/7 service, which reportedly captured a sizeable share of the mobile phone market. SM Prime Holdings, Inc. (SMPH) of Filipino-Chinese magnate, Henry Sy, Sr., was unchanged at PhP7.20. PLDT subsidiary Pilipino Telephone Corp. (Piltel) caught the cold as it slipped to PhP2.30.

Even Metro Pacific Corp., which belongs to the same First Pacific Corp. umbrella, did not escape. It dropped to PhP0.38. The company issued a statement yesterday clarifying that its debt-saddled Negros Navigation Co. (Nenaco), which is undergoing a corporate rehabilitation plan, is not looking for a third party to complete its funding requirement. Metro Pacific stressed that it had provided last week the money needed by Nenaco. This was contrary to the statement issued by Nenaco over the weekend that the firm was seeking a third party that could provide the PhP127-million balance for the rehabilitation funds. DMCI Holdings, Inc. and Ayala Corp. also made it to the top ten stocks list. The price of DMCI dipped to PhP2.85 while Ayala Corp. went down to PhP6.20.

FOREIGN BUYING

Although most of the stocks were down, net foreign buying remained. "We are seeing continued accumulations by foreign money on the local's dampened sentiment. Foreign trades accounted for almost 56% of trade while flow of funds to the local equity market registered a positive PhP83.15 million worth of inflows. Moreover, overseas investors bought twice more issues than it sold," said Mr. Te. Total foreign buying was PhP450.6 million while total foreign selling amounted to PhP367.4 million. PLDT sold a special block of 27,000 shares at PhP1,385 apiece for PhP37.4 million.

 

 

SEC okays trading of firms' receivables

By JENNEE GRACE U. RUBRICO, Senior Reporter

The Securities and Exchange Commission (SEC) recently agreed to allow small companies to trade their receivables or collectibles from big firms in a market to be set up by state-run Development Bank of the Philippines (DBP). The bank proposes an alternative trading system that will provide small firms supplying to big companies like San Miguel Corporation another way to convert collectibles to cash, although at a discount. An SEC official said the commission's nontraditional securities and instruments department, which handles applications for alternative trading systems, has gotten clearance from the commission en banc for the purchase and sale of trade receivables. But the official also said DBP's proposed trading platform for receivables still needed tweaking. "What we did was to clear it [kind of securities to be traded] with the commission. We had already presented it to the commission, and we got approval for trade receivables," the official said. He also said the hardware for the trading platform was now being tested, and would likely be recommended for approval by next month.

DBP wants to start operating the alternative trading system by the end of the year. It will be a venue for buying and selling receivables of small and medium enterprises from big companies. But DBP will need to register with SEC all the securities (receivables) it will trade, in compliance with the Securities Regulation Code. The SEC official said the alternative trading platform would be dedicated solely to receivables. "We were told that if DBP could not trade receivables, then it won't push through with the alterative trading system," the official added.

Under the bank's alternative trading system, small firms can sell their receivables from big companies after their validation. DBP will sell these debts to a ready market, which will include banks, at lower than actual value. Allowing small business to sell their receivables will give them quick access to money or liquidity for operations and capital. The receivables will be validated by companies that owe them. As such, big firms effectively lend their reputation to their small suppliers, and consquently raise their suppliers' chance of selling their collectibles. Buyers of receivables can earn from the spread, purchasing collectibles at a discount and then redeeming them for full value when they fall due. DBP, for its part, will earn from fees to be charged firms using its alternative trading system. Initially, DBP will trade only collectibles of small firms that do business with San Miguel Corp. Eventually, the system will include receivables of other big companies that will lend small firms the reputation they need to get higher value for their collectibles. For the first three years of operations, DBP is looking at trading up to PhP1 billion worth of trade receivables over the new system.

 

 

Semiconductor firm leads BusinessWorld Top 1000 list

By D'LAARNI A. ORTIZ
Assistant Research Head

Baguio-based TI (Phils.), Inc. snatched from state-owned National Power Corporation (Napocor) the top spot in BusinessWorld's listing of the Top 1000 corporations in the Philippines. The semiconductor manufacturer is now the country's biggest firm, thanks to the growing demand for cellular phone chips and the additional gains provided by the depreciation of the peso. (See table of the Top 50 Corporations) TI raked in PhP159.41 billion in gross revenues last year, or PhP15.415 billion more revenues than that of its closest rival. Napocor, which held the top post for a decade, is now no. 4 with 2003 revenues dipping to PhP125.69 billion from PhP131.79 billion the previous year.

Laptop maker Toshiba Information Equipment (Phils.), Inc. maintained its no. 2 post with revenues of PhP143.995 billion, while Lopez-owned Manila Electric Company also held its ground at no. 3 with revenues of PhP134.201 billion. Despite pressures to retain and even lower oil prices, the country's big three petroleum producers again managed to land among the top 10 companies. Petron Corp. remained steady at no. 5. The same is true for Pilipinas Shell Petroleum Corp., which held on its no. 6 rank. But Caltex (Phils.), Inc. took a step back and landed in rank no. 8 after being overtaken by Philippine Long Distance Telephone Co. The telecommunications giant used to rank no. 10 but managed to garner revenues worth PhP58.599 billion last year, securing for itself the no. 7 place. Nestlé Phils., Inc. took no. 9 with PhP53.373 billion, while Globe Telecom, Inc. completed the top 10 thanks to the craze over mobile telephony. This year's 1000th company is University of the East.

Big companies in last year's list that were bumped off this year included contractor Takenaka Corp., former commercial bank Global Business Holdings, Inc., and supermarket operator Value Plus, Inc. But some companies, mostly engaged in technology and communications, made it to this year's list on sheer strength of the demand for their services. With a theme of "Going for Growth," this year's Top 1000 also highlights strategies employed by the country's champions of growth. The roles of technology and education in both national development and company growth were also given emphasis. BusinessWorld this year also delved into corporate failures and the danger signs of a possible slowdown in corporate growth. The Top 1000 also matched competitors' performance against each other, to provide a glimpse of companies that stand out among the rest in their respective industries. The Top 1000 magazine is given free to BusinessWorld subscribers with at least a year's worth of subscription. It can also be purchased for PhP350. Electronic versions of the magazine (including tables) are also available at the BusinessWorld Library and from BusinessWorld Online.

 

 

Regulator targets insurance firms lacking capital

Four insurance companies may yet be ordered this week to stop selling policies, while six others face a similar fate for failing to comply with capital and reserve requirements of the Insurance Commission. Chief Insurance Specialist Evelyn Fingun told BusinessWorld the 10 companies were already warned after regulators studied their books. "We gave them even until September 30, 2002 to comply, but they were not able to meet such obligations," she said. Of the 10 companies, she said six companies were now in the "show-cause stage" for failing to raise capital. And with a cease-and-desist order, the four other firms will be prohibited from selling new policies or taking new risks of any kind. But they must still service policies that have been written already.

The Insurance Commission declined to name the erring companies, but Insurance Commissioner Benjamin S. Santos said they would be accorded "due process." Department of Finance Order No. 31-01 issued in December 2001 required all life and nonlife insurance companies to raise their minimum paid-up capital to PhP50 million by June 30, 2002, otherwise their operating licenses would not be renewed. In July 2002 the deadline was moved to end-December that year, after a number of nonlife firms asked for an extension. But these firms were nonetheless told to increase their paid-up capital to at least PhP30 million by September 30, 2002. Six nonlife insurance firms were previously under watch: Times Surety & Insurance Co., Inc.; Far Eastern Surety & Insurance Co., Inc.; Luzon Insurance & Surety Co., Inc.; First Quezon City Insurance Co.; Investors Assurance Corp.; and South Sea Surety & Insurance Co., Inc. "For companies to survive, they have to meet four requirements: the capital investments, reserve investments, and they should be able to comply with the margin of solvency as well as the capital impairment," Ms. Fingun added. -- Ira P. Pedrasa

 

 

Philippines kept on dirty money watch list

By IRIS CECILIA C. GONZALES, Reporter

The international money-laundering watchdog Financial Action Task Force (FATF) said on Friday that it was keeping the Philippines and other countries on its list of dirty money havens. But there were no details immediately available to explain the Paris-based group's decision. Also still on the list are Cook Islands, Myanmar, Nauru, and Nigeria. Local monetary regulators said the FATF decision was not totally unexpected, since the group has yet to be satisfied that the Philippines could effectively prosecute money launderers. But just prior to FATF's latest review last October 4, the interagency Anti-Money Laundering Council (AMLC) expressed hope the country would finally be removed from the blacklist. AMLC executive director Vicente S. Aquino met with FATF officials last October 4 to update them on government efforts to curb money laundering in the country. The council, however, now faces a major test case with its investigation of Armed Forces Major General Carlos F. Garcia, who has been accused of amassing ill-gotten wealth and using this to buy properties and open several bank deposits.

Money laundering, considered illegal in the Philippines after Congress passed a law against it in 2001, is the traffic of funds from illegal activities such as drugs and terrorism to make these appear to have come from legitimate sources. AMLC had asked the Court of Appeals to freeze the Garcia family's bank accounts, citing reasonable grounds that the military official had committed graft and plunder. The appellate court on October 14 issued a freeze order on 40 bank accounts and other properties of the Garcias, but earlier reports indicated some of the bank accounts were already closed.

Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) said it would have been better if the council had, in the first place, the authority to freeze accounts without a court order. "We were quite unique before when we had the ability to freeze without a court order," said BSP Governor Rafael B. Buenaventura, who chairs the council. The anti-money laundering law gave the council authority to freeze suspected accounts until Congress amended it last year. Now, the council can investigate suspicious transactions but cannot go after dirty accounts. It has to submit to government lawyers a draft application for a freeze order, which will then be filed at the appellate court. It takes the court two to three days to issue a freeze order. A government official privy to the operations of the anti-money laundering council said that this procedure has weakened the council. "If the authority to freeze had been returned to the council, the law would have been far more effective, " the official said. Asked if the council would seek further amendments to the law, BSP's Mr. Buenaventura said all "systems need improvement," referring not only to the anti-money laundering law but also to the charter of regulators.

Despite the Philippines' retention in the latest FATF list, AMLC officials are optimistic the country will soon meet the Paris-based group's standards. AMLC's Mr. Aquino said FATF officials will be in Manila early next year for an onsite visit, the last stage in the process for country that want to be taken off the blacklist. "That is a very good and positive sign [for us]," he said in a telephone interview over the weekend. During the scheduled visit, FATF will assess the country's process for going after dirty money, including the monitoring of financial transactions involving at least PhP500,000, the threshold amount set by the government.

 

 

Smuggled goods flood malls and markets

By TESS B. BACALLA
Philippine Center for Investigative Journalism

First of four parts

BONGABON, Nueva Ecija -- In 1987, Carlito and Lita Bayudan, both New People's Army guerrillas, came down from the hills to begin a new life in this quiet farming town northeast of Manila. About to become parents for the first time, they traded their rifles for hoes, venturing into onion farming, the occupation of 80% of Bongabon residents. The young couple knew they would have to work hard, but they looked forward to a simple and peaceful life.

Seven years later, Lita Bayudan finds herself in the midst of another battle -- this time against smugglers. Now a 34-year-old widow and mother of two, Ka Lita has gone from monitoring troop movements in the hinterlands to monitoring the volume of smuggled onions from China that are being sold in Divisoria. She has reason to be vigilant: this December, the cooperative to which she belongs is expected to make the first payment on a PhP750,000-loan, and she fears that they might not have enough cash because smuggled and dirt-cheap Chinese onions have flooded the market. "The money to pay for our loan is in storage," says Ka Lita, referring to the sacks and sacks of onions that they had harvested and now cannot sell without absorbing a huge loss. Ka Lita knows that the problem of smuggling is not new. But even government agencies and officials say the situation has gone from bad to worse, with technical smuggling -- which includes misdeclaration of goods, undervaluation, misclassification, and other kinds of importation fraud -- now being done on a massive and unparalleled scale.

Almost every industry in the country has been affected as illegally imported products now range from onions to shoes, to floor tiles, tires, garments, resins (used to make plastics) and even charcoal, with these wares flooding both wet markets and upscale malls and easing out locally produced goods. Because this has meant cheaper goods at a time when the peso's buying power is at its weakest, consumers are not complaining. But what many don't see is the hundreds of billions of pesos bilked out of the government in the form of lost tax revenues each year, as well as the massive layoffs and bankruptcies that are now taking place in sectors that cannot compete with smuggled goods.

Meanwhile, the anti-smuggling efforts of the government and the private sector are being defeated by unscrupulous traders and corrupt and incompetent state officials and personnel, especially those at the Bureau of Customs. Even incentives meant to encourage exports have been abused by technical smugglers. The amounts of money involved are staggering. Last year, for example, a report by the United Nations Conference on Trade and Development or Unctad showed that, based on the records of the country's trading partners, imports to the Philippines totaled $45.4 billion. Philippine government records, however, reported imports of only $34.5 billion. The discrepancy of $10 billion could most likely be accounted for by smuggled goods.

MASSIVE LEAKAGE

This translates into a PhP86-billion tax revenue loss for the government, given an average duty rate of 6.19% in 2003 according to the Tariff Commission, 10% value-added tax, and an exchange rate of P54.20 to the dollar for that year. That P89.4 billion, however, would cover only the unpaid duties and taxes on the $10-billion worth of "missing" goods. As much as 60% of all imports may be assumed to be nondutiable, with some of them supposedly meant for re-export. But re-exporting often doesn't happen, as the imported goods end up being sold locally. Even if one assumes that only one-fourth of all nondutiable imports involved some form of fraud, the total revenue loss for the government could reach as much as PhP200 billion.

The Fair Trade Alliance (FTA) and the Federation of Philippine Industries (FPI) estimate that tax leakage from the collection of import duties and taxes is PhP174.2 billion annually, or PhP52 billion more than what the Finance department claims could be generated from the president's proposed new tax measures.

Former senator Wigberto Tañada also pointed out that the amount of leakages could pay for one million new low-cost houses every year or 11,611 school buildings with 30 classrooms each. It could also be used to finance 11,613 barangay health centers, each measuring 30 square meters and with minimum equipment worth PhP1.5 million, or perhaps 19,352 kilometers of concrete roads. Mr. Tañada, who is the FTA's lead convenor, added that the amount of uncollected import duties translates to an annual subsidy of PhP58,056 for three million Filipino farmers. The likes of Ka Lita prefer earning their own keep instead of relying on subsidies. To recoup their investment and generate some profit, onion farmers should sell at a farmgate price of at least PhP650 per 30-kilo bag or PhP26 a kilo. The going rate these days, however, is more like PhP480 per bag or PhP19 a kilo. Some traders even want to buy at PhP17 a kilo, which is how much Chinese red onions are being sold for. "Luging-lugi [We will have to take a huge loss]," complains Ka Lita, who worries that she might be sued for estafa if her cooperative defaults on its loan. As the cooperative's president, she signed the loan papers and the six postdated checks her group gave the lender. Ka Lita knows this wouldn't have happened if those who were supposed to be keeping watch were doing their jobs properly.

FINGER-POINTING

But not one of the agencies she approached would own up to its responsibility regarding the matter. Because the Bureau of Customs (BoC) is supposed to monitor the importation of goods, among other things, Ka Lita asked a representative of the agency why it was allowing imported onions when the Bureau of Plant Industry (BPI) was not issuing permits needed for these. She said she was referred to the Plant Quarantine Service, which the customs representative said had the duty to detect imported onions that didn't have these permits. Ka Lita reports that the respective chiefs of the BPI and the Plant Quarantine Service had no concrete answer to her queries about the illegal imports. "They're pointing at each other," the diminutive ex-rebel says in disgust. She says she told them to meet face to face so that they would stop blaming one another.

There is no doubt, however, that the customs bureau is supposed to be on top of matters when it comes to imports. The bureau does not deny that smuggling exists, but downplays the extent of revenue losses due to smuggling. No mention of such losses were made when the BoC made a presentation before the now-defunct Cabinet Oversight Committee on Anti-Smuggling (COCAS). On the contrary, even as government insiders and businessmen complain of escalating technical smuggling, the bureau has been crowing about its achievements. Its 2003 annual report says that it had exceeded its collection target of PhP100 billion by "a whooping (sic) PhP13.055 billion or 13% higher than the target." It calls last year "a moment of triumph." What its report leaves out, however, is how much higher the collected revenue would have been were it not for what insiders, businessmen, and observers describe as rampant technical smuggling.

'PETTY' PROBLEM

Many say technical smuggling cannot exist without the collusion of unscrupulous traders and corrupt government personnel and officials. In an interview, Customs chief George Jereos describes corruption in his agency as being "petty." But many other people think otherwise. To begin with, economists and businessmen say, the BoC's targets are too low. "You start from a low base due to technical smuggling and corruption, your projections will be lower than what they should be," says economist Nonoy Oplas, who also heads the Minimal Government Movement. Even the defunct National Anti-Smuggling Task Force (Nastaf) described the bureau's collection targets as "unrealistic/too low" in its final report to President Arroyo.

Nastaf also said that Customs collection has failed to keep pace with the growing value of imports. Citing data from the National Statistics Office, Nastaf noted that the ratio of collection to the value of imports has declined through the years. In 1995, it said, Customs collected PhP1 billion for every PhP7 billion worth of imports. By 2002, PhP1 billion was collected for every PhP19 billion worth of imports. Mr. Oplas says that even if tariff rates are declining because of the country's commitment to the World Trade Organization and other trade agreements, these could still be compensated by larger import volumes. "If percent increase in imports volume is much larger than percent decrease in tariff rates," he says, "then total collections should still increase." Observers say one only has to look at official figures to realize that the customs bureau is probably doing its math wrong if it feels entitled to puffing its chest.

In 2003, for example, 67% of imported yarns were entered in the customs ledgers under warehousing, which means these were supposed to be re-exported as part of finished products. Yet only five of the top 20 yarn importers were included in the Garments and Textile Export Board's (GTEB) list of Top 100 garment exporters for that year. The same was true for fabrics: 80% of the total imports for 2003 were declared under warehousing. Of the top 20 fabric importers, only 11 were listed among GTEB's Top 100 garment exporters. Garment industry insiders surmise that much of the "warehoused" fabric and yarns were sold to the domestic market without the importers paying any taxes. As incentive to exporters, warehousing entries -- which are called such because they have to be stored in a customs-bonded warehouse -- are tax- and duty-free. Jose Sereno, executive director of the Association of Petrochemical Manufacturers of the Philippines (APMP), believes something similar has been happening in the petrochemical industry. He says that as late as 1998, only 25% of imported resins were placed in customs-bonded warehouses. Today, close to 72% are being placed under warehousing. "This is questionable because we do not see an equivalent increase in exports of plastic products," says Mr. Sereno. "Besides, many of the local resin users are APMP's clients, so we know their volume of consumption."

RAMPANT

Overall figures quoted in a Nastaf report indicate that this may have already become a common experience among Philippine businesses. In the first half of 2003, imports declared as warehousing comprised 42% of imports, while consumption entries, meaning imports bound for the domestic market, made up the remaining 58%. In 2002, imports totaled $35.4 billion, of which $15.5 billion, or 44%, was declared as warehousing entries. Only 4.8% of the imports declared under warehousing, however, were re-exported. "At least 95% of warehousing entry may have been diverted to the domestic market,"said Nastaf.

The rise in the proportion of consumption and warehousing entries means that an increasing volume of imported products are being placed in customs-bonded warehouses purportedly for re-export. Without a corresponding rise in export figures, however, it is likely that a generous share of the warehouse entries wound up in the local market. Still another indication of the rampant diversion of imported items declared as warehousing entries is the accumulation of uncollected bonds that had been posted by importers. The Nastaf report estimates these to be anywhere between PhP5 billion and PhP10 billion annually. Data provided by Customs meanwhile show that the value of unliquidated/expired bonds for 2000 to 2003 was PhP1.27 billion, covering the Port of Manila, the Manila International Container Port, and the Ninoy Aquino International Airport. The bureau says this figure represents 95%, "more or less," of its total expired bonds for the same period.

'NO ONE IS CHECKING'

Customs bonds are intended to guarantee payment of taxes and duties as well as other charges in case a company that has warehousing entries does not re-export these as intended. Articles entered for warehousing may remain in bonded warehouses, owned and operated by the importers, for a maximum of one year, from the time these arrived at the port of entry. Surety companies that issue the bonds are supposed to collect those that are forfeited, but this rarely happens.

Under the present system, Customs does not go after the importer that does not re-export warehoused items, but is supposed to hunt down the surety companies that issued the bonds. More often than not, however, these companies fold up as fast as they are formed. It may seem unlikely that illegally imported onions were passed off as warehousing entries and then later dumped in the local market and spelled doom for the modest dreams of Ka Lita, who is now growing other vegetables while contemplating what to do next with her cooperative's onion stock. But representatives from several industry sectors say the absence of audits has made anything possible in the customs warehousing system. They say some importers even make it appear that they exported items placed in customs-bonded warehouses through what insiders call "paper exporting": they rent a container and ship it empty to a foreign port. "Nobody in Customs is checking," says a broker. "If I want to send a bomb to New York, the best place to ship it from is Manila."

 

 

Parayno wants trial on Tan's multi-billion tax case to begin

By KAREN L. LEMA, Reporter

The Bureau of Internal Revenue (BIR) will ask the Supreme Court to allow the Marikina Metropolitan Trial Court (MeTC) to start hearing the multi-billion tax evasion case against tycoon Lucio C. Tan even as the High Court has yet to resolve the appeal of Mr. Tan questioning its July 13 ruling reviving the criminal case. "We want action to start," Internal Revenue Commissioner Guillermo L. Parayno, Jr. told reporters last week. Mr. Parayno said the BIR would file before the end of the October a petition for leave of court with the High Tribunal to allow the commencement of hearings at the MeTC. The BIR would have wanted the Supreme Court to grant the petition of the Office of the Solicitor General to transfer the case from the MeTC to the Court of Tax Appeals (CTA).

BIR Deputy Commissioner Kim J. Henares has said the transfer would speed up the resolution of the 12-year-old criminal suits. Unlike the cases at the MetC where they have to go through the Regional Trial Court and Court of Appeals before they could be elevated to the High Tribunal, cases filed before the CTA are directly appealable to the Supreme Court, she said. The BIR has vowed to pursue the PhP27-billion tax case against Mr. Tan after the 15-man tribunal unanimously voted for the reinstatement of the case against the Filipino Chinese businessman and nine "dummy" corporations, noting that the MeTC failed to make an independent finding based on the merits of the case. The High Court said the MeTC had anchored the dismissal of the case on the position of the BIR.

State prosecutors have charged that Fortune Tobacco and its "dummy" corporations defrauded the government of PhP7.51 billion in 1990, PhP6.37 billion in 1991 and PhP5.79 billion in 1992 in undeclared ad valorem taxes. The case stemmed from a complaint filed by the BIR on Sept.7, 1993 before the DoJ. It alleged fraudulent tax evasion over the nonpayment of the correct ad valorem, income and value added taxes for 1992. The nine "dummy" firms were identified as: Townsman Commercial, Inc.; Landmark Sales and Marketing Inc.; Crimson Croker Distributors, Inc.; Dagupan Combined Commodities Inc.; First Union Trading Corporation; Carlsburg & Sons, Inc.; Omar Ali Distributors, Inc.; Oriel & Co. Inc.; and Mt. Matutum Marketing Corp.

TAX REFUND APPEAL

Meanwhile, Mr. Parayno said the BIR would file today a petition asking the Supreme Court to reverse the decision of the Court of Appeals granting the Mr. Tan-controlled Fortune Tobacco Corp. a PhP1.036-billion tax refund. Fortune claimed that it paid excess taxes to the BIR, after the shifting of the tax system ad valorem to specific tax on Jan. 1, 1997, covering eight cigarette brands, namely, Champion M100, Salem M 100 Salem M King, Camel F King, Camel Lights Box 20s Camel Filters Box 20s Winston F Kings, and Winston Lights, under section 142 of the Tax Code. But the BIR insisted collection of higher taxes from Fortune Tobacco was in line with the National Internal Revenue Code of 1997, which prompted the tax bureau to shift to specific taxation of cigarettes from an ad valorem system. Sec. 145 of the Tax Code established four levels of excise tax rates using four various classes of cigarettes of premium, high, medium and low cigarettes based on prices. This took effect on Jan. 1, 1997. And if there is any cigarette paying higher rates than what was established on Jan. 1, 1997 as of Oct. 1, 1996, the higher rates must continue to be paid. And then effective Jan. 1, 2001, the rates to be established on the four classes will be adjusted upwards by 12%. That is the law, the BIR said. The intent of the law was to raise revenues and not undermine tax collection, the BIR added.

Mr. Parayno earlier said he wants Congress to specify in the proposed indexation of sin taxes bill the amount of tax that should be collected from cigarette and alcohol manufacturers based on the 20% specific excise tax rate being pushed by legislators. This will prevent a repeat of the PhP1-billion tax refund case of Fortune Tobacco Corp., which arose from different interpretations of the law providing for a new tax scheme for cigarettes, he said. Finance Sec. Juanita D. Amatong said she supported the suggestion of Mr. Parayno. She added she has been informed by Sen. Ralph G. Recto, chairman of the ways and means committee of his willingness to support the indexation of sin taxes bill in the Senate.

 

 

Ex-Shell exec not off the hook in tax credit scam cases

Government prosecutors want Pacifico R. Cruz, former general manager of Pilipinas Shell Petroleum Corp. to be renamed as respondent in two tax credit scam cases involving a total of PhP28.8 million after having been dropped by the Sandiganbayan in the graft suits in 2001. In a hearing last month, special prosecution officer John I.C. Turalba told the Sandiganbayan that he wanted to "re-include" Mr. Cruz in the graft cases involving garments firm Mannequin International Corp. and Scope Industries on the basis of the testimony of textile engineer Binbal Chand Bhandari. The graft complaints allege that the two garment firms illegally transferred a total of PhP28.8 million worth of tax credit certificates (TCCs) to Pilipinas Shell. The TCCs which were "illegally" secured by Mannequin and Scope, were supposed to be issued to credit payment of taxes paid on petroleum products that will be used in the manufacture and processing of knitted fabrics. Mr. Bhandari however testified before the Sandiganbayan last month that there could not be a transaction between the two corporations and Pilipinas Shell which will justify the transfer of TCCs because the knitting machines used by Mannequin and Scope did not use any bunker oil or any petroleum product which could have come or been brought from the oil firm.

Mr. Bhandari was engaged by Melchor Tan, owner of the two garment firms, to source and install the knitting machines and he was the one who recommended the mechanic for the maintenance and operation of the machines. Mr. Bhandari attested before the anti-graft court that the machines are run by electricity and not by fuel. "So how could there be a transfer of tax credit certificates when there was no delivery at all from petroleum company to these knitting companies of petroleum products?" Mr. Turalba asked during the hearing. The re-inclusion of Mr. Cruz in the two cases, Mr. Turalba said "could be the consequence of the testimony of this witness that, if indeed we can prove that, by the testimony of this witness there was no valid transfer of the TCC." Mr. Bhandari told reporters last week that Mr. Cruz entered into an "anomalous agreement" with the garments firms for the supply of petroleum products to the two garment firms.

To recall, the Sandiganbayan fifth division had dropped Mr. Cruz from 23 tax credit scam cases including those involving Mannequin and Scope in 2001 after finding no probable cause to charge Mr. Cruz with 23 counts of graft. Mr. Cruz' lawyers had said that his participation in the TCC scams worth PhP396 million came after the approval of the transfer of the TCCs by the Department of Finance (DoF) and Bureau of Internal Revenue. The One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DoF (OSS) gives tax credits to qualified companies for duties paid on their imports. Instead of cash refund, the government issues TCCs with which companies settle their tax obligations. The TCCs allow export companies avail of tax credits, but they can either sell or transfer the TCCs to other firms, leaving room for anomalous transfers. The tax credit scam, which defrauded the government of some PhP5.3 billion in tax revenues, involved the issuance of fraudulent tax credit certificates in connivance with top finance officials. The Office of the Special Prosecutor alleged that PhP396 million worth of TCCs were supposed to be transferred to various firms but ended up with Pilipinas Shell instead.

Accused on 23 counts of graft were former DoF assistant secretary Antonio P. Belicena and One Stop Shop Center deputy executive director Uldarico P. Andutan together with Mr. Cruz. Mannequin and Scope are two of the seven companies owned by the Tan family, which figured in the tax credit scam. The Tan owned firms account for the second-biggest tax credit scam after the Chingkoe Group of Companies. The 11 companies owned by the couple Faustino and Gloria Chingkoe accounted for more almost half of the total money lost in the tax credits fraudulently used in the 1990s. -- Karen L. Lema

 

 

Foreign borrowings crucial to managing deficit -- Central Bank chief

The Philippines will continue to tap the international capital markets until it is able to balance its budget deficit, the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) said. BSP Governor Rafael B. Buenaventura said the move is part of the central bank's international reserve management program, and not an alternative to raising revenues. He was reacting to a recent observation by New York-based Global Finance Magazine which noted his supposed policy differences with President Gloria Macapagal Arroyo who prefers raising additional revenues to address the country's fiscal woes. "[U]ntil such time that we are able to balance the budget, we need to ensure that we have sufficient foreign exchange to pay for the government's maturing obligations," he said in a letter to the magazine. The publication gave Mr. Buenaventura a grade of 'B' for 2004, down from the 'A' he received in the past two years. Although Global Finance credited Mr. Buenaventura with keeping the country's inflation under control, it noted his perceived policy differences with President Gloria Macapagal Arroyo, an assessment which the BSP chief did not agree with. "While Buenaventura suggests the government tap international capital markets if foreign direct investment continues to drop, the President wants to plug the shortfall by raising taxes," Global Finance had said.

In his letter to Global Finance editor Dan Keeler, Mr. Buenaventura explained that he supports a financing mix in favor of the domestic market but only if the country already has sufficient inflows from exports, income remittances and foreign investments. He said the country needed to ensure first that it had a reasonable level of international reserves and had won enough investor confidence. "If the reserve level declines and exchange rate pressures build up, it will be the government itself which will face the resulting higher cost of debt repayment," he wrote. The government plans to borrow some PhP214 billion next year, bulk of which or 78% would come from foreign sources while 22% from domestic sources. In case Congress fails to approve at least two new taxes by the end of this year, the government will need another PhP50 billion to pay for the estimated interest payments on the debts of National Power Corporation (Napocor), bringing the total amount to PhP264 billion. Mr. Buenaventura said BSP's work has always been consistent with the government's medium-term program and its goal to boost economic growth, create jobs and balance the budget by 2010. The BSP chief also said he has been a strong advocate of reducing the budget deficit and has been consistent with the President's policy of getting domestic support to raise revenues. The Macapagal-Arroyo administration is asking Congress to pass eight revenue-enhancing measures that aims to raise PhP83 billion yearly. -- Iris Cecilia C. Gonzales

 

 

Philippines lags in contest for capital

The Philippines continues to lag behind its Southeast Asian counterparts in terms of foreign direct investment (FDI) flows, attracting only $319 million in 2003, a report published by the United Nations Conference on Trade and Development (UNCTAD) said. In the World Investment Report (WIR) 2004, UNCTAD said FDI received by the Philippines last year paled in comparison to those bagged by other Southeast Asian countries like Singapore which receive more than $5 billion worth of FDIs a year. "In the Philippines, FDI flows dramatically declined from an annual average of $1.344 billion from 1992 to 1997 to only $319 million in 2003," the WIR 2004 stated.

The report said that annually, the country receives one of the lowest FDI inflows compared to its Southeast Asian neighbors. UNCTAD said FDI inflows have increased particularly in Brunei Darrusalam, Thailand and Vietnam. It noted that the growth in FDIs in the region continued to be uneven, with high-growth economies attracting more FDIs. "Countries suffering from political tensions attracted less," the report read. Foreign investments in Southeast Asia rebounded from $94 billion in 2002 to $107 billion last year.

Elswhere in Asia, UNCTAD said China continues to receive more than $5 billion worth of FDIs a year. "Out of 55 economies for which data are available, 34 received higher flows than in 2002, and 21 lower inflows," the study said. The UN considers FDIs as a key source of financing for the telecommunications, energy, financial services and industries. "The offshoring that results can lead to new opportuinities for developing countries to become better integrated into global markets," UN Secretary General Kofi Annan said in the report. The UNCTAD surveyed 335 of the world's largest transnational corporations from developed, developing, and transition economies and 87 international site-selection experts. -- Jennifer A. Ng

 

 

Tax bills key to RP credit ratings rebound

The government must immediately launch a comprehensive fiscal program that will raise revenues if it wants to regain the confidence of international credit ratings agencies and reduce debts, an economist from the University of the Philippines (UP) said. UP economist Emmanuel S. de Dios said that a credible program for raising revenues particularly through taxes will enhance the credit standing of the Philippines and consequently lower the risk premium being paid by the government for its debts. "For example, Thailand pays only about 1% of risk premium while we pay an average of 5% on our debts. If we can come up with a good fiscal program, we can possibly save on these risk premia," Mr. De Dios said. The risk premium on bonds refer to the additional return to investors for holding a risky investment. Mr. De Dios explained that Thailand pays a lower risk premium because of investors' perception that it has a relatively more stable economic environment. He said that given the fiscal crisis currently confronting the government, it is imperative for the Arroyo administratiton to raise revenues now to dispel market jitters over its ability to solve its deficit problem. "We have to come up with the tax measures before the end of the year, but it seems that the government and those in Congress do not have the sense of urgency," Mr. De Dios said. Mr. De Dios said he and the 10 other UP economists who wrote a paper on an impending economic collapse if the deficit will not be resolved within two to three years, are still waiting for government action on solving the fiscal crisis. "The government is not even unequivocal when it comes to the revenue measures it wants," he said when asked about how he and his colleagues assess the current efforts of the government to raise revenues. Earlier, Socioeconomic Planning secretary Romulo L. Neri also pushed for the immediate passage of the tax measures being proposed by the Arroyo administration to Congress to avert a possible credit downgrade from international lending agencies.

WORLD BANK SUPPORT

Meanwhile, the World Bank has reaffirmed its commitment to help the Philippine government address various areas of reforms that include fiscal and power, governance, infrastructure and banking. In a chance interview with reporters on Friday, World Bank country director Joachim von Amsberg said the institution is ready to give the Philippines a helping hand so that it can "implement fiscal reforms, increase revenues, increase collection of taxes and increase spending [for infrastructure and services]." With enough reforms in place, the Philippines can get a bigger share of investments pouring into Southeast Asia, he said. According to the bank's World Development Report 2005, which drew on surveys of more than 30,000 firms in 53 developing countries, investment as a share of total economic output was lower in the Philippines than in Indonesia, Thailand and Malaysia from 1990 to 2003. Mr. Amsberg said the World Bank's program for the Philippines in the next three years also includes the continued grant of loans and financial assistance to specific projects. -- Jennifer A. Ng with a report from Iris Cecilia C. Gonzales

 

 

Gov't considers taxing firms based on net income

Corporations should be taxed depending on their net income, just as individuals are taxed depending on their salaries, a lawmaker said. Senate ways and means committee chairman Ralph G. Recto said in a press release there is an urgent need to change the uniform 32% corporate income tax rate to boost revenues for the cash-strapped government. The administration lawmaker noted that he has raised the proposal to President Gloria Macapagal Arroyo and that she has expressed support to the idea. Mr. Recto noted that corporations should be classified into four based on their net income, with the firms belonging to the biggest class paying 50% income tax while those belonging to the smallest category paying 20% income tax. "These industries have more than a PhP1 billion profits every year," Mr. Recto said. He added that he has asked the Department of Finance to provide details to the proposal. "You can defend this in the public because you are not hitting the consumers. I don't have the numbers yet. These are just concepts. Let us tax income, not consumption," Mr. Recto said. He noted that the proposed sin taxes, franchise tax on telecommunications companies, additional PhP2 excise tax for every liter of petroleum products and increase in value added tax (VAT) would directly affect consumers, while the proposed graduated corporate income taxation will affect only corporations. "We should seriously consider this [proposal]. America has a graduated corporate income tax rate; why should we not have that?," Mr. Recto said.

For his part, opposition Sen. Edgardo J. Angara who chairs the Senate committee on banks, financial institutions and currencies, said Mr. Recto's proposal has merits. "We should impose taxes on those who can afford to pay," Mr. Angara said in a separate interview. Mr. Recto also said the review of the corporate income tax will be easier to legislate, compared to the eight revenue measures which are expected to raise PhP83 billion in additional revenues. "It is faster. Why should we have eight debates for the eight tax measures when we can have only one?" he asked. To ease the financial problems of the National Government, Ms. Arroyo has asked Congress to pass eight tax measures: tax amnesty, performance-based lateral attrition of revenue-generating agencies, indexation to inflation of excise taxes on "sin: products, rationalization of fiscal incentives, additional PhP2 excise tax for every liter of petroleum products, review of the VAT, imposition of franchise tax on telecommunication companies, and shift to gross income taxation. Senate President Franklin M. Drilon has said there is an "emerging consensus" to pass the bills on "sin" taxes, lateral attrition and rationalization of fiscal incentives. -- Carina I. Roncesvalles

 

 

Oil firms risk losing perks

Oil giants Petron Corp., Pilipinas Shell Petroleum Corp., and Caltex Philippines Inc. will lose income tax holidays and other perks under the government's plan to rationalize investment incentives. The Trade and Finance departments, which are drafting a bill to be proposed in Congress this month, have agreed to limit investment perks to only 10 priority areas. Numerous laws require the mandatory inclusion of activities such as refining, storage, marketing and distribution of petroleum products in the annual Investment Priorities Plan (IPP), which lists the government's preferred areas of investment entitled to incentives under Executive Order No. 226 or the Omnibus Investments Code of 1987.

Under the proposed bill, however, laws such as Republic Act (RA) No. 8479 or the Downstream Oil Industry Deregulation Act would be repealed to remove mandatory inclusions which have been tagged as a source of revenue leakages. Aside from downstream oil, other sectors that have found their way into the IPP are: industrial tree plantation (Presidential Decree No. 705 or the Forestry Code); iron and steel (RA 7103 or the Iron and Steel Industry Act); publication or printing of books or textbooks (RA 8047 or the Book Publishing Industry Development Act); ecological solid waste management (RA 9003 or the Ecological Solid Waste Management Act); and activities covered under bilateral agreements. Officials have said the rationalized incentives bill would be limited strictly to 10 areas, namely: infrastructure, automobiles, electronics, information technology, medical care, tourism, food, fashion garments, mining, and jewelry.

Last year's IPP entitled oil companies to perks from the Board of Investments (BoI) for projects costing at least PhP100 million or 20% of existing investments, as mandated by the oil deregulation law. RA 8479, passed by Congress in 1998, grants a maximum five-year income tax holiday, duty-free importation of capital equipment, and other incentives to encourage oil companies to upgrade their facilities in compliance with the Clean Air Act of 1999. -- Felipe F. Salvosa II

 

 

Subic-Clark-Tarlac tollway construction to start next year

Construction of the 94.5-kilometer (km) Subic-Clark-Tarlac Expressway is slated to begin early next year after the Bases Conversion Development Authority (BCDA) and contractors finally agreed to lower the cost by PhP1.1 billion to P21 billion. In a statement yesterday, BCDA said the agreement avoided a re-bid, which would have delayed the project by another two years. "The result of the negotiations has further reduced the cost of construction by as much as PhP1.1 billion from the last negotiated cost of P22.1 billion," the press release quoted BCDA president and chief executive officer Rufo Colayco as saying. The agreement will be submitted for the BCDA board's approval on Wednesday. The BCDA will then seek the nod of the Japan Bank for International Cooperation (JBIC), Mr. Colayco said. The Japanese government is funding the tollway project through the JBIC, which will extend a 40-year loan agreement at an interest rate of 0.95%, with a 10-year grace period on principal.

BCDA officials failed to jump-start the project early this year as the lowest tendered bids exceeded the Approved Budget for Contract or ABC by as much as P6 billion, or 35%. Mr. Colayco said the notice to proceed would be issued to the winning bidders by middle of December, after provisions of the loan agreement with JBIC have been complied with. "Hopefully, once the bids are formally awarded next month, construction would begin by January next year and would be completed by 2007," he said in the statement. The winning bidders are Japanese consortia Kojima-Obayashi-JSE Engineering-Mitsubishi Steel (KOJM) Joint Venture for Package 1 (Subic to Clark) and Hazama-Taisei-Nippon Joint Venture for Package 2 (Clark to Tarlac). The country's longest tollway will link Subic Freeport, the Clark Special Economic Zone, and the Luisita Industrial Park in Tarlac, all in Central Luzon. The Subic to Clark portion will cover 50.5 km while the Clark to Tarlac portion will stretch 44 km. -- F. F. Salvosa II

 

 

Monetary Board sets new rules for granting quasi-banking nod

By IRIS CECILIA C. GONZALES, Reporter

The central bank's policy-making Monetary Board approved on Thursday new guidelines for the granting of quasi-banking licenses, which would implement provisions of the General Banking Act of 2000. Alberto V. Reyes, central bank deputy governor, said over the weekend that the Bangko Sentral ng Pilipinas will soon issue a circular that would serve as the blueprint for quasi-banks. A quasi-banking license allows a financial institution to function like a bank by accepting deposits and deposit substitutes from clients for purposes of relending or purchasing of receivables. They are required to set aside liquidity reserves. Mr. Reyes said according to the guidelines, universal and commercial banks are already given the authority to perform quasi-banking functions. On the other hand, thrift banks planning to engage in quasi-banking activities have to meet certain requirements and an approval from the Monetary Board.

For one, thrift banks have to meet the required capital of PhP650 million, a CAMELS rating of at least "3" and must have at least two independent directors. The CAMELS rating -- a rating scale used by the Federal Reserve System -- stands for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. As for investment houses, Mr. Reyes said some of these institutions can also apply for quasi-banking licenses but only if they meet certain standards. The central bank is still keeping the moratorium on granting trust licenses to investment houses but would evaluate applications for quasi-banking licenses. "There is still an ongoing moratorium. We will evaluate applications," he said. Investment houses are institutions primarily engaged in investing, reinvesting or trading securities.

In 2000, the financial regulator stopped granting trust licenses to investment houses that are not licensed for quasi-banking operations because of cash woes that hit the sector then. Mr. Reyes said investment houses seeking a quasi-banking license need to meet certain requirements, including high capitalization and enough independent directors. The central bank will soon issue a circular to implement the new guidelines. Mr. Reyes said the new guidelines will also give the central bank the authority to initiate foreclosure on problematic quasi-banks. Meanwhile, the Monetary Board has approved the designation of so-called "central points of contacts or account officers" for each financial institution it supervises. The officer is expected to know everything about the institution, including its emergency loans and problems. Mr. Reyes said for financial conglomerates, there would be one central point of contact assigned to the group. He said the move, which would prioritize "monitored banks," would help improve industry supervision.

 

 

PSBank cuts bad loans by 27%

Philippine Savings Bank (PSBank) reported a 27% drop in nonperforming loans (NPLs) for the third quarter to PhP1.19 billion from PhP1.63 billion during the previous quarter. In its published statement of condition, the country's second largest savings bank reported its bad loans comprised 4.67% of total loans as of September, down more than a percentage point from 6.64% in the second quarter. General provisions for loan losses were at PhP214.7 million while specific provisions were at PhP659.91 million. "We worked on our accounts, automated our billing and collection processes and tightened up credit parameters," PSBank president Pascual M. Garcia III said.

Saying 80% of its NPLs was secured by real estate, Mr. Garcia said the thrift bank arm of the Metrobank Group does not plan to unload its bad loans via a special purpose vehicle. "We are confident the recovery is going to be good. We are very well positioned as the NPLs are well provided for in terms of provisioning. We are very comfortable at these levels. We are not concerned on its impact to the business," he said. Buoyed by an expected growth in its consumer portfolio, the publicly listed savings bank expects its income to grow by at least 20% this year from last year's PhP403.6 million. -- Ruby Anne M. Rubio

 

 

UCPB tops trust banking survey

United Coconut Planters Bank's (UCPB) trust banking emerged with the best yield on all trusteed funds among investment managers handling less than five funds surveyed by global financial management and human resources consulting firm Watson Wyatt. Kevin Kwok, UCPB vice-president and trust officer, said the trust banking division produced a record yield of 11.06% on its managed funds in the second quarter. "The steady performance has further entrenched UCPB-trust banking's position as one of the best investment managers in the land. This was made possible by the adoption of an active "top-down, bottom-up" discipline towards funds management. This investment philosophy aims to achieve the primary objectives of maximizing returns, limiting risks and providing liquidity across all investment management mandates," Mr. Kwok said.

Based on the results released recently by Watson Wyatt, the next best yield for the period was 10.88%. In the first quarter of 2004, UCPB's trust banking group also produced a survey-best average net yield of 9.83% with the next highest yield at 9.45%. UCPB's trust banking division manages funds totaling PhP30 billion. Watson Wyatt polled 168 funds from 128 companies for its survey. -- Ruby Anne M. Rubio

 

 

Tax perks OK'd for 30-MW power project in Negros

By FELIPE F. SALVOSA II, Reporter

The Board of Investments (BoI) has approved tax incentives for a 30-megawatt wind power project in San Carlos City, Negros Occidental that will provide electricity to the Negros and Panay sub-grids. Trade Undersecretary and BoI Managing Head Elmer C. Hernandez said San Carlos Wind Power Corp., a 60-40 venture between a group of Filipino and Danish investors, qualified for perks as a pioneer activity under the Investments Priorities Plan (IPP), a listing of preferred economic activities entitled to incentives under the Omnibus Investments Code of 1987. This year's IPP grants tax perks to power generation projects using new and/or renewable energy sources such as biomass, waste-to-energy conversion, solar, wind, geothermal, hydro, and tidal. To be considered a pioneer activity, wind power projects must have a minimum investment cost of $1.25 million. San Carlos' wind farm, which will cost PhP2.897 million, will have 15 to 20 wind turbine generators with a capacity of 1.5 MW to 2 MW each, or a total rated capacity of 30 MW. The project site will comprise three peaks -- Mounts Malindog, Prosperidad, and Linubagan -- 700 to 800 meters above sea level in Barangays Linubagan and Prosperidad in San Carlos City and covering 567 hectares. Annual production is expected at 63,222 MW, with the rate expected to range between PhP3.30 to PhP5.50 per kilowatt-hour.

The project is still in the design stage as the exact location of the turbines is still being determined by a process known as micrositing. The company is also determining what types of turbines will be used and what construction process will be followed. The proposed wind turbine is an active stall type that will optimize power generation. Wind turbines harness wind speed to generate electricity by converting the force of the wind into torque or turning force acting on the rotor blades. The amount of energy that the wind transfers to the rotors depends on the density of the air, the rotor area, and the wind speed. Acquisition of the turbines is expected to cost PhP1.697 billion, documents showed. A 60-meter mast has been installed in the project site to validate and improve the accuracy of wind measurement. This will help the company finalize its production estimates.

Proponents include Filipino-owned Smith Bell Co., Inc. and Global Renewable Energy Partners, a Danish firm. Smith Bell is said to be the first to undertake an oil drilling project in the country. The company is eyeing supply contracts with the Central Negros Electric Cooperative, Victorias Electric Cooperative, Iloilo 1 Electric Cooperative, Negros Oriental 1 Electric Cooperative, and Negros Occidental Cooperative. The San Carlos wind farm project is the third wind power project to bag BoI incentives, Mr. Hernandez said. The first was PNOC Energy Development Corp.'s 40-MW Northern Luzon Wind Power Project in Burgos, Ilocos Norte which was registered in 2001. This year, perks were granted for Northwind Power Development Corp.'s 25-MW wind power project in Bangui Bay, Ilocos Norte.

 

 

Atlanta's Mirant seen to exit Chapter 11 next year

As Manila unit to proceed with expansion

By ARNOLD E. BELLEZA, City Editor

ATLANTA, Georgia -- Mirant Corp. expects to file its disclosure statement and plan of reorganization late next month, with the view of finally emerging from Chapter 11 in the first half of next year. Mirant Corp. is the parent of Mirant (Philippines) Corp., which operates the 1,218-megawatt Sual plant in Pangasinan and the 735-MW Pagbilao facility in Quezon, among others. It filed for protection from creditors in July 2003, around the time of the Enron scandal, having overextended itself in the late '90s and facing some $1 billion in debt due that year. Company officials stressed that the parent's financial troubles have no impact on its Philippine unit, which they said will proceed with expansion plans and may even bid for some government power assets up for privatization.

In a briefing for several representatives of the Philippine media, Mirant President and Chief Executive Marce Fuller said that should things proceed smoothly, the energy firm should emerge from Chapter 11 sometime in the first quarter of 2005 at the earliest to around the end of the second quarter. "We are optimistic that we will come out of this a much stronger company," Ms. Fuller said. Mirant lawyer Jay C. Wilson said the firm is scheduled to file its plan of reorganization -- which details how stakeholders will be treated -- and its disclosure statement -- which outlines the firm's current and projected finances and key details of the reorganization plan -- on Nov. 22.

The Texas court hearing the Chapter 11 case is expected to call an adequacy hearing sometime in February next year. If enough of the firm's creditors approve and upon the court's confirmation, "shortly thereafter, Mirant expects to emerge from Chapter 11," Mr. Wilson said. Creditor approval of the reorganization plan requires the support of 50% of the total number of claimants and two-thirds of the amount involved. Mr. Wilson said the firm ultimately expects to whittle this down to $10 billion-$11 billion from initial creditor claims of $240 billion. Around $6 billion is owed to creditors of Mirant Americas Generation LLC, $2 billion to creditors of Mirant Corp., and the rest to stockholders. Mirant's Chapter 11 filing involves 82 units. It does not involve Mirant Phils. but some reports have said an asset sale may be resorted to by the parent firm. All combined, Mirant has a generating capacity of around 18,000 megawatts.

Under US law, claims will be serviced in the following order: superpriority claims involving new debt incurred after Chapter 11 filing, administrative expense claims (operating and legal expenses), priority claims (taxes and some employee claims), secured claims, and unsecured claims. In this case, first priority goes to General Electric Capital Corp., which provided Mirant $500 million in financing after the latter sought protection from its creditors. Officials said most of the claims are unsecured, involving, aside from bank loans, bond debt and amounts owed suppliers. Of its power plants, only one is covered by a lien from Credit Suisse First Boston, officials stressed. Less than $300 million of the GE funding has been used so far, and given approximately $1.2 billion in total cash and cash equivalents, the firm said its funds "will be sufficient to fund daily operations during bankruptcy proceedings". Mirant is now in the valuation phase of the Chapter 11 process, having completed the stabilization phase -- filing, formation of creditor committees, and approval of new financing, etc. -- early this year. An updated five-year business plan was submitted to creditors in March under the second phase. The final, or distribution, phase involves the implementation of the plan of reorganization. A briefing paper stated the "company will seek to achieve a sustainable capital structure that will position it for long-term success."

OPERATIONS IN RP

Asked whether Mirant may give up its Philippine operations, Mr. Wilson stressed "Our reorganization is not going to impact on the Philippines," a statement made earlier by Ms. Fuller. The Mirant chief executive, who has been tapped by President Gloria Macapagal Arroyo as one of her international advisers, said her firm "remains committed to the Philippines." In particular, expansion projects involving Pagbilao and facilities in Toledo, Cebu in partnership with Metrobank will be pursued, she said. "We would like to see it [Philippine operations] grow with Metrobank or other potential partners," Ms. Fuller said. Reports that Mirant may bid for the Masinloc facility, she said, are speculative. Curtis Morgan, Mirant Corp. executive vice-president and chief operating officer, said "expansion is a higher priority" than bidding for Masinloc.

With the government having stressed that the country faces a power crisis without new investments in the energy sector, Ms. Fuller said "What the Philippines needs is additional capacity [and] we are uniquely positioned to do that." The partnership with Metrobank, which began with a joint venture in Panay, arose out of the latter's need for a partner with operational expertise and the close ties between the bank's George S.K. Ty and Mirant Phils. President Edgardo Bautista, Mr. Morgan said. The 72-megawatt plant in La Paz, Iloilo is being run under a venture with Metrobank subsidiary Global Business Holdings, Inc. The "small experiment", said Mr. Morgan, has gone well and will be expanded to whatever opportunities may arise in the Philippine power sector. A concern, however, is the financial situation of National Power Corp., Mirant Phils.' biggest customer. Another is the unilateral review of contracts, in this case deals the government made with independent power producers, which would make prospective investors "nervous", Ms. Fuller said. Asked about listing plans for the Philippine unit, Ms Fuller said "no IPO [initial public offering] this year, but [possibly in] 2005 and beyond."

 

 

Manila Water set to file papers for public offer

Ayala-owned water concessionaire Manila Water Co., Inc. is set to file an application with the Securities and Exchange Commission (SEC) for its plan to undertake an initial public offering (IPO) by the first half of 2005. A source said the company will file the application anytime next month. "They already told the SEC that they will be filing by November," the source said. Manila Water is looking at selling a 30% stake at the Philippine Stock Exchange by next year. The company aims to generate $60 million to $80 million from the listing. The proceeds, company officials said, will be used for expansion and payment of concession fees. The IPO will also serve to create liquidity for shareholders, particularly for the shares of stock held by employees under the company's employee stock option plan. The IPO would also provide the public an opportunity to be part owners of the company as well as enhance corporate transparency and governance by virtue of the reporting requirements for publicly listed companies, officials added.

Manila Water's financial advisors for the IPO -- ING Barings and Bank of the Philippine Islands, earlier cited "investment merits" in the company. Among others, the financial advisors said Manila Water has stable revenues and cash flows. The company's strong financial position makes it a good investment, they said. Manila Water has a solid shareholder base, they added. Aside from the Ayala Group, Manila Water's shareholders include UK-based United Utilities, Japan's Mitsubishi Corp. and the International Finance Corp. Company officials earlier said the firm will be ready to conduct the IPO in the first quarter of the year, but the listing itself may happen later in the first semester as the company will be "watching the financial markets." Besides Manila Water, other companies that are expected to conduct their public offering by early next year are power company Mirant Global Corp., which is a joint venture between the largest private power company Mirant Philippines Corp., and Metropolitan Bank & Trust Co.'s Global Holdings Corp.; and media company GMA Network, Inc. -- Jennee Grace U. Rubrico

 

 

Two steel firms face PhP63-M claims from gov't

The Asset Privatization Trust (APT) wants the Philippine United Foundry and Machine Corp. and Philippine Iron Manufacturing Co., Inc. to pay it PhP63 million instead of the PhP6.2 million established by a lower court and later affirmed by the Court of Appeals. In an Oct. 20 filing before the Supreme Court, APT alleged the debt of the two companies as of 1985 ballooned to PhP63 million because of the huge arrears, specific interest and penalty charges, not to mention that the refinanced loans were foreign currency denominated. According to the APT, because of labor problems, the firms sustained financial losses. In order to pay loans to First National Bank of New York and Manufacturers Bank, the two companies sought financial assistance from the Development Bank of the Philippines (DBP).

For the APT, to ask the two companies to pay the original loan amount is "not only erroneous and totally without any basis in evidence and law, but grossly unfair and highly prejudicial to the National Government." "The Court of Appeals lost sight of the fact the loans of respondents are already two-decades old as of 1985. In fact, they are already on their third decade to date," the memo said. On March 7, 1968, the DBP granted the firms a PhP2.5-million loan for their capital asset acquisition and working capital. On Nov. 7 of the same year, DBP also granted a five-year revolving guarantee loan of PhP1.7 million. These loans had a maturity period of 10 years and a 12% yearly interest. The loans were secured by various mortgage agreements which covered properties at Quezon City, Caloocan City and Cabuyao Laguna. Because the two companies repeatedly defaulted in the amortization, DBP restructured the two loans on Sept. 10, 1975. The principal balance was consolidated into one account. DBP again restructured the previously restructured accounts. In a span of two years, DBP granted three foreign currency loans. The appellate court said the loans ballooned to PhP63 million as of 1985 because DBP unilaterally increased the interest rate. -- Ma. Elisa P. Osorio

 

 

PSE deepens effort to promote stock market

The Philippine Stock Exchange (PSE) is keen on drawing more investors on board by intensifying its marketing thrusts. Building on its position as one of the best performing stock markets in the region this year with its benchmark index rising 400 points in less than a year from 1,300 in December 2003 to 1,700 recently, the PSE believes it can do more in increasing awareness of the stock market. Marita Limlingan, chairman of the PSE's investor education committee, told reporters it is their thrust "to increase investor awareness." "In the past years, we have come up with different initiatives in a big way such as the road shows. This year, we have four major marketing projects," Ms. Limlingan said. These include an online stock trading game tournament, a bull run, a thesis competition and an industry briefing. The nationwide internet-based stock trading tournament, which is on its second year, will kick off on Nov. 26 at the PSE Plaza in Ayala, Makati.

The two-month stock trading simulation tournament for business students and young stock market enthusiasts will run from November to January and will be participated in by colleges and universities in Metro Manila and various provinces. "We are targeting the youth to get into stock trading early on and make them potential stock market investors in the future. In the Philippines, only few people understand the equities market and that is what propels us to come up with activities such as the online stock trading game tournament. And I must say that this project will pay off handsomely in terms of greater stock trading awareness among the Ragnarok generation," Ms. Limlingan said. The online game will equip players with investment techniques and help them predict market behavior. Gaming transactions will be patterned after the sessions at the trading floor which start at 9 a.m. and end at 12 noon, with real-time prices as well as trading rules and regulations such as commissions, trading fees and taxes applied. -- Roulee Jane F. Calayag

 

 

Trading seen uneventful this week

By ROULEE JANE F. CALAYAG, Reporter

With everyone's attention focused on the fluctuating prices of oil, trading in the Philippine stock market is expected to be uneventful this week. A downtrend was observed last week due to the absence of news that could encourage investors to step out of the sidelines. Last week, trading values slumped to less than a billion peso in a day, dipping to a low of PhP500 million. Many factors were blamed for the sudden turn in the market's performance which was at a bullish peak a fortnight ago when trading values exceeded the PhP1-billion mark in a day.

OIL PRICES

Foremost among the factors that plagued the market was the uncertainty over world oil supply, causing pump prices to go up. Prices are expected to continue to rise in anticipation of the winter season in the United States when demand for oil increases further. Oil prices in the world market hit the $55-a-barrel level last week, fueling speculations that another round of price adjustments is in the offing. "The oil situation has not improved. The main worry is its effect in the world economy. [Price adjustments] will affect economies," said Irvin Ackerman, president of I. Ackerman and Co. But with the close of October, considered the worst month in stock markets the world over, hopes of a bull run may be revived and spark enthusiasm. "We are hoping to be bullish although it is too early to say [whether the market will lean in that direction]," he added.

CONCERNS

He shrugged off pronouncements that the Philippine market will remain shrouded in inactivity due to negative developments in the economic, corporate and even government fronts, particularly controversies hounding the military. Last Thursday, the Philippine Stock Exchange composite index shed 18.33 points. Punters quickly attributed the market's drop to a three-week low to talk of a destabilization plot. The members of the Armed Forces of the Philippines (AFP) reportedly feel that lawmakers are slow in acting on the case of AFP comptroller Carlos Garcia, who allegedly amassed unexplained wealth during his term. While the issue of stability in the military affects market's direction, Mr. Ackerman said it was something that has become a common matter in the country. "Filipinos are used to this [coup plot]. It has become like a game. Nothing has happened. It was only a rumor," said Mr. Ackerman. The need for decisiveness in trading has become more pressing than ever in the face of such developments.

Investors must "decide [what] to do", said Jose Vistan, Jr., research director of AB Capital Securities, Inc. in an interview last week. Mr. Vistan had said that the market was at an oversold level after it was "flat for a while." "If it [the market] bounces back, it will purely be technical and not a reversal [of status]," added Mr. Vistan. The bias for the short term, he explained, was negative especially as it tracked the movement of the Dow Jones International Average which lost almost 100 points in a session. "It [the Dow] was zigzagging downward," said Mr. Vistan.

JOLLIBEE, PLDT

Other factors that affected trading include lower-than-expected profit growth from Jollibee Foods Corp., the country's leading fastfood chain and the declines in the closing price of telecommunications giant Philippine Long Distance Telephone Co. (PLDT). Jollibee failed to replicate its double-digit growth in the first half of the year, posting only a 6% increase to its PhP31- million net income for the third quarter. It said rising costs of raw materials had made the situation difficult in August and September. Modest adjustments in the prices of its products were not enough to offset the difference. Investors took this as a cue that most of the third-quarter results would not be at par, as the effects of the oil price increases on the economy catch up with the operational costs of listed firms. Another dampener was PLDT's decline to PhP1,325 from PhP1,500. Its American Depositary Receipts (ADRs) in New York were down for most of the sessions last week. Some analysts said this had influenced the performance of PLDT in the local bourse.

Metro Pacific Corp., a sister company of PLDT, had its share of corporate battles last week as a group of brokers accused the issuer of insider trading and stock price manipulation. The complainants said Metro Pacific did not disclose its plans properly and it was unethical to take advantage of the market's positive response to the company's plans touted by its chairman, Manuel V. Pangilinan, in recent months. This caused the stock exchange to conduct an investigation, which it promised to be "broad-based," to assure investors that there would be no repeat of the BW Resources fiasco that almost spelled death for the equities market. "The general market is not happy," said Mr. Ackerman. But he is keeping an optimistic outlook for the market for the last quarter of the year. "Many few good things will happen, maybe not this week, but these will come. The market is not as weak as many believe it to be," he said.