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.
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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.
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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
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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. Maņalac
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. Maņalac 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
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PCIJ Report
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.
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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
Malacaņang'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.
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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.
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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
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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
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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
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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
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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.
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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
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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
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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
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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."
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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.
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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.
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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
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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
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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
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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.
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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.
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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.
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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
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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.
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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 Taņada 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. Taņada, 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."
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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.
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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."
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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
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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
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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
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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.
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