Friday, September 17, 2004
House bill to require asset statement of all taxpayers
Eight-month payments deficit hits $222M
GSIS head warns of company's collapse
US businessmen tell Palace: reform or lose investors
Unpopular or not, Palace will push for fresh taxes
IMF urges changes to RP data standards
Central bank chief to lead US roadshow after long break
Finance defends $1B borrowing for Napocor
Korean firm finalizes Orion Bank takeover
American Express launches credit card
Security Bank's new IT system 'goes live'
Phisix finishes lower for third day

Thursday, September 16, 2004
Three Aboitiz units' execs in tax credit scam
Napocor to need $16B yearly
Unemployment falls to 11.7% in July
Stocks draw interest despite 'crisis' declaration
New computation to cut debt tallies significantly
Gov't debt payments expected to rise
Tax measures to boost growth in the long run
House bullish on lateral attrition bill
Innovation key to RP's software dream
Banana sector optimistic over Aussie findings
AMLC monitoring 62 laundering cases
Montinola to head BPI next year
Bank lending up 3.6% in July
MRT3 consortium loses exclusive right to bid for rail extension work
UCPB, Sta. Lucia Realty and private landowner tie up on residential project
ICT Group opens PhP250-M call center in Ortigas
4 electric utilities meted penalties by ERC
BSP won't stand in way of National Steel deal
Bourse suspends trading of House of Investments
Senate probe sought on terms of Masinloc power plant sale
Stocks down on more profit-taking

14 - 15
September 7 - 9
September 1 - 3





House bill to require asset statement of all taxpayers

A bill requiring the annual submission of statements of assets, liabilities and networth (SALN) by all taxpayers beginning next year has been filed at the House of Representatives. House Bill No. 2895 filed by Cavite Rep. Jesus Crispin C. Remulla, a member of the House committee on ways and means, is expected to help expand the country's tax base once it is passed into law. The Remulla bill is an offshoot of House deliberations on a tax amnesty bill, which was recently approved by the House committee on ways and means. That bill will require the submission of SALN by taxpayers who intend to avail themselves the benefits of amnesty. The Department of Finance had favored the mandatory submission of the SALN by all taxpayers, regardless of whether they would avail themselves of amnesty. However, during hearings on the tax amnesty bill, ways and means committee members countered the Finance department's position, noting that the provision on the mandatory submission of SALN by all taxpayers would be questioned by legislators when the amnesty bill is presented to them for approval.

Not wanting to delay the passage of the tax amnesty bill, yet acknowledging the importance of building a taxpayer database, committee members decided to put out a separate bill that would require the annual mandatory submission of SALN by all taxpayers. Lawmakers want the Malacaņan presidential palace to certify the new bill as equally urgent. But even without Palace backing, Tarlac Rep. Jesli A. Lapus, chairman of the House committee on ways and means, said House Bill No. 2895 would also be passed within the year.

Under this bill, taxpayers earning an annual gross income of more than PhP200,000 or owning real and or personal properties with an acquisition cost of at least PhP500,000 will be required to file their SALN as of December 31, 2004 at revenue district offices of the Bureau of Internal Revenue (BIR). They will file their first SALN on or before April 15, 2005, and on or before the same date in succeeding years. The SALN, as proposed by House Bill No. 2895, will contain a declaration of:

  • all assets within or outside the Philippines, whether real or personal, whether used in trade or business;
  • all existing liabilities, which are legitimate and enforceable; and
  • net worth, which is the difference between total assets and total liabilities.

The declaration in the SALN will be kept confidential by the BIR and will be utilized in the Information Management Program that will be established to handle the declared financial information. House Bill No. 2895 proposes the following penalties for non-compliance with its provisions:

  • fine of PhP50,000 and imprisonment of one to six years for taxpayers who fail to file their SALN;
  • penalties of perjury for taxpayers who underdeclare their networth by 30%;
  • penalties of fraud for taxpayers who fail to declare properties equivalent to 30% of total value of their assets;
  • fine of PhP50,000 and imprisonment of one to six years for divulgence of the information in the SALN.

If employees and officials of the BIR or any government office divulge the information in the SALN, they will be permanently disqualified from holding public office, voting and participating in any election, on top of the fine and prison term. -- Judy T. Gulane



Eight-month payments deficit hits $222M

The country spent $222 million more than it earned in foreign currency in eight months to August as it made big payments on its outstanding debts abroad. But this was a big improvement from the same period last year, when the balance of payments deficit hit $646 million. The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) also reported yesterday that the payments deficit for August alone totaled $127 million, which added to the $95-million deficit as of July. BSP attributed the August deficit to large foreign exchange outflows, as the national government and the Bangko Sentral itself made debt payments abroad. "There is no breakdown yet, but indications show a shortfall due to debt service payments," BSP Deputy Governor Amando M. Tetangco, Jr. said in a press release. "We had more outflows on account of debt service payments despite the inflows from the reopening of the government's $425 million global bond issuance in July," another BSP official said.

The balance of payments or BOP is the record of the country's foreign exchange transactions with the rest of the world. Closely watched by investors, the BOP indicates the country's ability to settle particularly its foreign obligations. Its major components are the current account, which shows movements in international trade (import spending and export earnings), and the capital and financial account, which shows the flow of investments and borrowings.

The country started with BOP deficits for January to February, but reversed these to surpluses from March to May through dollar inflows from foreign borrowings. The country incurred a BOP deficit anew in June as foreign exchange outflows again exceeded inflows. Any transaction where a Philippine resident makes a payment, like importation or offshore investment, is a deficit item. On the other hand, any transaction involving receiving payments, like exports or inward remittance and investment, is a surplus item. BSP expects next year's BOP to end at a surplus of $500 million, a marked improvement from the projected $505-million deficit for this year. Mr. Tetangco said an improvement in the global economy could lead to better export earnings and more foreign investments in 2005. -- I. C. C. Gonzales



GSIS head warns of company's collapse

The Government Service Insurance Corporation (GSIS) yesterday warned of its possible financial collapse unless all government agencies faithfully and completely remit premium payments owed to it. GSIS president and general manager Winston F. Garcia said nearly all government agencies still owed his agency around PhP40 billion, covering their share in the social insurance premiums of government workers. Government offices including the Department of Education refuse to pay what they owe, with some back premiums as old as five years. "The fund cannot be sustained. It will go down," Mr. Garcia told reporters in a briefing. He declined to list the government agencies concerned, but conceded that their tight budget could have caused their failure to settle their premium obligations. Mr. Garcia also warned GSIS members that unless all obligations were settled, the state pension fund would continue with its premium-based policy, which balances members' premium payments with their claims.

Under this policy, GSIS will pay a member's pension only for the period equivalent to the amount remitted as premium payments. Mr. Garcia said this policy, adopted last year, has helped cushion the impact of GSIS' fund shortfall. Aside from this, GSIS will also diversify its investments, which can include paintings, government securities, and long-term loans. "If there are more paintings, we will invest in these because there are alternative investments," he said. GSIS previously bought a Juan Luna painting in an auction in Hong Kong, a move that stirred controversy among GSIS employees and members on the back of the government's fragile fiscal position. Mr. Garcia, however, said national treasures such as old paintings were worthy investments since their value appreciate. He also cited as a business decision the recent move of GSIS to transfer its money from Land Bank of the Philippines to Aboitiz-led Union Bank of the Philippines.

BusinessWorld earlier reported that GSIS pulled out some PhP7 billion to PhP8 billion in deposits from Land Bank to transfer part of it to Union Bank. GSIS transferred PhP1 billion after Union Bank won the bid to service GSIS' automated card, which would serve as a disbursement card for members.

Mr. Garcia said GSIS would pull out its remaining money from Landbank by the end of the month, to invest it in government securities instead. GSIS transferred the money after Landbank required a maintaining balance of PhP8 billion. GSIS said its earnings from investments reached PhP12.56 billion as of July 31. GSIS expects to raise PhP62.33 billion in revenues this year, up slightly from its revenues of PhP60.02 billion last year. GSIS data showed its gross revenues totaled PhP51.56 billion in 2001. This increased to PhP60.25 billion in 2002, but slightly dipped to PhP60.02 billion in 2003. As of end-July, GSIS' net income was PhP18.9 billion. "We have been implementing our own austerity measures even before the current fiscal crisis surfaced," Mr. Garcia said. -- Iris Cecilia C. Gonzales



US businessmen tell Palace: reform or lose investors

American businessmen are concerned over the Arroyo administration's ability to implement its reform package, warning that the Philippines will continue to lose out to neighbors in the Association of Southeast Asian Nations (ASEAN) unless "important issues" such as the ballooning budget deficit, rising power rates, as well as graft and corruption are addressed. Officials of the United States-ASEAN Business Council also said "it's back to business" in the Philippines, while acknowledging that the spat over the pullout of Filipino troops from Iraq had ruffled some feathers.

Ernest Z. Bower, head of the business council, noted that the government has prepared a program to address a number of issues raised in the past, and appeared to be making progress in some areas. "We find that President Arroyo not only has a plan, she [and] her team understand the issues and we have seen progress in some of the issues that we have raised in the past with her. That makes us believe as practitioners that this is a good team with a good plan, and progress is being made," he told reporters.

Mr. Bower led a 43-man delegation of senior US executives to the Malacaņan presidential palace on Wednesday and has met with key administration officials and congressional leaders. He said the government should deliver on commitments to implement tax reform measures, strengthen anti-corruption mechanisms, and "take care of the energy problem." The Arroyo administration is aiming to balance the budget by the end of the President's six-year term through eight tax measures projected to generate PhP80 billion in additional revenues annually. "Unless those issues are addressed, I think the Philippines would really slip back in its competitiveness within ASEAN and within Asia at a time when [it] could least afford to do so because the growth is back on and the focus is coming back to Asia," Mr. Bower said.

The US-ASEAN Business Council president also said Manila must strive to strike a free trade agreement (FTA) with Washington if it wanted more investments. Singapore is the first among ASEAN members to seal an FTA with the US, and Thailand is close to signing one. "I think Malaysia could beat [the Philippines] to the door [in securing an FTA with the US]," he said. Mr. Bower, however, said that the business council would continue to lobby for an RP-US FTA among US trade officials. The US government, though, appears to have "slowed down" in talks following the Iraq pullout, he said. Nonetheless, relations between the two countries remain cordial, said Philippine Ambassador to the US Albert del Rosario, who accompanied the business delegation.

Manila's decision to withdraw a humanitarian contingent from Iraq to prevent the beheading of Filipino truck driver Angelo dela Cruz has "no relationship at all" with efforts to begin negotiations for an RP-US FTA, he said. "We had a principled disagreement with the US. Friends and allies can disagree but moving forward we can see the alliances growing stronger," Mr. Del Rosario said. Mr. Bower added, "That's very reassuring to business people. We don't want to see relationships downgraded due to misunderstandings." US senior executives made a number of recommendations to Malacaņang, including:

  • accelerated reduction of the approval process for build-operate-transfer projects to within six months to one year;
  • creation of an Information and Communications Technology department and completion of an online procurement system for all government agencies;
  • effective implementation of the Optical Media Act to combat pirated CDs and DVDs;
  • continuation of deregulation in the power sector;
  • early implementation of "open skies" in the airline industry;
  • improvements in customs standards and port security systems as well as the repeal of the new customs brokers law for being "improper and unconstitutional";
  • action against continued importation of used cars; and
  • changes in the excise tax scheme on cigarettes.

The delegation was also concerned with the significant decline of Philippines exports to the US in the last four years, which could worsen with the abolition of garments quotas by the end of the year as well as the implementation of new security and biosafety regulations. The mission included officials of Boeing Company, Citigroup, FedEx, UPS, Ford Motor Company, General Motors, Microsoft, Oracle Corp., Unisys Corp., PriceWaterhouseCoopers, Time Warner Inc., and Tyco Integrated Systems. -- Felipe F. Salvosa II



Unpopular or not, Palace will push for fresh taxes

The Arroyo administration will continue to push for the congressional approval of eight priority tax bills despite a survey showing popular opposition to the new levies, Malacaņang said yesterday. Press Secretary Ignacio R. Bunye expressed confidence that the more people recognize the country's financial problem, the more they would be willing to support the Palace-backed tax proposals in order to avert a full-blown crisis later. "We understand the resistance of many of our people to new taxes in the midst of current difficulties," Mr. Bunye said in his regular briefing. "We are confident that as time passes, more and more people will recognize the gravity of the situation and the need for greater sacrifice," he added.

The Palace made the statement in reaction to the nationwide survey of research group Pulse Asia, which showed that as much as 78% of Filipinos "see no need to impose new taxes" and that the government should instead improve tax collection to boost revenues. But Malacaņang chose to be optimistic and said: "We also welcome the results of the same survey which says that 30% of the respondents are willing to agree on additional taxes if it will be for the improvement of government services."

In her State of the Nation Address (SONA) last July, the President asked Congress to approve a comprehensive set of eight tax bills aimed at raising PhP80 billion in new revenues and PhP20 billion in government savings. The new taxes 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; an attrition system for government agencies; imposition of franchise tax on telecommunication firms, and rationalization of fiscal incentives. The President's spokesman stressed that the government was making sacrifices as well and that "more sacrifice shall be demanded from those who can afford it." Mr. Bunye said the executive was still working with Congress on the tax program and that "we are confident it is in the best interest of the average Filipino in the long term." -- Jeffrey O. Valisno



IMF urges changes to RP data standards

The Philippines needs to step up efforts to improve the compilation of its macroeconomic statistics, make it more transparent and bring it in line with international best practices, an International Monetary Fund (IMF) study recommended. The IMF's August 25 Report on the Observance of Standards and Codes focused on the country's data quality for national accounts, consumer prices, balance of payments, government finance and monetary statistics. One proposal is an amendment to the bank secrecy law, which the IMF study said would give government statisticians access to other data available only through banks.

Overall, the study recommended the strengthening of coordination among government agencies to facilitate proper data collection. The government, it said, must ensure that agencies and units compiling macroeconomic statistics have adequate computer resources, staff, and training. Any changes in methodology should also be revealed in advance to allow the public to adjust to the new system.

On computing the consumer price index (CPI), the study said concerned agencies must closely monitor consumer markets to identify possible sources of problems in the measurement of the CPI. Agencies must prepare a plan to incorporate the treatment of quality change in CPI calculation. On fiscal data, the study said the government must grant a Department of Finance entity the authority to coordinate data collection in accordance with international statistical guidelines. The government should also disseminate timely quarterly data and improve the methodology for estimating value added and taxes at constant prices. On the balance of payments (BOP), the study recommended organizational changes in concerned agencies . It also noted the need to determine the value of dollar remittances are channeled outside banks. "Recommendations on the BOP, the national accounts, and the fiscal statistic should be addressed with particular urgency," the study said. -- I. C. C. Gonzales



Central bank chief to lead US roadshow after long break


Bangko Sentral ng Pilipinas Governor Rafael B. Buenaventura will soon get back to work and lead the US leg of the government's international roadshow next week. Mr. Buenaventura, who is in the United States for a medical check-up, is expected to make a sales pitch for the Philippine economy and present the government's economic program for the next six years. The government will hold a "no-deal" roadshow on Sept. 20 in Europe, US and Asia hoping to assure investors and fund managers that the government is committed to address its fiscal problems. The roadshow intends to drive up investor confidence in the country. Mr. Buenaventura said he would be meeting with Filipino-American businessmen to invite them to invest in the country. "I am joining the roadshow and giving a speech before the Philippine American Chamber of Commerce as well as the US-Asean meeting in New York," he said in an e-mail message.

The central bank chief said he is doing well and eager to face investors, a statement that would douse cold water on speculations that he is in the US for cancer treatment. He is scheduled to be in New York from September 27-30 and in Washington from October 4-7. On October 2-3, he will represent the Philippines in the annual meeting of the Washington-based International Monetary Fund (IMF) and the World Bank. Mr. Buenaventura left last month for the US and is expected to be back in the Philippines on October 12. Aside from the Bangko Sentral chief, other economic managers and key officials will join the roadshow. They include Finance Secretary Juanita D. Amatong, Trade and Industry Secretary Cesar V. Purisima, and central bank Assistant Governor Nestor A. Espenilla, Jr.

The central bank's Investor Relations Office, which will spearhead the project, said the roadshow will target fund managers, portfolio investors and businessmen. Corazon Guidote, who heads the office, said foreign investors are eager to know the government's fiscal program and the specific measures it will take to address the swelling budget deficit. The government team will explain to investors that President Gloria Macapagal Arroyo's fiscal program includes a set of tax measures, expected to raise PhP83 billion yearly. The Department of Finance, which recently raised $1 billion in new bond issuances, has not ruled out additional foreign borrowings for the year and thus, may again tap the debt market after the roadshow.



Finance defends $1B borrowing for Napocor

By KAREN L. LEMA, Reporter

The Department of Finance yesterday defended the timing of the latest $1-million bond it has offered in behalf of the National Power Corp. (Napocor). Finance Undersecretary Nieves L. Osorio told a senate hearing yesterday that the government had to immediately raise funds for Napocor so that it could pay off obligations due this month. Ms. Osorio added that the additional income the Napocor would generate as a result of the Energy Regulatory Commission's (ERC) decision to grant its request for a rate increase would be insufficient to pay those obligations. "While it is true that the ERC approved its request for tariff increase, the inflow of that would not happen immediately. Now we have obligations for September which is more than what would be generated from that," Ms. Osorio explained.

As early as August, Napocor -- in a memorandum submitted to the Finance department -- sounded off its need for additional funds to be able to settle payables to independent power producers, Finance Undersecretary Eric O. Recto told reporters yesterday. Of the $1-billion bond proceeds, Mr. Recto earlier explained that $750 will be lent to the cash-strapped power utility thereby completing its 2004 financing requirements while the rest will be used to fund the national government's budget requirements next year.

The Philippines on Sept. 9 sold $300 million worth of bonds due in 2015 at 8.875%, and $700 million worth of bonds maturing in 2025 at 10.625%. The government set a price guidance of 98 for the 2015 bonds and 106 for the 2025 series. "We wanted to make sure that we did not have too much competition when we were doing the issue," Mr. Recto said in defense of the timing of the bond offering. Had the government issued the bonds at a later time, it would have to compete with Turkey, Brazil, China, Korea, Malaysia, and Indonesia, Mr. Recto said. "When credit is under pressure, the ability to borrow long term diminishes extensively. Here we are able to keep the yield curve intact at current levels and we are still able to borrow twenty plus year money," the Finance official said.



Korean firm finalizes Orion Bank takeover

Tong Yang Investment Bank of Korea, one of the biggest business conglomerates in South Korea, has finalized its takeover of Orion Savings Bank. Tong Yang president Sang Yil Chun recently flew to Manila for the signing ceremony last Sept. 15 Opened in November 1997, Orion Bank is a product of the synergy between the Tong Yang Group of Korea, which has interests in financial services, information technology, cement manufacturing and construction, and Harigold Assets Inc., a holding company that has several business interests in the Philippines. It was reported last month that the policy-making Monetary Board has approved the plan of Tong Yang Group to take full control of Orion Bank where it previously held a 60% stake.

With an authorized capital of PhP1.2 billion and paid-up capital of PhP350-million, Orion Bank is focused on retail banking particularly salary loans and other consumer lending. It wants to establish a foothold in the growing Korean community in the Philippines.

In an earlier interview, Orion Bank president Young T. Kim said the thrift bank aims to improve its earnings performance in preparation for listing at the Philippine Stock Exchange in three years. "The Filipino shareholders asked Tong Yang to purchase their shares. We need to improve the earnings and to pay dividends. So far, our business target is not big enough to produce adequate level of earnings. We need to fix our business," Mr. Kim told BusinessWorld. The largest merchant bank in Korea, Tong Yang Investment Bank's asset base is estimated to be PhP227 billion (4.6 trillion won) with stockholders' equity of PhP22 billion (455 billion won). A significant trade partner of the country, Korea has been an important source of investment, trade and development assistance aside from an important source of tourists for the Philippines with a monthly average of 10,000 visitor arrivals.



American Express launches credit card

The local savings bank of US-based American Express Bank is vying for leadership in the credit card business by offering a peso-denominated credit card. American Express Bank Philippines, Inc. (A Savings Bank), Inc. president and chairman Ian T. Fish said yesterday the American Express Peso Platinum credit card complements the bank's existing portfolio of premium US dollar-denominated American Express card. "American Express pioneered the world's first platinum card in 1984 in the United States. Over the years, the product is often referred to as the "ultimate plastic" because of its exclusive and valuable benefits," he said in a press briefing. "With the launch of the American Express Peso Platinum credit card, we are bringing the best rewards program and privileged recognition for cardmembers. We are confident that we bring the market unparalleled service and prestige. Our long-term commitment to the market is clearly reflected in the sophisticated infrastructure credit card for the new card."

Patty Pronove Henson, marketing head for card products, said the bank's latest product offering "brings the world's best to the Philippines by providing world-class customer service, the best rewards program, access to local and international experiences and privileged recognition to cardmembers." "It is true that we have a portfolio of dollar-denominated cards but Amex Peso Platinum credit card addresses a different need. We want this to be the card preferred for spending in the Philippines and abroad. For our members whose finances are more in pesos, this is a very important facility for them," she told reporters. David Cronin, regional head of marketing and business development, said the high-end segment of the market is "under served" by the current credit card business. -- R. A. M. Rubio



Security Bank's new IT system 'goes live'

Security Bank Corp. has "gone live" after the first-phase implementation of an IT-based solution called SmartVista Suite that provides single and combined platforms to process local and international credit and debit cards. "The solution enables Security Bank ATM cardholders to use their ATMs further than just for the common ATM functionalities. SmartVista will eventually transform their ATMs into complete financial machines for the bank's ATM and credit card products," said Daniel Yu, Security Bank first vice-president and head of IT group, in a statement. The first phase of Security Bank's in-house processing center was the installation of the SmartVista transaction switching system (SmartVista Front-End), which enabled the bank to use the SmartVista software to drive its expanding network of ATMs and Internet merchants, and support mobile banking.

Following the certification of SmartVista solution with ATM network consortium Bancnet's payment scheme, business solutions provider Banking Production Center (BPC) migrated the ATM cards into the new system. This is seen to boost efficiency by consolidating its transactions from multiple channels and payment networks through a single system. Subsequent phases of the SmartVista implementation for Security Bank include: integration of credit and debit cash switch and management functionality, unifying the bank's acquiring and issuing functionality and providing full acquiring and issuing of MasterCard and Diners Club card products, including M/Chip cards.

By bringing down the cost of card operation through fewer running platforms, and tedious maintenance and upgrades, SmartVista aims to provide higher profitability for the bank and better service for clients. Alexey Domidov, BPC International chief operating officer, said the relationship with Security Bank "represents a significant entry into Asia-Pacific financial services marketplace and has opened existing opportunities for us in the region." "In today's complex banking environment, Security Bank's requirements for the card processing and management systems that are able to address both traditional and emerging forms of financial services are essential. SmartVista solution is designed to integrate the bank's diverse processing architecture into a single platform, while providing flexibility and potential to add emerging technologies like EMV [Europay-MasterCard-Visa]-compliant cards," he said. The EMV system uses chip-based technology for cards to ensure safe electronic payments. -- Ruby Anne M. Rubio



Phisix finishes lower for third day


The stock market yesterday eased into negative territory and entered into a third session of "healthy corrections," following nine days of heavy gains, traders said. "There was continued profit-taking on blue chips," said Astro del Castillo, managing director of First Grade Holdings, Inc. Despite bargain hunters' moves toward second-line stocks, Mr. del Castillo said a healthy correction was experienced in yesterday's session. MDR Securities, Inc. analyst Benson Te shared the same view. "Profit-taking activities continue to hound the market and were mostly concentrated on the blue chips as the Phisix [the Philippine Stock Exchange composite index] closed 14.22 points or 0.83% lower on moderate volume of PhP647.70 million or $11.54 million," said Mr. Te. Although the drop in the benchmark index was greater yesterday, dealers said this was normal especially as the market tries to cool down.


Mining was the only index that remained in positive territory. MDR's Mr. Te said the mining index, up 57.33 at 1,833.80, was buoyed by trades in Manila Mining "A" shares, which were up 14.28% and "B" shares that rose 5.88%. Banks and financial services slid 0.42 to 484.98. Commercial-industrial lost 27.88 at 2,696.21. Property dropped 3.19 to 569.95. Oil was unchanged at 1.61. The all shares index dipped 6.76 to 1,065.93. Of the 124 traded issues, decliners gained slight headway over advancers at 38-35. Unchanged issues had the highest number at 51. Trades improved slightly at 2,904 for 2.63 million shares priced at PhP647.70 million. Mr. Te said foreign selling dictated the performance of the market yesterday with the domestic market registering PhP97.13 million ($1.73 million) worth of outflows that represents about 15% of the day's cumulative turnover.

 Philippine Long Distance Telephone Co. (PLDT), the country's telecommunications leader, led the decline in share prices. "[The outflows] were centered mostly on heavy caps PLDT, down 1.45% and San Miguel Corp. B, down 2.14% and also in second-tier Phisix component issues," said Mr. Te.


In other corporate news, Aboitiz Equity Ventures (AEV) told BusinessWorld on Wednesday that its subsidiaries which were named in a tax scandal are not guilty of the charges. Jojoff Escobal, AEV vice-president for corporate communications, said the Aboitiz companies "legitimately purchase and apply tax credits on a regular basis in the normal course of business, and only after the transactions have been approved by the proper authorities." The graft charges that will be filed against three of AEV's subsidiaries stemmed from the alleged illegal sale and transfer of tax credit certificates of Uniden Philippines to Pilmico Foods, Pilmico-Mauri Foods Corp., and Visayan Electric Co. The National Bureau of Investigation forwarded the recommendations for legal action against the concerned individuals to the Department of Finance.

Meanwhile, listed firm Republic Glass Holdings Corp. declared a cash dividend of PhP0.15 per share. The record and payment dates have yet to be announced. Jolliville Holdings Corp. told the stock exchange that it filed a case against the Philippine British Assurance Co., Inc. at the Makati Regional Trial Court. Jolliville said the complaint is for the collection of claims which the insurance company reportedly denied. Aside from the insurance claims, the firm also wants to collect exemplary damages and attorney's fees totalling PhP37.86 million. As the market draws to a close for the week, analysts see the support level at 1,680. "That [level] will be good," noted First Grade's Mr. del Castillo, adding that the market is poised for greater gains in the next few days.


"We are likely to see a stronger market in the coming days after the OPEC [Organization of Petroleum Exporting Countries] moved to increase oil production," he said. Increased production is seen to ease the pressure on oil prices. "Lower crude oil prices will benefit the local economy as it removes the uncertainty," he added. Mr. del Castillo noted that selling at the stock market began to taper off although some bargain hunters continued to gobble up second-liners and other issues.


As the Chinese ghost month winds down, the retail market is expected to perk up and shift to a new level. Measures aimed at ensuring higher tax collections may also bode well for the market as it is poised to breach the current resistance level. "The market will only react to the tax measures when they are already implemented but now we see that it is becoming receptive to fiscal measures," concluded Mr. del Castillo. MDR's Mr. Te was equally upbeat as he sees a revival of broad market activities in the coming sessions. "The Phisix could still founder over the interim with corrections from the major protagonists or see them move sideways although the thrust of the activities will center on the second- and third-liners," he said. The other scenario, he said, would be a resumption of buying activities in both the blue chips and the second liners.



Three Aboitiz units' execs in tax credit scam

By KAREN L. LEMA, Reporter
and CECILLE S. VISTO, Sub-Editor

The National Bureau of Investigation (NBI) has recommended to the Department of Finance (DoF) the filing of graft charges against stockholders, directors and officers of three subsidiaries of the Aboitiz Group of Companies, who allegedly connived with tax officials to illegally secure and use PhP42.5 million worth of fraudulent tax credit certificates last year.

In its recommendation to DoF, the NBI identified the would-be respondents as:

  • comptroller Eugene O. Gozon, chief finance officer Stephen A. Tan, and marketing consultant Licerio L. Cabahug -- all of Pilmico Foods Corporation;
  • Visayan Electric Company, Inc. (VECO) financial assistant Nelson V. Perez and chief economic analyst Zoilo M. Cortez;
  • Alvin Arco, finance officer of Davao Light & Power Corp., was also on the list, although the electricity distributor was not among those that allegedly obtained and used fake tax credit certificates;
  • NBI also recommended charges against officials of the Bureau of Internal Revenue (BIR): lawyer Lirio A. Cabsaba, Carolina P. Pineda, Ma. Angeline L. Gatchalian, Rosita P. Fernandez, Ernesto Q. Hiansen, Grace Flaminiano, Melda Ribas, and Ma. Emelita Tizon;
  • NBI Director Reynaldo G. Wycoco also sought the prosecution of May B. Reyes, lawyer Ernesto S. Araneta, Fidel R. Najera, and Roberto A. Varquez for alleged violation of Republic Act 3019 or the Anti-Graft and Corrupt Practices Act.

The criminal charges stemmed from the allegedly illegal sale and transfer of tax credit certificates of Uniden Philippines to Pilmico Foods, Pilmico-Mauri Foods Corp., and VECO. NBI said the transfer in 2003 was made through the use of allegedly spurious documents. VECO is the country's second largest power distribution utility after Lopez-led Manila Electric Company. Pilmico Foods is also among the biggest local flour milling corporations, while its unit, Pilmico-Mauri, is a processor of specialty baking products. The Aboitiz units used the tax credits between April 10 and May 23 last year to trim their tax liabilities. "The recommendation would be evaluated by the Special Presidential Task Force 156, which is investigating the multi-billion tax credit scam," NBI-Anti-Organized Crime Division chief Jose Justo S. Yap told BusinessWorld.

Uniden, the tax certificates' seller, was not recommended for prosecution. Uniden closed its manufacturing plant in Taguig, southern Metropolitan Maninla in 1999 due to a plunge in market demand for its analog products, but it continues to produce cordless telephones in its Cabuyao, Laguna facility just south of Metro Manila. If the charges are approved, Misses Pineda and Reyes, as well as Messrs. Araneta and Najera will also face nine counts of falsification for "forging and using a total of nine documents to support the fraudulent transfer of the purported [tax credit certificates] of Uniden." The forgeries led to the issuance by DoF and BIR of new tax certificates in favor of Pilmico, Pilmico-Mauri, and VECO. Ms. Pineda will also be prosecuted for usurpation of authority, for signing and approving the transfer of three fake certificates that led to the issuance of five new credit certificates to the three Aboitiz subsidiaries, without Mr. Cabsaba's approval.


Jojoff Escobal, Aboitiz Equity Ventures (AEV) vice-president for corporate communications, said the Aboitiz units, along with numerous other corporations, "legitimately purchase and apply tax credits on a regular basis in the normal course of business, and only after the transactions have been approved by the proper authorities." "Unfortunately, it seems that some of the tax credit certificates purchased by these companies are being questioned. Pilmico, Pilmico-Mauri and Visayan Electric Company are confident that their use of these particular tax certificates will ultimately be proven correct and legal," he told BusinessWorld. AEV is the holding and investment management company of the Aboitiz Group. It is engaged in various businesses, with power and banking as core. It was the first time that units of a publicly listed company were ever implicated in a tax credit scandal. In the past, oil companies Petron Corp. and Pilipinas Shell and a number of garments firms were reported to have been involved in the anomaly. Mr. Escobal said the Omnibus Investments Code, through the Board of Investments (BoI), provided for tax incentives for qualified investors. Some investors, however, have unused tax credits, which can pay for value added tax and import duties. "The BoI, in conjunction with the Department of Finance and the Bureau of Internal Revenue, created a market for the legitimate buying and selling of tax credits," Mr. Escobal said, stressing that the Aboitiz Group did not do anything illegal.

The tax credit scandal involved the issuance of some PhP5.3 billion in fraudulent tax credits to oil companies in connivance with top finance officials. But officials are now under fire for allegedly "bungling" the court cases against companies involved. Publicly listed Aboitiz Equity Ventures posted a net income of PhP1.23 billion in the first half, 4% higher year on year on better performance of its transport and food units. Aside from Veco, Davao Light, Pilmico and Pilmico-Mauri, the Aboitizes also own Union Bank of the Philippines and City Savings Bank. Aboitiz Transport System Corp., formerly WG&A, is also controlled by the Aboitiz family.



Napocor to need $16B yearly

If the government fails to sell state-run National Power Corporation (Napocor) to private investors soon, then it will have to borrow at least $16 billion annually for three years just to keep the power company afloat. Documents submitted to the Senate energy committee, which has been holding hearings on Napocor's finances, also showed that the power firm's borrowings for this year would total $10.78 billion. But this could balloon to $16 billion every year from 2005 to 2007 if Napocor would not raise its prices, sell its assets, or pass off its debts to the government. Napocor's operating loss for this year already totals PhP36 billion, compared to PhP5.35 billion a year ago. The documents showed the losses were due to the 40-centavo per kilowatt-hour cap on purchased power cost adjustment, which resulted in under-recoveries of PhP4.18 billion from January to June.

Other factors blamed were unrecovered natural gas fuel expenses of about PhP8.15 billion, and PhP18 billion in contracts with independent power producers still pending approval by the Energy Regulatory Commission (ERC). Another factor was the mandatory rate reduction of 30-centavos per kilowatthour for household consumers under Republic Act 9136 or the Electric Power Industry Reform Act of 2001, which resulted in a deficit of PhP1.71 billion; subsidies for missionary electrification that led to a PhP1.74-billion loss; and eligible stranded contract costs and interest expense which led to losses of PhP4.62 billion and PhP14.69 billion, respectively. The government said it aimed to raise $4 billion to $5 billion from the sale of Napocor's power plants and transmission facilities by end-2005. To date, the government has sold three mini-hydro power plants. It will auction the 600-megawatt Masinloc coal-fired power plant on October 27. For his part, Napocor president Rogelio M. Murga said his resignation would not derail the privatization of Napocor. "The fundamentals [of the privatization] are already set. It's just a matter of implementing it. Anyway I will still be here until December," he told reporters.

The government is preparing to sell the generation and transmission assets of Napocor as part of the deregulation of the power industry. For its part, militant group Bagong Alyansang Makabayan urged the government not to let Mr. Murga "off the hook" amid controversies surrounding the power firm. "Both Mr. Murga and the national government have a lot of explaining to do regarding the financial situation of the Napocor. Our problem is that in the past, no official of the Napocor or the national government has been made accountable for any of its financial woes," said Bayan secretary general Renato M. Reyes, Jr.


At the Senate, Energy Secretary Vincent S. Perez Jr. again warned of power crisis starting next year in Mindanao unless more power plants were put up. "In some areas, we are already experiencing a crisis, like in Panay, Cebu and Mindanao. We can avoid declaring a crisis situation, but it is the reality. The energy crisis may begin next year," Mr. Perez told a hearing of the Senate energy committee. Committee chairman Miriam Defensor Santiago urged the Energy chief to recommend to President Gloria Macapagal-Arroyo the declaration of a power crisis, to allow Congress to pass a resolution for the establishment of additional generating capacity. Ms. Santiago attributed the looming power crisis to the anomalous contracts forged between the government and independent power producers, as well as the mounting debts of Napocor. She noted that former President Fidel V. Ramos signed the most number of power supply contracts, which cost $7.3 billion. She added that former President Corazon C. Aquino approved 13 contracts worth $ 2.3 billion, while Ms. Arroyo signed a $450-million contract. Deposed President Joseph E. Estrada did not approve any power supply contract. "President Ramos has been warned by the World Bank that he was signing too many contracts, which will result in high electricity rates, which is now happening," Ms. Santiago said. But Senate Minority Leader Aquilino Q. Pimentel Jr. scored as "bureacratic word play" Mr. Perez's declaration of a looming power crisis.

In a privilege speech, Mr. Pimentel noted that the situation of the energy sector needed thorough study. "The energy or power problem that we now face as a nation requires understanding of its nature and causes through diligent study and the concomitant courage to do what is right regardless of what powerful, vested entities might have to say on the issue," he said. Senators Sergio R. Osmeņa III and Juan Ponce Enrile also took turns in tracing Napocor's problems to Ms. Arroyo's "political decision" to reduce the purchased power adjustment (PPA) to 40 centavos per kilowatt hour from the approved PhP1.25. Mr. Osmeņa also noted that the PPA reduction actually resulted in PhP75 billion in operating losses for Napocor, and not just PhP16 billion as claimed by Mr. Perez.


The opposition senators also accused Messrs. Perez and Murga of "window dressing" Napocor's books, to hide actual losses it incurred due to Ms. Arroyo's order. "We are going deeply into this. You have to show us your computation that Napocor lost only PhP16 billion with the 85-centavo rate reduction, while you were waiting for the approval of the 40-centavo universal charge by the ERC. I think that for 28 months that the reduction was implemented, you had PhP75 billion in losses because of the political decision of the President to be popular," Mr. Osmeņa said. Mr. Enrile said Energy officials should reveal the actual losses incurred by Napocor since 1998. Ms. Santiago also said the energy committee was not convinced of the integrity of the figures presented by the Energy secretary. She added that another public hearing would be set later this month to press officials of the Energy department, Napocor, ERC, National Transmission Corporation, and Power Sector Assets and Liabilities Management to give the true picture of the energy sector. The lawmaker also noted that another public hearing would be conducted to look into the power supply contracts signed by Mr. Ramos. Ms. Santiago earlier delivered a privilege speech alleging that Mr. Ramos violated anti-graft and anti-plunder laws for favoring businessmen at the expense of electricity consumers.

Meanwhile, Senator Panfilo M. Lacson challenged Cabinet members on the Napocor board to give up their perks. "How many board seats are given to Cabinet members? How much do they get in perks and privileges? They should give up the perks," Mr. Lacson said. He noted that the Napocor board included Mr. Perez, Finance Secretary Juanita D. Amatong, and Budget Secretary Emilia T. Boncodin. -- Bernardette S. Sto Domingo and Carina I. Roncesvalles



Unemployment falls to 11.7% in July

Assistant Research Head

Job seekers had more success finding work from April to July this year than last year, resulting in a drop in the unemployment figure for the period. The National Statistics Office (NSO) reported yesterday that the unemployment rate slid to 11.7% in July from 12.6% a year ago, and 13.7% in April. In terms of actual number of workers, those without jobs fell to 4.207 million from 4.399 million a year ago, and from five million in April. Almost half of the total unemployed were 15 to 24 years of age. The labor supply or the labor force (those 15 years old and above whether working or actively seeking jobs) expanded by just 2.8% in July to 35.83 million from 34.85 million a year ago. With the increment in labor supply, the labor force participation rate or the proportion of persons in the labor force to the total population aged 15 and over ended a tad higher at 67.1% from 67% a year ago. Jobs creation rose faster than workers' supply thus the decline in the unemployment rate.

Normally, unemployment figures rise in April when new graduates join or enter the labor force, and tapers off in July after many of these graduates land jobs. The ranks of the employed reached 31.623 million in July, up by 3.8% from 30.451 million a year ago. Specifically, more jobs were created in the agriculture and services sectors during the period while industries reported cuts in their work force. Agricultural workers totaled 11.444 million in July, up by 5.7% from 10.831 million a year ago. Services, though, continued to draw the majority of the country's workers with 15.246 million in July from 14.648 million a year ago. With the onset of the rainy season, job cuts were seen in construction, bringing down the total employed in the industry sector to 4.93 million workers in July from 4.97 million a year ago.

For Banco de Oro economist Jonathan Ravelas, the July figures should provide an additional boost to consumer confidence since new jobs would translate to more spending power. "Ideally, unemployment should be below 10%, but at least we are getting somewhere," he said. For Mr. Ravelas, what will be crucial in the near term is the government's ability to deliver on its promise to create over 1.53 million jobs every year for six years. The economist also believes that the government should work on a scheme that will help solve the mismatch between available jobs and the skills of workers trying to land jobs. In October, Mr. Ravelas said, the unemployment rate could, at best, go down to 10.5%, or at worst, end at 11.5%. "There should be a job season [in the coming months] but what is of concern is the rising crude prices," he said. "If we see continued increase in oil prices, which could translate to higher inflation and interest rates, then unemployment could likely balloon to 12%." In July, the ranks of the underemployed (those who desired more hours of work) declined by 744,000 to 5.6 million from 6.3 million a year ago. Accordingly, the underemployment rate dropped to 17.6% from 20.7% a year ago.

NSO also released yesterday unemployment figures based on standards set by the International Labor Organization (ILO). The ILO follows three criteria in classifying persons as unemployed: he should be without work; currently available for work; and is actively looking for work. Thus, persons not available for work, and those available for work but are not looking for work, are stricken-off the unemployment list and the labor force. In contrast, the Philippine classification includes persons not available for work, as they are seeking jobs. Also, the country adopts a more relaxed definition of the "seeking for work" criterion, such that persons available for work but were not looking for work during the survey period -- for reasons such as belief that no work is available, temporary illness or disability, bad weather, awaiting results of job application -- are considered unemployed. Under the ILO concept, the total labor force actually totaled 34.193 million in July or down by 1.6 million from the Philippine standard. Consequently, the unemployment rate was only 7.5% under the ILO definition, an improvement from 7.8% a year ago. The number of jobless persons, at 2.57 million, was almost half that recorded under the Philippine system accounting for the labor force. A total of 2.587 million people were jobless last year, under the ILO concept.

Meanwhile, Socioeconomic Planning Secretary Romulo L. Neri said the July 2004 Labor Force Survey showed that the economy was getting stronger, despite fiscal woes. He noted that about one million jobs were created between July 2003 and July 2004, and that some 190,000 jobless persons found work during the period. But he also noted the failure of industry to sustain its five-quarter-long job creation trend as it shed 36,000 jobs in July, down from 276,000 jobs created in the same period last year. Former National Economic and Development Authority (NEDA) chief Cielito F. Habito, who is now with the Ateneo de Manila University, said that while the July jobs figure was a welcome change, it should be taken with caution. "In my experience as former NEDA chief, the timing of the survey is crucial. For example, if the survey was taken at the peak of the harvest season, naturally there would be an increase in employment in the agriculture sector," Mr. Habito said. In the July labor survey, the farm sector was the biggest contributor to the rise in employment for the month, as some 613,000 jobs were created in the sector for the period. "We have to take these numbers with a grain of salt. This is something that can be vey volatile," Mr. Habito said. -- with Jennifer A. Ng



Stocks draw interest despite 'crisis' declaration

The President has declared a fiscal crisis, lawmakers are squabbling over how to curb the country's massive debt, and pricey oil is hurting the economy. It must be time to buy Philippine stocks. That seems to be the view of many investors, whose buying has pushed the Manila stock index up around 10% since late August to touch its highest closing levels since April 2000. With a total gain this year of 18.3%, the small market ranks as the third-best performing in Asia, after Vietnam and Sri Lanka. A net $60.5 million flowed into the country's markets in August, up from $18.3 million a year earlier, reflecting renewed foreign interest in the wake of May national elections. The bull's case was made last week in a report by ABN-AMRO bank, which cited relatively cheap valuations and signs that President Gloria Macapagal Arroyo is serious about cutting the yawning budget deficit as reasons to keep buying.

One problem, however, is that the market's small size and a lack of liquidity in even the big companies' shares mean that conditions can quickly get overcrowded. Total market capitalization is less than a 10th of the Hong Kong stock exchange. "It doesn't take much liquidity these days to move the Philippine market. We haven't changed our outlook or holdings there," said Andrew Gillan, a fund manager at Aberdeen Asset Management in Singapore. "Normally across the region, liquidity isn't a constraint for us, but the Philippines is one exception." Monday's turnover of around $18 million, up from lows around $5 million earlier this year, was dwarfed by the Thai market's $620 million.

Still, ABN-AMRO regional investment strategist Ben Rudd said there was a good chance for strong gains given relatively low valuations and the fact that investors have virtually ignored the Philippines for years due to political and economic worries. "Clearly, it does not rank as being particularly liquid compared to most of the other markets, but that partially just reflects how bad a performer it has been and how underheld it has been by foreign investors," he told Reuters from Hong Kong. Manila, which boasted one of Asia's first stock markets in 1927, now has one of the sleepiest, reflecting the economy's steady decline relative to its Asian tiger neighbors. Trading ends each day at lunchtime after only more than two hours of business.

Ironically, Ms. Arroyo's description of the country as being in a fiscal crisis on August 23 seems to have been the catalyst for the market's latest run-up after a knee-jerk fall the following day. Rather than signalling a looming collapse, the alarm spurred hope that lawmakers would pass a series of tax bills proposed by Ms. Arroyo that are seen as crucial to cutting the $3.5-billion annual budget deficit, the biggest drain on investor confidence. Then the government allowed debt-saddled state power firm National Power Corporation to raise its charges by 40%, spurring hope that Ms. Arroyo is willing to take politically unpopular decisions in order to fix the government's finances. "I think part of the reason the market is up is that investors might think that recent comments by the government and the action on, for instance, increasing generation rates are all part and parcel of concrete signs of reform," said Jojo Gonzales, managing director of Philippine Equity Partners. None of the tax bills has been passed yet and opposition to some of them remains fierce, but Mr. Rudd said Ms. Arroyo's statement had signalled a change from years of ignoring the growing deficit. Even so, a bumpy ride is possible given the lack of liquidity and unpredictable politics. Manila failed to take full advantage of last year's global stock rally as an aborted military coup and pre-election political tension raised investors' blood pressure.

A virtuous cycle of a rising peso and falling debt costs feeding through to higher stock prices is the best-case scenario. But the peso remains close to record lows hit against the dollar in March and international ratings agencies are still waiting for concrete signs that the country has turned the corner. "Absolute performance will be much more driven by what happens in terms of the risk premium and that will be much more closely tied to Arroyo's success or lack of success," Mr. Rudd said. But he noted that Philippine stocks in the MSCI global index were priced at around 12 times forecast earnings per share, the lowest price-earnings (PE) ratio since 1998, despite expectations of strong profit growth in 2005 on the back of an improving economy. Still, there are cheaper markets in Asia. Taiwan, Thailand, Indonesia and South Korea trade at PEs of between 6.6 and 9.8, according to Reuters Estimates. Mr. Rudd recommended stocks expected to benefit from the strengthening consumption and property sectors, including dominant telecoms firm Philippine Long Distance Telephone Co., retailer SM Prime Holdings, and property firm AyalaLand Inc. But Aberdeen Asset's Gillan was more wary of the telecoms sector, despite its strong mobile potential, preferring to hold Ayala Land and fastfood chain Jollibee Corp. "I don't think Philippine telcos are particularly attractive on valuation grounds," he said, noting that some regional counterparts had similar PE ratios and higher dividend yields. -- Reuters



New computation to cut debt tallies significantly

The combined debts of the national government and the public sector are expected to drop to 100% of gross domestic product (GDP) from the current 137% once the government will have completed its computation of the outstanding public sector debt using an International Monetary Fund (IMF) formula. This means the PhP5.9-trillion public sector debt recorded in 2003 could go down to PhP4.3 trillion once the government excludes in the computation intra-government holdings of securities and bonds, or government securities held by social security institutions and those held by government sinking funds. The IMF recommendation has made it easier for the Arroyo Administration to meet one of its fiscal policy objectives: trimming down the public sector debt to 90% of GDP in 2009. "This would reduce the total public sector debt as we currently report it," a finance official who requested anonymity said. The official added that the IMF formula will "give us a truer picture of the financial standing of the public sector."

Excluding government securities held by the Social Security System (SSS) and the Government Service Insurance System (GSIS), government sinking funds alone will result into a substantial decrease in the ratio of total public sector debt to GDP of 137.5% to only 111.2% in 2003. The government's debt problem is a major concern not only for government economic managers but also for interested investors and multilateral institutions like the IMF. Economic managers have drawn up administrative and legislative measures aimed at generating PhP100-billion in revenues and savings. The IMF has stressed the need to implement new revenue-generating measures. Among the proposals presented by economic managers are the indexation to inflation of taxes on tobacco products and alcohol drinks, rationalization of fees and charges, a shift to gross income taxation, rationalization of fiscal incentives, franchise tax on telecommunication companies and two step value added tax increase. -- Karen L. Lema



Gov't debt payments expected to rise

The government will have to pay more to service its debts because of rising global interest rates, Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) estimates showed. A BSP document showed that the country's debt service burden will increase by $185 million this year. Based on the government's schedule debt service schedule, it will have to shell out $7.8 billion in 2004 for principal and interest payments. BSP Assistant Governor Diwa C. Guinigundo said this is the likely scenario if the London Interbank Offered Rate (Libor) increases by one percentage point. "But these are just estimates," he said. The Libor, currently at a six-month average of 1.8%, is the rate at which top-quality banks charge each other for loans. As a result, it is often used by banks as a base for calculating the interest rate they charge on other loans. Mr. Guinigundo said an increase in the Libor will also influence movements in the US Federal Reserve's interest rate. He said the US Fed usually tracks the Libor rate.

Global interest rates have been on an upward trend as central banks try to head off inflation in a growing world economy. The Philippines, however, is having difficulty getting a grip on its finances given its fragile fiscal position. A huge chunk or 30% of its budget goes to debt servicing, meaning insufficient funds for social services and infrastructure that would help attract investors. Data from the Department of Finance showed that the National Government's outstanding debt stood at PhP3.355.1 trillion as of end-2003. As of June 2004, outstanding debt climbed to PhP3.536.8 trillion.

Last year, debt service payments of PhP470 billion accounted for 10.9% of the country's gross domestic product. Total external debt, which comprise debts of both the National Government and the private sector, stood at $56.7 billion as of end March-2004. The BSP documents said the central bank will continue to ensure that external debt policy remains focused on debt sustainability. The BSP said short-term debt accounts for only 13.2% of total external debt, while medium- to long-term maturities are well spread out over an average of 17 years.



Tax measures to boost growth in the long run

Some of Malacaņang's proposed tax measures will boost economic growth in the long run, especially if approval leads to increased investor confidence, the National Economic Development Authority (NEDA) said. In a presentation at the Senate, Socioeconomic Planning Secretary Romulo L. Neri discussed the impact of the indexation of sin taxes, an increase in the excise tax on petroleum products and an increase in the value-added tax (VAT) rate on the economy. "In the long run, it is expected that the indexation of sin taxes will increase GDP (gross domestic product) by 0.03 percentage points due to higher personal and government consumption and total investments," Mr. Neri said. "These increases in demand are positive repercussions of higher investments in the short run and much lower long-run interest rates." Mr. Neri said an increase in the prices of tobacco and alcohol products due to higher taxes will have a "negligible" effect on inflation. "This is due to the very small share of tobacco and alcohol products in personal consumption expenditures and the country's basket of consumption goods," he said.

The NEDA chief has pushed for the immediate passage of a bill that will increase taxes on tobacco and alcohol products, saying it will serve as a "litmus test" on the government's resolve to address its fiscal woes. "The indexation of sin taxes is the most important from the government standpoint because it is the one closely monitored by both foreign creditors and credit rating agencies," Mr. Neri earlier said. As for an increase in the excise tax of petroleum products, he said it will result in 0.11% increase in GDP and a 1.13 percentage points increase in inflation due to higher government spending arising from higher revenues. "However, the effect of the measure on inflation is expected to decay over time, resulting in tamer 0.15 percentage points increase in inflation in the long run." The NEDA said higher investor confidence resulting from the passage of a bill on increasing taxes on petroleum products will result in a 1.08 percentage point increase in GDP in the long run. The initial increase in VAT from 10% to 12%, Mr. Neri said, may raise inflation by 0.23 percentage points in the short run but will cause the economy to grow by an average of 1.13 percentage points in the long run, especially if investors gain more confidence. "[W]ithout an increase in investor confidence, the estimate will yield a 0.01 percentage points decline in GDP," Mr. Neri said.


American-owned Philip Morris Philippines Manufacturing, Inc. yesterday expressed opposition to a government plan to index "sin" product excise taxes to inflation, saying this will result in price distortions. Following President Gloria Macapagal Arroyo's meeting yesterday with representatives of the US-ASEAN Business Council, Philip Morris managing director Chris J. Nelson said the government will generate less revenues in the long run since price distortions could affect sales. "We are not in agreement with indexation. We recognize that the government needs additional revenues, but we are looking for [a revenue measure] that would not distort the market or the industries," Mr. Nelson told Palace reporters.

Currently pending since 2001 at the Lower House is a proposal to increase the excise taxes levied on alcohol and tobacco products and index them to inflation. The taxes were last adjusted in 2001 and he government hopes to generate between PhP8-10 billion in additional revenues. Instead of indexation, Philip Morris said taxes on tobacco should be unit specific, which determines the tax rates based on how tobacco products were sold (per 20-stick pack, for example). Under the proposed indexation of sin taxes, taxes on more expensive tobacco and alcohol products will be higher. Under the unit-specific proposal, products with the same packaging weight or unit would be taxed the same. The President ordered the Finance department to study the cigarette firm's proposal. Ms. Arroyo also advised Philip Morris to present a position paper to the House of Representatives and Senate committees hearing the proposed tax measure. -- Jennifer A. Ng and Jeffrey O. Valisno



House bullish on lateral attrition bill

The House of Representatives is confident that a lateral attrition measure will be approved by the Malacaņan presidential palace, this time with a provision on due process included in present drafts. President Gloria Macapagal-Arroyo vetoed a consolidated lateral attrition bill passed by the previous Congress because it did not include a provision on due process. Quezon (southern Luzon) Rep. Danilo A. Suarez, chairman of the House committee on oversight that heard the lateral attrition measure for the first time yesterday, said this gap has been addressed in three bills filed in the House.

The bills -- filed by Mr. Suarez, Ilocos Norte Rep. Imee R. Marcos and Baguio City Rep. Mauricio G. Domogan -- state that:

"The system of lateral attrition shall be applied only after careful and proper review by the Revenue Performance Evaluation Board ... and after compliance with the substantive and procedural due process as required by the civil service laws; Provided ... That an official/officer/employee affected by lateral attrition shall be given the right to appeal with the Civil Service Commission in accordance with civil service laws and rules."

Mr. Suarez noted that lateral attrition is an unorthodox measure to improve tax collection, but a necessity given the huge tax gap, or the difference between potential tax and actual tax collected, and declining tax effort.

The average tax gap on value added tax, individual income tax and corporate income tax between 1998 and 2000 stood at PhP127 billion, he said, while the combined tax efforts of the Bureau of Internal Revenue (BIR) and Bureau of Customs (BoC) decreased to 12.5% in 2003 from 17% in 1997. A lateral attrition law, he said, will institutionalize a system of rewards and penalties to boost revenue collection. It is one of three measures aimed at boosting collections; the other two are the creation of the Court of Tax Appeals and a tax amnesty for delinquent taxpayers. The Court of Tax Appeals, which will hasten the resolution of tax cases, is already established, while a tax amnesty measure has been recently approved at the committee level at the House of Representatives.

A lateral attrition measure, Mr. Suarez said, will address the practice of negotiation between taxpayer and tax assessors -- a practice that has cheated the government of billions of pesos and has "become a way of life." Covered by the lateral attrition measure will be the BIR, BoC, the Land Transportation Office and 33 other agencies that earn PhP100 million or more annually.

Among these agencies are the Securities and Exchange Commission, Air Transportation Office, Land Registration Authority, Commission on Audit, Professional Regulatory Commission, Supreme Court and lower courts, National Printing Office, Energy Regulatory Commission, National Bureau of Investigation, National Telecommunications Commission, Philippine Overseas Employment Administration, Commission on Higher Education, Bureau of Food and Drugs, National Statistics Office, Bureau of Immigration, and the Departments of Energy, Foreign Affairs, Transportation and Communications, Environment and Natural Resources, Education, Health, National Defense, Trade and Industry, Public Works and Highways, Interior and Local Government and Agriculture, among others.

To be affected are employees and officers of these 36 agencies who are involved in the assessment, licensing, examination and collection of taxes, tariffs, charges, duties, fees, penalties and other payments. Penalties or sanctions if these employees and officers fall short of their targets or when there is evidence of graft and corruption include transfer, reassignment and separation. The incentive, when they collect beyond their targets, is 10% of the excess collection, to be shared among employees and officials in the local and national agencies. They will be entitled as well to bonuses, citations, local and foreign scholarships, among others. A Revenue Performance Evaluation Board will review cases of employees who did not attain their targets and decide on the appropriate form of lateral attrition. -- Judy T. Gulane



Innovation key to RP's software dream

The Philippines can become the software capital of the world by 2010 if local software companies are modernized and companies focus on creating "innovative products". Joey Gurango, Webworks OS chief executive officer, said in a recent statement that transforming "coding sweatshops" into modern engineering companies and focusing on the creation of pioneer products will "secure" the Philippines' competitive advantage in the global industry. Webworks OS is a local software engineering company which provides commercial grade software services on the Microsoft.NET development platform. "If we succeed in truly professionalizing the industry and introducing innovative pioneer products, then the Philippines will be able to establish itself as the obvious choice for software development outsourcing. We already have a globally recognized IT workforce -- we just need to put in place today measures that will secure our competitive advantage in the future," Mr. Gurango said.

To modernize engineering firms, he said these companies should meet global standards and raise the quality of locally-produced software. It is important for the local software industry to produce pioneer software products and services that will give them "first-mover" advantage, he said. "There will be a tidal wave building up over the next few years driven by technologies such as SMS/MMS (short message service/multimedia messaging service), Wi-Fi, XML (Extensible Markup Language) Web services, internet search engines, and radio frequency identification or RFID (radio frequency identification). Pioneer products and services will harness the tidal energy of these technologies to fuel phenomenal growth for the companies that provide them," Mr. Gurango said.

The Philippines' global market share for software currently stands at 0.2% while India has a 2.1% market share, a study by IT consulting and research firm XMG Global Inc. showed. The study also forecasts that the Philippines' software and IT services will be close to US$1 billion by yearend 2005, and account for roughly 2% of the Philippines' gross domestic product. The country currently has around 300 software development companies, Webworks said, making the sector the largest in the e-services industry in terms of number. These companies offer a range of services, from system design and analysis, application/middleware/firmware development, testing and quality assurance, software maintenance, and software project management. Mr. Gurango's said that in six years, he expects the Philippine software industry to employ over 250,000 people and contribute about 5% of GDP, with 90% of industry revenues coming from exports. "The demand will always be there as changing times and dynamic markets force many large corporations to constantly update their information systems to remain competitive," he said. "Although offshore outsourcing started with labor-intensive projects such as legacy software maintenance, low-level coding projects, and Y2K bug fixes, the global trend towards e-commerce has opened up opportunities for offshore developers to work on higher-end projects such as Web applications, XML, and software design and architecture work," Mr. Gurango added. " This is what we want to be doing on a significant scale in the near future," he said.



Banana sector optimistic over Aussie findings

DAVAO CITY (Southern Mindanao) -- The region's banana industry is optimistic of a favorable recommendation from Biosecurity Australia (BA) when it issues a new import risk analysis in the coming weeks. The risk analysis report will serve as the basis for an Australian government decision whether to allow the entry of Philippine bananas. The Pilipino Banana Growers and Exporters Association, a group of banana exporters based here, told BusinessWorld local experts have adequately answered issues raised against Philippine bananas. A formal report was submitted by the Bureau of Plant industry and the Department of Agriculture to BA.

The Philippine report, it was underscored, was completed as early as two weeks ago to meet the Australian's government's September 15 deadline for comments before a final draft is released. Although not a huge market compared with Japan and the Middle East, Australia -- estimated to have consumption worth US$55 million -- provides an off-season market for tropical fruits including bananas, local agribusiness exporters said. While the banana export application to Australia was filed as early as four years ago, decision on the request has dragged due to opposition by Australian farmers. The arguments raised are based mainly on alleged Philippine banana pests and diseases that could destroy domestic banana farms.



AMLC monitoring 62 laundering cases

The interagency Anti-Money Laundering Council (AMLC) yesterday assured members of the Philippine Insurance Club that the council is doing everything to have the country delisted from the Financial Action Task Force (FATF) watchlist. AMLC Executive Director Vicente S. Aquino told the insurance industry players during a luncheon meeting yesterday that the council has recorded 62 money-laundering and other related cases so far.

As of August 31, 2004, the council held 31 money laundering cases, five petitions for extension of freeze orders, 23 civil forfeiture cases and three bank inquiries. "We are doing everything without fear or favor, and we have been accused as being 'nasisindak'. This is an unfounded accusation, we are not being cowed by anyone," Mr. Aquino said responding to allegations the AMLC has not been doing its work. "It is not the business of AMLC to reveal what it is doing, to disclose its moves. If the country is in the watchlist, we are also in another list. We occasionally receive threats. While you do not hear what we've been up to, we are doing something," he added.

Last week, Sen. Ramon B. Magsaysay, Jr. called on members of the AMLC to deliver results within six months or risk losing their posts. But Mr. Aquino said the council has already accomplished much noting that it has returned around three-fourths of the PhP1 billion worth of frozen funds to pyramid-scam victims. He added that the AMLC has put up desks for complaints and reports in every government agency. "We [the Philippines] don't deserve to be in the [non-cooperative countries and territories] list anymore. In fact we have been commended by different countries for our assistance. There are 59 international requests for assistance including jurisdictions such as the United States, United Kingdom, Switzerland, Taiwan, Japan, Canada, Hong Kong," he said. He also likened the AMLC to the Finland task force where analyses along with the proper prosecution processes are combined to combat dirty money transactions. He said the council had also passed 40 resolutions directing all covered institutions to report suspicious transactions and assets. It has also asked the Supreme Court to come up with anti-money laundering courts. "We are working. Just give us time to pursue our database system to track millions of potential and suspicious movements," Mr. Aquino said. He also challenged the insurance industry to comply with the know-your-customer policy which was questioned for some stringent measures.

The policy requires companies to identify and monitor their clients with purchases even below the threshold of PhP500,000. Some companies sell even below PhP20 worth of insurance products. "The law is clear that everyone should comply. As for exceptions, you can communicate these to us," Mr. Aquino added. Congress passed the Anti-Money Laundering Act or Republic Act 9160 on October 17, 2001 after the Paris-based FATF threatened to impose sanctions on the country if it fails to enact measures against dirty money. The task force is the anti-money laundering arm of the Organization for Economic Cooperation and Development. -- Ira May Joyce P. Pedrasa



Montinola to head BPI next year


With over 25 years of distinguished service to Bank of the Philippine Islands (BPI), Xavier P. Loinaz is relinquishing his post as president of the country's second largest bank. At its board meeting yesterday, the bank's board of directors elected Aurelio Montinola III to succeed Mr. Loinaz as president effective Jan. 1. "This movement is in line with traditional retirement practices in BPI and forms part of the normal succession process," the bank said. In order to ensure a high level of continuity, Mr. Loinaz will continue to serve as a director and member of the executive committee. Under his leadership, BPI has consistently been named as the best bank in the Philippines for the last six consecutive years by leading financial publications like Euromoney, Finance Asia and Global Finance. "BPI continues to be the largest bank in the country measured in terms of earnings and market capitalization. It is also presently the undisputed leader in electronic banking as well as in corporate and consumer banking," the bank said.

Mr. Montinola brings over 20 solid years of experience to the Ayala-led bank. He was the president of thrift bank subsidiary BPI Family Bank. Last May, he was elected in the commercial bank's board as senior executive vice-president and chief operating officer. Jaime Zobel de Ayala stepped down as chairman and director of BPI after the bank's annual stockholders' meeting last March 25 "in line with his desire to pursue other interests which require his travels outside of the country for considerable periods of time." Mr. Zobel, who turned 70 years old in July, has served as director of BPI for 24 years and as chairman for 19 years. Backed by higher revenues, the bank's net earnings rose nearly 35% to PhP3.5 billion as of June from PhP2.6 billion a year ago. The Ayala-led bank is the country's second largest lender with a total loan portfolio of PhP192.41 billion as of the second quarter.



Bank lending up 3.6% in July

The country's banks lent out more loans to various sectors in July compared to the same month last year, the Bangko Sentral ng Pilipinas reported yesterday. Data showed that commercial banks' outstanding loans in July went up by 3.6% to PhP1.486 trillion from PhP1.434 trillion in 2003. Based on the report, the manufacturing and services sectors remain the major borrowers, while agricultural and fishing, social and service sectors also accounted for the increase in total loans for the period. Other sectors also showed improvement in lending such as retail trade, electricity, gas and water. Transportation, storage and communication also helped boost lending expansion. Banks' lending to the manufacturing sector was 26.5% of total loans, real estate sector made up 25.6% and commercial services accounted for 14.8%.

The wholesale and retail sectors took 14.3% of the July loans while those for the agriculture, fisheries and forestry sectors represented 5.8%. Electricity, gas and water industries accounted for 5% of the total loans. Loans to other industries such as real estate and business services remain sluggish. The central bank, however, is confident that lending will improve toward the last three months of the year as domestic demand strengthens. Bangko Sentral officials have said they will try to hold off any rate increases in key policy rates to support credit activity in the country and help spur economic growth. -- Iris Cecilia C. Gonzales



MRT3 consortium loses exclusive right to bid for rail extension work


The Metro Rail Transit Corp. (MRTC) has lost the exclusive right to bid for the extension of the Metro Rail Transit Line 3 (MRT3) as the Transportation and Communications department has decided to open the bidding to the public. Transportation Secretary Leandro Mendoza said the documentation would be completed and the bidding may be finalized within the year. The construction is expected to start by the first quarter of 2005. "We are now preparing the bidding documents. It will be an open bidding. There will be no more Swiss challenge," Mr. Mendoza told reporters yesterday.

In a Swiss challenge, other parties would be invited to bid for the project. The MRTC, being the initial contractor of the MRT3, will have the right to match the price of the best public bidder. The Sobrepeņa-led MRTC earlier asked the government to speed up the decision on the extension of MRT3. It also argued that under its initial contract with the government, the MRTC will build the extension of the MRT3 from North Avenue in Quezon City to Monumento in Caloocan within 18 months after the first phase of the project was completed. The extension was stalled for four years.


"There were a lot of legal issues. The Department of Justice said the contract is not valid," Mr. Mendoza said. He added that the MRTC has already agreed to the public bidding. It will be welcome to submit its bid. The Justice department had opined the firm's existing contract doesn't cover the extension work because it is an entirely new project. The MRT3 carries a maximum of 400,000 passengers daily in 13 stations from Taft Avenue in Pasay City to North Avenue in Quezon City. It has 73 coaches. The additional three stations in Muņoz, Quezon City, and Balintawak and Monumento in Caloocan City are expected to increase ridership to 750,000 everyday. MRT3 General Manager Roberto Lastimoso earlier said the expansion will result in higher ticket sales of about PhP180 million a month from the current PhP120 million. The two-year construction will cost an estimated $198 million. With the extension, MRT3 is expected to acquire 48 new coaches, with each car costing roughly $1.2 million.



UCPB, Sta. Lucia Realty and private landowner tie up on residential project


United Coconut Planters Bank (UCPB), Sta. Lucia Realty Development, Inc. and a private landowner have agreed to jointly develop a 12.25-hectare property in Tagaytay City worth some PhP108 million into a middle-income residential subdivision. The tie-up is the first of several joint ventures that the bank is working on to speed up the disposal of its idle assets or real estate and other properties owned or acquired (ROPOA). "We see excellent prospects for this joint venture project given the huge unfilled demand for housing in the middle-income market segment," UCPB Vice-President Christine Y. Carandang said.

Under the agreement, UCPB and the Lugtu family, represented by Ruben Lugtu, Jr. and Ruben Lugtu Sr., will put up the land, while Sta. Lucia will shoulder the development cost over four years. UCPB owns 8.08 hectares of the property, while the Lugtus own the remaining 4.17 hectares. The family owns finance company Asialink Finance Corp. A source said the cost is yet to be finalized as plans are still being developed. The residential subdivision project will target middle-income families, primarily overseas Filipino workers, mid-level executives and retirees in the National Capital Region and Region 3.

In its published statement of condition, UCPB's bad loan ratio hit 33% of its total loan portfolio as of June 23. Nonperforming loans -- or loans that are at least 90 days past due -- amounted to PhP18.75 billion, while ROPOAs hit PhP21.96 billion. Ms. Carandang, who heads the bank's asset management and disposition division, said UCPB is also in advanced talks with another property developer to develop bank-acquired assets in Metro Manila. "Joint venture with other private investors is just one of the modes of asset disposition in UCPB's idle asset reduction program. The bank has been very successful in disposing its ROPOA through public auctions and direct retail sales," she said. UCPB, the country's 12th largest bank in terms of assets, had sold PhP1.4 billion worth of idle assets including commercial and residential properties through public auction and retail sales. UCPB plans to conduct two more public auctions before the year ends and expects to sell PhP500 million more acquired properties through the auctions.



ICT Group opens PhP250-M call center in Ortigas


Pennsylvania-based outsourcing firm ICT Group yesterday opened a second call center at the Ortigas business district, expanding its capacity to 1,600 seats to service growing demand for customer services among US Fortune 100 companies. John J. Brennan, chairman of the Nasdaq-listed firm, said this brought total investments to the Philippines at about $10 million. The new contact center at the Union Bank building has 850 seats. The additional investment amounts to about PhP250 million, said Karen V. Batungbacal, president of ICT Asia-Pacific. ICT Group also said it planned to expand next year and invest in a smaller contact center preferably outside Metro Manila. Aside from Luzon, sites being considered for the third, 500-seat call center include Panay and Iloilo, Ms. Batungbacal said. Officials said they expected the total work force to reach 5,000 in 2005.

ICT Group opened its first Philippine call center, which has a capacity of 750 seats, at Makati's RCBC building in May 2003 -- one of the company's major offshore expansions. It now has 10 clients in 16 sales and services programs from only three last year. Ms. Batungbacal said Philippine operations serve mostly North American financial services clients such as credit card and mortgage companies. Agents also handle technical support for consumer electronics. Volume is expected to be 50% outbound telesales and 50% inbound customer care, she added.

Outside the US and Canada, ICT Group already has operations in Europe, Australia, Mexico, and the Caribbean, employing over 11,000 employees. The company has done work for the likes of Wells-Fargo, Verizon, and Pfizer. With the expansion program, about 15% of total company production is expected to come from the Philippines, the company said. More than the cost advantage, Ms. Batungbacal said the ICT Group chose to invest in the country because of the highly skilled work force. "The Philippine accent is more acceptable to the North American client base," she said. Mr. Brennan said the Philippines is $10 cheaper per hour than the US, and $20 cheaper per hour than the United Kingdom.

A call center operation in India is 50 cents cheaper per hour than the Philippines, but India's edge is fast disappearing because of the rupee's appreciation versus the dollar, he said. "Clearly, among our many clients, the Philippines has been a preferred destination for voice support services. We have found the Filipino work force to be extremely conscientious, capable, and talented in their provisioning of customer management services, as well as being career-driven, responsible, and professional," the ICT Group chief said.



4 electric utilities meted penalties by ERC

The Energy Regulatory Commission (ERC) penalized four electric distribution utilities, including the Manila Electric Co. (Meralco), for breaking various regulatory rules. Meralco was charged for its failure to obtain the ERC's approval to sell properties. The commission fined Ibaan Electric Engineering Corp. in Ibaan, Batangas, for its failure to provide adequate safeguards and comply with safety standards as required by its certificate of public convenience and necessity clearance and a resolution, which could have averted an accident during a typhoon in 2003. Mactan Electric Co. in Cebu and Bauan Electric and Light System, owned by the local government of Bauan, Batangas, were penalized for the late submission of required annual reports, which serve as statistical basis for ERC in formulating regulatory policies.

A total of PhP263,750.00 is expected to be paid by the four distribution firms to the national treasury through the ERC. Compliance with pertinent laws, orders, rules and regulations promulgated by the ERC is continuously monitored by the commission's investigation and enforcement division of its regulatory sperations service, ERC Chairman Rodolfo B. Albano, Jr. said. Non-compliance will mean penalty in the amount prescribed corresponding to the violation and in some instances, revocation of the distribution utility's certificate of public convenience and necessity or both. Awaiting final resolution of cases for various regulatory infractions are 15 other distributors. If found guilty they would be required to pay some PhP2 million in fines. -- Bernardette S. Sto. Domingo



BSP won't stand in way of National Steel deal


The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) will sign a crucial document necessary to close the sale of National Steel Corp. to an Indian-owned company if all parties finally execute the transaction, an official yesterday said. The firm's creditor banks and its winning bidder Global Infrastructure Holdings Ltd. have failed to seal the PhP13.25-billion transaction as two pre-closing documents have yet to be signed. One of the supposed pre-closing documents is a certificate of eligibility from the BSP that the deal has complied with the Special Purpose Vehicle Law. The other is an agreement between secured creditors and state-owned National Power Corp. on how outstanding liabilities to the power firm would be paid.

BSP Assistant Governor Nestor A. Espenilla, Jr., however, said the central bank is not the reason for the apparent impasse in the transaction as it is ready to sign the deal so long as concerned parties meet the requirements. He said the BSP is only waiting until the concerned parties move and execute the sale. "They have to execute the transaction," he said yesterday. The BSP official said the Bangko Sentral has already given its prior approval to the deal. "The transaction is considered an eligible sale under the law. It is just up to all parties to execute the transaction," he said yesterday. He said once the transaction is ready and the sale is finalized, BSP would then sign the crucial document, that would make the sale eligible for incentives under the SPV law that include hefty tax discounts.

Aside from the "pre-closing" agreements, concerned parties also have to sign two final documents. These are an omnibus agreement that will secure all payments to be made by Global, and a sharing agreement that will outline how proceeds of the sale will be apportioned among the creditor banks. Another BSP official said in a separate interview the large amount of money involved in the transaction has delayed the sale as some creditor banks want to ensure they will recover the debts owed to them by the steel firm. National Steel's biggest creditor is Philippine National Bank, with PhP5.639 billion. The second biggest creditor is Credit Agricole Indosuez with PhP1.687 billion.



Bourse suspends trading of House of Investments

The Philippine Stock Exchange (PSE) will suspend today the trading of shares of House of Investments, Inc. pending the approval of its capital restructuring. The stock exchange said in a disclosure the suspension will be lifted after two trading days from the release of a circular informing the trading participants of the approval of the Securities and Exchange Commission (SEC) to cut its authorized capital stock. Maria Isabel T. Garcia, head of the PSE listings department, said in the statement that there will only be a change in the par value House of Investments' common shares to PhP1.50 from PhP2. She said there will be no changes in the number of outstanding and listed shares upon the lifting of the trading suspension.

After several years of losses, House of Investments is pooling its resources to focus on its core investments. The holdings company made a turnaround in 2003, posting PhP21.76 million in net income from PhP71.01 million in losses the previous year as most of its investments turned profitable. The turnaround was also attributed to the robust income growth from car dealership operations. Perry Y. Uy, executive vice-president, said during the company's annual stockholders' meeting in July, the firm will evaluate opportunities that come along. -- Roulee Jane F. Calayag



Senate probe sought on terms of Masinloc power plant sale

Opposition Senator Sergio R. Osmeņa III yesterday called for a Senate inquiry on a provision in the bidding guidelines for the Masinloc power plant, allowing local firms to match the best bid offered by foreign bidders. During a Senate hearing on energy yesterday, Mr. Osmeņa lashed out at the Power Sector Assets and Liabilities Management Corp., (PSALM), saying the right-to-match policy will scare investors away. "Why did you put something in the terms of reference that the law never intended to happen? If you will push through with this, no one will invest in Masinloc," he told PSALM President Raphael P. M. Lotilla. Mr. Osmeņa also requested for copies of the terms of reference and bidding documents for the sale of Masinloc. He said the Senate should investigate the matter. Mr. Lotilla said the issue remains a "gray area" that may be reviewed or modified.

Masinloc is the first major power plant to be auctioned off by the government as part of its privatization efforts. It will be bidded out on Oct. 27. It is among the 28 power plants of state-owned National Power Corp. (Napocor) to be auctioned from October to April 2006 in a bid to solve the budget deficit and avert a looming power crisis. PSALM was tasked to oversee the sale of Napocor's assets. Foreign firms who participated in a pre-bidding conference for Masinloc early this month, had warned the right-to-match provision could derail efforts to sell power assets. Among the 18 firms who attended the pre-bidding were Mirant Philippines, Inc., Korean Electric Power Co. Philippines, Japanese firm Marubeni Corp., Trans-Asia Power Corp., First Gas Power Corp., and Aboitiz Power Corp. "Some foreign companies questioned the right-to-match provision. This might derail the privatization efforts of the government. We need to have a level playing field," an industry source earlier said. Under the assailed provision, if a foreign company presents the best bid and a local firm matches its bid, the contract would be awarded to the local firm. -- Bernardette S. Sto. Domingo



Stocks down on more profit-taking


Profit-taking continued to weigh down on local share prices yesterday. Coming from a spectacular nine-day rally, the stock market went on a consolidation mode since Tuesday. Dealers said the technical correction will prevail until tomorrow to allow the market to stabilize above the 1,700 level. "We see the correction continuing through Friday. There will still be profit-taking," said Dianne Sy, research associate at Unicapital Securities, Inc.


Unless investors see incentives that will spur aggressive buying, the market is expected to linger in negative territory. The government's belt-tightening measures may prod foreign fund managers to continue upgrading their portfolio of Philippine stocks, some traders said. "Trading volumes in the past days were huge, driven mostly by foreign traders. We will see results in a few days if they, the major movers [of the stock market], will keep the momentum," said Ms. Sy. Foreign net buying was consistently high in the past nine trading sessions until it reverted to foreign net selling on Tuesday. Although there were talks of a fiscal crisis that time, foreign investors stuck to the Philippine market, shoring up their investments significantly. Expectations for the market remain relatively the same, said Ms. Sy. "The market will be consolidating," she said, noting initial resistance at 1,740 and the next at 1,760. She sees first support at 1,680 and the next at 1,650.


The Philippine Stock Exchange composite index (Phisix) closed lower. It dipped 11.37 or 0.66% to 1,706.08. The rest of the indices, except for the all shares and property, moved in the same direction as the Phisix. Commercial-industrial dipped 18.61 to 2,724.09. Banks and financial services dropped 3.96 to 485.4. Mining also slid, down 3.66 to 1,826.47. Oil dropped 0.03 to 1.61. However, property rose 0.86 to 573.14. The all shares index remained strong, taking in 1.59 at 1,072.69. Trades further weakened at 2,639. Even the trading volume was not spared, as it dropped to to 908.8 million shares valued at PhP528.5 million. But number of advancers and decliners were equal at 33 each. Issues that were unchanged were greater at 44.


The market's favor continued to rest on Ayala stocks. Although Globe Telecom, Inc., Ayala's telecommunications arm, slid to the seventh slot after being the most traded stock in recent days, its replacement in the lead position was a sister company. Ayala Land, Inc. dominated trading although it was unchanged at PhP6.10. It cornered 4.24% of the market for PhP22.4 million. Telecommunications giant Philippine Telephone Long Distance Co. (PLDT) was not eased out as the second most actively traded stock although its price was down to PhP1,370. It clung to the spot with 13,000 shares traded for PhP19.2 million. PLDT's sister company Metro Pacific Corp. advanced to the third position, up at PhP0.53. Other top traded stocks were Union Cement Corp., "B" shares of Manila Electric Co. (Meralco), Ayala's banking subsidiary Bank of the Philippine Islands, DMCI Holdings, Inc., Ayala Corp. and Jollibee Foods Corp.


As technical correction rules the market, investors are keenly sifting developments in the government and business circles. A plan by the Department of Finance to push for limited exemptions to the value-added tax (VAT) may gain some support from investors although this may not sit well with the rest. In line with measures aimed at raising additional revenues for the government, Finance Secretary Juanita D. Amatong said the government is drafting a bill that will enumerate exemptions that will be dropped. The Finance chief said the government could not collect more VAT because of those exemptions. The approval of this proposal would help government reduce the country's ballooning debts and manage its resources efficiently. As of end-2003, the combined debts of the national government and the public sector totalled PhP5.9 trillion.


San Miguel Corp. did not make it to the list of the top 20 most actively traded stocks. The food and beverage giant said in a statement on Tuesday that it expects to save $300 million annually once it starts sourcing its raw material requirements from local farmers. Importing raw materials from the United States, Argentina and India for its feeds, liquor, and soft drinks businesses costs San Miguel Corp. "millions of dollars every year." In what could be seen as a boost to the government's campaign to control spending, San Miguel Chairman Eduardo Cojuangco, Jr. said the new sourcing program will help farmers and the government in terms of dollar savings. Mr. Cojuangco enjoined other companies to follow its lead to support the government in its drive to rein in the fiscal deficit.


Listed holding firm Alliance Global Group Inc., meanwhile, will be concentrating on its McKinley Hill residential project in Fort Bonifacio. The firm owned by Filipino-Chinese George T. Yang expects to turn in revenues from the project by the second half of the year. The company rolled out the first phase of its project, the McKinley Hill Village, a high-end residential subdivision last May. While it concentrates on this venture, Mr. Yang said the firm will strive at becoming a key player in industries with dynamic growth curves while maintaining its other business interests.